You are on page 1of 310

Palay, Inc. vs. Clave Facts: - Albert Onstott as President of Palay, Inc.

, executed a contract to sell a parcel of land located in Crestview Heights Subdivision in Antipolo, Rizal in favor of Nazario Dumpit. - The contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month without need of notice and forfeiture of installments paid. - Nazario Dumpit paid the downpayment and several installments but defaulted later however. - Almost 6 years later, Dumpit wrote the petitioner offering to update all his overdue accounts with interest and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. - Petitioner replied informing Dumpit that his contract to sell had long been rescinded pursuant to the automatic extrajudicial rescission provision of the contract and that the lot had already been resold. - Thereafter, Dumpit filed a complaint with the national Housing Authority questioning the validity of the rescission and for reconveyance. - National Housing Authority found the rescission void in the absence of either judicial or notarial demand and ordered petitioner and Albert Onstott, in his capacity as the President of corporation to jointly and severally be liable for refund. - On appeal to the Office of the President, Presidential Executive Assistant Jacobo Clave, respondent, affirmed the resolution of NHA. - Hence, this petititon. ISSUE: 1. Whether or not the contract was validly rescinded? NO. 2. Whether or not the president of the corporation can be made jointly and severally liable with the corporation? No. HELD: When a real estate corporation extrajudicially rescinded a contract to sell but failed to fulfill its obligation under the same contract to deliver a substitute lot or refund the purchase price, the president of the corporation cannot be held liable even where he appears to be the controlling stockholder absent sufficient proof that he used the corporation to defraud defaulting lot buyer. Mere ownership by a single stockholder or by another corporation of all or nearly all capital stock of corporation not sufficient ground for disregarding corporate personality. Although it is true that judicial action for rescission of contract to sell is not necessary where contract provides for its revocation and cancellation for violation of any of its

terms and conditions, it shall be with a written notice sent to defaulter informing hi, of the rescission. - No notice was sent to Dumpit. No badges of Fraud was found on the part of Albert Onstott. - He did not use the corporation to defraud private respondent. Cruz vs. Dalisay Facts: - A case was filed in NLRC against Qualitrans Limousine Service, Inc. - Judgment was rendered and an implementing was issued, NLRC directing Qualitrans to reinstate the discharged employees and pay them full backwages. - Upon advice from the counsel for the discharged employees, Quiterio L. Dalisay, the Senior Deputy Sheriff of Manila implementing the writ, attached and/or levied the money deposited at the Philtrust Bank, which belonged to Adelio Cruz, the President of Qualitrans. - Because Cruz was not himself the judgment debtor in the judgment of NLRC and despite that, the writ was enforced against him, he charged Dalisay administratively with malfeasance in office, corrupt practices and serious irregularitites. - Prior to termination of proceedings, Cruz desisted stating that he is no longer interested in prosecuting the cas, there being only a misunderstanding.

Issue: Whether or not the corporate veil can be pierced? No. Held: It is a well-settled doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members. The mere fact that one is a president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate entities. A sheriff who enforced a judgment against the president of corporation when it is directed against the corporation is liable administratively. By choosing to pierce the veil of corporate entity, the sheriff usurped a power that belongs to the court and assumed improvidently that since the complainant is owner and president of the judgment creditor, they are one and the same. Cruz, president of Qualitrans has distinct personality from the corporation. Desistance of complainant does not preclude the taking of disciplinary action against Sheriff. - Being a public officer must at all times be free from appearance of impropriety. - Must be imposed appropriate corrective sanction.

INDOPHIL TExTILE MILL WORKERS UNION-PTGWO, petitioner, vs. CALICA Facts: - Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated. - Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character and has its plants at Barrio Lambakin, Marilao, Bulacan. - Petitioner Indophil and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990. - On November 3, 1987, Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange Commission. - Subsequently, Acrylic applied for registration with the Board of Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer status. - In 1988, Acrylic became operational and hired workers according to its own criteria and standards. - Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed. - In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private respondent Company pursuant to Section 1(c), Article I of the CBA. In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit. - The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct from Acrylic. - The existing impasse led the petitioner and private respondent to enter into a submission agreement on September 6, 1990. The parties jointly requested the public respondent to act as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of the CBA provision. - After the parties submitted their respective position papers and replies, the public respondent Voluntary Arbitrator rendered its award which provides that the proper interpretation and application of Sec. 1, (c), Art. I of the 1987 CBA do (sic) not extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc. - Hence, this petition.

ISSUE: WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN INTERPRETING SECTION 1 (c), ART I OF THE CBA BETWEEN PETITIONER UNION AND RESPONDENT COMPANY. HELD: We find the petition devoid of merit. Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and a certain measure of finality, but this is not a hard and fast rule, it does not preclude judicial review thereof where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our attention. It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico Calica, a professor of the U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found that the existing law and jurisprudence on the matter, supported the private respondent's contentions. Contrary to petitioner's assertion, public respondent cited facts and the law upon which he based the award. Hence, public respondent did not abuse his discretion. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic. Hence, the Acrylic not being an extension or expansion of private respondent, the rankand-file employees working at Acrylic should not be recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of private respondent.

EPG Construction Company vs. CA Facts: - Petitioner EPG Construction Co., Inc. and the University of the Philippines, herein private respondent, entered into a contract for the construction of the UP Law Library Building for the stipulated price of P7,545,000.00. The agreement included a provision on guarantee. - Upon its completion, the building was formally turned over by EPG to the private respondent UP issued a certification of acceptance. - Sometime in July, 1983, the private respondent complained to the petitioner that 6 air-conditioning units on the third floor of the building were not cooling properly.

Held:

After inspection of the equipment. EPG agreed to shoulder the expenses for their repair, including labor and materials. in the amount of P38,000.00. For whatever reason, the repair was never undertaken. UP repeated its complaints to EPG. which again sent its representatives to assess the defects. Finally, it made UP a written offer to repair the system for P194,000.00. UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee provision in their, contract, EPG demurred. UP then contracted with another company, which repaired the defects for P190,000.00. The private respondent subsequently demanded from EPG reimbursement of the said amount plus an equal sum as liquidated damages. When the demand was rejected, UP sued EPG and its president, Emmanuel P. de Guzman, in the Regional Trial Court of Quezon City. De Guzman moved to dismiss the complaint as to him for lack of a cause of action, but the motion was denied. TC and CA favored UP.

The president of a corporation cannot be held solidarily liable with the corporation for a breach of contract in the construction of a library absent evidence of malicious acts by the former since a corporation has a personality separate and distinct from its officers and stockholders. The same conclusion cannot be altered even though the president is the controlling stockholder because mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient ground for disregarding the separate corporate personality. The fact that the president resisted the claims of the client does not demonstrate malice or bad faith to make him personally liable. After trial, judgment was rendered by Judge Antonio P. Solano requiring both defendants jointly and severally to pay the plaintiff P190,000.00 as actual damages. P50,000.00 as liquidated damages, P10,000.00 as attorney's fees, and costs. The petitioners appealed to the Court of Appeals, which sustained the trial court. 1 They then came to this Court to fault the respondent court for not holding that: 1) UP was estopped by its certificate of acceptance from imputing liability to EPG for the defects; 2) the defects were due to force majeure or fortuitous event; and 3) Emmanuel de Guzman has a separate personality from that of EPG Construction Co., Inc. The petitioners argue that by issuing the certificate of acceptance, UP waived the guarantee provision and is now estopped from invoking it. This argument is absurd. All UP certified to was that the building was in good condition at the time it was turned over to it on January 13, 1983. It did not thereby relieve the petitioners of liability for any defect that might arise or be discovered later during the one-year period of the guarantee.

Any other interpretation would make the guarantee provision useless to begin with as it would have automatically become functus officio with the turn-over of the construction. The petitioners bolster their argument by quoting Article 1719 of the Civil Code thus, "Acceptance of the work by the employer relieves the contractor of liability . . ." and stopping there. The Article reads in full as follows: Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless: (1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or (2) The employer expressly reserves his rights against the contractor by reason of the defect. The exceptions were omitted by the petitioners for obvious reasons. The defects complained against were hidden and the employer was not expected to recognize them at the time the work was accepted. Moreover, there was an express reservation by UP of its right to hold the contractor liable for the defects during a period of one year. The petitioners' contention that the defects were caused by force majeure or fortuitous event as a result of the frequent brown-outs in Metro Manila is not meritorious. The Court is not prepared to accept that the recurrent power cut-offs can be classified as force majeure or a fortuitous event. We agree that the real cause of the problem, according to the petitioners' own subcontractor, was poor workmanship, as discovered upon inspection of the cooling system. Among the defects noted were improper interlocking of the entire electrical system in all the six units; wrong specification of the time delay relay, also in all the six units; incorrect wiring connections on the oil pressure switches; improper setting of the Hi and Lo pressure switches; and many missing parts like bolts and screws of panels, and the compressor terminal insulation, and the terminal screws of a circuit breaker. 2 Curiously, it has not been shown that the cooling system in buildings within the same area have been similarly damaged by the power cut-offs. The brown-outs have become an intolerable annoyance, but they cannot excuse all contractual irregularities, including the petitioners' shortcomings. The petitioners also claim that the breakdown of the cooling system was caused by the failure of UP to do maintenance work thereon. We do not see how mere maintenance work could have corrected the above-mentioned defects. At any rate, whether the repairs in the air-conditioning system can be considered mere maintenance work is a factual issue. The resolution thereof by the lower. courts is binding upon this Court in the absence of a clear showing that it comes under the accepted exceptions to the rule. There is no such showing here.

The final point of the petition is that Emmanuel P. de Guzman has a separate legal personality from EPG Construction Co., Inc. and should not be held solidarily liable with it. He stresses that the acts of the company are its own responsibility and there is no reason why any liability arising from such acts should be ascribed to him. Thus: It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 3 The trial court did not explain why Emmanuel de Guzman was held solidarily liable with EPG Construction Co., Inc., and neither did the respondent court when it affirmed the appealed decision. In its Comment on the present petition, UP also did not refute the petitioners' argument and simply passed upon it sub silentio although the matter was squarely raised and discussed in the petition. Notably, when Manuel de Guzman moved to dismiss the complaint as to him, UP said in its opposition to the motion that it was suing him "in his official capacity and not in his personal capacity." His inclusion as President of the company was therefore superfluous, as De Guzman correctly contended, because his acts as such were corporate acts imputable to EPG itself as his principal. It is settled that: A corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. The general manager of a corporation therefore should not be made personally answerable for the payment of the employee's backwages unless he had acted maliciously or in bad faith in terminating the services of the employee. 4 The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect its interests and resisted UP's claims. Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even though De Guzman was its principal officer and controlling stockholder. In sum, we hold that the lower court did not err in holding EPG liable for the repair of the air-conditioning system at its expense pursuant to the guarantee provision in the construction contract with UP. However. Emmanuel de Guzman is not solidarily liable with it, having acted on its behalf within the scope of his authority and without any demonstrated malice or bad faith.

WHEREFORE, the appealed decision is AFFIRMED but with the modification that EPG Construction Co., Inc. shall be solely liable for the damages awarded in favor of the University of the Philippines. It is so ordered.

Boyer-Roxas vs. Court of Appeals Facts: - Eugenia Roxas originally owned the questioned properties in this case which include among others cottages, houses, buildings, swimming pools, tennis court, restaurants, open pavilions inside the Hidden Valley Springs Resort in Laguna. - When Eugenia died, her heirs among whom were Rebecca Boyer-Roxas and Guillermo Roxas decided to form the corporation, Heirs of Eugenia V. Roxas, Inc. with the inherited properties as capital of the corporation. - This was incorporated with the primary purpose of engaging in agriculture to develop the inherited properties. - The Articles of Incorporation however was amended to allow it to engage in the resort business. - Accordingly, the corporation put up a resort known as Hidden Valley Spring Resort where the questioned properties were located. - Eufrocino Roxas, (husband of Eugenia) during his lifetime together with Eribito Roxas ( husband of Rebecca and father of Guillermo) managed the corporation. - Eriberto and Rebecca occupied the staff house as their residence and converted the recreation hall into a residential house with the blessings of Eufrocino, who was then the majority stockholder of the corporation. - The Board of directors did not object to the actions of Eufrocino. - Rebecca and Guillermo were allowed to stay within the questioned properties until the Board of Directors approved a resolution ejecting them. - Despite demand however, they refused to vacate. - Hence, two separate complaints for recovery of possession was filed. - TC affirmed by CA, ordered Rebecca and all persons claiming under her to vacate the premises. - Hence, this petition. Issue: Whether or not the petitioner could be ejected? Yes. Held: Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own. A share of stock only typifies an aliquot part of the corporations property or the right to share in its proceeds to that extent when distributed according to law and equity but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to

the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. A corporation can therefore sue to recover real property being occupied by its former president (who was also a significant stockholder) for it has a juridical personality separate and distinct from its stockholders even though in the past the corporation allowed the president to enjoy the possession of the property. There is nothing irregular in the adoption of the Resolution by the BOD ejecting petitioners for Corporations expansion and improvement program. - Petitioners stay within the questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas. - Eufrocinos action can not bound the corporation forever. The Corrporation may elect to eject petitioners at any time it wishes for the benefit and interest of the respondent corporation.

Asionics Philippines, Inc. vs. NLRC Facts: - Petitioner Asionics was negaged in the business of assembling semi-conductor chips and other electronic product mainly for export. - During negotiations with the duly recognized bargaining agent of its employees, a deadlock ensued and the union decided to file a notice of strike. - Prompted by it, two customers of API-INDALA and CP CLARE THETA to thereupon refrain from sending additional kits or materials for assembly. - As a result, API was forced to suspend operations pursuant to the Labor Code. - Yolanda Boaquina, material control clerk and Juana Gayola, production operator were among the employees asked to take a leave from work. - When the deadlock was resolved, Indala promptly resumed its business with API. - Boaquina was directed to report back since her work pertained to items being ordered by Indala. - Gayola however, had not been recalled. - Inasmuch as its business activity remained critical, API was constrained to implement a company-wide retrenchment based on productivity or performance standards pursuant to the CBA. - Boaquina and Gayola joined Lakas ng Manggagawa sa Pilipinas Labor Union which staged a strike despite pendency of conciliation meetings. - Boaquina and Gayola filed a complaint for illegal dismissal against API and or Frank Yih. - Labor arbiter held API and Yih guilty of illegal dismissal. - NLRC modified this decision by declaring that the two were not guilty of illegal dismissal but Yih was held solidarily and personally liable with API, being its president and majority stockholder to pay Boaquina and Gayola their separation pays.

Hence, this special civil action

Issue: Whether or not frank Yih can be held solidarily and personally liable with the corporation? No. Held: Where there is nothing on record to indicate that the president and majority stockholder of a corporation had acted in bad faith or with malice in carrying out the retrenchment program of the company, the president of can not be held solidarily and personally liable with the corporation Frank Yih can not be held personally liable on account done of his being the President and majority stockholder of the company.

Francisco Motors Corporation vs. court of Appeals Facts: - Gregorio Manuel used to be employed as the Assistant Legal Officer of Francisco Motors Corporation. - His services was solicited by the incorporators, directors and members of petitioner to represent them in the intestate estate proceedings of the late Benita Trinidad. - After the termination of the proceedings however, his services were not paid. - Thereafter, Gregorio and Librada Manuel purchased a jeep body from petitioner. - Petitioner later filed a complaint against the Manuels for failure to pay the balance of the purchase price and cost of the repair of the vehicle. - On the other hand, the Manuels in their answer interposed a counterclaim for unpaid legal services rendered by Gregorio which were not paid by the incorporators, directors and officers of petitioner corporation. - The Trial Court affirmed by CA, ruled in favor of FMC in regard to its claim for money but also allowed the counterclaim of the Manuels. - Hence, this petition. Issue: Whether or not FMC is liable? No. Held: The lawyer of the stockholder of a corporation in an estate case cannot sue the corporation for payment of his attorneys fee, since it is has a separate juridical personality. Doctrine of piercing the corporate veil has no application. Doctrine has been turned upside down in this case.

It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individuals, directors, officers and incorporation concerned. That is an erroneous invocation. o Greg Manuel sought to collect legal fees from the corporation.

Considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. Claim for legal fees against concerned individuals could not properly be directed against the corporation without violating basic principles governing the corporation. Supreme Court reversed the decision insofar as it only held FMC liable for the legal obligation owing to Gregorio Manuel.

Complex Electronics Employees Association vs. NLRC Facts: - Petitioner corporation, engaged in the manufacture of electronic products subcontracts electronic products by accepting job orders from its customers, who send their own materials and condign their equipment to it. - These customers were foreign based companies with different product lines and specifications requiring the employment of workers with specific skills for each product line. - Petitioner corporations rank and file workers were organized into a union known as the COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION. - One of petitioners customers, LITE-ON PHILS. ELECTRONICS, CO., require it to lower its price by 10%, to which COMPLEX did not comply as it was not feasible since they were already incurring losses at the present prices of their products. - Left with no alternative but to close down the operations of LITE-ON, petitioner informed the employees of retrenchment. - The employees however, demanded for a higher separation pay which COMPLEX refused to give. - Petitioner filed a notice of closure but the employees filed a notice of strike. - The laborers vandalized the equipment, went on picketing and threats to lock-out which prompted Lawrence Qua, the President of COMPLEX to direct the pull-out of machinery, equipment and materials and transfer to the premises of IONIC CIRCUIT INC., effected during nighttime and made pursuant to the demands of the customers who were greatly alarmed. - The company totally closed the following day. - A complaint was filed with the Labor Arbiter where IONICS and Lawrence Qua were impleaded.

The Labor arbiter held them jointly and solidarily liable. NLRC excluded IONICS and Qua. Hence, this petitions.

Issue: Whether or not the corporate veil can be pierced? No. Held: When the business operations of the corporation ceased because of losses, labor dispute and its customers transferred their orders for delivery of electronic products to another corporation engaged in the same line of business, the displaced workers of the first corporation cannot apply the doctrine of piercing the corporate veil to enforce their monetary claims against the second corporation simply because the two corporations have the same controlling stockholders, common president, engaged in the same line of business and the latter hired some of the displaced workers ssince it is established that the second corporation was an independent company organized even prior to the labor dispute in the first corporation. The union failed to show that the primary reason for the closure of the establishment was due to the union activities of the employees. There was no lockout. The closure was motivated by the Unions acts or employees but rather by necessity since it can no longer engage in production without the much needed materials, equipment and machinery. Lawrence Qua, as president, cannot be held personally liable. - he manifested no malice or bad faith. - He doesnt have the intention to defraud the employees and the union by transferring them. o Compelled to act upon the instructions of customers who were real owners of the machinery, equipment and materials. The main reason for the cessation was the pulling out of the materials.

Lim vs. Court of Appeals Facts: - Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. - Pastor Lim owned and controlled these corporations during his lifetime. - When Pastor died intestate, hiss surviving spouse, Rufina Lim, duly represented by her nephew George Luy, filed a joint petition for the administration of the estate of Pastor Y. Lim before the RTC of Quezon City. - The real properties owned by the corporations were included in the inventory.

The corporations filed a motion for the lifting of the les pendens and motion for the exclusion of said properties from the estate of the decedent which RTC both granted. Rufina filed a verified amended petition alleging that not only the properties in the possession and registered in the names of the corporations but also the corporations themselves are properly part of the the decedents estate because during his lifetime, pastor organized and wholly owned the five corporations. The probate court denied the motion for exclusion. CA set aside the order of RTC. Hence, this petition.

Issue: Whether or not the questioned properties should be included? No. Held: In as much as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed. Thus, the inclusion in the estate of the deceased stockholder properties ender the name of various corporations was erroneous even though the corporations were owned and controlled by the deceased stockholder during his lifetime. The presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed.

Land Bank of the Philippines vs. CA Facts: - Petitioner LBP extended a series of credit accommodations to ECO management Corporation on various dates. - However, ECO failed to pay the same on the respective maturity dates and instead proposed and submitted to LBP a Plan of Payment wherby it would set up a financing company which would absorb the loan obligations. - LBP rejected it and filed a complaint for sum of money against ECO and Emmanuel C. Onate. - TC affirmed by CA rendered judgment in favor of LBP but dismissed the case with regard to Onate. - Petitioner LBP contends that the personalities of Onate and of ECO should be treated as one since Onate owns the majority of the interest holdings in ECO, the acronym of ECO stands for the initials of Emmanuel C. Onate, Onate controlled ECO by holding two corporate positions (chairman and treasurer) beginning from time of incorporation and continuously thereafter without benefit of election, etc.

Issue: 1. Whether or not corporate veil of ECO should be pierced? No. 2. Whether or not Onate should be held jointly and severally liable of ECO for loans incurred from LBP? No. Held: A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities of the said corporation, and vice versa.This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends subversive to the policy and purpose behind its creation or which could not have been intended by law to which it owes its being. In order to disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of separate corporate personalities. Neither is the fact that the name ECO represents the first three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. The burden is on petitioner LBP to prove that the corporation and its shareholders are in fact using the personality of corporation as a means to perpetuate fraud and or escape a liability and responsibility demanded by law. - The evidence presented by petitioner does not suffice to hold respondent Onate personally liable for debt of ECO.

PNB vs. Ritratto Group, Inc. Facts: - PNB-International Finance Ltd., a subsidiary ccompany of PNB, organized and doing business in Hongkong, extended a letter of credit in favor of Ritratto Group Inc., Ritratto Intl Inc. and Dadasan General Merchandise, secured by real estate mortgages constituted over four parcels of land. - The outstanding obligations were not paid.

PNB, as attorney-in-facts of PNB-IFL with full power and authority to foreclose on the properties mortgaged, notified the 3 corporations of the foreclosure pursuant to the terms of the real estate mortgages. The three corporations filed a complaint for injunction and prayed that PNB be ordered to recomputed the rescheduling of interest to be paid. TC judge issued an order for the issuance of a writ of preliminary injunction and subsequently ruled that since PNB-IFL is wholly owned subsidiary of PNB, then the suit against PNB suffices.

Issue: Whether or not the trial court is correct? No. Held: The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the parent company. The parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

CHINA BANKING CORPORATION, vs DYNE-SEM ELECTRONICS CORPORATION Facts: - On June 19 and 26, 1985, Dynetics, Inc. and Elpidio O. Lim borrowed a total of P8,939,000 from petitioner China Banking Corporation. - The loan was evidenced by six promissory notes. - The borrowers failed to pay when the obligations became due. - Petitioner consequently instituted a complaint for sum of money on June 25, 1987 against them.

Summons was not served on Dynetics, however, because it had already closed down. Lim, on the other hand, filed his answer on December 15, 1987 denying that he promised to pay [the obligations] jointly and severally to [petitioner]. On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against Dynetics was archived. On September 23, 1988, an amended complaint was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be Dynetics as its alter ego. The trial court favored Dyne Sem. Petitioner appealed to CA.

Issue: Whether or not TC was correct? Yes. Held: A corporation could not be made a party defendant to a collection case simply because summons could not be served on the debtor corporation on the mere grounds that the businesses of the two corporations are interrelated and they have common directors absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights. Likewise, respondents acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As the Court of Appeals found, no merger took place between Dynetics and respondent Dyne-Sem. What took place was a sale of the assets of the former to the latter. Merger is legally distinct from a sale of assets. Thus, where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.

RYUICHI YAMAMOTO, vs. NISHINO LEATHER INDUSTRIES, INC. Facts: Petitioner, Ryuichi Yamamoto, a Japanese national, organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents. Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.

Held:

Eventually, Nishino and his brother Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamotos investment therein to, by his claim, 10%, less than 10% according to Nishino. The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII. Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishinos counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter that he could obtain possession of certain corporate properties by way of return for his equity investment. On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamotos admission, part of his investment in the corporation, but he was frustrated by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of Makati a complaint against them for replevin. RTC favored Yamamoto which was reversed by CA. Hence, this petition.

Where the lawyer of the controlling stockholder of the corporation advised another stockholder that he could obtain possession of certain corporate properties by way of return for his equity investment but the lawyer acted without board approval, the advice is not binding on the corporation even though it had the approval of the controlling stockholder. The doctrine of piercing the corporate veil can not be invoked on the sole ground that the presence of other stockholders in the corporation was only for the purpose of complying with the statutory minimum requirements on number of directors.

Delima vs. Gois FACTS: - Petitioner Virgilio Delima filed a case for dismissal against Golden Union aquamarine Corp., Prospero Gois and herein respondent Susan Mercaida Gois before the NLRC. - Labor Arbiter favored him. - Golden failed to appeal and so the decision became final and executory. Likewise, a writ of execution was issued and an Isuzu Jeep was attached, which vehicle was registered in Susan Gois name. - For this reason, Gois filed a third party claim claiming that the attachment was irregular, the vehicle not belonging to Golden but was denied by the Labor arbiter. - She filed an appeal with NLRC and at the same time filed a motion to release the motor vehicle after substituting the same with a cash bond before the NLRC. - L.A. ordered the release of the vehicle but NLRC denied appeal.

MR was also denied and an Entry of Judgment was issued. She filed a petition for certiorari before CA invoking corporate fiction and was granted. Hence, this petition by petitioner.

ISSUE: w/N Susan Gois is liable? HELD: NO! The rule is that obligations incurred by the corporation, acting through its officers and employees are its sole liabilities. Unless they have exceeded their authority, corporate officers are as a general rule, not personally liable for their official acts because a corporation has a personality separate and distinct from its officers, stockholders and members.

Thus, property belonging to a corporation cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former.16 Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner the sum of P115,561.05 and the same was not joint and solidary obligation with Gois, then the latter could not be held personally liable since Golden has a separate and distinct personality of its own. It remains undisputed that the subject vehicle was owned by Gois, hence it should not be attached to answer for the liabilities of the corporation. Unless they have exceeded their authority, corporate officers are, as a general rule, not personally liable for their official acts, because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders and members. No evidence was presented to show that the termination of the petitioner was done with malice or in bad faith for it to hold the corporate officers, such as Gois, solidarily liable with the corporation.

EXCELLENT QUALITY APPAREL, INC., vs. WIN MULTI RICH BUILDERS, INC. Facts: Petitioner Excellent Quality Apparel, Inc. then represented by Max L.F. Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a contract with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ).

Issues:

The duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days. Included in the contract is an arbitration clause. Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange Commission (SEC) on 20 February 1997 with Chua as its President and General Manager. On 26 January 2004, Win filed a complaint for a sum of money against petitioner and Mr. Ying amounting to P8,634,448.20. Petitioner filed an Omnibus Motion claiming that it was neither about to close. It also denied owing anything to Win, as it had already paid all its obligations to it. Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008. In the hearing held, the counsel of Win moved that its name in the case be changed from "Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only then that petitioner apparently became aware of the variance in the name of the plaintiff. In the Reply filed by petitioner, it moved to dismiss the case since Win was not the contractor and neither a party to the contract, thus it cannot institute the case. Petitioner obtained a Certificate of Non-Registration of Corporation/Partnership from the SEC which certified that the latter did not have any records of a "MultiRich Builders, Inc." Moreover, Win in its Rejoinder did not oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997 while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of execution of the contract, Multi-Rich was a registered sole proprietorship and was issued a business permit by the Office of the Mayor of Manila. RTC denied the motion but was reversed by CA. Hence, this petition.

1. does Win have a legal personality to institute the present case; 2. does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration clause; Held: A suit seeking to enforce the contractual rights of a single proprietorship, that is, collection of receivables arising from a construction agreement must be brought in the name of the proprietor himself. Such suit cannot be brought either in the name of a corporation organized by the proprietor in view of the separate personality of a corporation there being no showing that the proprietor assigned the receivables to the corporation, or even in the registered name of the single proprietorship as a sole proprietorship is not vested with any juridical personality to file or defend an action.

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) vs. NLRC FACTS: - These are two consolidated petitions by PEA-PTGWO against NLRC and PNB vs PEA-PTGWO. - Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). o PNEI provided transportation services to the public, and had its bus terminal in Quezon City standing on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris. - The Gonzales family later incurred huge financial losses and so their creditors took over the management of PNEI and Macris. - Few years after, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB. o Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor. - NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. - In 1986, PNEI was among the several companies placed under sequestration by the PCGG. - In 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI. - PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. o A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. o As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. - Eventually, PNEI ceased its operation. - Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions. - Labor Arbiter: o issued the Sixth Alias Writ of Execution commanding the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. o The sheriffs were likewise instructed to proceed against PNB, PNBMadecor and Mega Prime. o In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate on which the former Pantranco Bus Terminal stood which were registered under the name of PNB-Madecor. - Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set.

Having been notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB and likewise filed their Third-Party Claims. o PNB-Madecor anchored its motion on its right as the registered owner of the Pantranco properties, and o Mega Prime as the successor-in-interest. o For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case. In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would answer for such debt. Labor Arbiter declared: 1. that the subject Pantranco properties were owned by PNB-Madecor. a. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. b. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid. 2. PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-Madecor, on the other hand, was denied because it only had an inchoate interest in the properties. On appeal, NLRC affirmed Labor Arbiters disposition and CA affirming NLRC. Hence, this separate petitions by PNB and the former PNEI employees. o Contentions of petitioners: PEA-PTGWO - that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees. PNB insists that the Pantranco properties could no longer be levied upon because the promissory note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn to the latters former employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by PNEI, hence, the execution sale thereof was not validly effected.

ISSUES: 1. w/N PNEI employees can attach the Pantranco properties of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI? NO! HELD: Both petitions must fail. First, the subject property is not owned by the judgment debtor, that is, PNEI

the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI. the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. To be sure, one mans goods shall not be sold for another mans debts.

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. - PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities. o PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; o and that PNB-Madecor was the owner of the Pantranco properties. - these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one. - Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor. A.C. Ransom Labor Union-CCLU v. NLRC: - This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case. - For one, in the said cases, the persons made liable after the companys cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this wise: The burden undoubtedly falls on the petitioners to prove their affirmative allegations. They failed to show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI. The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity.

The Pantranco properties which were the subject of execution sale were owned by Macris and later, the PNB-Madecor. - They were never owned by PNEI or PNB.Following our earlier discussion on the separate personalities of the different corporations involved in the instant case, the only entity which has the right and interest to question the execution sale and the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is the rule that proceedings in court must be instituted by the real party in interest. PNB only has an inchoate right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant case, as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI amounting to more or less P7 million which could be validly pursued by the creditors of the latter. Again, this strengthens the proper parties right to question the validity of the execution sale, definitely not PNB.

FILIPINAS BROADCASTING NETWORK, INC., vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO FACTS: - Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre ("Alegre") were hosts of a radio documentary program called Expose aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas. - In December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Among the hosts remarks complained are: o "greed for money on the part of AMECs administrators"; o "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and o AMEC students who graduate "will be liabilities rather than assets" of the society

Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre. o The complaint further alleged that AMEC is a reputable learning institution. o With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." o AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI, Rima and Alegre on the other hand contended: o that the broadcasts against AMEC were fair and true. o FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." o FBNI likewise filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. TC found FBNI and Alegre liable for libel except Rima holding that Rimas only participation was when he agreed with Alegres expos. CA affirmed the trial courts judgment with modification that Rima is soldarily liable with FBNI and Alegre. Hence, FBNI filed this petition.

ISSUES: I. WHETHER THE BROADCASTS ARE LIBELOUS; ----- YES! II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; ---- YES! III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; --- NO! IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. --- YES! HELD: I. The broadcasts are libelous A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and contempt.

Every defamatory imputation is presumed malicious. o Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the supposed gripes of the students. Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. This plainly shows Rima and Alegres reckless disregard of whether their report was true or not. They cannot invoke neutral reportage because unfounded comments abound in the broadcasts. o Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the accusation.

The privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory statement. AMEC not a public figure. II. AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation untenable! A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum. Nevertheless, AMECs claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.44 Moreover, where the broadcast is libelous per se, the law implies damages. o In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. o However, the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation.

Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper - The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees. IV. FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit. o Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.53 Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code. As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts. Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. o FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. o However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application.

MANILA ELECTRIC COMPANY vs. T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC. FACTS: - T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. o TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). - On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the Metro Manila area. - MERALCO and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, entered into two separate contracts denominated as Agreements for the Sale of Electric Energy wherein: o petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM) with electric power. o Another contract was entered into for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10. - TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease with respondent Ultra Electronics Industries, Inc. for the use of the former's DCIM building for a period of five years or until September 1991. o Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and conditions of the lease contract. - On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM building which were found to be allegedly tampered with and did not register the actual power consumption in the building. - MERALCO informed TEC of the results of the inspection and demanded from the latter the payment representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters. - Since Ultra was in possession of the subject building during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra. - For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply to the DCIM building. - TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but the latter refused to heed the demand. - Hence, TEC filed a complaint before the Energy Regulatory Board (ERB) which immediately ordered the reconnection of the service. - However, prior to the reconnection, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew. - Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly revealed that the electric meters were not registering the correct power consumption.

MERALCO sent a letter demanding payment of representing the differential billing. TEC denied petitioner's allegations and claim. Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued refusal to pay the differential billing. To avert the impending disconnection of electrical service, TEC paid the above amount, under protest. TEC and TPC filed a complaint for damages against petitioner and Ultra before the RTC which rendered a decision in their favor and affirmed by CA. Petitioner now comes before this Court in this petition for review on certiorari.

ISSUES: 1) whether or not TEC tampered with the electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TEC's DCIM building.

HELD: The petition must fail. As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to the said meters.38 In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the right of immediate disconnection. However, recourse to differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44 Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision. We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and reputation.50 As a rule, a

corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.51 But in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage and its causal relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive portion of its decision without stating the basis thereof.

Villa Rey Transit vs. Ferrer Facts: - Jose villarama was an operator of a bus transportation under the business name of Villa Rey Transit pursuant to certificates of public convenience granted him by the Public service Commission. - He sold these certificates of Public Convenience to Pangasinan Transportation Corporation, Inc. with the condition that the seller shall not for a period of 10years from the date of sale apply for any TPU serveice identical or competing with the buyer. - Barely 3 months thereafter, Villa Rey Transit was organized. - Natividad Villarama, wife of Jose was one of the incorporators and also the treasurer of the corporation while the brother and sister-in-law of Jose were among the stockholders. - In less than a month after its registration with SEC, Villa Rey Transit bought 5 certificates of public convenience, 49 buses, tools and equipment from Valentino Fernando. - However, 2 of the 5 certificates of public convenience were levied in favor of Eusebio Ferrer, judgment creditor of Valentin Fernando. - The 2 certificates of public convenience were sold to Ferre as the highest bidder in the public sale conducted. - Thereafter, Ferrer sold the 2 certificates of public convenience to PANTRANCO. - Villa rey transit filed a complaint for the annulment of the sherrifs sale. - PANTRANCO filed a third-party complaint against Jose alleging that Villarama and the corporation are one and the same; hence Villarama and/or the corporation is disqualified from operating the 2 certificates by virtue of their agreement. - TC dismissed and held that Villa Rey Transit is distinct and separate from Jose and that the restriction clause is null and void. - Hence, this appeal. Held:

Where an operator of a bus transportation sold certificates of public convenience under which he was authorized to operate certain number pf buses with a condition that he shall not for a period of 10years from date of the sale apply for any TPU service identical or competing with the buyer, the legal personality of the corporation which he organized and controlled through his wife and brother-in-law whose business competes with the buyer may be disregarded, for clearly the legal fiction was being used to evade the contractual restriction.

A.C. Ransom labor Union-CCLU vs. NLRC Facts: - Petitioner AC Ransom Labor Union filed a case for unfair labor practice against AC Ransom Phil. Corporation and its officers and agents. - While the labor case was pending before the CIR, Rosario industrial Corp. was established by the same officers and stockholders of Ransom. - Rosario engaged in the same line of business as Ransom, produced the same line of products, occupy the same compound, use the same machineries, buildinga, laboratories, bodega and sales and accounting department used by Ransomm. - Thereafter, ransom was found guilty by CIR. - The decision ordering the officers and agents of Ransom to reinstate the laborers concerned with backwages became final and executory. - Ransom filed an application and was granted clearance by Secretary of labor to cease operation and terminate employment on the ground of financial difficulties on account of obligation incurred. - Writs of execution were issued successively against Ransom but to no avail. - The Union filed another motion for writ of execution and garnishment praying that the veil of the corporate fiction be pierced and that not only the President should be held jointly and severally liable with the CIR. Held: Sale of corporate assets to another corporation organized previously by the same officers of the vendor and engaged in the same line of business using the machineries of the vendor in the same factory is an instance where corporate veil should be pierced, vis-vis, claims of laborers for backwages. It is Ransoms clear evasion of payment of its financial obligations is the organization of a run-away corporation. Its organization proved to be a convenience instrument to avoid payment of backwages and reinstatement of 22 workers.

Shoemart, Inc. vs. NLRC Facts: - Moris Industries, Inc.is a private corporation engaged in the manufacture of leather products, e.g., bags, belts, etc. - It had in its employ seventy-three (73) workers, fifty-six (56) of whom are members of a labor organization known as Moris Industries Workers Union. - The Union invited Moris to enter into negotiations for a CBA. - Within 2 days, Moris suddenly closed shop and ceased operations and allegedly on account of business reverses. - The Union filed a complaint for unfair labor practice against Moris. - Shoemart, Inc. was impleaded together with its President Henry Sy on the theory that Shoemart, Inc. and Moris were one and the same juridical entity for the following reasons: o An examination of the incorporation papers of SM aand Moris show that except for Eliza Beth Sy, all other five incorporators and directors of Moris are major stockholders of SM; o SM is the exclusive buyer of all of Moris products; o Both are housed in one building and Moris for many years has been using the payrolls of SM. - The Labor Affirmed by NLRC ruled in favor of the Union and held both Moris and SM equally liable to the Union. - Hence, this petition. Issue: Whether or not Shoemart is liable? Yes. Held: Where the production division that manufactures leather products of a corporation engaged in department store business was organized into a separate corporation but its incorporators and directors except for one are major stockholders of the department store, and the latter is the exclusive buyer of the leather products produced by the separate corporation, with the two corporations housed in the same building and using the same payrolls, their separate juridical personalities may be disregarded. Thus, where the separate corporation was closed, the separation benefits of its affected employees may be claimed from the department store. They cannot be ordered reinstated or though absorbed onto the pool of employees of the department store considering the diversity in skills, experience and orientation between its employees and that of the separate corporation.

Reynoso IV v Court of Appeals GR 116124-25

FACTS: Commercial Credit Corporation (CCC) is a financing and investment firm which decided to organize franchise companies in different parts of the country wherein it shall hold 30% equity. Its employees were designated as resident managers of the franchise companies. Petitioner was designated as resident manager of CCC-Quezon City. CCC created CCC Equity Corporation to evade the restriction implemented by the central bank called the DOSRI Rule. Petitioner earned the ire of his employers because of his unwillingness to comply to the directive and reluctance to resort in illegal practices on the creation of the subsidiary company, CCC-Equity. Eventually, his services were terminated, and criminal and civil cases were filed against him. A case for collection of sum of money and preliminary attachment was filed by CCC-QC against the petitioner alleging that the personal monies it deposited in the funds of the company were embezzled. The case was dismissed but petitioners counterclaim was granted. To secure the judgment obligation, a writ of alias execution was attached to the properties of CCC, which later became General Credit Corporation (GCC). GCC complained that it was not a party to the case and petitioner should direct his claim to CCC-QC and not to it. ISSUE: whether or not GCC and CCC-QC should be held as one corporation in disregarding their separate corporate fiction. HELD: Yes. It is obvious that the use of the same name of the Commercial Credit Corporation was intended to publicly identify it as a component of the CCC group of companies engaged in one and the same business; investment and financing. CCC also had dominant control over CCCQC by designating a resident manager which was placed by a superior authority and a transfer of funds to suit the individual corporate conveniences. These show that CCC-QC was an instrumentality or agency of CCC. It is very obvious that respondent seeks the protective shield of a corporate fiction whose veil the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation of its employees.

Lipat v Pacific Banking Corporation GR 142435

FACTS: Belas Export Trading (BET) was a single proprietorship corporation which was engaged in the manufacture of garments for domestic and foreign consumption. Estilita Lipat, as owner of BET, appointed Teresita Lipat as her attorney-in-fact to obtain loans from Pacific Banking Corporation (Pacific Bank). She also authorized Teresita to mortgage the property she co-owned with her husband as a security for the loan. BET was turned into Belas Export Corporation (BEC). BEC defaulted in payment of the obligation. Pacific Bank foreclosed all the mortgaged properties and sold these to a public auction. Spouses Lipat filed a complaint for the annulment of real estate mortgage and the extrajudicial foreclosure arguing that all the transactions of Teresita were ultra vires acts because these were executed without the required board resolution of the Board of Directors by BEC, and that if it were binding to BEC, the same were the corporations sole obligation, it having a personality distinct and separate from spouses Lipat. ISSUE: whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case. HELD: Yes. Both BET and BEC are one and the same and that Teresita was an officer of both corporations was issued a Special Power of Attorney buttress this contention. The latter is a conduit of and merely succeeded the former.

Times Transportation Company, Inc. v Sotelo GR 163786

FACTS: Times Transport Corporation, Inc. (Times) is a corporation engaged in the business of land transportation. Times Employees Union (TEU) was certified as the exclusive bargaining agent in Times. The latter implemented a retrenchment program which included private respondents. TEU held a strike for the unfair labor practice committed by Times. Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times Certificate of Public Convinience and a number of its bus units by virtue of several deeds of sale. Mencorp was controlled and operated by Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. Respondents files for illegal dismissal, money claims and unfair labor practice against Times and impleaded Mencorp and the Spouses Reynaldo and Virginia Mendoza. The Labor Arbiter held that both Times and Mencorp are liable. ISSUE: whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case. HELD: Yes. In upholding the findings of the Labor Arbiter, the Supreme Court said that the sale of the bus units to a company owned by Rondaris daughter and family members, right in the middle of the labor dispute, is highly suspicious. It is evident that the transactions was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

Apex Mining Co., Inc. v Southeast Mindanao Gold Mining Corp. GR 152613 & 152628

FACTS: CAmilo Banad and his group claimed to have first discovered traces of gold in Mount Diwata, filed a Declaration of Location for six mining claims in the area. Apex Mining Corporation (Apex) entered into operating agreements with Banad and his groups. Marcopper Mining Corporation (MMC) realized that the area encompassed by its mining claims were forest reserve applied for a prospecting permit with the Bureau of Forest Development and filed for Exploration Permit to the Bureau of Mines and Geo-Sciences which later issued as EP133. MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation (SEM); a domestic corportation which is alleged to be a 100% owned subsidiary of MMC. The Court of Appeals ruled that the assignment of EP 133 was valid. It argued that SEM was an agent of MMC, because SEM being 100% subsidiary of MMC, is automatically an agent of MMC, which did not violate the provision of non-transfer and exclusivity of the permit. Petitioners argue that the assignment was a direct violation of the clause in the permit stating it shall be for the exclusive use and benefit of the permittee or his duly authorized agent. It added that while MMC is the permittee, SEM cannot be considered as MMCs duly designated agent as there is no proof on record authorizing SEM to represent MMC. ISSUE: whether or not a 100% subsidiary company has the same corporate identity to its parent company using the doctrine of piercing the veil of corporate fiction. HELD: No. It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. The doctrine of piercing the veil of corporate fiction is in place in order to expose and hold liable a corporation which commits illegal acts. The doctrine cannot be used as a vehicle to commit prohibit acts because these are the ones which the doctrine seeks to prevent. To allow SEM to avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning illegal acts which is what the doctrine precisely seeks to forestall.

General Credit Corporation v Alsons Development and Investment Corporation GR 154975

FACTS: Petitioner GCC created GCC-Equity Corporation to handle its franchise companies. Respondent Alons and its owners, the Alcantara family, sold its shares and assigned its rights from CCC-Cebu and CCC-Davao for P2 million and CCC-Equity issued a promissory note to them. CCC-Equity failed to pay the promissory note because it was no longer funded by GCC and it had no assets to pay. Alons brought an action to collect sum of money against CCC-Equity and impleaded GCC on the ground that CCC-Equity was only a mere business conduit and an instrumentality of GCC. The latter contested that it has a separate and distinct personality from CCC-Equity so the suit should only include CCC-Equity and not GCC. ISSUE: whether or not the suit should also apply to GCC by applying the doctrine of piercing the veil of corporate fiction. HELD: Yes. The corporate veil should be pierced given several circumstances which if taken into consideration would suffice for the doctrines application, such as: the commonality of officers and office address; the creation of CCC-Equity to circumvent the prohibition of the Central Bank or the DOSRI Rule.

Sta. Monica Industrial and Development Corporation v Department of Agrarian Reform Regional Director for Region III

GR 163846 FACTS: Trinidad is the owner of a large parcel of land in Bulacan. De Guzman was the leasehold tenant of Trinadads land by virtue of a leasehold contract denominated as Kasunduan ng Buwisan sa Sakahan. DeGuzman field for the issuance of patent in his name. Petitioner Sta. Monica filed a petition for certiorari arguing that the lands were already sold to them and that there was a denial of due process of law because it was not furnished a notice of coverageunder the Comprehensive Agrarian Reform Program (CARP) law. De Guzman argued that the alleged sale of the landholding is illegal due to the lack of requisite clearance from the DAR, thus the sale in favor of petitioner by Trinidad is inexistent and void ISSUE: whether or not a lien in the title of the land owned by the majority stock owner of a corporation would also bind a corporation by applying the doctrine of piercing the veil of corporate fiction. HELD: Yes. There is a notice sent to Villarama and this shall bind Sta. Monica since the latter is only the alter ego of Trinidad.

Violago v BA Finance Corporation GR158262

FACTS: Avelino Violago, President of Violago Motor Sales Corporation (VMSC) offered to sell his car to his cousin Pedro and wife Florencia. His offer was for the purpose of increasing the sales quota of VMSC. When the spouses was registering the certificate to the LTO Baliwag Branch, they learned that the car was already sold to another cousin, Esmeraldo. The car was not delivered to the spouses, so they did not pay the car finance loan to BA Finance. BA finance filed a case for replevin which prayed for the delivery of the motor vehicle or the payment of the balance. The spouses field a third party complaint against Avelino. The latter contested that he is not a party to the transaction, but VMSC. ISSUE: whether or not the doctrine of piercing the veil of corporate fiction should be applied. HELD: Yes. VMSC is the alter ego of Avelino. The test to determine if a corporation is an alter ego is that: if there is complete dominion; if the control was used to commit fraud; and, if the control was the proximate cause to the injury.

Siain Enterprises, Inc. v Cupertino Realty Corp. GR170782

FACTS: Siain Enterprises, Inc. entered into a loan agreement amounting to P37 million with Cupertino which was evidenced by a Promissory note. The Promissory not e authorized Cupertino to place in escrow for Metrobank to pay Siains loan to DBP. Siain entered again into a second loan agreement withCupertino amending the promissory note to the amount totaling to P197 million. Siain alleged that Cupertino failed to deliver the additional loan worth P160 million. Cupertino said that it had already delivered it to Siain and its demand was only done to abscond a valid obligation. Cupertino applied the first payment only to the 17% per annum interest in contravention to the allegation of Siain that the loan was a non-interest bearing loan. Siain defended that there was a nullity of contract because thereno consideration delivered. Cupertino filed for a collection case saying that there is a consideration for the loan that is the P160 million and it was delivered to Siain and its affiliates. ISSUE: whether or not there was a consideration delivered to Siain and its affiliates by validly applying the doctrine of piercing the veil of corporate fiction. HELD: Yes. Siain cannot avoid payment saying that it did not receive the consideration. The checks and the other evidence of the consideration was named and delivered to Siain Enterprises, Siain Transport, Yuyek Manufacturing, Cua Lelenf and Alberto Lim which are all related to one another and share almost all commonality in business. Thus they are all alter ego and instrumentalities of Siain Enterprises, Inc.

Gonzales v Philippine National Bank 122 SCRA 489

FACTS: The petitioner was an owner of 1 share of Philippine National Bank. He made several request to obtain information on the records of the Bank about several transactions. The president of the bank denied petitioners request. Gonzales filed a mandamus proceeding to compel the bank to give the information arguing that shareholders are entitled to the right of inspection. Thus, the banks refusal is a violation of Act No.1459 of the Corporation Code of the Philippines. The respondent bank assails that petitioner has no good motives for the inquiry and in giving such information would be against its own charter. ISSUE: whether or not the right to inspection under the Corporation Code is applicable to the Philippine National Bank. HELD: No. The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines.

Liban v Richard Gordon 593 SCRA 68

FACTS: During his incumbency as a Senator of the Philippines and as a member of the House of the Senate, Richard Gordon was appointed as the chairman of the Philippine National Red Cross. The petitioners opposed the appointment of Gordon arguing that it violates the constitutional prohibition under Section 13, Article VI thereof which states that senators cannot hold office or be employed under a government owned and controlled corporation. Gordon defended that the PNRC is not a government owned and controlled corporation and volunteer service to it is considered neither as an office or employment. ISSUE: 1. whether the PNRC is a government- owned or controlled corporation; 2. whether Section 13, Article VI of the Philippine Constitution applies to the case of Gordon who is Chairman of the PNRC and at the same time a Member of the Senate. HELD: 1. No. The PNRC is an autonomous corporation separate from the government. The majority of their board of directors are appointed by the private sector. Its funds are solicited by its board of governors from private individuals and private entities. Its members are private individuals regardless of citizenship. A government-owned or controlled corporation must be owned by the government, and in the case of a stock corporation, at least a majority of its capital stock must be owned by the government. In the case of a non-stock corporation, by analogy at least a majority of the members must be government officials holding such membership by appointment or designation by the government. Under this criterion, and as discussed earlier, the government does not own or control PNRC. 2. No. The constitutional prohibition stated in section 13, article VI is not applicable to Gordon since the PNRC is a private corporation. NOTA BENE: Section 16, Article XII of the Constitution prohibits private corporations to be created under a special law, except cooperatives. Hence, the Court pronounced that the PNRC Charter is void for being unconstitutional.

Feliciano v Commission on Audit 464 SCRA 439

FACTS: The Commission on Audit performed an audit to Leyte Metropolitan Water District (LMWD). The Commission sent to LMWD a request to pay the auditing fee. LMWD refused to pay arguing that it cannot be subjected to audit citing ACT No. 198 and additionally it stated that it was not a government owned and controlled corporation. ISSUE: whether or not LMWD is a private or a government owned and controlled corporation. HELD: LMWD is a government owned and controlled corporation. However, the Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens. Thus, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives.

Albert v University Publishing Company, Inc. 12 SCRA 84

FACTS: Jose Aruego, as president of the University Publishing Company, entered into a contract with Mariano Albert for the exclusive right to publish his book. The contract was accepted with the consideration of P30,000.00 to be paid in eight quarterly installments of P3,750.00. The contract also stated that failure to pay for one part of the installment will make the whole obligation due. When the University Publishing failed to pay its second installment, Mariano Albert instituted a case against the publishing company and Jose Aruego. During the pendency of the case, the SEC discovered that there is no corporation registered with it with the name of University Publishing Company, Inc. ISSUE: Whether or not a judgment rendered to a non-existent corporation be enforced against its president. HELD: Yes. The Supreme Court ruled that where a corporation, through its president, entered into a contract with another for the exclusive right to publish his book but the corporation failed to pay the contract price, the judgment rendered against the corporation ,au be enforced against the president who participated all through out the hearings when it turned out that the corporation is not duly registered with the Securities and Exchange Commission. Thus, the non-registration in the SEC, the entity is not considered as a corporation and not even a de facto corporation. The corporation has no personality different from Jose Aruego as its president and the corporation cannot be sued independently.

MISCI-NACUSIP Local Chapter v National Wages and Productivity Commission 269 SCRA 173

FACTS: Monomer Sugar Central Inc. (MSCI) was created by the merger of Asturias Sugar Central, Inc. (ASCI) and tries, Inc. (MTII). MSCI applied for exemption from the coverage of Wage Order No. RO VI-01 issued by the Board on the ground that it is a distressed employer. However, the Petitioners, local union of MSCI, contested the application saying that the documents submitted by the company does not reflect its true and valid financial status and that the paid-up capital would have been higher than P5 million and thus impairment would have been lower than 25% had the pre-organization agreement between ASCI and MTII been complied with. Petitioners argue that the paid-up capital should be P64M rather than P5M thus making it impossible for the corporation to apply for a distressed employer because at P64M, the loss would only be at 5.25% which does not reach the required 25% loss.

ISSUE: Whether or not the paid up capital is P64M or P5M. HELD: Since the paid-up capital is the portion of the capital which has been subscribed and paid, the assets transferred to and the loans extended to a corporation should not be considered in computing the paid-up capital of the corporation. Not all funds or assets received by the corporation can be considered as paid-up capital for this term has a technical signification in Corporation Law. Such must form part of the authorized capital of the corporation, subscribed and then actually paid-up. The same test should also be applied in determining if the paid-up capital of the Corporation has been impaired so as to qualify it for the exemption from the increase in the minimum wages. The paid-up capital stock of MSCI for the period covered by the application for exemption still stood at P5M. The impairment is has incurred reached 271.08% which is beyond the 25% requirement to be an applicant.

Samahan ng Optometrists v Acebedo International Corporation 270 SCRA 298

FACTS: On February 22, 1991, private respondent filed an application with the Office of the Mayor of Candon, Ilocos Sur, for the issuance of a permit for the opening and operation of a branch of the Acebedo Optical in that municipality. The application was opposed by the petitioner Samahan ng Optometrists sa Pilipinas (SOP) which contended that respondent is a juridical entity not qualified to practice optometry. Petitioners argument rest in the principle that as a juridical entity, respondents cannot exercise a profession- the act of employing optometrists. ISSUE: Whether or not respondents are engaged in the business of optometry HELD: No, hiring is incidental to the perform the main purpose of the corporation, which is the selling of eyeglasses. A corporation engaged in the business of selling optical lenses of eyeglasses and which hires optometrists is not engaged in the practice of optometry because the determination of the proper lenses to sell to its clientele entails the employment of optometrists who have been trained precisely for this purpose.

Islamic Directorate of the Philippines v Court of Appeals 272 SCRA 545

FACTS: There were two groups claiming legitimacy of their authority as board of director of ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP). The two groups claiming fro their right as the board of directors were the Carpizo group lead by Engineer Farouk Carpizo and the other is the Abbas group lead by Zorayda Tamano and Fardaussi Abbas. The Securities and Exchange Commission sought to finalize the dispute between the legitimacy of the board of diractor of the two groups in the SEC case 4012. Pending the case in the SEC, the Carpizo group sold the disputed land, with the area of 49, 652 m2 which is supposed to be intended for the construction of a mosque and madasarah, to the Iglesia ni Cristo. In court, the petitioners were not represented thus the sale was voided. ISSUE: Whether or not an action over the ownership of corporate property would continue despite lack of representation from its legitimate board of directors. HELD: A juridical person cannot be considered essentially a formal party to a case where it was not duly represented by its legitimate governing board. It cannot be said that the corporation is represented by a legitimate board in an action involving the validity of the sale of its corporate property when the corporation has two sets of board of directors both claiming to be the legitimate board and the issue on who is the legitimate board is still pending at the time of the sale. Any decision in a court suit does not become final and executory insofar as the corporation is concerned because it was effectively denied its day in court for want of legitimate representation.

International Express Travel & Tours v Court of Appeals 373 SCRA 474

FACTS: Petitioner offered its services to the Philippine Football Federation as travel agency to transport its players to participate in the Southeast Asian Games held in Kuala Lumpur, China and Brisbane. Partial payments were made and additionally , Henry Kahn, paid a part of the balance with his personal money, however, a larger part of the balance were left unpaid. The petitioner filed a claim for sum of money against the federation and impleaded its president. The trial court held that the president is personally liable for the unpaid balance. ISSUE: Whether or not the president of a corporation that has no legal personality is liable for the tickets he purchased.

HELD: The President of a sports association which is registered with the Securities and Exchange Commission but which did not comply with the statutory requirements under related laws to be able to acquire a legal personality is personally liable for the airline tickets he purchased form a travel agency even though it is for the benefit of the athletes who are members of the sports association. Any person acting or purporting to act on behalf of a corporation which has no valid existence becomes personally liable for contract entered into and for other acts performed as such agent.

Republic Planters Bank v Court of Appeals 216 SCRA 738

FACTS: Shozo Yamaguchi and Fermin Canlas were officers of Worldwide Garment Manufacturing Inc. (WGMI). They obtained a loan to petitioner bank. The loan was backed up by 9 promissory notes with a personal liability clause. WGMI changed its name to Pinch Manufacturing Corporation. When the corporation defaulted in payment of its loan, petitioner filed an action for sum of money against the 9 promissory notes. The trial court held that the private respondents were personally liable for the promissory notes. But it held that the corporations liability were extinguished by the change in the name of the corporation. The lower court said that the change of name resulted in the creation of a new corporation. ISSUE: Whether or not the change in the name of the corporation affects the rights and liabilities of the corporation. HELD: No. A change in the name of a corporation does not make it a new corporation and does not affect its properties, rights and liabilities.

Industrial Refractories Corporation v Court of Appeals 390 SCRA 252

FATCS: Refractories Corporation of the Philippines (RCP) is engaged in the business of producing refractory bricks. It registered its name on June 22, 1977. Petitioner was also engaged in the same business as RCP but registered its name on August 23, 1979. Both corporation were supplier of Monolithic Gunning Mix. RCP sued in the Securities and Exchange Commission for the sole user of Refractories as a name against petitioner. Petitioner however argued that the word Refractories is a generic word and should not be used exclusively. The SEC ruled that it was not a generic word and ordered petitioner to drop the word Refractories in its name. ISSUE: Whether or not the RCP has an exclusive right over the name. HELD: Yes. To fall within the prohibition of the law, two requisites must be proven, to wit: (1) that the complainant corporation acquired a prior right over the use of such corporate name; and, (2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law. As regards the first requisite, it has been held that the right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption.29 In this case, respondent RCP was incorporated on October 13, 1976 and since then has been using the corporate name "Refractories Corp. of the Philippines". Meanwhile, petitioner was incorporated on August 23, 1979 originally under the name "Synclaire Manufacturing Corporation". It only started using the name "Industrial Refractories Corp. of the Philippines" when it amended its Articles of Incorporation on August 23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the prior registrant, respondent RCP has acquired the right to use the word "Refractories" as part of its corporate name.

P.C. Javier & Sons, Inc. v Court of Appeals 462 SCRA 36

FACTS: Petitioners obtained an Industrial Guarantee Loan plan against First Summa Savings & Mortgage Bank which was left unpaid. The bank moved for the foreclosure of the mortgaged property. An action for annulment of foreclosure was filed by petitioners to PAIC Savings & Mortgage Bank Inc. which was formerly known as First Summa Savings & Mortgage Bank. The trial court ruled the Summa and PIAC were the same corporation and that petitioner should pay the loan. Petitioners on the other hand justified withholding the payments until they are notified of the change of name of the bank. ISSUE: Whether or not a notification for the change of name of a corporation is necessary for a debtor to continue to pay its loan. HELD: The court cannot impose on a bank that changes its corporate name to notify a debtor of such change absent any law, circular or regulation requiring it. Such act would be judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC or BSP requiring the formal notification of all debtors of banks of any change in corporate name, such notification remains to be a mere internal policy that banks may or may not adopt. Their defense that they should first be formally notified of the change of corporate name of First Summa Savings and Mortgage Bank to PAIC Savings and Mortgage Bank, Inc., before they will continue paying their loan obligations to respondent bank is untenable.

Hyatt Elevators and Escalators Corp. v Gold Star Elevators Phil., Inc. 473 SCRA 705

FACTS: Petitioner corporations principal office is located at 6th floor, Dao I Condominium, Salcedo St., Legaspi Village, Makati City while Respondents principla office is located at 6th floor of Jacinta II Buillding, 64 EDSA, Guadalupe, Makati City. Petitioners charged unfair trade practices against LG Industrial and LG International. Petitioner also impleaded LG Otis and LG USA and respondent corporation because of the termination of the joint venture had resulted in losses amounting to P120 million. Respondents filed a motion to dismiss because of the improper venue. The trial court said that the venue, Mandaluyong City, was correct. However, the Court of Appeals ruled that the venue is incorrect because it should be Makati City. ISSUE: Whether or not the place of principal office is the place of residence in determining the venue of the case. HELD: Yes. The residence of a corporation is the place where the principal office of the corporation is located as stated in the articles of incorporation even though the corporation has closed its office therein and relocated to another place. The requirement to state in the articles the place where the principal office of the corporation is to be located would be rendered nugatory if corporations were to be allowed to simply disregards what is expressly state in their articles of incorporation.

Marissa R Unchuan v Antonio J.P. Lozada 585 SCRA 421

FACTS: Anita Lozada Slaughter ands Penegrina Lozada Saribay sold their land to their nephew, J.P. Lozada. Dr. Antonio Lozada advanced US$ 367, 000 or P10 million for the payment of the sale. Petitioner filed a adverse claim saying that Anita donated her share to her and prayed the deed be declared void because Dr Antonio is a foreigner.Dr. Antonio filed for quieting of title. At the trial, respondents presented a notarized and duly authenticated sworn statement, and a videotape where Anita denied having donated land in favor of Marissa. Dr. Lozada testified that he agreed to advance payment for Antonio in preparation for their plan to form a corporation. The lots are to be eventually infused in the capitalization of Damasa Corporation, where he and Antonio are to have 40% and 60% stake, respectively. Meanwhile, Lourdes G. Vicencio, a witness for respondents confirmed that she had been renting the ground floor of Anitas house since 1983, and tendering rentals to Antonio. ISSUE: Whether or not the transaction violates the constitutional prohibition against foreigners owning lands in the Philippines. HELD: No. In this case, we find nothing to show that the sale between the sisters Lozada and their nephew Antonio violated the public policy prohibiting aliens from owning lands in the Philippines. Even as Dr. Lozada advanced the money for the payment of Antonios share, at no point were the lots registered in Dr. Lozadas name. Nor was it contemplated that the lots be under his control for they are actually to be included as capital of Damasa Corporation. According to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said corporation, respectively. Under Republic Act No. 7042,27 particularly Section 3,28 a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, is considered a Philippine National. As such, the corporation may acquire disposable lands in the Philippines.

Pioneer Surety & Insurance Corporation v Court of Appeals 175 SCRA 668

FACTS: Japan Domestic Airlines (JDA) and Jacob Lim entered into a contract of sale of 2 aircraft DC-3A for US$ 109,000. Petitioner executed a surety bond in favor of JDA on behalf of Lim as principal in the name of Southern Airlines. Border Machinery & Heavy Equipments Corp, Francisco and Modesto Cervantes, Costancio Maglana contributed funds to the for the endeavor and guaranteed pioneer. ISSUE: Whether or not a partnership is formed when funds were invested in a corporation that was not created. HELD: No. Where someone convinced other parties to contribute funds for the formation of a corporation which was never formed, there is no partnership among them, and the latter cannot be held liable to share in the losses of the proposed corporation.

People v Garcia 271 SCRA 621

FACTS: The complainants in this case applied to a recruitment corporation named Ricorn Philippine International Shipping Lines, Inc as seamen, cook, waiter, chambermaid or laundrywoman overseas. The accused in this case represented themselves as president and vicepresident of the corporation. After the complainants sent the required documents for their respective job applications, they returned to the purported main office of the corporation but it turned out that the corporation was not located there any longer and the with further investigation, they found out that Ricorn was not registered in SEC and it was not also licensed in DOLE. During trial, accused Garcia testified that he knew that the group representing Ricorn was not registered ion SEC and DOLE. ISSUE: Whether or not a person representing himself as a corporation can be liable as a general partner. HELD: Yes. The persons who illegally recruited workers for overseas employment by representing themselves to be officer of a corporation which they knew had not been incorporated are liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof.

Lozano v. Delos Santos

Facts: Petitioner Reynaldo M. Lozano alleged that he was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers' Association, Inc. (KAMAJDA) while respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators' and Drivers' Association, Inc. (SAMAJODA); in August 1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private respondent agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles Jeepney Operators' and Drivers' Association, Inc. (UMAJODA); petitioner and private respondent also agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the members of the consolidated association; elections were held on October 29, 1995 and both petitioner and private respondent ran for president; petitioner won; private respondent protested and, alleging fraud, refused to recognize the results of the election; private respondent also refused to abide by their agreement and continued collecting the dues from the members of his association despite several demands to desist. Petitioner was thus constrained to file the complaint to restrain private respondent from collecting the dues and to order him to pay damages. Private respondent moved to dismiss the complaint for lack of jurisdiction, claiming that jurisdiction was lodged with the Securities and Exchange Commission (SEC). Issue: W/N the case is classified as an intra-corporate controversy thus falling within the jurisdiction of the SEC? Held: The SEC has no jurisdiction over the complaint. There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to consolidate their respective jeepney drivers' and operators' associations into a single common association. This unified association was, however, still a proposal. The KAMAJDA and SAMAJODA to which petitioner and private respondent belong are duly registered with the SEC, but these associations are two separate entities. It is between members of separate and distinct associations. Petitioner and private respondent have no intracorporate relation much less do they have an intracorporate dispute. The SEC therefore has no jurisdiction over the complaint. The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties; neither can it be conferred by the acquiescence of the court. Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

Lim Tong Lim v. Philippine Fishing Gear Industries, Inc.

Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated 7 February 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (PFGI). They claimed that they were engaged in a business venture with Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. 400 pieces of floats worth P68,000 were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, PFGI filed a collection suit against Chua, Yao and Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. On 20 September 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. Lim argues, among others, that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Issue: Whether Lim should be held jointly liable with Chua and Yao. Held: In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that PFGI is entitled to be paid for the nets it sold. The only question here is whether Lim should be held jointly liable with Chua and Yao. Lim contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Although technically it is true that Lim did not directly act on behalf of the corporation; however, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel.

International Express Travel and Tour Services, Inc. V. Court of Appeals

Facts: On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president, Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted. IETTSI secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50. On 4 October 1989, IETTSI wrote the Federation, through Kahn a demand letter requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation. Thereafter, no further payments were made despite repeated demands. This prompted IETTSI to file a civil case before the Regional Trial Court of Manila. IETTSI sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. IETTSI sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. Issue: Whether Kahn should be made personally liable for the unpaid obligations of the Philippine Football Federation. Held: Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. The Court cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, IETTSI cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the appellate court to IETTSI. The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract from which he has benefited on the irrelevant ground of defective incorporation. Herein, IETTSI is not trying to escape liability from the contract but rather is the one claiming from the contract.

Sawadjaan v. Court of Appeals

Facts: Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB) when it was created. He rose through the ranks, working his way up from his initial designation as security guard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/ inspector, and eventually, loans analyst. In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the properties offered as collaterals by Compressed Air Machineries and Equipment Corporation (CAMEC) for a credit line of Five Million Pesos. The properties consisted of two parcels of land. On the basis of his Inspection and Appraisal Report, the PAB granted the loan application. In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the properties offered as collaterals by Compressed Air Machineries and Equipment Corporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The properties consisted of two parcels of land. On the basis of his Inspection and Appraisal Report, the PAB granted the loan application. In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989. In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No. 264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were transferred to the AIIBP, and the existing personnel of the PAB were to continue to discharge their functions unless discharged. In the ensuing reorganization, Sawadjaan was among the personnel retained by the AIIBP. When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP, discovered that TCT No. N-130671 was spurious, the property described therein nonexistent, and that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina Pablico. On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to look into the CAMEC transaction, which had cost the bank Six Million Pesos in losses. They found petitioner guilty of conduct prejudicial to the best interest of the service. The board suspended the petitioner, prompting the latter to appeal the decision citing AIIBPs lack of legal standing to sue since it was not able to file its by-laws within the prescribed period. Issue: Whether or not AIIBP has the legal standing to sue despite its inability to file its by-laws within the prescribed period provided for in the Corporation Code? Held: At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party. Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations, details the procedures and remedies that may be availed of before an order of revocation can be issued. There is no showing that such a procedure has been initiated in this case.

Gokongwei v. SEC

Facts: On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. Gokongwei claimed that prior to the questioned amendment, he had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with the corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended by-laws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei. for the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a temporary restraining order be issued, restraining Soriano, et. al. from holding the special stockholders' meeting as scheduled. Issue: Whether the corporation has the power to provide for the (additional) qualifications of its directors. Held: It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees." This must necessarily refer to a qualification in addition to that specified by section

30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director." Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of 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 incorporators. It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification.

Salas v. SEC

Facts: State Investment House, Inc. (formerly State Financing Center, Inc.) entered into a sales agreement with Sipalay Mining whereby the latter sold to the former 200,000,000 common shares of its capital stock in the amount of P2,600,000.00. The sales agreement between Sipalay Mining and State Investment contained the following terms and conditions: 2. That the stockbroker shall not sell more than 1,000,000 shares per buyer, to the extent practicable; 3. In the event you decide to make a public offering [of] additional shares in the future, whether with Sipalay Mining and Exploration Corporation or any other corporation organized by Sipalay Mining Exploration Corporation, you hereby grant us a right of first refusal to undertake the same; 4. The Corporation shall as soon as practicable after the offering period of our shares, apply for listing in the Stock Exchange in accordance with the rules and regulations of the Securities and Exchange Commission. The timing of the date of listing shall be mutually decided by us. 5. That State Financing Center, Inc. shall issue a voting trust in favor of the Board of Directors of Sipalay Mining Exploration Corporation which shall only be good up to the time the sale to the public of said shares has been effected. The 200,000,000 shares of stock of Sipalay Mining, covered by ten certificates of stock, were delivered to State Investment. Subsequently, the restriction on the sale of the shares was modified. On October 19, 1974, the Board of Directors of Sipalay Mining approved the amendment of the sales agreement by allowing sale in blocks of 5,000,000 shares per buyer. On December 22, 1975, State Investment addressed a letter to Sipalay Mining requesting that the latter transfer the 200,000,000 shares to Anselmo Trinidad & Co., Inc. (hereinafter referred to as ATCO), to which it had sold the shares. Sipalay Mining complied with this request. During the time that ATCO held the shares, it voted them in the stockholders' meetings of Sipalay Mining. On July 17, 1978, or some two and a half years later, ATCO in turn sold 198,500,000 of the shares to respondent VULCAN. Sipalay Mining was requested by ATCO to transfer the 198,500,000 shares to the name of VULCAN. By resolution of the Board of Directors of Sipalay Mining, its President was directed to sign the certificate of stock that would affect the transfer. Eight days prior to the scheduled annual stockholders' meeting of Sipalay Mining on July 18,1979, petitioners filed before the SEC a petition to nullify the sale of the shares to VULCAN, with a prayer for the issuance of a writ of preliminary injunction to enjoin VULCAN from voting the shares. Issue: Whether the transferee of the shares can be deprived of his right to vote due to the fact that the transferor has violated a condition in the sales agreement it entered when it acquired the subject shares? Held: the sale of the shares of stock had long been perfected and is presumed valid until declared otherwise. As against this presumption, petitioners' prayer for the issuance of a writ of preliminary injunction cannot prevail as the issue of the validity of the sale of the shares is still to be resolved by the SEC. Further, the directive of the Board of Directors of Sipalay Mining to its President to sign the stock certificate that would evidence the ownership of the shares by

VULCAN militates against a finding that petitioners have established a case for injunction. Hence, it cannot be said that petitioners have established their right to the relief demanded, the whole or part of which consists in restraining the SEC of the act complained of, as would entitle them to the issuance of a writ of preliminary injunction. It is a well known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by courts.

Pena v. Court of Appeals

Facts: PAMBUSCO, original owners of the lots in question mortgaged the same to the DBP. This mortgage was foreclosed. In the foreclosure sale the said properties were awarded to Rosita Pea as highest bidder. On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones "to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party . Consequently, Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez. The latter then redeemed the said properties. A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue. On September 8, 1975, Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question. Meanwhile, defendant Pea, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that "the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;" hence she "will now refuse to receive the redemption money . On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 "for the use and occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga," and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit. Despite the foregoing, defendant-appellee Pea remained in possession of the lots in question hence, the spouses Yap were prompted to file the instant case. Issue: Whether or not the CA erred in holding that the resolution adopted by the board of PAMBUSCO is void or at the very least legally defective. Held: The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply. Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO.Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to adjourn.

Visayan v. NLRC

Facts: Private respondent Fujiyama Hotel & Restaurant, Inc. was formally organized in April, 1978 with Aquilino Rivera holding a majority interest in the corporation. Upon organization in 1978, respondent corporation immediately opened a Japanese establishment, known as Fujiyama Hotel & Restaurant, located at 1413 M. Adriatico St., Ermita, Manila. In order to fully offer an authentic Japanese cuisine and traditional Japanese style of service, private respondent hired the services of Isamu Akasako as its chef and restaurant supervisor. In June, 1980, Lourdes Jureidini and Milagros Tsuchiya, allegedly pretending to be stockholders of the corporation, filed a case with the then Court of First Instance of Manila against Rivera and Akasako to wrest control over the establishment. In June, 1981, the said court issued a writ of preliminary mandatory injunction transferring possession of all the assets of the company and the management thereof to Jureidini and Tsuchiya. The stockholders and directors of the corporation were thereby excluded from the management and operation of the restaurant.Upon assuming management, Jureidini and Tsuchiya replaced almost all of the existing employees with new ones, majority of whom are the present petitioners in the instant case. Apparently, the new employees were extended probationary appointments for six (6) months from December 15, 1981 to June 1 5, 1982. In the meantime, Rivera and the rest of the stockholders elevated the civil case to the Supreme Court through a petition for certiorari assailing the ground for the issuance of the writ of preliminary mandatory injunction by the said Court of First Instance. On motion of Rivera, et al. in the said case, this Court on August 21, 1981 issued a writ of preliminary injunction to enjoin enforcement of the June 23, 1981 writ of preliminary mandatory injunction issued by the said Court of First Instance.Pursuant to the above-quoted resolution, Rivera and Akasako regained control and management of Fujiyama Hotel & Restaurant, Inc. Immediately upon assumption of the management of the corporation, Rivera et al., refused to recognize as employees of the corporation all persons that were hired by Jureidini and Tsuchiya during the one-year period that the latter had operated the company and reinstated the employees previously hired by them. This gave rise to the filing of the present case by the dismissed employees hired by Jureidini and Tsuchiya (some of whom had allegedly been hired by Rivera and Akasako even before Jureidini and Tsuchiya assumed management of the corporation) against Fujiyama Hotel & Restaurant, Inc. for illegal dismissal Issue: whether or not there is privity of contract between petitioners and private respondent as to establish an employer-employee relationship between the parties. Held: A corporation, like a natural person who may authorize another to do certain acts for and in his behalf, through its board of directors, may legally delegate some of its functions and powers to its officers, committees or agents appointed by it. In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. It is not denied by both parties that the operation and management of the Fujiyama Hotel & Restaurant Corporation, including the control and possession of all its assets, were forcibly taken by Jureidini and Tsuchiya from the owners thereof by virtue of a writ of preliminary mandatory injunction issued by then Court of First Instance of Manila, Branch XXXVI These owners, the Rivera-Akasako group, composed the board of directors of respondent corporation during the one (1) year period that Jureidini and Tsuchiya controlled the respondent corporation, the former managed and operated the latter apparently without any authority

from the latter's board of directors. As alleged by Rivera, et al., Jureidini and Tsuchiya were not even officers of respondent corporation as to be considered its agents, which act prompted this tribunal to order said persons, under pain of contempt, to turn over the management and assets of respondent corporation to Rivera et al., as shown by this Court's resolution of May 26, 1982. Thus, all acts done by Jureidini and Tsuchiya for and in behalf of respondent corporation, having been made without the requisite authority from the board of directors, were not binding upon the said corporation. One of these unauthorized acts was the unwarranted termination of the original employees of respondent corporation who were validly hired by its board of directors, vis-a-vis, the hiring of new employees, the petitioners in the case at bar, to replace the said original employees. Since said acts were not binding upon the corporation, no employeremployee existed between the Fujiyama Hotel & Restaurant, Inc. and the herein petitioners.

Lee v. CA

Facts: On 15 November 1985, a complainant for sum of money was filed by the International Corporate Bank, Inc. against Sacoba Manufacturing Corp. Meanwhile, on 12 July 1988, the trial issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of Lee and Lacdao's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. In a manifestation dated 22 July 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. On 4 August 1988, the trial court issued an order advising Sacoba Manufacturing, et. al. to take the appropriate steps to serve the summons to ALFA. On 16 August 1988, Sacoba Manufacturing, et. al. filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on 17 August 1988. On 12 September 1988, Lee and Lacdao filed a motion for reconsideration submitting that the Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and Sacoba Manufacturing, et. al. should have availed of another mode of service under Rule 14, Section 16 of the said Rules, the trial court upheld the validity of the service of summons on ALFA through Lee and Lacdao, thus, denying the latter's motion for reconsideration and requiring ALFA to file its answer through Lee and Lacdao as its corporate officers. On 19 January 1989, a second motion for reconsideration was filed by Lee and Lacdao reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. Issue: Whether the execution of the voting trust agreement by Lee and Lacdao whereby all their shares to the corporation have been transferred to the trustee deprives the stockholder of their positions as directors of the corporation. Held: Lee and Lacdao, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, Lee and Lacdao ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. Lee and Lacdao ceased to be directors. Hence, the transfer of their shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholders of ALFA to the DBP is the essence of the subject voting trust agreement. Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, the latter because the stockholder of record with respect to the said shares of stocks. In the absence of a 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, Lee and Lacdao can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. firm.

Citibank v. Chu

Facts: Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu until March 14, 1986 when they filed a complaint for specific performance and damages against it. On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of the case at bar. In spite of this special power of attorney, counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank. Petitioner bank was then required to file a written opposition to this oral motion to declare it as in default. In said opposition petitioner bank attached another special power of attorney made by William W. Ferguson, Vice President and highest ranking officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to represent and bind the BANK at the pre-trial conference and/or trial of the case of "Cresencio Velez, et al. vs. Citibank, N.A.". Issue: Whether a board resolution was necessary for its legal counsel, Atty. Julius Z. Neri, or Citibank employees to act as its attorney-in-fact in the case at bar because petitioner bank's bylaws grant to its Executing Officer and Secretary Pro-Tem the power to delegate to a Citibank officer, in this case William W. Ferguson, the authority to represent and defend the bank and its interests. Held: In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. It is clear that corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs.

Grace Christian High School v. CA

Facts: Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village. It appears, that on 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, providing that GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION." This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, Grace Christian High School was given a permanent seat in the board of directors of the association. On 13 February 1990, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for 15 members of the Board," and "it is undemocratic for a person or entity to hold office in perpetuity." For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined." The school requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board." Issue: Whether the school's representative should be elected to have the right to sit in the board of directors of Grace Village Association, Inc. as a member thereof. Held: It is actually Sec. 28 and 29 of the Corporation Law Sec. 23 of the present law; not Sec. 92 of the present law or Sec. 29 of the former one which require members of the boards of directors of corporations to be elected. The board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by the school, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of the school itself, there is no reason at all for its representative to be given a seat in the board. Nor does the school claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for 15 years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the bylaws can be adopted if it is contrary to law. It is probable that, in allowing the school's representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of the school's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated the school's

representative and tolerance cannot be considered ratification. Nor can the school claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is the school's claim that its right is "coterminus with the existence of the association."

Naguiat v. NLRC

Facts: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned corporation. Individual respondents were previously employed by CFTI as taxicab drivers. Due to the phaseout of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of individual respondents were officially terminated. The AAFES Taxi Drivers Association ("drivers' union) and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted said amount. However, individual respondents herein refused to accept theirs. Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended to include additional taxi drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party respondent. Issue: Whether the corporate officers of CFTI can be held solidarily liable for corporate debts. Held: Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A. C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees. Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations" owned by the Naguiat family. Section 100, paragraph 5, of the Corporation Code, states:" (5)To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance." 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 that he had acted in such capacity. Furthermore, no evidence on the extent of his participation in the management or operation of the business was proffered. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents.

Benguet Electric Cooperative, Inc. V. NLRC

Facts: Private respondent Peter Cosalan was the General manager of petitioner Benguet Electric Cooperative, Inc. (Beneco), having been elected as such by the Board of Directors of Beneco. On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the Commission on Audit. This Memorandum noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129,618.48 had been virtually written off in the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure the of the National Electrification Administration (NEA) before writing off or condoning those cash advances, and recommended the adoption of remedial measures. On 12 November 1982, COA issued another Memorandum addressed to respondent Peter Cosalan, inviting attention to the fact that the approval audit of per diems and allowances received by officials and members of the Board of Directors of Beneco showed substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again directed the taking of immediate action in conformity with existing NEA regulations. Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement, Cosalan initiated implementation of the remedial measures recommended by the COA. The respondent members of the Board of Beneco reacted by adopting a series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions abolished the housing allowance of respondent Cosalan; reduced his salary and his representation and commutable allowances; directed him to hold in abeyance all pending personnel disciplinary actions; and struck his name out as a principal signatory to transactions of petitioner Beneco. During the period from 28 July to 25 September 1984, the respondent Beneco Board of members adopted another series of resolutions which resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from performance of his regular duties as such, as well as the withholding of his salary and allowances. Cosalan nevertheless continued to work as General Manager of Beneco, in the belief that he could be suspended or removed only by duly authorized officials of NEA. Accordingly, on 5 October and 10 November 1984, respondent Cosalan requested petitioner Beneco to release the compensation due him. Beneco, acting through respondent Board members, denied the written request of respondent Cosalan. Issue: Whether the Board members of Beneco can be held liable for the illegal dismissal of Cosalan. Held: Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be jointly liable and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. We agree with the Solicitor General, secondly, that respondent Board members were guilty of gross negligence or bad faith in directing the affairs of the corporation in enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of General Manager of Beneco. Respondent Board members, in doing so, acted beyond the scope of their authority as such Board members. The dismissal of an officer or employee in bad faith, without lawful cause and without procedural due process, is an act that is contra legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or the clear legal rights of their officers and employees by simply purporting to act for the corporation they control.

We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the awards made by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through respondent Board members, has a right to be reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such right of reimbursement is essential of the innocent members of Beneco are not to be penalized for the acts of respondent Board members which were both done in bad faith and ultra vires. The liability -generating acts here are the personal and individual acts of respondent Board members, and are not properly attributed to Beneco itself.

Metrobank and Trust Co. V. Quilts and All, Inc.

Facts: On April 7, 1987, Relita P. de los Santos (de los Santos) then Corporate Secretary then issued a Secretary's Certificate which certified that in a special meeting of the Board of Directors of Quilts and All, Inc. (Quilts) its President, Mr. Senen B. Dizon (Dizon) was authorized and empowered to mortgage in favor of Metrobank, an property belonging to Quilts.On the basis of this Secretary's Certificate, Metrobank restructured Dizon's existing personal loan in the amount of P700, 000.00, secured by his house and lot at Angeles City and the property owned by Quilts. On July 7, 1988, more than a year later, Metrobank received a letter from Atty. Cesar Villanueva, Quilt's counsel offering the amount of P200,000.00 for the cancellation of the mortgage on the property owned by Quilts because, allegedly, "Mr. & Mrs. Senen Dizon had left the Philippines, leaving several creditors." Metrobank refused the offer since the amount offered did not approximate the appraised value of the mortgaged property. On October 4, 1988, Atty. Ranel L. Trinidad, Quilt's new counsel wrote Metrobank reiterating the mortgage cancellation. In addition, counsel claimed that the alleged April 7, 1987 special meeting could not have taken place for lack of the requisite number of directors present to constitute a quorum since the Chairman and 2 other members of the Board of Directors were aboard on that date. Issue: Whether or not the certification given by the Corporate Secretary could be given probative value despite of the fact that there was no quorum to conduct the special meeting. Held: We agree with Metrobank that the complaint does not contain allegations that Metrobank had prior knowledge of, or could have known with the exercise of due diligence, that the recitals in the Secretary's Certificate were false. The complaint does not even allege specific overt acts which show that Metrobank acted in conspiracy with its co-defendants to defraud Quilts. On the other hand, Metrobank cannot be faulted for relying on the Secretary's Certificate. It did so in good faith, unaware of any flaw and on the presumption that the ordinary course of business had been followed and that the Corporate Secretary had regularly performed her duties.

Lopez Realty, Inc. v. Fontecha

Facts: Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Sometime in 1978, Arturo Lopez submitted a proposal relative to the the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of directors held on April 17, 1978. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees. Private respondents were the retained employees of Petitioner Corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held. At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she filed a derivative suit with the SEC against majority shareholder Arturo F. Lopez. Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation. Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their gratuity pay, corporation refused to pay the same Issue: Whether the corporation is bound to grant its employees gratuity pay despite the lack of notice to a board director during the meeting wherein the said resolution was passed. Held: Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions.

Premium Marble Resources, Inc. v. CA

Facts: On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty. Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank. Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown by the excerpt of the minutes of the Premiums board of directors meeting. In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and Reyes are not majority stockholders.On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general information sheet filed with the Securities and Exchange Commission, among others, that is the best evidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks. Issue: Whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. Held: We find the petition without merit. While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981. 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 *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 be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellants subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound judgment of the Securities & Exchange Commission.By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation.

Esguerra v. CA

Facts: On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants. The parties entered into a compromise agreement which was submitted to the court. On the basis of the said agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI. By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St., Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus, on 7 August 1990, (herein petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be sold. VECCI opposed said motion. Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties, Inc.) for P150,000,000.00. On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms and conditions of the sale. Issue: Whether or not VECCIs sale of Esguerra Building II was a valid exercise of corporate power. Held: Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. She rues that no shareholders or directors meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper for not having complied with the requirements mandated by Section 40 of the Corporation Code. Petitioners contention is plainly unmeritorious. The trial courts partial decision dated January 11, 1990 approving the compromise agreement clearly showed that the enabling resolutions of its (VECCIs) board of directors and stockholders referred to were those then already existing; to wit: (1) the resolution of the stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for such consideration as the board of directors may deem expedient. (2) the resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenient under the circumstances, and authorized the President Vicente B. Esguerra, Jr. to negotiate, contract, execute and sign such sale for and in behalf of the corporation. VECCIs sale of all the properties mentioned in the judicially-approved compromise agreement was done on the basis of its Corporate Secretarys Certification of these two resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCIs sale of these properties valid. Being regular on its face, the Secretarys Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCIs sale of Esguerra Building II to private respondent was not ultra

vires but a valid execution of the trial courts partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCIs corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in VECCIs prior sales of the other properties sold including the Esguerra Building I. The same identical resolutions and certification were used in such prior sales.

Traders Royal Bank v. CA

Facts: Defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and title to CBCI No. D891. Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters. Issue: Whether or not the assignment of the certificate of indebtedness made by Filriters in favour of Philfinance was valid. Held: The assignment of certificates of indebtedness belonging to a corporation made without the authorization of the board of directors does not bind the corporation. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank.

Western Institute of Technology v. Salas

Facts: Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board meeting was held. In attendance were other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985. A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Preston Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public 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 before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was anchored on the private respondents submission of WITs income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporations fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The private respondents were acquitted of the complaints. Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of P186,470.70 representing the retroactive compensation as of June 1, 1985 in favor of private respondents, board members of WIT. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with interest. Issue: Whether or not the grant of additional compensation to WITs Board of Directors as corporate officers was valid. Held: We cannot sustain the petitioners contention. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors /trustees render service gratuitously and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the bylaws fixing their c ompensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders meeting agree to give it to them. This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: xxx *T+he directors shall not receive any compensation, as such directors, xxx. The phrase as such directors is not without significance for it delimits the scope of the prohibition to

compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology.

Bitong v. CA

Facts: Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid-1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. Issue: Whether Bitong has the capacity to initiate a derivative suit in behalf of the corporation to assail the supposed fraudulent acts of the private respondents.

Held: The basis of a stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale.The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document. Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. The power to sue and be sued in any court by a corporation is lodged in the BOD that exercises its corporate powers and not in the president or officer thereof. A derivative suit should not prosper if it is filed by a person who is not authorized by the corporate share for whose benefit the shares are being held.

Tan Wing Talk v. Makasiar Facts: On November 11, 1992, petitioner, in his capacity as director of Concord-World Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavit-complaint with the Quezon City Prosecutors Office, charging Vic Ang Siong with violation of B.P. Blg. 22. Docketed by the prosecutor as I.S. No. 93-15886, the complaint alleged that a check for the amount of P83,550,000.00, issued by Vic Ang Siong in favor of Concord, was dishonored when presented for encashment. Vic Ang Siong sought the dismissal of the case on two grounds: First, that petitioner had no authority to file the case on behalf of Concord, the payee of the dishonored check, since the firms board of directors had not empowered him to act on its behalf. Second, he and Concord had already agreed to amicably settle the issue after he made a partial payment of P19,000,000.00 on the dishonored check. On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-15886 on the following grounds: (1) that petitioner lacked the requisite authority to initiate the criminal complaint for and on Concords behalf; and (2) that Concord and Vic Ang Siong had already agreed upon the payment of the latters balance on the dishonored check. Issue: Whether petitioner has the capacity to file the derivative suit. Held: it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concords board of director to sue Victor Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concords behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to prosper, it is required that the 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 on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear legal right which would warrant the overturning of the decision of public respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office, is under no compulsion to file criminal information where no clear legal justification has been shown, and no sufficient evidence of guilt nor prima facie case has been presented by the petitioner

Development Bank of the Philippines vs. CA Facts: Mortgagee bank foreclosed the mortgage on the real and personal property of the debtor and thereafter assigned the properties to a corporation. It formed and managed the foreclosed assets. The unpaid seller of the debtor cannot complain that the assignment is invalid simply because the mortgagee and the assignee have interlocking directors. Decision: The rule pertaining to transactions between corporation with interlocking directors resulting in prejudice to one of the corporation does not apply where the corporation allegedly prejudiced is a third party, not one of the corporations with interlocking directors. Thus, when a mortgage bank foreclosed the mortgage on the real and personal property of the debtor and thereafter assigned and the properties to a corporation it formed to manage and thereafter assigned the properties to a corporation it formed to manage the foreclosed assets, the unpaid seller of the debtor can not complain that the assignment is invalid simply because the morgagee and the assignee have interlocking directors.

AF Realty & Development Inc. vs. Dieselman Freight Services Co. Facts: On 10 May 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman Freight Services Co., issued a letter denominated as "Authority To Sell Real Estate" to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot. In turn, Cristeta Polintan, through a letter dated 19 May 1988, authorized Felicisima ("Mimi") Noble to sell the same lot. Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter. Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgment Receipt" indicating that the amount of P300,000.00 represents the partial payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the matter. On 29 June 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo the original copy of TCT 39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. On 2 August 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter. AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay the balance. However, on 13 August 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier delivered by Polintan. Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case 56278) against Dieselman and Cruz, Jr.. The complaint prayed that Dieselman be ordered to execute and deliver a final deed of sale in favor of AF Realty." In its amended complaint, AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages. In its answer,

Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it did not authorize any person to enter into such transaction on its behalf. Meanwhile, on 30 July 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account with the PCIBank. Constrained to protect its interest in the property, Midas filed on 3 April 1989 a Motion for Leave to Intervene in Civil Case 56278. Midas alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas' motion. After trial, the lower court rendered the Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty. Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established. Dieselman was ordered to execute and deliver to AF Realty the final deed of sale of the property covered by TCT 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and ordering Dieselman to pay AF Realty attorney's fees in the amount of P50,000.00 and to pay the costs. Dissatisfied, all the parties appealed to the Court of Appeals. In its Decision dated 10 December 1992, the Court of Appeals reversed the judgment of the trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. On 5 August 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an Amending Decision, in the sense that only Cruz, should be made liable to pay AF Realty the damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to AF Realty. AF Realty filed the petition for review on certiorari. Issue: Whether there was a perfected contract of sale involving the Dieselman real property in favor of AF Realty. Decision: Contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/ authorization, the rule is that the declaration of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation. Thus, where a director was not authorized by the board to sell corporate property, its sale is not binding on the corporation. The sale cannot be ratified despite acceptance by the corporation of partial payment if what is involved is sale of land. Considering that the officers who represented and acted as agents in behalf of the corporation were not authorized, the contract of sale is null and avoid under Art. 1874 of the Civil Code. Being a void contract, it is not susceptible to ratification.

Associated Bank vs. Court of Appeals Facts: On or about 16 September 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. The 16 September 1975 Agreement of Merger, which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity "shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission." As to the transfer of the properties of CBTC to ABC, the agreement provides that "Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTC's] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which shall pertain to [ABC]. On or about 10 March 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On 7 September 1977, Lorenzo Sarmiento Jr. executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before 6 March 1978. As per said promissory note, Sarmiento agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due. Sarmiento, to date, still owed Associated Bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. Sarmiento denied the charges. On 22 May 1986, Sarmiento was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated 22 May 1986 was filed by Sarmiento's counsel which was denied by the Court in an order dated 16 September 1986 and Associated Bank was allowed to present its evidence before the Court ex-parte on 16 October 1986. Based on the evidence presented by the bank, the trial court ordered Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. Sarmiento appealed. The Court of Appeals (in CA-GR CV 26465) promulgated on 30 January 1996 a decision which reversed and set aside the 17 October 1986 Decision in Civil Case 85-32243, promulgated by the

Regional Trial Court of Manila, Branch 48; and thus dismissing the complaint. The bank filed the petition for review. Issue: Whether In a merger, the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission. Decision: The doctrine of apparent authority, had long been recognized in this jurisdiction. Apparent authority is derived not merely from practice. Its existence may be ascertained through 1) the general manner in which the corporation holds out an officer or agent having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, with in or beyond the scope of his ordinary powers. Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power was exercised without a board resolution expressly authorizing him; to sell corporate property thus and it had clothed him with apparent authority to modify the same via the second letter-agreement. Thus, the corporation is bound by the acts entered into by its in-house counsel even though he was subsequently relieved of the position. It is not in the quantity of similar acts which establishes apparent authority, but the vesting of corporate officer with the power to bind the corporation. Naturally, the third person has a little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. What transpires in the corporate board room is entirely an internal matter.

Cebu Country Club Inc. vs. Elizagaque Facts: Respondent filed with CCCI an application for proprietary membership. During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on respondents application for proprietary membership was deferred. In another Board meeting held on July 30, 1997, respondents application was voted upon. Subsequently, or on August 1, 1997, respondent received a letter from Julius Z. Neri, CCCIs corporate secretary, informing him that the Board disapproved his application for proprietary membership. On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any member of the Board objected to his application. Again, CCCI did not reply. Decision: The Board of Directors is liable for damages under the abuse of right provision of the Civil Code and Article 31 of the Corporation Code for disapproving the application for proprietary membership on the basis of an amendment to the by-laws requiring the unanimous vote of the directors present at a special or regular meeting but which was not printed on the application form. What was printed thereon was the original provision which was silent on the required number. The explanation that failuire to print was due to economic reasons is flimsy and unconvincing considering that the amendment was introduced almost twenty (20) years ago.

People vs. Dumlao Facts: An iformation was filed before the Sandiganbayan charging respondents dumlao, and others with violation of Section 3(g) of the anti graft and corrupt practices act. The information alleged that the respondent members of the board of trustees of GSIS entered into a contract of lease purchase with respondent Lao, a private person whereby GSIS agreed to sell to Lao a GSIS acquired property consisting of a land and building known as the government council center for P2,000,000 on an installment basis, the annual interest and amortization and grant Lao the right to sublease the ground floor during the period of lease, from which he collected yearly rentals in excess of the yearly amortization causing gross disadvantages to the government, during arraignment Dumlao pleaded not guilty and as agreed by prosecution and respondents, a joint stipulation of facts and admission of exhibits was submitted to the court. The joint stipulation admitted additional facts (3 members of the board,dumlao being one of them, signed the minutes;) seven members of the board were present during the board meeting; and three, the documentatary evidence of was authentic and duly executed. It was further decided during the pre-trial to be terminated limiting the course of the subsequent trial to matters not disposed of unless modified by the court. Dumlao filed a motion to dismiss/quash on the ground that the facts charge do not constitute an offense. He stated that the prosecutions main thrust against him was the alleged approval of the GSIS Board of the lease purchase agreement. He argued that the resolution was not in fact approved by the GSIS Board. Since the signature of fellow respondents did not appear in the minutes of the meeting, thus, these people did not participate in the lease purchase agreement. There was no quorum of the board; thus no resolution approving the agreement since the resolution was not approved, he was innocent. Decision: In a criminal case involving a lease-purchase agreement allegedly disadvantageous to the government, the Sandiganbyan erred in concluding that there was no such agreement into and thus negating criminal liability since only three members out of seven signed the minutes of the meeting. The non-signing by the majority of the members of the Board of Trustees of the said minutes does not necessarily mean that the supposed resolution was not approved by the Board. The signing of 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 that the minutes of the meeting should be signed by all the members of the board. The proper custodian of the books, minutes and official records of a corporation is usually the corporate secretary. Being the custodian of corporate records, the corporate secretary has the duty to record and prepare the minutes of the meeting. The Signature of the corporate secretary gives the minutes of the meeting. The signature of the corporate secretary gives the minutes of the meeting probative value and credibility. Moreover, the entries contained in the minutes are prima facie evidence of what actually took place during the meeting.

Westmont Bank vs. Inland Contruction and Development Corporation Facts: The records show that Calo was the one assigned to transact on petitioners behalf respecting the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since it conducted business through Calo, who is an Account Officer, it is presumed that he had authority to sign for the bank in the Deed of Assignment. hat petitioner sent a replyletter, dated November 29, 1982, to the letter to it of assignee Abrantes indicates that it had full and complete knowledge of the assumption by Abrantes of Inlands obligation. Thus, the assertion that the petitioner cannot be faulted for its delay in repudiating the apparent authority of Calo is similarly flawed, there being no evidence on record that it had actually repudiated such apparent authority. It should be noted that it was the bank which pleaded that defense in the first place. What is extant in the records is a reasonable certainty that the bank had ratified the Deed of Assignment. Decision: The general rule remains that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. If a corporation, however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent authority, it will be estopped from denying such officers authority. Where the bank conducted business through its Account Officer, it is presumed that the latter had authority to sign for the bank in the Deed of Assignment. In this case, it is incumbent upon the bank to show that its account officer is not authorized to transact for the corporation.

Board of Liquidators vs. Kalaw Facts: The National Coconut Corporation (NACOCO) under then the general manager and board chairman Maximo Kalaw together with other defendants entered into various contracts for the delivery of copra to various foreign companies without the necessary authorization from the Board of Directors. Decision: A corporate officer, entrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. The general manager of the corporation who entered into contracts for sale of corpra products could not be held personally liable for losses incurred because of said contracts despite the fact that he did not obtain prior approval of the Board of based on customs and practices within the company and given the speculative nature of the contracts which required on the spot decision, the Board had previously allowed him to enter into similar contracts without prior board approval.

De Tavera vs. Philippine Tuberculosis Society Facts: Petitioner is a doctor of Medicine by profession and a recognized specialist in the treatment of tuberculosis, having been in the continuous practice of her profession since 1945; that she is a member of the Board of Directors of the defendant Society. that she was duly appointed on April 27, 1973 as Executive Secretary of the Society; that on May 29, 1974, the past Board of Directors removed her summarily from her position, the lawful cause of which she was not informed, through the simple expedient of declaring her position vacant; that immediately thereafter, defendant Alberto Romulo was appointed to the position by an affirmative vote of seven directors, with two abstentions and one objection; and that defendants Pardo, Nubla, Garcia and Adil, not being members of defendant Society when they were elevated to the position of members of the Board of Directors, are not qualified to be elected as such and hence, all their acts in said meeting of May 29, 1974 are null and void. The defendants filed their answer on May 12, 1976, specifically denying that plaintiff was illegally removed from her position as Executive Secretary and averring that under the Code of By-Laws of the Society, said position is held at the pleasure of the Board of Directors and when the pleasure is exercised, it only means that the incumbent has to vacate the same because her term has expired. Decision: The employment of a corporate officer, who under the by-laws holds office at the pleasure of the Board of Directors, may be terminated at any time once said trust and confidence cease. The ouster of such corporate officer is not one of removal but expiration of term.

y3.

Sia vs. People Facts: Petitioner Sia was charged with estafa for violating a trust receipt agreement with continental bank. Petitioner contends that having only acted for and in behalf of the metal company, in dealing with continental bank, as president thereof, he cannot be held liable for the crime charged and that the violation of a trust receipt does not constitute estafa. Decision: An officer of a corporation can be held criminally liable for acts or omissions done in behalf of the corporation only where he is made by specific provision of law personally answer for his corporate action.

AC Ransom vs. NLRC Facts: AC Ransom Labor Union is claiming unfair labor practice against AC Ransom. The CIR and the Labor Arbiter ruled in favor of the labor union stating that the strike was legal and justified thereby requiring the company to pay for backwages and to immediately reinstate the members of the union which the NLRC reversed the decision. Hence the special civil action of certiorari filed by the Union moving for the Officers of AC Ransom and ROSARIO Company to be held liable becausealthough RANSOM had assumed a posture of suffering from business reverse, its officers and principal stockholders had organized a new corporation, the Rosario Industrial Corporation (thereinafter called ROSARIO), using the same equipment, personnel, business stocks and the same place of business. AC Ransom used as a defense the clearance given by SEC to cease to operate due to financial difficulties in order to lessen the award given by the court. It also declared that ROSARIO is a distinct and separate corporation, which was organized long before these instant cases were decided adversely against RANSOM. Issue: Whether or not ROSARIO Company should be held liable for the claims of AC: Whether or not the officers and directors of AC Ransom should be held liable for backwages? Decision: The questioned Decision of the National Labor Relations Commission is set aside, and the Order of Labor Arbiter Tito F. Genilo of March 11, 1980 is reinstated with the modification that Rosario Industrial Corporation and its officers and agents are hereby held jointly and severally liable with the surviving private respondents for the payment of the backwages due the 22 union members. Rosario Industrial Corporation is hereby ordered to reinstate the 22 union members or, if this is not possible, to award them separation pay equivalent at least to one (1) month pay or to one (1) month salary for every year of service actually rendered by them with A.C. Ransom (Phils). Corporation, whichever is higher. Rosario Company is held liable because the organization of a "run-away corporation," ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR by the same persons who were the officers and stockholders of RANSOM, engaged in the same line of business as RANSOM, producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory, bodega and sales and accounts departments used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by members of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is another instance where the fiction

of separate and distinct corporate entities should be disregarded. It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.... When a notion of legal entity is used to.defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into one

Prime White Cement Corporation vs. Intermediate Appellate Court Facts: On or about 16 July 1969, Alejandro Te and Prime White Cement Corporation (PWCC) thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement whereby Te was obligated to act as the exclusive dealer and/or distributor of PWCC of its cement products in the entire Mindanao area for a term of 5 years and providing among others that (a) the corporation shall, commencing September, 1970, sell to and supply Te, as dealer with 20,000 bags (94 lbs/bag) of white cement per month; (b) Te shall pay PWCC P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports; (c) Te shall every time PWCC is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of PWCC and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped." Right after Te entered into the dealership agreement, he placed an advertisement in a national, circulating newspaper the fact of his being the exclusive dealer of PWWC's white cement products in Mindanao area, more particularly, in the Manila Chronicle dated 16 August 1969 and was even congratulated by his business associates, so much so, he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area. Relying heavily on the dealership agreement, Te sometime in the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, by September, 1970. After Te was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated 18 August 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September 1970, looking forward to PWCC's duty to comply with the dealership agreement. In reply to the aforesaid letter of Te, PWCC thru its corporate secretary, replied that the board of directors of PWCC decided to impose the following conditions: (a) Delivery of white cement shall commence at the end of November, 1970; (b) Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered; (c) The price of white cement was priced at P13.30 per bag; (d) The price of white cement is subject to readjustment unilaterally on the part of the defendant; (e) The place of delivery of white cement shall be Austurias (sic); (f) The letter of credit may be opened only with the Prudential Bank, Makati Branch; (g) Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. Several demands to comply with the dealership agreement were made by Te to PWCC, however, PWCC refused to comply with the same, and Te by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement. Notwithstanding that the dealership agreement between Te and PWCC was in force and subsisting, PWCC, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao. Te filed suit. After trial, the trial court adjudged PWCC liable to Alejandro Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as

moral damages, and P10,000 00 as and for attorney's fees and costs. The appellate court affirmed the said decision. Hence, PWCC filed the petition for review on certiorari. Issue: Whether the "dealership agreement" referred by the President and Chairman of the Board of PWCC is a valid and enforceable contract. Decision: The board of directors may expressly delegate specific powers to its president or any of its officers. In the absence of such express delegation, a contract entered into by its president, on behalf of the corporation, may still be binding on the board of directors if the board should ratify the same expressly or impliedly. Furthermore, even in the absence thereof, the President, as such, may as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i.e., a person outside the corporation. A different rule obtains in case the contract is between the corporation and its directors which is voidable unless certain requirements are met, specifically, that the contract is fair and reasonable under the circumstance. A director of a corporation which manufactures white cement cannot enforce a five-year distributorship agreement executed by the chairman and president on behalf of the corporation when the contract provided for a fixed price, because the contract is not fair, since the price of cement fluctuates and is expected to rise.

Tramat Mercantile vs. CA Facts: Melchor dela Cuesta doing business under Farmers Machineries sold a tractor to Tramat Mercantile whose president is David Ong. In payment, Ong issued a check which replaced an earlier postdated check. Tramat sold the tractor, together with a lawn mower fabricated by it, to Nawasa. David Ong caused a stop payment of the check when NAWASA refused to pay the tractor and lawn mover after discovering that aside from stated defects of the lawn mover, the engine sold by de la Cuesta was a reconditioned unit. Dela Cuesta filed for recovery and attys fees. Ong answered that dela Cuesta has no cause of action and that the questioned transaction was between Tramat and Farmers and that they payment was stopped because the tractor had been priced as brand new and not as a reconditioned unit. Paus version: Dela Cuesta sold a tractor with a 1.3 engine to Tramat and the latter sold this same tractor to MWSS together with a fabricated lawn mower. Tramat caused a stop payment bec Nawasa refused to pay Tramat because it found out that the lawn mower had defects and that the tractors engine was reconditioned and not brand new. Dela Cuesta filed for recovery. The reason why the lawn mower was defective was because Tramat fabricated it and it was shown that it had no experience in fabricating one. Its competitor Alpha Machinery had stopped manufacturing the same. It was the fabrication of Tramat that was the root of all the problems. The engine did not function not because it was reconditioned but because it was made to do what it cannot. Decision: Since a corporate director or officer is personally liable only when he assents to patently unlawful act of the corporation, is guilty of bad faith or gross negligence in directing its affairs, guilty of conflict of interest, consents to the issuance of watered stock or having knowledge of its does not file with the corporate secretary his written objection, agrees to hold himself solitarily liable with the corporation or is made by specific provision of law to personally answer for his corporate action, then a president cannot be held personally liable for the payment of the price of a tractor the corporation purchased.

De Guzman vs. NLRC Facts: De Guzman was the general manager of the Manila Office of Affiliated MachineriesAgency, Ltd. (AMAL). He was impleaded for allegedly selling part of AMALs assetsand applying the proceeds of the same, as well as the remaining assets, to satisfy hisown claims against the company. The NLRC ruled against petitioner granting award of damages and the order toreturn the assets of AMAL which he appropriated for being unwarranted. He assailsthe decision arguing that the same were beyond the jurisdiction of this Court togrant in a complaint for illegal dismissal in the absence of an employer-employeerelationship between petitioner and respondent employees.

Decision: A general manager who implemented the decision operation and to terminate the services of the employees is liable to the latter where he sold the assets of the corporation and applied the proceeds thereof to satisfy his own claims to the prejudice of the employees. Such act does not amount to set-off since it was done without deference to the legitimate claims of the other employees and creditors, in contravention of the provision on concurrence and preference of credit.

New Durawood vs. CA Facts: We ruled that if a certificate of title has not been lost but is in fact in the possession of another person, the reconstituted title is void and the court rendering the decision has not acquired jurisdiction. Consequently, the decision may be attacked at any time. In case at bench, the owner's duplicate certificates of title were not "lost or destroyed," hence, there was no necessity for the petition filed in the trial court for the "Issuance of New Owner's Duplicate Certificates of Title x x x." The law provides that in case of the refusal or failure of the holder to surrender the owner's duplicate certificate of title, the remedy is a petition in court to compel surrender thereof to the Register of Deeds, and not a petition for reconstitution. Decision: There having been no quorum present during the meeting where his authority was supposed to have been given, the filing of a petition for the reconstruction of the owners duplicate of a transfer certificate of title by a branch manager is unauthorized. The doctrine of apparent authority cannot apply because being a mere branch manager; he could not be looked upon as a corporate officer clothed with the implied or apparent power to file the suit and unauthorized action was hidden from it.

Tabang vs. NLRC Decision: The president, vice president, secretary and treasure are commonly regarded as the principal or executive officers of a corporation but other offices are sometimes created by the charter or by-laws of corporation or the board of directors may be empowered under the bylaws of a corporation to create additional offices as may be necessary. It has been held that an office is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an employee usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. Since the petitioner, unlike an ordinary employee, was appointed by the corporations Board of Trustees, she is deemed an officer of the corporation. A corporate officers dismissal is always a corporate act, or an intra-corporate controversy, and the nature is not altered by the reason or wisdom with which Board of Directors may have in taking such action.

Naguiat vs. NLRC Facts: Clark Field Taxi, Inc. held a concessionaires contract with the Army Air Force Exchange Services for the operation of taxi services within Clark Air Base. Sergio Naguiat was the president of CFTI while Antolin Naguiat was its vice president. Like Naguiat Enterprises, Inc. which was a trading firm, it was also a family-owned corporation. Respondents were employed by the CFTI as taxicab drivers. They were required to pay a daily boundary fee of US$26.50 (for those on duty from 1AM-12N) or US$27 (for those on duty from 12N to 12 MN) .Incidental expenses were maintained by the drivers. Drivers worked 3-4 times a week depending on the availability of vehicles and earned no less than US$15.00 a day. In excess of that amount, they had to make cash deposits to the company which they could withdraw every fifteen days. AAFES was dissolved because of the phase-out of the military bases in Clark and the services of the respondents were officially terminated on November 26, 1991.AAFES Taxi Drivers Association, the drivers union, and CFTI held negotiations as regards separation benefits. They arrived at an agreement that the separated drivers would be given P500 for ever year as severance pay. Most of the drivers accepted this but some refused to do so. Those who did not accept the initial severance pay disaffiliated themselves with drivers union and through the National Organization of Workingmen, they filed a complaint against Sergio Naguiat under the name and style Naguiat Enterprises, AAFES and AAFES union. The labor arbiter ordered the petitioner to pay the drivers P1,200 for every year of service for humanitarian consideration, setting aside the earlier agreement between the CFTI and the drivers union. It also rejected the idea that the CFTI was forced to close it business due to great financial losses and lose opportunity since at the time of its closure it was profitably earning. The labor arbiter however did not award separation pay because to impose a monetary obligation to an employer whose profitable business was abruptly shot (sic) shot down by force majeur would be unfair and unjust. The NLRC modified the decision of the labor arbiter after respondents appealed by granting separation pay to the private respondents. It said that half of the monthly salary should be US$120 which should be paid in Philippine pesos. Naguiat Enterprieses should be joined with Sergio and Antolin Naguiat as jointly and severally liable. Decision: The president of a closed corporation, who actively managed the business of the corporation is considered an employer under Article 212 of the Labor Code and may be held solidarily liable with the corporation for the separation pay due the employees upon closure of the business.

Llamdo vs. CA Facts: Ricardo Llamado and Jacinto Pascual were the Treasurer and President, respectively, of the Pan Asia Finance Corporation. Leon Gaw delivered to Llamado the amount of P180,000.00, with the assurance of Aida Tan, the secretary of the accused in the corporation, that it will be repaid on 4 November 1983, plus interests thereon at 12% plus a share in the profits of the corporation, if any. Upon delivery of the money, Llamado took it and placed it inside a deposit box. Pascual and Llamado signed Philippine Trust Company Check 047809, postdated 4 November 1983, in the amount of P186,500.00 in the presence of Gaw. The check was issued in payment of the cash money delivered to the accused by Gaw, plus interests thereon for 60 days in the amount of P6,500. On 4 November 1983, Gaw deposited the check in his current account with the Equitable Banking Corporation which later informed the complainant that said check was dishonored by the drawee bank because payment was stopped, and that the check was drawn against insufficient funds. Gaw was also notified by the Equitable Bank that his current account was debited for the amount of P186,500 because of the dishonor of the said check. Gaw returned to Tan to inform her of the dishonor of the check. Tan received the check from Gaw with the assurance that she will have said check changed with cash. However, upon his return to Tan, the latter informed him that she had nothing to do with the check. Thereupon, Gaw went to Llamado on 11 November 1983 to inform him of the dishonor of the check. Llamado offered in writing to pay Gaw a portion of the amount equivalent to 10% thereof on 14 or 15 November 1983, and the balance to be rolled over for a period of 90 days. This offer was accepted by Gaw. Llamado, however, failed to remit to Gaw the 10% on or before 15 November 1983 and to roll over the balance of the money. Gaw then demanded from the accused the payment of P186,500.00 but Llamado failed to pay and instead, Llamado offered to return to gaw only 30% of his money which was refused by the latter. Thus, Gaw filed a complaint against Llamado for violation of BP 22 with the RTC Manila (Criminal Case 85-38653). Llamado, together with Pascual, was charged with violation of BP 22 and pleaded 'not guilty' of the crime charged. Accused Jacinto Pascual remained at large. Thus trial on the merits was conducted against Llamado only. After trial on the merits, the trial court rendered judgment convicting Llamado of violation of BP 22, sentencing him to to suffer imprisonment for a period of 1 year of prision correccional and to pay a fine of P200,000.00, with subsidiary imprisonment in case of insolvency, and likewise condemned him to reimburse Gaw the amount of P186,500.00 plus the costs of suit. On appeal, the Court of Appeals affirmed the trial court's decision. Hence, the petition for review. Decision: Lack of involvement in the negotiation for the transaction is not a defense to a treasurer of the corporation who singed a check in his capacity as an officer of the corporation.

Reahs vs. NLRC Decision: The corporate officers who were aware that the corporation was violating the provision of labor standards but did not correct the violations and closed the corporation without paying the employees their separation benefits are solidarily liable with the corporation for the claims of the employees.

Uichico vs. NLRC Facts: The case is an illegal dismissal case filed by workers of Crispa, Inc. who were terminated on the ground of retrenchment due to alleged serious business losses suffered by the company. Decision: Corporate directors and officers are solidarily liable with the corporation for the termination of the employment of corporate employees done with malice or in bad faith. Directors who signed the board resolution retrenching the employees on the feigned ground of serious business losses that had no basis are guilty of bad faith and can held solidarily liable with the corporation.

Torres vs. CA Facts: Sometime in April 1984, when Torres was the Commodore of the MYC and a member of its Board of Directors, petitioner lent, "for free," his speedboat ALLEGRO to MYC for its use in connection with the on-going China Sea Race. It was used to ferry the guest and competitors of the race. Petitioner learned later that the transom of the ALLEGRO was damaged when MYC decided, without his prior consent, to change and remove the original engine and to fit it with a more economical engine. Upon his request, MYC repaired it in its premises. After the repair petitioner could not still bring it to his residence, where he kept it before, because the trailer had also been damaged. This was also repaired. At the meeting of the Board of Directors of MYC on 10 March 1986, after his term as Commodore had already expired, petitioner's attention was called by private respondent Zaldarriaga, the Rear Commodore and Port Captain of MYC to alleged mooring and yard charges for the ALLEGRO for the period from May 1984 to February 28, 1986 in the total amount of P91,390.00. Forthwith, petitioner informed the Directors and the others who were present, especially Zaldarriaga, that MYC has no legal right to demand and collect the charges for the reason that he allowed MYC to use the ALLEGRO "for free" and if he was not able to bring it home, it was because MYC had to repair it. Despite his subsequent letter protesting the charges, MYC still included the amount of P91,390.00 in his statement of account for the period ending 31 March 1986. He referred the matter to counsel who wrote a letter to Zaldarriaga, copy furnished the Treasurer, herein private respondent Jones, reiterating petitioner's stand that he cannot be properly charged for mooring and yard charges. On 12 May 1986 petitioner came to know that his name was prominently posted in the big bulletin board at the main hall of the MYC office at Roxas Blvd., Manila. It was made to appear therein that he had an outstanding account of P19,300.00. To avoid embarrassment and prejudice to his name and to have his name removed from the bulletin board; petitioner paid this amount under protest per Far East Bank and Trust Co. Check No. 910620 dated 27 May 1986. On 8 July 1986 petitioner filed with the Regional Trial Court of Manila (Branch 45), National Capital Judicial Region, a complaint 3 for reimbursement of P19,300.00 and for moral and exemplary damages and attorney's fees against MYC Zaldarriaga and Jones. The defendant on the other hand filed a motion to dismiss under the contention that the trial court has no jurisdiction over the case because the securities and exchange commission has original and exclusive jurisdiction over intra corporate disputes.

Issue: Whether or not SEC has original jurisdiction over the case and whether it involves intra corporate dispute?

Decision: It is the corporate secretarys duty and obligation to register valid transfer of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance. But, the transferor, even though he may be the controlling stockholder of the corporation, can not take law into his own hands and cause himself the recording of the transfer of qualifying shares to his nominee-directors in the stock and transfer books of the corporation.

San Juan Structural and Steel Fabricators Facts: On 14 February 1989, San Juan Structural and Steel Fabricators, Inc. (SJSSFI) entered into an agreement with Motorich Sales Corporation (MSC) for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City, Metro Manila, containing an area of 414 square meters, covered by TCT (362909) 2876 (the lot was still registered in the name of ACL Development Corporation [ADC] at that time). As stipulated in the Agreement of 14 February 1989, SJSSFI paid the downpayment in the sum of P100,000.00, the balance to be paid on or before 2 March 1989. On 1 March 1989, Mr. Andres T. Co, SJSSFI president, wrote a letter to MSC requesting for a computation of the balance to be paid. Said letter was coursed through MSC's broker, Linda Aduca, who wrote the computation of the balance. On 2 March 1989, SJSSFI was ready with the amount corresponding to the balance, covered by Metrobank Cashier's Check 004223, payable to MSC. SJSSFI and MSC were supposed to meet in the office of SJSSFI but MSC's treasurer, Nenita Lee Gruenberg, did not appear. MSC, despite repeated demands and in utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title. On 6 April 1989, ADC and MSC entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property. By reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of MSC, represented by Nenita Lee Gruenberg and Reynaldo L Gruenberg, under Transfer Certificate of Title 3571. SJSSFI filed the complaint for damages against MSC, and Nenita Lee Gruenberg, as a result of the latters alleged bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment. It impleaded ADC and JNM Realty & Development Corp. (JRDC) as necessary parties, since Transfer Certificate of Title (362909) 2876 was in the name of ADC, and that JRDC is the transferor of right in favor of MDC. In its answer, MSC and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to; that Mrs. Gruenberg's signature on the agreement is inadequate to bind MSC as the other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of MSC, is required; that SJSSFI knew this from the very beginning as it was presented a copy of the Transfer of Rights at the time the Agreement was signed; that SJSSFI itself drafted the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement, SJSSFI nonetheless failed to pay in legal tender within the stipulated period (up to 2 March 1989); that it was the understanding between Mrs. Gruenberg and SJSSFI that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will meet at a bank designated by SJSSFI where they will encash the check and sign the Transfer of Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the alleged availability of the check, by phone, only after banking hours. On the basis of the evidence, and on 18 June 1994, the Regional Trial Court of Makati, Metro Manila, Branch 63 (Civil Case 89-3511) rendered judgment, dismissing SJSSFI's complaint, finding that Nenita Lee Gutenberg was not authorized by the corporation to dispose of the property as such disposition is governed by the requirements of Section 40, Corporation Code; and that Nenita Lee Gutenberg did not in anyway misrepresent herself to be authorized by the corporation to sell the property to SJSSFI. The trial court also dismissed the counterclaim. SJSSFI appealed. On 18 March 1997, the Court of Appeals (CA GR CV 46801) modified the decision of the trial court by ordering Nenita Lee Gutenberg to refund or return to SJSSFI the downpayment of P100,000.00 which she received from the latter. SJSSFI moved for reconsideration, which was denied by the appellate court on 10 June 1997. SJSSFI filed the

Petition for Review on Certiorari. SJSSFI argues, among others, that the veil of corporate fiction of MSC should be pierced, because the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. It adds that, being solely owned by the Spouses Gruenberg the company can be treated as a close corporation which can be bound by the acts of its principal stockholder who needs no specific authority. Issue: Whether MSC is a close corporation, based on the fact that almost all of the shares of stock of the corporation are owned by said treasurer and her husband. Held: Section 96 of the Corporation Code defines a close corporation provides that "A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code." The articles of incorporation of MSC does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that MSC is not a close corporation. MSC does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities. So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals Facts: People's Aircargo and Warehousing Co. Inc. (PAWCI) is a domestic corporation, which was organized in the middle of 1986 to operate a customs bonded warehouse at the old Manila International Airport in Pasay City. To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the corporation president, solicited a proposal from Stefani Sao for the preparation of a feasibility study. Sao submitted a letter-proposal dated 17 October 1986 ("First Contract") to Punsalan, for the project feasibility study (market, technical, and financial feasibility) and preparation of pertinent documentation requirements for the application, worth P350,000. Initially, Cheng Yong, the majority stockholder of PAWCI, objected to Sao's offer, as another company priced a similar proposal at only P15,000. However, Punsalan preferred Sao's services because of the latter's membership in the task force, which was supervising the transition of the Bureau of Customs from the Marcos government to the Aquino Administration. On 17 October 1986, PAWCI, through Punsalan, sent Sao a letter confirming their agreement. Accordingly, Sao prepared a feasibility study for PAWCI which eventually paid him the balance of the contract price, although not according to the schedule agreed upon. On 4 December 1986, upon Punsalan's request, Sao sent PAWCI another letterproposal ("Second Contract") formalizing its proposal for consultancy services in the amount of P400,000. On 10 January 1987, Andy Villaceren, vice president of PAWCI, received the operations manual prepared by Sao. PAWCI submitted said operations manual to the Bureau of Customs in connection with the former's application to operate a bonded warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to become one of the three public customs bonded warehouses at the international airport. Sao also conducted, in the third week of January 1987 in the warehouse of PAWCI, a three-day training seminar for the latter's employees. On 25 March 1987, Sao joined the Bureau of Customs as special assistant to then Commissioner Alex Padilla, a position he held until he became technical assistant to then Commissioner Miriam Defensor-Santiago on 7 March 1988. Meanwhile, Punsalan sold his shares in PAWCI and resigned as its president in 1987. On 9 February 1988, Sao filed a collection suit against PAWCI. He alleged that he had prepared an operations manual for PAWCI, conducted a seminar-workshop for its employees and delivered to it a computer program; but that, despite demand, PAWCI refused to pay him for his services. PAWCI, in its answer, denied that Sao had prepared an operations manual and a computer program or conducted a seminar-workshop for its employees. It further alleged that the letteragreement was signed by Punsalan without authority, in collusion with Sao in order to unlawfully get some money from PAWCI, and despite his knowledge that a group of employees of the company had been commissioned by the board of directors to prepare an operations manual. The Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision dated 26 October 1990 declared the Second Contract unenforceable or simulated. However, since Sao had actually prepared the operations manual and conducted a training seminar for PAWCI and its employees, the trial court awarded P60,000 to the former, on the ground that no one should be unjustly enriched at the expense of another (Article 2142, Civil Code). The trial Court determined the amount "in light of the evidence presented by defendant on the usual charges made by a leading consultancy firm on similar services." Upon appeal, and on 28 February 1994, the appellate court modified the decision of the trial court, and declared the Second Contract valid and binding on PAWCI, which was held liable to Sao in the full amount of P400,000, representing payment of Sao services in preparing the manual of operations and in the conduct of a seminar for PAWCI. As no new ground was raised by PAWCI, reconsideration of the decision

was denied in the Resolution promulgated on 28 October 1994. PAWCI filed the Petition for Review. Issue: Whether a single instance where the corporation had previously allowed its president to enter into a contract with another without a board resolution expressly authorizing him, has clothed its president with apparent authority to execute the subject contract. Held: Apparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation. Herein, PAWCI, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, PAWCI did not object to or repudiate said contract, thus "clothing" its president with the power to bind the corporation. The grant of apparent authority to Punsalan is evident in the testimony of Yong senior vice president, treasurer and major stockholder of PAWCI. The First Contract was consummated, implemented and paid without a hitch. Hence, Sano should not be faulted for believing that Punsalan's conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. Furthermore, Sao prepared an operations manual and conducted a seminar for the employees of PAWCI in accordance with their contract. PAWCI accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, PAWCI was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, PAWCI's ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.

Restaurante Las Conchas vs. Llego Facts: While private respondents (employees of Restaurante Las Conchas) were being employed by petitioners (David and Elizabeth Gonzales officers and members of BOD), the Restaurante Services Corporation got involved in a legal battle with the Ayala Land, Inc. over the land allegedly being occupied by the petitioners for their restaurant. Ayala Land, Inc. obtained a favorable judgment in the case filed against Restaurant Services Corporation for unlawful detainer and the latter were ordered to vacate the premises. Petitioners attempted to look for a suitable place for their restaurant business at the Ortigas Center but to no avail, thus sometime in February 1994 they shut down their business. This resulted in the termination of employment of private respondents. The NLRC, on appeal, ordered the petitioners to pay the separation benefits to the complainant. Issue: Can the petitioners be held personally liable as officers and members of the BOD of the corporation, notwithstanding the fact that it is the latter which is the owner of Restaurante Las Conchas?

Held: Yes. Assuming that indeed, the Restaurant Services Corporation was the owner of the Restaurante Las Conchas and the employer of private respondents, this will not absolve petitioners David Gonzales and Elizabeth Gonzales from their liability as corporate officers. Although, as a rule, the officers and members of a corporation are not personally liable for acts done in the performance of their duties, this rule admits of exceptions, one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee, the officers should be held to satisfy the judgment in favor of the employee, the officers should be held liable for acting on behalf of the corporation. Here, the corporation does not appear to exist anymore. The employees can no longer claim their separation benefits and 13th month pay from the corporation because it has already ceased operation. To require them to do so would render illusory the separation and 13th month pay awarded to them by the NLRC. Their only recourse is to satisfy their claim from the officers of the corporation who were, in effect, acting in behalf of the corporation. It would appear that, originally, Restaurante Las Conchas was a single proprietorship put up by the parents of Elizabeth Gonzales, who together with her husband, David, later took over its management. Private respondents claim, and rightly so, that the former were the real owners of the restaurant. The conclusion is bolstered by the fact that petitioners never revealed who were the other officers of the Restaurant Services Corporation, if only to pinp9int responsibility in the closure of the restaurant that resulted in the dismissal of private respondents from employment. Petitioners David and Elizabeth Gonzales are, therefore, personally liable for the payment of the separation and 13th month pay due to their former employees.

CORPORATE OFFICERS

Restaurante Las Conchas vs Llego RLC is operated by Restaurant Services Corporation and Gonzales. The corporation was involved in a legal battle with Ayala land over the property where the restaurant was situated. Ayala obtained a favorable judgment in the case which resulted to the shut down of the restaurant business. The terminated employees filed a complaint before the LA. An exception to the rule that officers and members of a corporation are not personally liable for acts done in the performance of their duties is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee. The officers in this case should be liable for acting on behalf of the corporation.

Consolidated Food vs NLRC Facts: CFC is a domestic corporation engaged in the sale of food products, on of which is Presto Ice Cream. John Gokongwei was its president, Victoria Fadrilan was the general manager and Jaime S. Abalos was its unit manager for Northern Luzon. Wifredo Baron was a bonded merchandiser at CFC who received commendations for consistently filling sales quotas in their assigned areas. Thereafter, he was tasked, as acting section manager for northern Luzon, to deliver for sale CFC Presto Ice Cream products to stores and outlets in Baguio City, make inventories thereof, replace and retrieve bad orders and to handle funds in relation to his function. In 1990, a killer earthquake hit Baguio causing severe damage in the area. Because the power lines were cut off, the presto ice cream products in the possession of customers and sales outlets were damaged and became bad orders. Consequently, Baron was tasked to conduct liquidation on account of non-sales operations due to fortuitous event. When CFC concluded an audit on the accountabilities of Baron, it reflected a shortage. For the alleged irregularities committed, Baron was re-assigned to the head office without pay pending investigation by management. There is nothing in the records that will show that Baron was placed under preventive suspension. Further, the withholding of Barons salaries were known to Gokongwei, Fadrilan and Abalos. Baron, thru a memorandum, was informed of the discrepancies appearing in the audit of accountabilities and was given an opportunity to explain his side in writing. However, Baron, left his job without submitting the required final explanation on the alleged irregularities and filed a complaint for constructive dismissal. LA, affirmed by NLRC, held that Baron was constructively dismissed. HTP. HELD: The employers act of conducting audits and investigation on the alleged irregularities committed by an employee and in re-assigning him to another place of work pending the results of investigation are valid and do not amount to constructive dismissal. However, the officers who knew and allowed the withholding of salaries and bonuses of an employee pending his investigation but without being placed under preventive suspension are solidarily liable with the

corporation despite the valid dismissal of the employee.

Rural Bank of Milaor vs Ocfemia 2000 FACTS: Felicismo Ocfemia and Juanita Arellano Ocfemia mortgaged 7 parcels of land in facor of Rural Bank of Milaor. The mortgage was later foreclosed and the ownership was transferred to the bank. However, 5 of 7 parcels of land were re-sold by the bank thru its manager, who had previously transacted business on behalf of the bank. After the execution of the Deed of Sale, Ocfemia occupied the properties in dispute and paid the real estate taxes due thereon. The Ocfemias became interested in having the property transferred to their names when Francisca Ocfemia became very sickly and they want to mortgage the property for medical expenses. For the properties to be transferred in their names, however, the ROD required the submission of a board resolution from the bank confirming both the Deed of Sale and the authority of the bank manager to enter into such transaction. When the daughter of Francisca Ocfemia went to the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. When the daughter of Francisca Ocfemia returened to the bank, she was told that the resolution of the board that the resolution of the board would not be released because the bank had no records from the old manager. The Ocfemias filed an action for mandamus with damages. RTC, affirmed by the CA, ordered bank to issue a board resolution. SC affirmed. When a bank, by its acts and failure to act, has clearly clothed its managers with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all the benefits of the contract which it had authorized.

Lao vs CA The Associated Anglo American Tobacco Corporation and Andres Lao entered into a contract of sales agent whereby Lao agreed to sell cigarettes manufactured and shipped by the corporation to his business address and to remit the sales proceeds and in turn the corporation would pay his commission depending on the kind of cigarettes sold, fixed monthly salary and operational allowance. To guarantee Laos confidence, his brother and father Jose and Thomas executed a deed of mortgage in favor of the corporation. For the first two years, Lao remitted the proceeds and generated a great deal of business for the corporation. However, for several months thereafter, Lao failed to accomplish his salary sales report. Later, the corporation discovered that Lao was divesting the proceeds of the sales to finance his personal business. From then on, Lao no longer received shipment from the corporation. Andres, Jose and Thomas brought a complaint for accounting and damages against the corporation.

The Vice-president of the corporation, filed a complaint for estafa against Lao. The Officer of the corporation who signed the criminal complaint for estafa against a sales agent cannot be held liable for malicious prosecution if his acts were dine in pursuance of an authority.

Security Bank vs Cuenca SBTC granted SIMC, a credit wire to assist the latter in meeting the additional capitalization requirements of its logging operations. As one of the conditions of the credit loan faciluty, SBTC required the joint and solidary signatures of Rodolfo Cuenca, the president and chairman of the BOD of SIMC. Consequently, Cuenca executed an indemnity agreement whereby he jointly and solidarily bound himself with SIMC. During the lifetime of the credit loan facility, SIMC repeatedly of its credit line and obtained loans from SBTC. Meanwhile, Cuenca resigned and his shares were bought by Adolfo. When SIMC encountered difficulty in making amortization payment on its loan, it requested SBTC for a complete restructuring of its indebtedness. SBTC accommodated the request and agreed to restructure. Still, SIMC defaulted in the payment of its structured loan obligations despite demands. SBTC filed a complaint for collection of sum of money. It is a common practice to require the JSS of a major stockholder or corporate officer, as an additional security for loans granted corporations. However, there was no reason for the corporation to assume that the officer who signed as surety would still agree to act as surety in the restructuring agreement because at that time, he is no longer an officer of the corporation.

Atrium Management Corporation vs CA Hi-cement corp issued 4 RCBC checks to extend financial assistance to ET henry and Co. Inc. In turn, Lourdes De Leon, treasurer of Hi-cement, asked for counterpart checks. Enrique of ET henry approached AMC offering to discount the 4 RCBC checks. AMC agreed provided it be allowed to confirm with hi-cement the fact that the checks represented payment for the petroleum products which ET henry delivered to Hi-cement. De Leon signed the confirmation letters requested by AMC despite her awareness that the checks were strictly endorsed for deposit only to the payees account, not to be further negotiated and that the letter contained a clause that was not true, that the checks issued to ET henry were in payment of Hydro oil bought by HC from ET henry. Consequently, ET henry endorsed the checks to AMC for valuable consideration. Upon presentment for payment, however, the drawee bank dishonored all 4 checks for the common reason payment stopped. AMC sued after its demand for payment of the value of the checks denied. Where the corporate treasurer falsely certified to a corp to whom a check issued by his corp was offered for negotiation that the check was issued as payment for petroleum products, the treasurer should be made liable personally when the drawer subsequently dishonor the check because the negotiation was unauthorized.

Great Asian Sales Center Corp vs CA GASCC is engaged in the business of buying and selling general merchandise, in particular, household appliances. To secure a credit accommodations from Bancasia, the BOD of GASCC adopted two board resolutions. The first resolution authorized Arsenio, its treasurer and Gen manager to secure a loan from Bancasia and to sign all documents necessary to secure the loan. The second authorized Arsenio to secure a discounting line with Bancasia and to sign all documents to secure the discounting line under such terms and conditions as he may deem fit and proper. Armed with the resolutions, Arsenio signed deed of assignments selling and endorsing at a discount one 3 months, 15 checks of GASCC received from various customers in payment for appliances and other merchandise to Bancasia. On the face of the deeds, the contracting parties are GASCC and Bancasia as the assignor and assignee, respectively. On the maturity, the checks were dishonored when deposited by the drawee bank. Bancasia demanded payment from GASCC and Tan Ching Lim, who bound himself as a surety. Bancasia thereafter filed a complaint for collection of sum of money. A board resolution authorizing a corporate officer to obtain a loan includes authority to assign the receivables to secure the loan of it also empowers him to agree to the terms and conditions of the loan and sign implementing documents. The officer who signed the deed of assignment is, however, not personally liable, if he indicated in the deed that he was signing up in behalf of the corporations.

Safic Alcan and Cie vs Imperial Vegetable Co Prior to the date of the contract sued upon, the parties had entered into and consummated a number contracts for the sale of crude coconut oil. In the transactions, SAC, a french corp engaged in the international purchase, sale and tradings of coconut, palced orders and IVC faithfully filled up those orders by shipping out the required crude coconut oil to SAC. In 1986, SAFIC placed purchased orders with IVS through its president Dominador Monteverde for 2000 long tons of crude coconut oil which involved some degree of speculation. SAFIC failed to ascertain the extent of the authority of Monteverde by obtaining from the latter prior authorization of the Imperial board to enter to such speculation contract. On the other hand, when monteverde entered into the speculative contract with SAC, he did not secure the Boards approval despite that under Imperials bylaws, he had no blanket authority to bind IVC to any contract. Also, Monteverde did not submit the contract to the board after their consummation. Moreover, the contract was neither reported in the export sales book and turnout book. Hence, Imperial board knew nothing of the contract. Consequently, IVC failed to delever said coconut oil and instead offered a wash out settlement whereby the coconut oil subject of the purchase contracts were to be sold back to IVC at the prevailing price in the international market at the time of the washout. Still, Imperial failed to pay despite repeated demands. SAFIC sued imperial. The acts of an agent beyond the scope of his authority dont bind the principal unless the latter ratifies the same expressly or impliedly. When the third person knows that the agent was acting beyond his powers, the principal cant be held liable for the acts of the agent. If said third person is aware of such limits of authority, he is to blame and is not entitled to recover damages from the agent unless, the latter undertook to secure the principals ratification.

When the president entered into a contract with another corp. without recuring board approcal or failed to submit contacts to the board after their consummation, such that there was no occasion at all for ratification, the counterparty cannot enforce the contract. The BOD, not the president, exercises corporate powers.

DBP vs Sps. Francisco and Leticia-Ong The spouses deposited 14,000 as downpayment for a parcel of lot they were offering to buy from the bank. They were required by the clerk of the bank to sign a bank form supposedly to express their firm offer to purchase the property. The form signed states that the approval of the banks higher authorities is still required to close the deal. When informed that the sale cant be awarded to them and instead will be sold at public auction, the spouses sued the bank for breach of contract and specific performance. No perfected sale. The representation made by the clerk that the sale was already approve and that the signing of the contract was only a formality does not bind the bank because the clerk is not a bank officer upon whom such putative authority may be reposed by a third party. The bank cant be bound to a contract of sale because it was not approved or consented by the responsible officer of the bank. Also encashment of the clerk does not prove perfection of the contract because the document signed states that the sale must be approved by the higher authorities of the bank.

Litonjua Jr. vs Eternity Corp ESAC, a belgian corp owns 90% of Eternity Corp. Due to the political situation in the Philippines, ESAC instructed Michael Adams, a board director of EC to sell its properties in the Philippines. Adams engaged the services of Marquez, a real property broker for the sale of ECs properties. Said broker found a buyer in the person of the Litonjua siblings. The latter accepted the counter proposal of ESAC regarding the price of the property and deposited $1M with security bank and trust co. The sale did not push through because ESAC changed its mind. The Litojua siblings pled a complaint for specific performance with damages. No perfected sale. ESAC is only a stockholder of EC. It cannot bind the corp. Also the real property broker acted as an agent but cannot bind the principal because his only duty is to find a buyer. Also if it involved the sale of realty, the authority of the agent should be in writing otherwise the sale is void.

Easycall Communications Phils, Inc. vs King Edward King was hired by ECPI through its manager, Roberto Malonzo, as assistant to the general manager. He was subsequently promoted to the position of VP for nationwide expansion but was then terminated. He questioned it. The CA affirmed NLRC decision that he was illegally dismissed. The corp appealed claiming that NLRC has no jurisdiction because King was a corporate officer and therefore the SEC and not the NLRC has jurisdiction.

SC said the King was not a corporate officer. The burden of proving is given to the party alleging that a person is a corporate officer. In this case, petitioner failed to prove that the by laws provided for the office of CP for nationwide expansion. King is an ordinary employee.

ELCEE Farms, Inc. vs NLRC The employees of EFI filed a complaint for illegal dismissal against EFI et al. Elcee Corp operated and owned hacienda Trinidad. It leased the hacienda to Gariele who subleased the property to Hilla which terminated the services of the employee who refuses to join a union by virtue of a closed shop agreement. NLRC reversed LA and held EFI et al liable for separation pay. The SC sustained the separation pay but excluded Saguenillas from liability stating that a corp has a personality distinct and separate from its stockholders. The president, as the responsible officer may be ordered to be solidarily liable with the corp for the employees separation pay upon closure of the business. But in this case, it was not proven that Saguenillas was the president of EFI. It was not even proven that she was engaged in the management of the business. Extending help to the officers of the corp because they were her children does not automatically make Corazon the president of the corporation.

Aratea vs Suico
Benito and Ponciano, controlling stockholders of Samdeco, with the proper board authorization, signed a MOA with Esmeralda Suico as the authorized representatives of Samdeco. Under the MOA, Suico will extend loan to the corp in exchange for the 50% of the total coal extracted by Samdeco. Benito Araneta and Ponciano, however, refused to accept the price offered by Suicos buyers although the price offered were competitive. They also did not set any criterion by which the price offer would be measured against. The two also subsequently sold the mining rights to another company without notice to Suico in violation of the MOA. Suico sued Samdeco, Benito and Ponciano and the corporation which bought the mining rights. The CA and RTC ordered all of them to pay solidarily the obligation. Benito and Ponciano appealed claiming that hey should not be held liable because the loan was the sole liability of Samdeco. Issue: Whether Benito and Ponciano should be solidarily liable with Samdeco? Yes. The corporate veil was not pierced because Suico was aware that he was dealing with Samdeco and that the 2 were merely acting in behalf of the corporation. But Benito and Ponciano may be held solidarily liable woth the corp because they acted in bad faith in carrying out the business of the corporation.

Carag vs NLRC

NAFLU & MACLU, on behalf of all of Macs rank and file employees, filed a complaint against Mac for illegal dismissal brought by its illegal closure. Upon receipt of the records of the complaint, LA summoned the parties to explore options of possible settlement. The non-appearance of respondents prompted LA to declare the case submitted for resolution based on extant pleadings. Carag argued that they should not be impleaded because they were only holding shares in the company to qualify them to hold positions in the board and that said shares were actually owned by a consortium of banks. Art 212 does not state that corporate officers are personally liable for the unpaid salaries/ separation pay of employees of the corporation. The liability of corporate officers debts remains governed by Sec 31 of the Corp Code. A Corporate officer is onlu liable for corporate debts only if he is willfully and knowingly votes for or assents to patently unlawful acts of the corporation of he is guilty of gross negligence or bad faith in directing the affairs of the corporation.

Pamploma Plantation Company vs Ramon Acosta Complainants alleged that they were hired by Pamplona with different periods and that they were regular rank and file employees. The LA held that Pamploma and its manager Bondoc liable for underpayment as complainants were regular employees of the petitioner. LA, further held that employees were illegally dismissed. Under Sec 25 of Corp Code, three officers are specifically provided for which a corporation must have: president, secretary and treasurer. The law, however, does not limit corporate officers to these three. Sec 25 give corporations the widest latitude to provide for such other officers, as they may deem necessary. The by-laws may and usually do provide for such other officers. In this case, there is no basis from which it may be deduced that the manager of petitioner is also a corporate officer such that he may be held liable for money claims awarded in favor of respondents.

People vs Hermenegildo Dumlao and Emilio Lao Accused were members of the BOTs of GSIS who entered into a lease purchase agreement with Lao whereby GSIS agreed to sell to Lao 3 parcels of land together with a 5 storey building. Lao subleased the ground floor of the building from which he collected yearly rentals in excess of the amortization which is manifestly disadvantageous to the government. During arraignment, Dumlao pleaded not guilty. He argued that the charge does not constitute an offense. Further, he argued that the thrust of the prosecution was the alleged approval by the GSIS of the Lease-Purchase agreement. He argued that there was no quorum of the BOD to

approve the resolution authorizing the sale of the GSIS property. The unapproved resolution, he argued, proves his innocence. The signature of the corporate secretary gives the minutes of the meeting probative value and credibility.

Gosaico vs Ching Petitioner obtained a loan from ASB for a period of 48 days which it invested the proceeds of the loan to ASB. As a consideration, ASB through its Business Development Operation Group manager Ching, issued DBS checks which was signed by Ching. When the checks were presented to DBS, the same were dishonored because of insufficiency of funds. Thus petitioner filed a complaint for estafa. In BP 22 case, what the trial court should determine is whether or not the signatory had signed the checks with knowledge of the insufficiency of funds in the bank account, while in civil case the TC should ascertain whether or not the obligation itself is valid and demandable. The litigation of both questions could, in theory, proceed independently and simultaneously without being ultimately conclusive on one or the other. While the RPC imposes subsidiary civil liability to corporations for criminal acts engaged in by their employees in the discharge of their duties, said subsidiary liability applies only to felonies, and not to crimes penalized by special laws such as BP 22. And nothing in BP 22 imposes such subsidiary liability to the corporation in whose name the check is actually issued.

Doctrine of Corporate Negligence

Professional Services Inc vs CA Natividad underwent a sugery at the Medical City General Hospital. Later, it was found that a gauze was left inside her vaginal area which caused her death. Under the doctrine of corporate negligence, the hospitals failure to supervise its resident physicians and nurses and to take an active step in order to remedy their negligence renders it directly liable. The duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician.

Jesus Lanuza vs CA Quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders share or common shares. To base the computation of quorum solely on the

obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/ or successors in interest of the said shares. The stock and transfer book cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the AOI shows a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book.

Philippine Rabbit Bus Lines vs Aladdin Transit Corp. A bus of PRBL figured in a vehicular accident with the bus of Aladdin Transit Corp. PRBL demanded payment for the repair of the bus which was unheeded. Thus PRBL filed a complaint against Aladdin and its drivers. Attached to the complaint was the certification of non-forum shopping singed by PRBLs counsel and not the party itself. As a juridical entity, PRBL may only exercise its right to file a suit by a specific act of its board of directors or any duly authorized officer of agent. The counsel handling the case can not certify against non-forum shopping unless he is duly empowered by the BOD of the corporation to do so.

Cagayan Valley Drug Corp. vs CIR 2008 Petitioner operates two drug stores in Cagayan and Isabela under the name Mercury Drug. It granted 20% sales discount to qualified senior citizens which granted them tax credit pursuant to RA 7432. When petitioner claimed for tax credit from the BIR, it was not acted upon. In the decision of the CA, it dismissed the petition because the signatory was the president without adducing proof that he was duly authorized by the BOD to do so. While jurisprudence do not provide a complete listing of authorized signatories to the verification and certification required by the rules, the determination of the sufficiency of the authority was done on a case to case basis. The rationale applied in other cases is to justify the authority of corporate officers or representatives of the corporation to sign the verification or certificate against forum shopping, being in a position to verify the truthfulness and correctness of the allegations in the petition.

Maranaw Hotels & Resorts Corporation vs CA 2009 An individual signing a certificate of non-forum shopping on behalf of the corporation, must be armed with specific authorization could only come from a Board Resolution issued by the corporations BOD, which specifically authorize the signatory to execute the certification on

behalf of the corporation.

TELECONFERENCING EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN AIRLINES (2005) FACTS: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm. On A certain date, KAL, through Atty. Aguinaldo, filed a Complaint against Expertravel & Tours, Inc. (ETI) for the collection of money. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. During the hearing, Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. KAL then submitted an Affidavit of even date executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. The trial court denied the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a teleconference during which it approved a resolution as quoted in the submitted affidavit. Hence, the instant petition by ETI contending that it was inappropriate for the court to take judicial notice of the said teleconference without any prior hearing. ISSUE: Whether or not order of the trial court is proper HELD: No. In this age of modern technology, the courts may take judicial notice that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance. However a court cannot take judicial notice to any fact, which in part is dependent on the existence or non-existence of a fact which the court has no constructive knowledge. The allegation of a foreign corporation that its board of directors conducted a teleconference and approved the resolution authorizing its resident agent to file the complaint and execute the certificate against forum shopping, incredible, given the additional fact that no such allegation was made in the complaint. If the resolution had indeed

been approved, long before the complaint was filed, the foreign corporation should have incorporated it in its complaint, or atleast appended a copy thereof.

***Hinahanap ko pa yung case under proxy na GSIS vs. CA. Im really having difficult time looking for it. Ill send it asap pag meron na. Pasensya na. - Jaja POWERS OF A CORPORATION REPUBLIC OF THE PHILIPPINES vs. ACOJE MINING COMPANY, INC. (1963) FACTS: Acoje Mining wrote the Director of Posts (Director) requesting the opening of a post, telegraph and money order offices at its mining camp in Sta. Cruz, Zambales. The Director replied that acoje Mining must provide for free quarters, all essential equipment and must assign a responsible employee to perform the duties of a postmaster. Acoje Mining agreed to comply with the conditions and requested further that it be furnished with the necessary forms for the early establishment of a post office branch. The director again wrote Acoje Mining suggesting that a Board Resolution be adopted assuming direct responsibility for whatever pecuniary loss that maybe suffered by the Bureau of Posts by reason of any acts of dishonesty, carelessness or negligence on the part of the companys employess who is assigned to take charge of the post office. Acoje Mining complied with the orders. A post office branch was opened at the camp. An employee of the company was assigned as postmaster. On a certain dates, the postmaster went on a 3-day leave but never returned. The company informed the Manila Post Office and Provincial Auditor of the disappearance and a shortage was found in the accounts. Several demands were made by the government against the mining company ut to no avail. Hence, this present action. Acoje Mining alleged that the Board Resolution assuming liability for the acts of the postmaster is ultra vires and in any event, its only liability is as a guarantor. ISSUE: Whether or not Acoje Mining is liable for the shortage HELD: Yes. Acoje Mining is liale. While as a rule, ultra vires act is committed outside the object for which the corporation is created, there are however certain acts that maybe performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation such as the establishment of a local post office in a mining camp which is far removed from the postal facilities. The distinction between ultra vires act and illegal act is: the first is merely voidable and can e enforced by performance, ratification or estoppels or on equitable grounds while the latter is void and cannot be validated. The validity of a resolution of the board of directors accepting full responsibility in connection with funds to be received by its postmaster should be upheld on the ground of estoppel.

NATIONAL POWER CORPORATION (NPC) vs. HON. ABRAHAM P. VERA, Presiding Judge, Regional Trial Court, National Capital Region and SEA LION INTERNATIONAL PORT TERMINAL SERVICES, INC. (1989) FACTS: Sea Lion filed a complaint for prohibition and Mandamus against NPC and Philippine Ports Authority (PPA) wherein it alleged that NPC acted in bad faith and with grave abuse of discretion in not renewing its contract for stevedoring services for coal handling operation at NPCs plant and in taking over its stevedoring services. ISSUE: Whether or not NPC has the power to engage in stevedoring and arrastre services HELD: Yes. A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter but has the power to do what is reasonably necessary or proper to promote the interest or welfare of the corporation. NPC is formed for the purpose of generating electrical power can undertake stevedoring services to unload coal into its pier to be brought to and fuel its power plant, since this is reasonably necessary for the operation and maintenance of its power plant.

WOLFGANG AURBACH vs. SANITARY WARES MANUFACTURING CORPORATION (Saniwares) (1989) FACTS: Saniwares, a domestic corporation, was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Young went abroad to look for foreign partners. ASI, a foreign corporation domiciled in the US entered into an agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad China and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise which name shall be Sanitary Wares Manufacturing Corporation. The agreement has the provision that the management of the corporation shall be vested in the Board of Directors (BOD) which shall consists of 9 individuals. And as long as ASI will own 30% of the outstanding capital stock, 3 of the 9 directors shall be designated by ASI and the other directors by the other stockholders. Veto power was also given to ASI which is designed to protect it as a minority group. The joint enterprise prospered. However, disagreements came up due to objection of ASI of the desired expansion of the Filipino group. When the time came to elect the BOD, instead of 9 nominees, 11 were nominated contrary to the usual practice. The meeting was subsequently adjourned. ASI, other stockholders and Salazar, one of the nominees as director continued the meeting at the elevator lobby of ASI Building and consequently, 5 directors were elected as certified by the acting secretary. ISSUE: Whether or not the directors as nominated by the ASI group are valid members of the BOD of Saniwares HELD: No. A corporation cannot enter into a partnership contract but may engage in a joint venture with other. Since the relationship is a joint venture, the agreement of the parties governs.

ROSITA PENA vs. COURT OF APPEALS (1991) FACTS: PAMBUSCO as original owners of the lots in question mortgaged the same to Development Bank of the Philippines (DBP). The mortgage was subsequently foreclosed. In the foreclosure sale, said properties were awarded to Pena as the highest bidder. A certificate of sale was issued to her and was registered. Subsequently, the right of redemption of PAMBUSCO was assigned to Marcelino Enriquez through the vote of 3 out of 5 directors of PAMBUSCO. Enriquez then redeemed the property. After which, Enriquez sold the same to Yap. All these transactions were annotated in the certificate of title. Pena now assails the validity of the deed of assignment executed by PAMBUSCO in favor of Enriquez. ISSUE: Whether or not the deed of assignment executed by PAMBUSCO through its 3 out of 5 directors is valid HELD: No. Where the remaining asset of the corporation was right to redeem parcels of land that were foreclosed, the assignment of the right to redeem requires, in addition to a proper board resolution, the affirmative votes of the stockholders representing at least 2/3 of the outstanding capital stock. There having been no stockholders approval, the redemption made by the assignee is invalid.

LOPEZ REALTY, INC. AND ASUNCION LOPEZ GONZALES vs. FLORENTINA FONTECHA, ET. AL., and the NATIONAL LABOR RELATIONS COMMISSION (1995) FACTS: Private respondents filed a complaint against their employer, Lopez Realty, Inc. and its majority stockholder, Asuncion Lopez Gonzales. 5 of the 6 stockholders sit as a member of the Board of Directors (BOD) of Lopez Realty, Inc. In a special meeting of the BOD, the proposal of Arturo Lopez, one of the shareholders was approved wherein it provided for the payment of gratuity pay of its employees. In relation to this, two resolutions were then approved in a special meeting providing the execution of said payment of gratuity pay. On August 17, after the death of one of its shareholders and in the absence of Asuncion Lopez, another resolution was passed and approved by the remaining members of the BOD providing for the manner of payment of the gratuity pay. After the passing of the August 17 resolution, private respondents who were retained requested that their gratuity pay be paid in full. This request was granted in a special meeting on Sept. 1, 1981. At that time, Asuncion Lopez was still abroad and that Asuncion alleged that while she was aroad, she sent a cablegram objecting to certain matters taken by the board. Upon her return, she filed a derivative suit against the corporation and Arturo Lopez. Notwithstanding this, the installments of the gratuity pay of the respondents were paid. Cash vouchers for third installments were also prepared by the corporation. Petitioner-Corporation and Asuncion Lopez assail the validity of the resolutions that were passed during her absence for lack of notice to her and that said resolutions were not ratified by the shareholders of the corporation. ISSUE: Whether or not the resolutions were valid despite the allegation of lack notice on the part of Asuncion Lopez HELD: Yes. Resolutions passed by the board approving the gratuity pay to the employees of the corporation during a meeting where one of the directors was not notified thereof are not ultra vires. Providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code. In legal parlance, ultra vires acts refer to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental to the exercise of the powers conferred. The grant of gratuity pay is not tantamount to sale of all or substantially all of the corporate assets and such, does not need shareholders approval.

LAUREANO INVESTMENT & DEVELOPMENT CORPORATION vs. COURT OF APPEALS AND BORMAHECO, INC. (1997) FACTS: Spouses Laureano are majority stockholders of petitioner corporation. Said corporation entered into a loan and credit transactions with PNCB. For failure of the corporation to pay its obligations, te security to the loans were foreclosed and the bank was the purchaser during the auction sale. Titles thereof were consolidated in PNCBs name. Private respondent Bormaheco, Inc. became successor of the obligations and liabilities of PNCB under a deed of sale/assignment wherein PNCB was bought by Bormaheco under a bulk sale. Included therein were the properties by the petitioner corporation which were acquired by PNCB in the foreclosure sale. Bormaheco then filed a petition for issuance of writ of possession against the spouses Laureano. Petitioner corporation filed a motion for intervention under the name LIDECO Corp. Bormaheco filed its motion to strike out the complaint in intervention filed by LIDECO Corp. Said motion was granted. ISSUE: Whether or not LIDECO Corp. may validly file the said motion for intervention HELD: No. If a corporation wishes to intervene in a case, it should use its complete name and not an acronym (LIDECO). LIDECO, not being registered with the SEC has no juridical personality to intervene in a court suit.

ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), MANUEL PEREA and SECURITIES AND EXCHANGE COMMISSION vs. COURT OF APPEALS and IGLESIA NI CRISTO (INC) (1997) FACTS: Islamic leaders of all Muslim major tribal groups in the Philippines organized and incorporated the Islamic Directorate of the Philippines (IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a Mosque (prayer place), Madrasah (Arabic school) and other religious infrastructures so as to facilitate the effective practice of the Islamic faith in the area. Towards this end, the Libyan Government donated money to purchase a land to be used as center for the Islamic populace. After the Martial Law as declared by the Late Pres. Marcos, most of the Board of Trustees (BOT) flew to the Middle East to escape political persecution. Thereafter, two Muslim groups sprung, the Carpizo group and the Abbas Group. Without having been properly elected as new members of the BOT of IDP, the Carpizo Group caused to e signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to private respondent INC. The Tamano Group now assails the validity of the sale of the IDP properties in favor of INC. ISSUE: Whether or not the sale is valid HELD: No. Where the only assets of the corporation are two parcels of land, their sale without the approval of at least 2/3 of the members is invalid under Section 40 of the Corporation Code.

HEIRS OF TAN ENG KEE vs. COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY (2000) FACTS: After the death of Tan Eng Kee, his common-law spouse and his children filed a suit against Tan Eng Kees brother, Tan Eng Lay. The complaint was for accounting, liquidation and winding up of the alleged partnership between tan Eng Kee and Tan Eng Lay. On its amended complaint, petitioners impleaded Benguet Lumber Company. The amended complaint alleged that Tan Eng Kee and Tan Eng Lay, pooling their industry and resources, entered into a partnership engage in business of selling lumber, hardware and construction supplies. They named their business Benguet Lumber which they mutually managed until Tan Eng Kees death. Petitioners further alleged that Tan Eng Lay and his children caused the conversion of the partnership into a corporation called Benguet Lumber Company to deprive the petitioners of their rightful participation in the profits of the business. Private respondents alleged that Tan Eng Kee was a mere employee of the Benguet Lumber. ISSUE: Whether or not there was a partnership formed by Tan Eng Kee and Tam Eng Lay HELD: None. Tan Eng Kee was a mere employee , not a partner The best evidence would have been the contract of partnership itself, or the articles of partnership itself, but there is none. Particular partnership distinguished from a joint venture, to wit: a) A joint venture (an American concept similar to our joint accounting) is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the participating merchants can transact business under their own name and can be individually liable thereof. b) Usually, but not necessarily, a joint venture is limited to a single transaction, although the business of pursuing to a successful termination may continue for a number of years; a partnership generally relates to continuing business of various transactions certain kind.

PILIPINAS LOAN COMPANY, INC. vs. SECURITIES AND EXCHANGE COMMISSION and FILIPINAS PAWNSHOP, INC. FACTS: Filipinas Pawnshop is a duly organized corporation registered with SEC. Its articles of incorporation states that its primary purpose is to extend loans at legal interest on the security of either personal properties or on the security of real properties and to finance installment sales of motor vehicles, home appliances and other chattels. Pilipinas Loan Company is a lending corporation duly registered with SEC. Based on the articles of incorporation, its primary purpose is to act as a lending investor without however, engaging in pawn broking as defined under PD 114. Filipinas Pawnshop filed a complaint against Pilipinas Loan Company with SEC alleging that Pilipinas Loan Company, contrary to the restriction set by the Commission has been operating and doing business as a pawn broker and pawnshop or sanglaan in the same neighborhood where Filipinas Pawnshop has had its own pawnshop for 30 years in violation of its primary purpose and without the imprimatur of Central Bank to engage in the pawnshop business thereby causing unjust and unfair competition with Filipinas Pawnshop and the business name PILIPINAS ears similarity in spelling and phonetics with the corporate name of private respondent, FILIPINAS, creating a confusion in the minds of the public and customers of Filipnas Pawnshop. ISSUE: Whether or not Pilipinas Loan Company has the power to engage in pawn broking HELD: None. A corporation under the Corporation Code has only such powers as are expressly granted to it by law and by its articles of incorporation, those which maybe incidental to such conferred powers, those reasonably necessary to accomplish its purposes and those which maybe incident to its existence. In the case at bar, the limit of the powers of Pilipinas Loan Company as a corporation is very clear, it is categorically prohibited from engaging in pawn broking as defined under PD 114.

HEIRS OF ANTONIO PAEL and ANDREA ALCANTARA and CRISANTO PAEL vs. COURT OF APPEALS, JORGE CHIN and RENATO MALLARI FACTS: PFINA claims that it acquired the properties from Heirs of Pael by virtue of deed of assignment. Hence, it alleges that it has the legal standing to file a motion to intervene before the Court of Appeals in a case filed by private respondents against the heirs of Antonio Pael for the reistatement of title in favor of the former. ISSUE: Whether or not PFINA has validly acquired the subject properties HELD: No. At the time PFINA acquired the disputed properties, its corporate name was PFINA Mining and Exploration, Inc., a mining company which had no valid grounds to engage in a highly speculative business of urban real estate development, hence, could not have validly acquired real property that it calims to have been assigned to it by its owners.

DIVIDENDS NIELSON & COMPANY, INC. vs. LEPANTO CONSOLIDATED MINING COMPANY (1968) FACTS: Nielson had agreed, for a period of five years, with the right to renew for like period, to explore, develop and operate the mining claims of Lepanto and to mine or mine and mill, such pay ore as may be found therein and to market the metallic products recovered there from which may proved to be marketable, as well as to render for Lepanto other services specified in the contract in exchange for a management fee of P2, 500.00 a month and a 10% participation in the net profits resulting from the operation in the operation of the mining properties. ISSUE: Whether or not Nielson is entitled to cash dividends HELD: No. A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder or in payment of its indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of property because, services is equivalent to property. Likewise, a share of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the capitalization of corporation is properly authorized. In other words, it is the shares of stock that are originally issued by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is not a stockholder or to a person already a stockholder in exchange for services rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation.

MADRIGAL & COMPANY, INC. vs. HON. RONALDO B. ZAMORA, Presidential Assistant for Legal Affairs, HON. SECRETARY OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION (1987) FACTS: Madrigal & Company, Inc. (petitioner) was engaged, among several other corporate objectives, in the management of Rizal Cement Co., Inc.. On a certain date, respondent Madrigal Central office Employees Union sought for the renewal of its collective bargaining agreement with the petitioner. However, petitioner requested for a deferment of the negotiations. Subsequently, by an alleged resolution of its stockholders, the petitioner reduced its capital stock. On another date, petitioner further reduced its capital stock. After petitioners failure to sit down with the respondent union commenced a case with the NLRC on a complaint for unfair labor practice with claims for backwages and damages. Petitioner filed its position paper alleging operational losses because Rizal Cement Co., Inc. from which it derives income as the General Manager or Agent had ceased operating temporarily. It further alleged that whatever profits it earned were in the nature of dividends declared on its shareholdings in other companies in the earning of which the employees had no participation whatsoever. Petitioner posited that cash dividends are absolutely property of the stockholders and cannot e made available for disposition if only to meet the employees economic demand. ISSUE: Whether or not profits received by the corporation may be made available for wage increments of its employees HELD: Yes. Cash dividends received by the corporation arising from the corporate investments in other companies are corporate earnings. As such shareholder, the dividends paid to it were its own money which may then be available for wage increments. It is not case of the corporation distributing dividends in favor of its stockholders in which case, such dividends would be the absolute property of the shareholders and hence, out of reach by the creditors of the corporation.

REPUBLIC PLANTERS BANK vs. HON. ENRIQUE AGANA, SR., as Presiding Judge, CFI of Rizal, Branch 28, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION and ADALIA F. ROBES FACTS: Private respondent Corporation secured a loan from petitioner Bank in the amount of P120, 000.00. as part of the proceeds of the loan, preferred shares of stocks were issued to private respondent Corporation. In other words, instead of giving the legal tender totaling to the full amount of the loan which is P120, 000.00, petitioner Bank lent such amount partially in the form of money and partially in the form of stock certificate. Said stock certificates were in the name of private respondent Adalia Robes and Carlos Robes, who subsequently endorsed his shares in favor of Adalia Robes. Said stocks are preferred stocks, as stated in the certificate of stocks, and have the right to receive a quarterly dividend of 1%, cumulative and participating. Adalia Robes then filed an action for specific performance to compel petitioner to pay 1% quarterly interest thereon owing her under the terms and conditions. Respondent Judge ruled that this indicates that the same are interest bearing stocks which are stocks issued by a corporation under an agreement to pay a certain rate of interest thereon and as such, plaintiffs become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividend. ISSUE: Whether or not private respondent is entitled to 1% interest as a matter of right HELD: No. Dividends cannot be declared for preferred shares which were guaranteed a quarterly dividend if there are no unrestricted retained earnings. Interest bearing stocks on which the Corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only.

NORA A. BITONG vs. COURT OF APPELAS, EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. AND MRS. PUBLISHING CO., LETTY MAGSANOC and ADORACION NUYDA FACTS: Nora Bitong, alleging that she is the minority stockholder of Mr. and Mrs. Publishing Co. filed a derivative suit against private respondents complaining irregularities committed by the Prseident and Chairperson of Board of Directors (BOD) of Mr. and Mrs. Publishing Co. Private respondents contended that petitioner has no legal standing to file the suit being merely a holder-in-trust of JAKA shares and that she only represents JAKA board. Petitioner insists that she is the registered owner and beneficial owner of the 997 shares after she acquired them from JAKA through the deed of sale and that this was recorded in the stock and transfer book of the corporation. This was also her basis in claiming dividends due her as a stockholder. ISSUE: Whether or not petitioner is entitled to dividends declared by the corporation HELD: No. The alleged endorsement of the Certificate of Stock in the name of JAKA nor the deed of sale executed by Sen. Enrile directly in favor of petitioner could not have legally transferred or assigned the shares of stock in favor of petitioner because said Certificate of Stock in the name of JAKA was already cancelled and a new one was issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document. Hence, petitioner is not entitled to dividends. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned.

BY-LAWS CITIBANK N.A. vs. CHUA (1993) FACTS: Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Velez were good clients of petitioner Bank when they filed a complaint for specific performance and damages against it alleging that petitioner bank failed to comply with the restructuring agreement they had previously agreed. On the pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of petitioner banks counsel to represent and bind petitioner bank at the pre-trial conference of the case at bar. Inspite of this special power of attorney, counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank. Petitioner bank then attached another special power of attorney made by William Fergusom, Vice President and highest ranking officer of Citibank, Philippines to represent and bind the Bank at the pre-trial conference and/or trial of the case. However, respondent judge still issued an order decaring petitioner bank as in default. Hence, the instant case. Petitioner bank contends that no board resolution was necessary for its legal counsel or Citibank employees to act as its attorney-in-fact in the case at bar because petitioner banks bylaws grant to its Executive Officer and Secretary Pro-Tem the power to delegate to a Citibank officer, in this case William Ferguson, the authority to represent and defend the bank and its interests. Petitioner bank further contends that the Court of Appeals erred in holding that the by-laws of petitioner bank cannot e given effect because it did not have the imprimatur of the SEC as required by Section 46 of the Corporation Code of the Philippines. ISSUE: Whether or not a board resolution is necessary for the corporate counsel to validly represent the corporation in the pre-trial conference HELD: No. A board resolution appointing an attorney-in-fact to represent the corporation in the pre-trial is not necessary where the by-laws authorizes an officer of the Corporation to make such appointment. Section 46, of the Corporation Code which provides that no by-laws shall be valid without SEC approval applies only to domestic corporations. Where the SEC granted a license to a foreign corporation it is deemed to have approved its foreign enacted by laws.

CHINA BANKING CORPORATION vs. COURT OF APPEALS and VALLEY GOLF and COUNTRY CLUB, INC. (1997) FACTS: Calapatia, a stockholder of private respondent Valley Golf and Country Club, Inc. (VGCCI) pledged his stock certificate to petitioner China Bank as a security for a loan he obtained in the amount of P20, 000.00. Due to Calapatias failure to pay his obligation, China Bank filed a petition for extrajudicial foreclosure and requesting a conduct of public auction sale of the pledged stock. China Bank informed VGCCI of the above mentioned foreclosure proceedings and requested that the pledged stock be transferred to China Banks name and the same e recorded in the corporate books. However, VGCCI wrote petitioner expressing its inability to accede to its request in view of Calapatias unsettled accounts with the club. Despite the foregoing, public auction was pursued and China Bank emerged as the highest bidder. Consequently, China Bank was issued the corresponding certificate of sale. Subsequently, VGCCI sent Calapatia a notice demanding full payment of his overdue account and on a later date, VGCCI caused to be published in the newspaper a notice of auction sale of Calapatias shares of stock in said corporation. Later on, Calapatias stock was sold at public auction for reason of delinquency. China Bank then filed a complaint with the SEC for the nullification of the sale of Calapatias stock by VGCCI. VGCCI claims a prior right over the subject share anchored mainly on Section 3 of its bylaws which provides that after a member shall have been posted as delinquent, the board may order his/her/its share sold to satisfy the claims of the Club ISSUE: Whether or not China Bank is bound by the by-laws of VGCCI HELD: No. In order to be bound, a third party must have acquired knowledge of the pertinent bylaws at the time the transaction or agreement was entered into. Thus, a provision in the by-laws of a country club granting it preferred lien over the share of stock of a member for unpaid dues is not binding on the pledge of the same share of stock if the latter had no actual knowledge of it.

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC. vs. COURT OF APPEALS, HOME INSURANCE AND GUARANTYCORPORATION, EMDEN ENCARNACION AND HORATIO AYCARDO (1997) FACTS: Loyola Grand Villas Homeowners Association (LGVHA) was organized as the association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent, Home Insurance and Guaranty Corporation (HIGC), as the sole homeowner organization in said subdivision. For unknown reasons however, LGVHA did not file its corporate by-laws. On a later date, the officers of LGVHA tried to register its by-laws. They failed to do so. They discovered that there were two other organizations within the subdivision the North Association and the South Association. When the President of LGVHA inquired about the status of LGVHA, HIGC told that LGVHA had been automatically dissolved for two reason on the grounds that it did not submit its y-laws in the period provided by the Corporation Code and that there was non-user of corporate charter because HIGC had not received any report on the associations activities. Apparently, this resulted in the registration of the South Association with the HIGC. These developments prompted the officers of LGVHA to lodge a complaint with the HIGC. They questioned the revocation of LGVHAs certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of registration of North and South Association. LGVHA obtained a favorable ruling from HIGC. Hence, this instant petition. ISSUE: Whether or not the failure to file by-laws within one month from date of incorporation may result in its automatic dissolution HELD: The legislative deliberations demonstrate that corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. There can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws. The incorporators must be given the chance to explain their neglect or omission and to remedy the same.

PMI COLLEGES vs. NATIONAL LAOR RELATIONS COMMISSION and ALEJANDRO GALVAN (1997) FACTS: PMI, an educational institution, hired private respondent as a contractual instructor. Pursuant to this engagement, private respondent then organized classes in marine engineering. Initially, private respondent and other instructors were compensated for services rendered. However, for reasons unknown to private respondent, he stopped receiving payment for the succeeding rendition of services. Private respondent then filed a complaint with the NLRC. Later in the proceedings, PMI manifested that under PMIs by-laws, only the chairman is authorized to sign any contract and that private respondent , in any event, failed to submit documents on the alleged contract of employment between him and PMI as signed by the chairman. ISSUE: Whether or not the contract between private respondent and PMI is valid HELD: Yes. Since by-laws operate merely as internal rules among the stockholders, they cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same. Thus, a provision in the by-laws authorizing the chairman of the board of directors only to sign contracts will not affect the validity of the contract of a teacher who had no knowledge of it.

DILY DANY NACPIL vs. INTERCONTINENTAL BROADCASTING CORPORATION (2002) FACTS: Nacpil was the Assistant General Manager for Finance and Comptroller of Intercontinental Broadcasting Corporation (IBC). When a new president assumed office, Nacpil was forced to resign due to harassment and humiliation he experienced from the new president. His retirement benefits were not paid, hence, Nacpil filed a complaint for illegal dismissal and non-payment of benefits with the Labor Arbiter. IBC filed a Motion to Dismiss alleging Labor Arbiters lack of jurisdiction because the case involved intra-corporate dispute cognizable by SEC. ISSUE: Whether or not the position of Nacpil was a corporate office, hence, her dismissal is within the jurisdiction of SEC HELD: Yes. That the position of Comptroller is not expressly mentioned among the officers of the IBC in the by-laws is of no moment, because the IBCs Board of Directors is empowered under Section 25 of the Corporation Code and under the Corporation By-Laws to appoint such other officers as it may deem necessary. Where the corporate office is not specifically indicated in the roster of corporate offices in the by-laws of the corporation, the board of directors may also e empowered under the laws to create additional officers as may be necessary. And where the by-laws authorized the directors to create office, the directors may create the office comptroller. Since the appointment as comptroller required formal action of the board, petitioner is a corporate officer whose dismissal maybe subject of intra-corporate controversy cognizable by the SEC under Section 5 (c) of PD 902-A (now the RTC).

CEBU COUNTRY CLUB, INC. vs. RICARDO F. ELIZAGAQUE (2008) FACTS: Cebu Country Club, Inc. is a corporation operating as a non-profit and non-stock private membership club. Petitioners herein are members of the Board of Directors (BOD). San Miguel Corporation, a special company proprietary member of the country club, designated respondent as a special non-proprietary member. The designation was approved by the board of directors of the country club. Subsequently, respondent filed an application for proprietary membership. He purchased the share of a certain Dr. Butalid and thereafter, was issued proprietary ownership certificate. During the meeting of the BOD, the application of respondent was deferred until such time that respondent was informed that his application was disapproved because the unanimous votes necessary for its approval was not obtained with one voting against his application. Respondent then filed a complaint for damages against the country club and its BOD. ISSUE: Whether or not there was bad faith on the part of petitioners, hence, entitling respondent to damages HELD: Yes. It bears stressing that the amendment to Section 3 (c) of the country clubs Amended By-Laws requiring the unanimous vote of the directors present at a special or regular meeting was not printed on the application form respondent filled and submitted to the country club. What was printed thereon was the original provision of Section 3 (c) which was silent on the required number of votes needed for admission of an applicant as a proprietary member. The explanation that the failure to print was due to economic reason is flimsy and unconvincing considering that the amendment was introduced almost 20 years ago. Respondent was not even informed that, a unanimous vote of the BOD members was required. When he sent a letter for reconsideration and an inquiry whether there was an objection to his application, petitioners apparently ignored him. This is an evidence of bad faith on the part of petitioners. Hence, respondent is entitled to his claims for damages.

Trustfund Ong Yong vs. Tiu GR No. 1444476 April 8, 2003 Facts: The Tius invited Ong Yong, Juanita Ong, Wilson Ong, William Ong and Julia Ong to invest in First Landlink Asia Development Corporation (FLADC) for the construction of Masagana Citimall in Pasay City. Under the pre-subscription agreement, they agreed to maintain equal shareholdings and that the Tius were entitled to nominate the Vice-president and the treasurer plus five directors while the Ongs were entitled to nominate the President and secretary and six directors. The Ongs paid P100 million in cash while the Tius committed to contribute a four storey building and two parcels of land, P30 million and P48.9 million to cover their stock subscription. The business harmony was short lived and the Tius rescinded the presubscription contract accusing the Ongs of refusing to credit to FLADC shares covering

the real property contribution, preventing them from assuming the position of the vicepresident and treasurer and refusing to give them office spaces as agreed upon. The Ongs for its part alleged that although the Tius executed a Deed of Assignment in favour of FLADC, the Tius refused to pay the capital gains tax and documentary stamp tax, without which, the SEC will not approve the valuation of the Tius property contribution. The Ongs later on discovered that FLADC had in reality owned the property all along even before the pre-subscription agreement was executed which means that the property was at that time already the property of FLADC for which the Tius were not entitled to the issuance of new shares of stocks. The Tius sought confirmation of the rescission with SEC, and the same was affirmed by SEC en banc and by CA. Hence the petition. Issue: Whether or not the rescission will violate the trust fund doctrine. Ruling: The Trust Fund Doctrine provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in 3 instances amendment of the Articles of Incorporation to reduce the authorized capital stock, purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, and dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares and in Section 122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor are complied with. Rescission of a PRE-SUBSCRIPTION AGREEMENT between the subscribers and the corporation will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed. Stockholders Baltazar vs. Lingayen Gulf Electric Power Co., Inc. Facts: Baltazar and Rose were among the incorporators of Lingayen Gulf. It has been the practice of the Corporation to issue stock certificate to individual subscriber for unpaid subscription. Of the 600 shares of stocks subscribed by Baltazar, he had fully paid 535 shares of stocks. After having made transfer to third persons and acquiring new ones, Baltazar had to his credit 341 shares on the filing of the complaint. The largest individual stockholder of the corporation was Bernardo Acena, holding 600 shares, all fully paid.

The other stockholders were Dominador Ungson, Brigido Estrada, Manuel Fernandez and Benedicto Yuson constituting the minority, holding not more than 100 shares. Before the annual stockholders meeting was to be held principally for the purpose of electing new officers and board of directors, the minority stockholders together with Acena, thereby having complete control, past 3 solutions, one of which withdrew or nullified the voting power of the entire subscribed shares of stock not fully paid, not with standing partial payments as evidenced by certificates daily issued therefor Baltazar and Rose filed a complaint to have the 3 resolutions declared invalid. Issue: Whether or not a stockholder who has not fully paid his subscription be divested of his voting rights. Ruling: If a stockholder in a stock corporation subscribes to a certain number of shares of stock, and makes partial payment for which he is issued certificates of stock, he is entitled to vote the latter, not with standing the fact that he has not paid the balance of his subscription which has been called for payment or declared delinquent.

Datu Tagoranao Benito vs SEC Facts: Datu Tagoranao subscribed 469 shares in Jamiatul Philippine-Al Islamia, Inc. On October 28, 1975, the corporation files a certificate of increase of its capital stock from P200,000 to P1,000,000 and the same was approved. Of the increased capital stock,P160,000 worth of shares were subscribed by Fatima Ramos, Tarhata Lucman and moki-in Alonto. Datu Tagoranao filed with SEC alleging that the additional issue of previously aubscribed shares violated his pre-emptive right and it was illegal considering that he is not notified of the meeting wherein the proposed increase was in the agenda. The SEC hearing officer, which was affirmed by SEC en banc ruled against Datu Tagoranao.

Issue: Whether or not stockholders meeting is necessary for issuance of unsubscribed portion of capital stock. Ruling: The power to issue shares of stocks is lodged in the board of directors and no stockholders meeting is necessary to consider it because additional issuance of shares of stocks does not need the approval of the stockholders. The by-laws of the Corporation itself states that the Board of Trustees shall, in accordance with law, provide for the issue and transfer of shares of stock of the institute and shall prescribe the form of certificate of stock of the Institute.

Apocada vs. National Labor Relations Commission Facts: Ernesto M. Apodaca is an employee of Intrans Philippines Inc. and he has subscribed 1,500 shares at 100 pesos per share. For his subscription, he was only able to make an initial payment. When he resigned, the corporation deducted the amount due to Apocada from the amount receivable by him for the unpaid subscriptions. Apocada then filed a complaint with the Labor arbiter who ruled in his favour but was reversed by the NLRC. Hence this petition. Issue:

Whether or not an obligation arising from non-payment of stock subscription be offset against money claim of employee. Ruling: An obligation arising from non- payment of stock subscriptions to a corporation cannot be offset against a money claim of an employee against the employer. Unpaid subscriptions are not due and payable until a calls made by the corporation for payment through a board resolution and the contract of subscription does not specify the due date of payment.

Africa vs PCGG Facts: Upon sequestration of Eastern Telecommunications Philippines by the PCGG, an action for reconveyance, accounting and restitution of the alleged ill-gotten ETPI shares and damages were filed. Subsequently, while 60% of the shares remained under sequestration, an annual stockholders meeting was held where Eduardo Villanueva, as PCGG nominee, Roman Mabanta, Eduardo delos Angeles as nominees of foreign

investors and Jose Africa(who was absent) were elected as members of the board of directors. The nomination and election of PCGG nominees to the ETPI Board of Directors as well as the election of the new officers triggered the filing of complaints by the members of ETPI Board and stockholders against the PCGG nominees elected to the ETPI Board. Sandiganbayan then issued subpoena duces tecum and ad testificandum ordering the PCGG or its representative to testify and produce the stock and transfer book and all stubs of the outstanding stock certificates of ETPI. Issue: Whether or not the stockholder of a sequestered corporation be divested of their right to inspect and examine the books and records of the corporation. Ruling: The express limitations on the right of a stockholder of inspection is that the right of inspection is that demanding the right examine and copy excerpts from the corporate records and minutes has not used any information secured through any previous examination of the records of such corporation, and the demand is made in good faith or for a legitimate purpose.

Republic vs Sandiganbayan Facts: ETPI was one of the corporation sequestered by PCGG and among its stockholders were Benedicto and UNIMOLCO.

Benedicto entered into a compromise agreement whereby he ceded to the government his 204,000 shares in ETPI and the government withdrew the case filed against Benedicto. Subsequently, UNIMOLCO and Smart Communications executed a Deed of Absolute Sale where UNIMOLCO sold its 196,000 shares to Smart. Prior to the sale, Smart is not a stockholder of ETPI. The petitioner filed a complaint with the Sandiganbayan alleging that the sale was in violation of the right of first refusal to purchase shares of stock of ETPI but the same was denied. Issue: Whether or not the lack of notice in order that petitioner may exercise his preemptive right valid to rescind or annul the sale. Ruling: The purpose of the notice requirement in article 10 of the ETPI Articles of Incorporation is to give the stockholders knowledge of the intended sale of shares of stock of the corporation, in order that they may exercise their preemptive right. Where it is shown that a stockholder had actual knowledge of the intended sale within the period prescribed to exercise the right, the notice requirement had been sufficiently met. In the case at bar, PCGG had actual knowledge of UNIMOLCOs offer to sell its shares of stock, in fact, it issued a resolution enjoining the sale of said shares of stock to Smart.

Derivative suit Republic Bank vs Cuaderno Facts:

Damaso Perez, a stockholder of Republic Bank, instituted a derivative suit against Miguel Cuaderno, Beinvenido Dizon, Boardof Directors of the republic Bank and the Monetary Board of Central Bank. In his complaint, he alleged that frauds were committed when Pablo Roman, chairman of Board of Directors of the Republic Bank granted loans to fictitious and non-existing persons amounting to almost 4 million. Acting upon the complaint, Cuaderno and Monetary Board conducted an investigation. Later on, it ordered that a new board of the Republic Bank be elected. Damaso therefore prayed for writ of preliminary injunction against Monetary Board to prevent its confirmation of the appointment of Cuaderno and Dizon. In its answer, the Monetary Board alleged that the plaintiff had no legal capacity to sue. Issue: Whether or not Perez has the capacity to sue in behalf of the Corporatin. Ruling: An individual stockholder may institute a derivative suit on behalf of the corporation, wherein he holds stock, in order to protect corporate 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 actions, the suing stockholder is regarded as the nominal party, with the corporation as the real party in interest.

San Miguel Corporation vs Kahn Facts: Fourteen Corporations acquired shares of stock of San Miguel. The shares were placed under a voting trust agreement in favour of Andres Soriano Jr. and when he died,

Eduardo Cojuangco was elected Substitute trustee with the power to d3elegate the trusteeship in writing to Andre Soriano III. On March 26, 1986, an agreement was executed where Andres Soriano III as the buyer and the fourteen corporations as the seller. According to Soriano, the real buyer is Neptunia Corporation Limited, a wholly owned subsidiary of San Miguel International and that it was Neptunia which made the down payment from the proceeds of certain loan. Later on, PCGG sequestered the shares on the ground that the stock belonged to Eduardo Cojuangco. However, in December, SMC Board, by resolution, decided to assume the loans incurred by Neptunia. Eduardo delos Angeles, one of PCGG representatives in SMC Board, impugned the resolution and filed a derivative suit with the SEC against the 10 Board of Directors of SMC. Ernest Kahn moved to dismiss the derivative suit alleging that delos Angeles has no legal capacity to sue but his motion was denied by the SEC hearing officer which was reversed by the court. Issue: Whether or not delos Angeles has legal capacity to bring suit in behalf of the corporation. Ruling: The theory that delos Angeles has no personality to bring the suit in behalf of the corporation- because his shareholdings is miniscule and there is conflict of interest between him and the PCGG, cannot be sustained. Since a stockholder filing a derivative suit is not suing in his own behalf of the corporation, the fact that his shareholding is significant does not preclude him from filing the suit. It is also not necessary that a stockholder be a director to be entitled to file a derivate suit.

Commart Phils Inc vs SEC Facts:

Commart (Phils.), Inc., is a corporation organized by two brothers, Jesus and Mariano Maglutac. Sometime in June 1984, the two brothers agreed to go their separate ways, with Mariano being persuaded to sell to Jesus his shareholdings in Commart amounting to 25% of the outstanding capital stock. Marianos wife, Alice M. Maglutac (Private respondent herein) who has been for years a stockholder and director of Commart, did not dispose of her shareholdings, and thus continued as such even after the sale of Marianos equity. Shortly after the sale of his equity in Commart to Jesus, Mariano allegedly discovered that for several years, Jesus and his wife Corazon (who was herself a director) had been siphoning and diverting to their private bank accounts in the United States and in Hongkong gargantuan amounts sliced off from commissions due Commart from some foreign suppliers. Consequently, spouses Mariano and Alice Maglutac filed a complaint with the SEC against Jesus Maglutac and rest of the members of the Board of Directors of Commart. In response to the complaint, a motion to dismiss was filed but the motion was denied. Issue: Whether or not SEC correctly hold that the case was a derivative suit Ruling: SEC correctly hold that the case was a minority stockholdings derivative suit and correctly sustained the hearing panels denial of the motions to dismiss. Readily shows that it avers the diversion of corporate income into the private bank accounts of petitioner Jesus T. Maglutac and his wife. Likewise, the principal relief prayed for in the complaint is the recovery of a sum of money in favor of the corporation. This being the case, the complaint is definitely a derivative suit. Consequently, the SEC correctly held that the case was a minority stockholders derivative suit and correctly sustained the hearing panels denial- insofar as Alice Maglutac was concerned- of the motions to dismiss it.

Gochan vs. Young Facts:

Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered with the SEC on June 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan and its incorporators. Felix Gochan Sr.,s daughter, Alice inherited 50 shares of stock in Gochan Realty. Alice died leaving the 50 shares to her husband, John Young Sr. John Sr., requested Gochan Realty to partition the shares of his late wife by cancelling the stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of (herein respondents). Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining stockholders by the Articles of Incorporation. Cecilia Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of officers and directors and damages against respondents. SEC ruled against complainant heirs. Aggrieved, they filed a petition for review with the Court of Appeals. Issue: Whether or not Spouses Uy could properly bring a derivative suit in the name of Gochan Realty to redress the wrongs allegedly committed against it for which the directors refused to sue. Ruling: In the present case, the complaint alleges all components of a derivative suit. The allegations of injury to the spouses Uy can co-exist with those pertaining to the corporation. The personal injury suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation. It merely gives rise to an additional cause of action for damages against the erring directors. This cause of action is also included in the complaint filed before the SEC. The spouses have the capacity to file a derivative suit in behalf of the corporation and for the benefit of the corporation. The reason for this is that, the allegations in the complaint make them out as stockholders at the time the questioned transaction occurred, as well as at the time the action was filed and during the pendency of the action.

Reyes vs Hon. RTC Makati Br. 142 Facts:

Oscar and Rodrigo Reyes are two of the four children of Pedro and Anastacia. They owned shares of stock in Zenith Insurance Corporation. When Pedro died, his estate was judicially partitioned but when Anastacia died later on, no partition was made. Zenith and Rodrigo filed a complaint with Sec against Oscar to obtain an accounting of the funds and assets of Zenith Insurance Corporation which are in the possession of Oscar and to determine the shares of stocks of deceased Pedro and Anastacia that were arbitrarily and fraudulently appropriated by Oscar to himself. Oscar denied the allegation and asserted that the suit is not a bona fide derivative suit because the requisites therefore have not been complied with. RTC ruled against Oscar. The same was affirmed by the Court of Appeals. Issue: Whether or not the complaint is a bona fide derivative suit. Ruling: Rodrigos bare claim that the complaint is a derivative suit will not suffice to confer jurisdiction of RTC (as special commercial court) if he cannot comply with the requisites for the existence of derivative suit. These requisites are: the party bringing the suit is a shareholder during the time the transaction complained of, the party has tried to exhaust intra-corporate remedies, the cause of action actually devolves upon the corporation. And based on these standards, the complaint is not a derivative suit. Rodrigo, not being a shareholder, being a mere transferee-heir and he was not able to exhaust the available remedies within the corporation.

Hi-Yield Realty Incorporated vs CA Facts:

Roberto Torres filed a petition for the annulment of real estate mortgage and foreclosure sale over two parcels of land located in Marikina and Quezon City. The suit was filed against Leonora, Ma. Theresa, Glen and Stephanie, all surnamed Torres, the register of deeds of Marikina and Quezon City and Hoi-Yield Realty. HI-yield moved for the dismissal of the petition on the ground of improper venue. RTC denied the motion and held that the case was in the nature of ac derivative suit cognizable by the special commercial court. Issue: Whether or not the action to annul the real estate mortgage and foreclosure sale is a mere incident of the derivative suit. Ruling: Where a minority stockholder alleged in his petition that earnest efforts were made to reach a compromise among family members/stockholders before he filed the case and that the Board of Directors did nothing to rectify the unauthorized loan and mortgage by the corporation, the derivative suit is proper. The action to annul the real estate mortgage should only be seen as incidental to the derivative suit. The RTC of the city where the principal office of the corporation is located has jurisdiction even though the mortgaged properties are located in different jurisdiction.

SECOND DIVISION G.R. No. L-57586 October 8, 1986 AQUILINO RIVERA, ISAMU AKASAKO and FUJIYAMA HOTEL & RESTAURANT, INC., petitioners, vs. THE HON. ALFREDO C. FLORENDO, as Judge of the Court of First Instance of Manila (Branch XXXVI), LOURDES JUREIDINI and MILAGROS TSUCHIYA, respondents. FACTS: Petitioner corporation was organized and register under Philippine laws with a capital stock of P1,000,000.00 divided into 10,000 shares of P100.00 par value each by the herein petitioner Rivera and four (4) other incorporators. Sometime thereafter petitioner Rivera increased his subscription from the original 1,250 to a total of 4899 shares. Isamu Akasako, a Japanese national and co-petitioner who is allegedly the real owner of the shares of stock in the name of petitioner Aquilino Rivera, sold 2550 shares of the same to private respondent Milagros Tsuchiya for a consideration of P440,000.00 with the assurance that Milagros Tsuchiya will be made the President and Lourdes Jureidini a director after the purchase. Aquilino Rivera assured private respondents that he will sign the stock certificates because Isamu Akasako is the real owner. Likewise, other incorporators sold their shares to both respondent Jureidini and Tsuchiya such that both respondents became the owners of a total of 3300 shares or the majority out of 5,649 outstanding subscribed shares of the corporation; and that there was no dispute as to the legality of the transfer of the stock certificate since all complied by the Corporation Law.

After the sale was consummated and the consideration was paid with a receipt of payment therefor shown, Aquilino Rivera refused to make the indorsement unless he is also paid. Nonetheless, private respondents attempted several times to register their stock certificates with the corporation but the latter refused to register the same. This prompted private respondents to file a special civil action for mandamus and damages with preliminary mandatory injunction and/or receivership against petitioner. In the CFI of Manila, respondent Judge, denied both petitioners and private respondents motions, conversely he increased the bond to protect the interests of the petitioner. Hence the petition. ISSUE: whether or not it is the regular court or the Securities and Exchange Commission that has jurisdiction over the present controversy. RULING: It has already been settled that an intra-corporate controversy would call for the jurisdiction of the Securities and Exchange Commission. Intra-corporate controversy has been defined as "one which arises between a stockholder and the corporate. There is no distinction, qualification, nor any exemption whatsoever." This Court has also ruled that cases of private respondents who are not shareholders of the corporation, cannot be a "controversy arising out of intracorporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association, of which they are stockholders, members or associates, respectively." (Sunset View Condominium Corporation v. Campos, Jr., 104 SCRA 303, April 27, 1981). On the other hand, there is merit in petitioners' contention that private respondents' principal action of mandamus is an improper course of action. It is evident that mandamus wig not lie in the instant case where the shares of stock in question are not even indorsed by the registered owner Rivera who is specifically resisting the registration thereof in the books of the corporation. Under the above ruling, even the shares of stock which were purchased by private respondents from the other incorporators cannot also be the subject of mandamus on the strength of mere indorsement of the supposed owners of said shares in the absence of express instructions from them. The rights of the parties will have to be threshed out in an ordinary action. We hereby consider the case as an ordinary civil action for specific performance, and the case is therefore remanded to the lower court for trial on the merits.

SECOND DIVISION G.R. No. 80682 August 13, 1990 EMBASSY FARMS, INC., petitioner, vs. HON. COURT OF APPEALS (INTERMEDIATE APPELLATE COURT), HON. ZENAIDA S. BALTAZAR, Judge of the Regional Trial Court, Branch CLVIII, (158), Pasig, Metro Manila, VOLTAIRE B. CRUZ, Deputy Sheriff, Branch CLVIII, Regional Trial Court, Pasig, Metro Manila and EDUARDO B. EVANGELISTA, respondents. FACTS: Sometime on August 2, 1984, Alexander G. Asuncion AGA and Eduardo B. Evangelists EBE, entered into a Memorandum of Agreement. Under said agreement EBE obligated himself: To transfer to AGA 19 parcels of agricultural land registered in his name with an aggregate area of 104,447 sqm located in Loma de Gato, Marilao, Bulacan, together with the stocks, equipment and facilities of a piggery farm owned by Embassy Farms, Inc., a registered corporation wherein 90% of its shares of stock is owned by EBE. To cede, transfer and convey "in a manner absolute and irrevocable any and all of his shares of stocks" in Embassy Farins Inc. to AGA or his nominees "until the total of said shares of stock so transferred shall constitute 90% of the paid-in-equity of said corporation" within a reasonable time from signing of the document. To turnover to AGA the effective control and management of the piggery upon the signing of the agreement. AGA obligated himself upon signing of the agreement to pay to EBE the total sum of close to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated himself to organize and register a new corporation with an authorized capital stock of P10,000,000.00 which upon registration will take over all the rights and liabilities of AGA. Despite the indorsement, EBE retained possession of said shares and opted to deliver to AGA only upon full compliance of the latter of his obligations under the Memorandum of Agreement. Notwithstanding the non-delivery of the shares of stocks, in a Deed of Transfer of Shares of Stock dated August 1984, but notarized on June 20, 1985, AGA transferred a total of 8,602 shares to several persons. For failure to comply with his obligations, EBE intimated the institution of appropriate legal action. AGA preempted EBE by filing an action for rescission of the Memorandum of Agreement with damages in the RTC Branch CLVIII of Pasig, alleging that the latter misrepresented the status of the piggery business. Meanwhile, on July 30, 1987, Embassy Farms Incorporated instituted an action for Injunction with damages against EBE. The RTC of Pasig ordered a restraining order upon EBE, while the Court of Appeals lifted the restraining order. ISSUE: whether or not the appellate court committed a reversible error when it sustained the order dated July 13, 1987 of the Pasig Court and lifted the restraining order it had issued in CA-G.R. SP No. 12834. RULING: We do not agree with the petitioner. It must be stressed at the outset that the case at bar is merely an offshoot of a controversy yet to be decided on the merits by the Pasig Court. The action for rescission filed by AGA in Civil Case No. 53335 now pending before the Pasig Court will ultimately settle the controversy as to whether it is AGA or EBE or both parties who have reneged on their obligations

under the memorandum of agreement. We do not want to pre-empt the Pasig Court on the main case. From the pleadings submitted by the parties it is clear that although EBE has indorsed in blank the shares outstanding in his name he has not delivered the certificate of stocks to AGA because the latter has not fully complied with his obligations under the memorandum of agreement. There being no delivery of the indorsed shares of stock AGA cannot therefore effectively transfer to other person or his nominees the undelivered shares of stock. For an effective transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. As provided under Sec3 of BP 68, otherwise known as the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferree of the certificate properly indorsed. Basically the conflict here is between AGA and EBE arising from a contract denominated as a memorandum of agreement. On the enforceability of the order of the Pasig Court, We see no cogent reason to depart from the ruling of the trial court which was sustained by the Court of Appeals. Generally, an injunction under Section 21 of Batas Pambansa Bilang 129 is enforceable within the region. The reason is that the trial court has no jurisdiction to issue a writ of preliminary injunction to enjoin acts being performed or about to be performed outside its territorial boundaries. WHEREFORE, the instant petition is hereby DENIED for lack of merit. SO ORDERED.

SECOND DIVISION G.R. No. 95696 March 3, 1992 ALFONSO S. TAN, Petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY CORP., TAN SU CHING, ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents. FACTS: Visayan Educational Supply Corp. was registered on October 1, 1979. As incorporator, petitioner Alfonso S. Tan had 400 shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced by Certificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position as such until 1982 but remained in the Board of Directors until April 19, 1983 as director. On January 31, 1981, while petitioner was still the president, two other incorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares, represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate stock-in-trade. Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five (5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected director and on March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand unchallenged. On January 29, 1983, during the annual meeting of the corporation, respondent Tan Su Ching was elected as President while petitioner was elected as Vice-president. He, however, did not sign the minutes of said meeting which was submitted to the SEC on March 30, 1983. After being replaced, petitioner withdrew from the corporation on February 27, 1983, on condition that he be paid with stocks-in-trade equivalent to 33.3% in lieu of the stock value of his shares in the amount of P35,000.00. After Stocks Certification stocks However, more than five years later, petitioner filed the case before the Cebu SEC Extension Office questioning the cancellation of his aforesaid Stock Certificates Nos. 2 and 8. The Cebu SEC Extension Office Hearing Officer ruled that the cancellation was null and void for lack of delivery, however, the on appeal to the SEC En Banc overturned the decision of the Hearing Officer; hence, the petition. ISSUE: whether or not the SEC En Banc decision to overturn is valid. RULING: All the acts required for the transferee to exercise its rights over the acquired stocks were attendant and even the corporation was protected from other parties, considering that said transfer was earlier recorded or registered in the corporate stock and transfer book. Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court held, that: But delivery is not essential where it appears that the persons sought to be held as stockholders are officers of the corporation, and have the custody of the stock book . . . (67 Phi. 36). Furthermore, there is a necessity to delineate the function of the stock itself from the actual delivery or endorsement of the certificate of stock itself as is the question in the instant case. A certificate of stock is not necessary to render one a stockholder

in corporation. For all intents and purposes, however, since this was already cancelled which cancellation was also reported to the respondent Commission, there was no necessity for the same certificate to be endorsed by the petitioner. Nevertheless, a certificate of stock is the paper representative or tangible evidence of the stock itself and of the various interests therein. The certificate is not stock in the corporation but is merely evidence of the holder's interest and status in the corporation, his ownership of the share represented thereby, but is not in law the 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 corporation. (13 Am. Jur. 2d, 769) Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights and prerogatives as stockholder and was even elected as member of the board of directors in the respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent corporation when he was elected as officer thereof. Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. Considering the circumstances of the case, it appearing that petitioner is guilty of manipulation, and high-handedness, circumventing the clear provisions of law in shielding himself from his wrongdoing contrary to the protective mantle that the law intended for innocent parties, the Court finds the excuses of the petitioner as unworthy of belief. WHEREFORE, in view of the foregoing, the Order of the Commission under SEC-AC No. 263 dated October 10, 1990 is hereby AFFIRMED but modified with respect to the "nullity of the sale of 350 shares represented under stock certification No. 8, pursuant to the "in pari delicto" doctrine. The court holds that the conversion of the 350 shares with a par value of only P35,000.00 at P100.00 per share into treasury stocks after petitioner exchanged them with P2,000,000.00 worth of stocks-in-trade of the corporation, is valid and lawful.

THIRD DIVISION G.R. No. 74306 March 16, 1992 ENRIQUE RAZON, petitioner, vs. INTERMEDIATE APPELLATE COURT and VICENTE B. CHUIDIAN, in his capacity as Administrator of the Estate of the Deceased JUAN T. CHUIDIAN, respondents. FACTS: Sometime in 1962, Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the arrastre services in South Harbor, Manila. The incorporators consisted of Enrique Razon, Enrique Valles, Luisa M. de Razon, Jose Tuason, Jr., Victor Lim, Jose F. Castro and Salvador Perez de Tagle.

Stock Certificate No. 003 covering 1,500 shares of stock upon instruction of the late Chuidian on April 23, 1986 was personally delivered by Chuidian on July 1, 1966 to the Corporate Secretary of Attorney Silverio B. de Leon who was himself an associate of the Chuidian Law Office.

The CFI of Manila, declared that Enrique Razon, the petitioner in G.R. No. 74306 is the owner of the said shares of stock. The then Intermediate Appellate Court, however, reversed the trial court's decision and ruled that Juan T. Chuidian, the deceased father of petitioner Vicente B. Chuidian in G.R. No. 74315 is the owner of the shares of stock. Both parties filed separate motions for reconsideration. ISSUE: whether or not the ownership of 1,500 shares of stock in E. Razon, Inc. covered by Stock Certificate No. 003 issued on April 23, 1966 and registered under the name of Juan T. Chuidian in the books of the corporation. RULING:

G.R. NO. 139802

December 10, 2002

VICENTE C. PONCE, petitioner, vs. ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents. Vicente C. Ponce, filed a complaint with the SEC for mandamus and damages against Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner alleged, among others, that: The late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC), having subscribed to and fully paid 239,500 shares of said corporation. VCC was renamed Floro Cement Corporation, then later on renamed Alsons Cement Corporation. Plaintiff and Fausto Gaid executed a "Deed of Undertaking" and "Indorsement" whereby the latter acknowledges that the former is the owner of said shares and he was therefore assigning/endorsing the same to the plaintiff.

From the time of incorporation of VCC up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff. Despite repeated demands, the defendants refused and continue to refuse without any justifiable reason to issue to plaintiff the certificates of stocks corresponding to the 239,500 shares of Gaid, in violation of plaintiffs right to secure the corresponding certificate of stock in his name. Instead of filing an answer, respondents moved to dismiss on the ground of lack of cause of action, arguing that there being no allegation that the alleged "INDORSEMENT" was recorded in the books of the corporation, said indorsement by Gaid to the plaintiff of the shares of stock in question was not valid against third persons such as ALSONS under Section 63 of the Corporation Code. Petitioner filed his opposition to the motion to dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss Their motion for reconsideration having been denied, herein respondents appealed the decision of the SEC En Banc and the resolution denying their motion for reconsideration to the Court of Appeals. In its decision, the Court of Appeals held that the complaint for mandamus should be dismissed for failure to state a cause of action. petitioners motion for reconsideration was likewise denied. Issue: Whether or not the indorsement of the executed by the stockholder to the endorsee is binding against the corporation? Ruling: We find the instant petition without merit. From the corporations point of view, the transfer is not effective until it is recorded. Unless and until such recording is made the demand for the issuance of stock certificates to the alleged transferee has no legal basis. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. In other words, the stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock certificates in the transferees name. mere indorsement by the supposed owners of the stock, in the absence of express instructions from them, cannot be the basis of an action for mandamus and that the rights of the parties have to be threshed out in an ordinary action. It has been made clear that

before a transferee may ask for the issuance of stock certificates, he must first cause the registration of the transfer and thereby enjoy the status of a stockholder insofar as the corporation is concerned. A corporate secretary may not be compelled to register transfers of shares on the basis merely of an indorsement of stock certificates. With more reason, in our view, a corporate secretary may not be compelled to issue stock certificates without such registration. That petitioner was under no obligation to request for the registration of the transfer is not in issue. It has no pertinence in this controversy. One may own shares of corporate stock without possessing a stock certificate. In the present case, petitioners complaint for mandamus must fail, not because of laches or estoppel, but because he had alleged no cause of action sufficient for the issuance of the writ.

Republic of the Philippines vs. Estate of Hans Menzi Following a lead that Marcos had substantial holdings in Bulletin Publishing Corporation (Bulletin), the PCGG issued a Writ of Sequestration dated April 22, 1986, sequestering the shares of Marcos, Emilio T. Yap (Yap), Eduardo M. Cojuangco, Jr. (Cojuangco), and their nominees and agents in Bulletin. This was followed by another Writ of Sequestration issued on February 12, 1987, this time sequestering the shares of stock, assets, properties, records and documents of Hans Menzi Holdings and Management, Inc. (HMHMI). The Republic then instituted before the Sandiganbayan a complaint for reconveyance, reversion, accounting, restitution and damages. The included the Estate of Hans M. Menzi through its executor, Atty. Montecillo as one of the defendants. For its defense, the Estate of Menzi insists that Campos, Cojuangco and Zalamea were nominees of Menzi, not dummies of Marcos, because the stock certificates covering the contested blocks of shares were indorsed in blank and remained in Menzis possession. Issue: Whether or not possession of stocks certificates by a person equates to the latters ownership over the stocks covered by such certificate? Ruling: We affirm the ruling of the Sandiganbayan. It should be noted at the outset that there is no more dispute as regards the Bulletin shares registered in the name of Campos. In fact, Campos was not included as a defendant in Civil Case No. 0022. The Bulletin shares registered in his name have been voluntarily surrendered to the PCGG and the proceeds thereof have accordingly been forfeited in favor of the Government.

The same cannot be said, however, of the Bulletin shares registered in the name of Zalamea. Although he was dropped as a party-defendant in the Second Amended Complaint dated October 17, 1990 purportedly by reason of the Deed of Assignment he executed on October 15, 1987, the Zalamea-held shares are clearly still covered by the Teehankee Resolution remanding the issue on the ownership of the sequestered Cojuangco and Zalamea shares for determination and adjudication by the Sandiganbayan. The 46,626 shares registered in the name of Cojuangco which formed part of the 214 block were declared to be ill-gotten wealth based on the evidence presented by the Republic to show that Cojuangco acted as a nominee of Marcos and on Cojuangcos unsubstantiated allegation that he acted as a nominee not of Marcos but of Menzi. The party who alleges a fact has the burden of proving it. The burden of proof may be on the plaintiff or the defendant. It is on the defendant if he alleges an affirmative defense which is not a denial of an essential ingredient in the plaintiffs cause of action, but is one which, if established, will be a good defense i.e., an avoidance of the claim. In the instant case, Cojuangcos allegations are in the nature of affirmative defenses which should be adequately substantiated. He did not deny that Bulletin shares were registered in his name but alleged that he held these shares not as nominee of Marcos, as the Republic claimed, but as nominee of Menzi. He did not, however, present any evidence to support his claim and, in fact, filed a Manifestation dated July 20, 1999 stating that he sees no need to present any evidence in his behalf. Significantly, even as they claimed ownership of the Bulletin shares in their Answer to the Republics Second Amended Complaint, the Estate of Menzi and HMHMI did not file any cross-claim against the purported Menzi nominees. Parenthetically, the fact that the stock certificates covering the shares registered under the names of Campos, Cojuangco and Zalamea were found in Menzis possession does not necessarily prove that the latter owned the shares. A stock certificate is merely a tangible evidence of ownership of shares of stock. Its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock certificate. Hence, as registered owners, Campos and Zalamea validly ceded their shares in favor of the Government. This assignment is now a fait accompli for the benefit of the entire nation.

NAUTICA CANNING CORPORATION, FIRST DOMINION PRIME HOLDINGS, INC. and FERNANDO R. ARGUELLES, JR., Petitioners:

G.R. No. 164588

- versus, ROBERTO C. YUMUL, Respondent.

Promulgated:October 19, 2005

The facts of the case show that Nautica Canning Corporation had a subscribed capital stock of P10,000,000 with paid-in subscriptions from its incorporators including Alvin Dee with 89,991 shares and Roberto Yumul with 1 share, among others. Roberto C. Yumul was appointed Chief Operating Officer/General Manager of Nautica. On the same date, Dee granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from Nautica. On June 22, 1995, a Deed of Trust and Assignment was executed between Alvin Dee and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. After Yumuls resignation from Nautica, he requested that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records. Yumuls requests were denied. He filed before the SEC a petition for mandamus with damages, with prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the certificate of stocks corresponding thereto be issued in his name. Nautica contends that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They presented Stock Certificate No. 6 with annotation ITF Alvin Y. Dee which means that respondent held said stock In Trust For Alvin Y. Dee, among others. The SEC En Banc rendered the Decision in favor of the Yumul. On appeal, the Court of Appeals affirmed the decision of the SEC En Banc. Petitioners motion for reconsideration was denied. Hence, this petition. Issue: Whether or not Yumul can inspect the books of the corporation? Ruling: Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation is not affected when such individual gives nominal ownership of only

one share of stock to each of the other four incorporators. This is not necessarily illegal. But, this is valid only between or among the incorporators privy to the agreement. It does bind the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to the real parties in interest. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of one share of stock recorded in Yumuls name, although allegedly held in trust for Dee. Nauticas Articles of Incorporation and By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one share. Even granting that there was an agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between them. From the corporations vantage point, Yumul is its stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee, the alleged real owner of the share, after Nauticas incorporation.

PACIFIC BASIN SECURITIES CO., INC., Petitioner, - versus ORIENTAL PETROLEUM and MINERALS CORP. and EQUITABLE BANKING CORP., Respondents.

G.R. No. 143972

Pacific Basin Securities, Inc. purchased Class A shares of Oriental Petroleum and Minerals Corporation (OPMC). PacificBasin fully paid for the OPMC shares. The shares were listed and traded in the Makati Stock Exchange. The OPMC shares turned out to be owned by Piedras Petroleum Mining Corporation (Piedras Petroleum), a sequestered company controlled by the nominees of the PCGG. PCGG sent a letter confirming Piedras Petroleums sale of the OPMC shares in favor of PacificBasin. In the same letter, PCGG requested to record the acquisition and to issue the corresponding certificates of stock in favor of PacificBasin. The requests were left unheeded.

Hence, PacificBasin filed a Petition for Mandamus with Prayer for a Writ of Preliminary Mandatory Injunction and/or Restraining Order and Writ of Preliminary Prohibitory Injunction docketed as SEC Case No. 04225. The Securities and Exchange Commission Hearing Officer ruled in favor of PacificBasin. The corporate officers of OPMC were also found to have acted in bad faith when they refused to transfer the shares to PacificBasin. Hence, they were ordered to jointly and severally pay Pacific Basin damages and cost and expenses of the suit. OPMC filed their Motion for Reconsideration which was denied by the Hearing Officer. Later, OPMC filed their appeal before the SEC en banc. The SEC en banc rendered its Decision which modified Decision of the Hearing Officer by deleting the awards of damages. Petitioner PacificBasin and OPMC separately went to the Court of Appeals. The CA rendered a Decision which affirmed in toto the July 13, 1999 Decision of the SEC en banc. Again, both parties filed their respective appeals with the Supreme Court. Issue: Whether or not OPMC can refuse registration of the sale in the books on the corporation on the ground that Piedras Petroleum is under sequestration by the PCGG? Ruling: The petitions are without merit. Prior to the sale to PacificBasin, Piedras Petroleum was the owner of the subject OPMC shares. Piedras Petroleum is a sequestered company controlled by the nominees of the PCGG. The fact that Piedras Petroleum was placed under sequestration by the PCGG does not ipso facto make it a government-owned corporation.
cralawA

sequestration order is similar to the provisional remedy of Receivership under Rule 59 of the Rules of Court. cThe PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over so as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. The PCGG, as a mere conservator, does not automatically become the owner of a sequestered property in behalf of the government. There must be a final determination by the courts if the property is in fact ill-gotten and was acquired by using government funds. Thus, OPMC cannot conclusively claim that the subject shares are government property by virtue of a sequestration order on Piedras Petroleum. It is beyond dispute that OPMC holds no unpaid claim against PacificBasin for the value of the shares acquired by the latter.The Court sees no reason why OPMC and EBC

consistently and continuously refused to record the transfer in the stock and transfer books of OPMC and issue new certificates in favor of PacificBasin. Clearly, the right of a transferee/ assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus.

G.R. No. 158805

April 16, 2009

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA. DE CARAM, Respondent. May a non-stock corporation seize and dispose of the membership share of a fully-paid member on account of its unpaid debts to the corporation when it is authorized to do so under the corporate by-laws but not by the Articles of Incorporation? Valley Golf & Country Club is a duly constituted non-stock, non-profit corporation which operates a golf course. The members and their guests are entitled to play golf on the said course and otherwise avail of the facilities and privileges provided by Valley Golf. The shareholders are likewise assessed monthly membership dues. The late Congressman Fermin Z. Caram, Jr. (Caram) subscribed to, purchased and paid for in full one share (Golf Share) in the capital stock of Valley Golf. Caram stopped paying his monthly dues, which were continually assessed. Valley Golf claims to have sent five (5) letters to Caram concerning his delinquent account all forwarded the mailing address which Caram allegedly furnished Valley Golf. The Golf Share was sold at public auction after the Board of Directors had authorized the sale in a meeting and the Notice of Auction Sale was published. As it turned out, Caram had died on 6 October 1986. Respondent initiated intestate proceedings before the Regional Trial Court of Iloilo City, to settle her husbands estate. Unaware of the pending controversy over the Golf Share, the Caram family and the RTC included the same as part of Carams estate. The RTC approved a project of partition of Carams estate and the Golf Share was adjudicated to respondent, who paid the corresponding estate tax due, including that on the Golf Share. It was only through a letter that the heirs of Caram learned of the sale of the Golf Share following their inquiry with Valley Golf about the share.

Respondent filed an action for reconveyance of the share with damages before the SEC against Valley Golf. SEC Hearing Officer rendered a decision in favor of respondent, ordering Valley Golf to convey ownership of the Golf Share or in the alternative to issue one fully paid share of stock of Valley Golf the same class as the Golf Share to respondent. On appeal to the SEC en banc, said body promulgated a decision affirming the hearing officers decision in toto. Valley Golf elevated the SECs decision to the Court of Appeals by way of a petition for review. The appellate court rendered a decision affirming the decisions of the SEC and the hearing officer. Hence this petition. Issue: Whether or not Valley Golf can validly sell through public auction the Golf share in order to satisfy the debts due in the instant case? Ruling: It may be conceded that the actions of Valley Golf were, technically speaking, in accord with the provisions of its by-laws on termination of membership, vaguely defined as these are. Yet especially since the termination of membership in Valley Golf is inextricably linked to the deprivation of property rights over the Golf Share, the emergence of such adverse consequences make legal and equitable standards come to fore. In order that the action of a corporation in expelling a member for cause may be valid, it is essential, in the absence of a waiver, that there shall be a hearing or trial of the charge against him, with reasonable notice to him and a fair opportunity to be heard in his defense. If the method of trial is not regulated by the by-laws of the association, it should at least permit substantial justice. The hearing must be conducted fairly and openly and the body of persons before whom it is heard or who are to decide the case must be unprejudiced. It is unmistakably wise public policy to require that the termination of membership in a non-stock corporation be done in accordance with substantial justice. No matter how one may precisely define such term, it is evident in this case that the termination of Carams membership betrayed the dictates of substantial justice. The by-laws of Valley Golf is discomfiting enough in that it fails to provide any formal notice and hearing procedure before a members share may be seized and sold. The Court would have been satisfied had the by-laws or the articles of incorporation established a procedure which assures that the member would in reality be actually notified of the pending accounts and provide the opportunity for such member to settle such accounts before the membership share could be seized then sold to answer for the debt. In the absence of a satisfactory procedure under the articles of incorporation or the by-laws that affords a member the opportunity to defend against the deprivation of significant property

rights in accordance with substantial justice, the terms of the by-laws or articles of incorporation will not suffice. The arrangement provided for in the afore-quoted by-laws of Valley Golf whereby a lien is constituted on the membership share to answer for subsequent obligations to the corporation finds applicable parallels under the Civil Code. Membership shares are considered as movable or personal property, and they can be constituted as security to secure a principal obligation, such as the dues and fees. There are at least two contractual modes under the Civil Code by which personal property can be used to secure a principal obligation. The first is through a contract of pledge, while the second is through a chattel mortgage. A pledge would require the pledgor to surrender possession of the thing pledged, i.e., the membership share, to the pledge in order that the contract of pledge may be constituted. If delivery of the share cannot be effected, the suitable security transaction is the chattel mortgage.

G.R. No. 165443

April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner, vs. SIXTO CLEMENTE, JR., Respondent. Clemente applied to purchase one share of stock of Calatagan, indicating in his application for membership his mailing address at "Phimco Industries, Inc. P.O. Box 240, MCC," complete residential address, office and residence telephone numbers. Calatagan issued to him a Certificate of Stock after paying for the share. Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs for upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated in Calatagans Articles of Incorporation and By-Laws. When Clemente became a member, he paid for his monthly dues on several dates. Then he ceased paying the dues. Ten months later, Calatagan made the initial step to collect Clementes back accounts by sending two demand letters. Both letters were sent to Clementes mailing address as indicated in his membership application but were sent back to sender with the postal note that the address had been closed. Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty days. Calatagan also included Clementes name in the list of delinquent members posted on the clubs bulletin board. Later on, Calatagans board of directors adopted a resolution authorizing the foreclosure of shares of Clemente and the public auction of these shares.

Calatagan sent a third and final letter to Clemente containing a warning that unless Clemente settles his outstanding dues, his share would be included among the delinquent shares to be sold at public auction. Again, this letter was sent to Clementes mailing address that had already been closed. The auction sale took place as scheduled and Clementes share was sold. Clemente learned of the sale of his share only four years after such sale. He filed a claim with SEC seeking the restoration of his shareholding in Calatagan with damages. The SEC rendered a decision dismissing Clementes complaint. Citing Section 69 of the Corporation Code which provides that the sale of shares at an auction sale can only be questioned within six months from the date of sale, the SEC concluded that Clementes claim, filed four years after the sale, had already prescribed. Clemente filed a petition for review with the Court of Appeals, which promulgated a decision reversing the SEC. The appellate court restored Clementes one share with a directive to Calatagan to issue in his a new share, and awarded to Clemente damages, less the unpaid monthly dues, holding that a person who is in danger of the imminent loss of his property has the right to be notified and be given the chance to prevent the loss. Hence, the present appeal. Issue: 1. Is section 69 of the Corporation Code applicable in this case? 2. Did Calatagan actually comply with the by-law provisions when it sold Clementes share? Ruling: There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address that situation, decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar. Article 1140 of the Civil Code is applicable which provides that an action to recover movables shall prescribe in eight (8) years. Clementes action is for the recovery of a share of stock, plus damages.

Calatagans advertence to the fact that the constitution of a lien on the members share by virtue of the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause. The Court is satisfied that the By-Laws, as written, affords due protection to the member by assuring that the member should be notified by the Secretary of the looming execution sale that would terminate membership in the club. If followed to the letter, the termination of membership under this procedure outlined in the By-Laws would accord with substantial justice. Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of its own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the impending sale, and not just to provide an intricate faade that would facilitate Calatagans sale of the share. The bad faith on Calatagans part is palpable. Calatagan very well knew that Clementes postal box to which it sent its previous letters had already been closed, yet it persisted in sending that final letter to the same postal box. What for? Just for the exercise, it appears, as it had known very well that the letter would never actually reach Clemente. It is noteworthy that Clemente in his membership application had provided his residential address along with his residence and office telephone numbers. Nothing in Calatagans By-Laws requires that the final notice prior to the sale be made solely through the members mailing address. A simple telephone call and an ounce of good faith could have prevented this present controversy. That memorable observation is quite apt in this case.

G.R. No. 91655 November 5, 1991 REPUBLIC OF THE PHILIPPINES, petitioner, vs. SANDIGANBAYAN and ROSARIO M.B. OLIVARES, respondents. Rosario M.B. Olivares, one of the defendants in a Civil Case pending before the Sandiganbayan, filed with the latter an "Urgent Motion to Require PCGG to Render Report and Accounting of Management of Philippine Journalists, Inc." It promulgated its resolution granting the motion. In compliance with the foregoing resolution, PCGG submitted to the Sandiganbayan copies of the audited financial statements of PJI. Olivares filed a manifestation and motion alleging that the submission of the said financial statements does not constitute substantial compliance with the resolution which granted her motion for an accounting and/or financial report on the fiscal management of PJI. Accordingly, she prayed that PCGG be ordered to make a more detailed accounting and/or financial report on the inventory of the physical assets of the corporation, among others. The PCGG filed its opposition to the said manifestation and motion.

Respondent court promulgated its resolution granting the prayer for an accounting of PJI's assets and liabilities, Ordering PCGG to allow Olivares, through a reputable auditing firm of her choice, to inspect, examine and audit PJI's records. PCGG filed its motion for reconsideration of the foregoing resolution, which was denied. Hence, this petition for certiorari and prohibition with prayer for temporary restraining order and preliminary injunction. Issue: Whether or not respondent court has jurisdiction over Olivares' motion for an accounting of the sequestered PJI's assets and liabilities through an auditing firm of her notice? Ruling: Under Section 2 of the President's Executive Order No. 14, all cases of the Commission regarding the Funds, Moneys, Assets, and Properties Illegally Acquired or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees, whether civil or criminal, are lodged within the exclusive and original jurisdiction of the Sandiganbayan and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise under the Sandiganbayan's exclusive and original jurisdiction subject to review on certiorari exclusively by the Supreme Court. Evidently, the exclusive jurisdiction conferred on the Sandiganbayan extends not only to the principal causes of action but also to all incidents arising from, incidental to, or related to, such cases, which may not be made the subject of separate action or proceeding in another forum. In the case at bar, respondent court ordered the accounting and auditing of the sequestered assets of PJI to insure that no hanky-panky or dubious financial deals have been entered into which might have resulted in dissipation of corporate assets. As the assets of PJI are merely under sequestration and have not as yet been judicially declared as "ill-gotten wealth", sufficient safeguards should be adopted to prevent them from being unduly dissipated, especially when facts and circumstances are brought out, as in the case at bar, which reflect a prima facie showing of wanton or reckless dissipation thereof. Inasmuch as these assets are now the object of an action before the Sandiganbayan, hence in custodia legis, it logically follows that the matter of preserving them for the benefit of the party that may finally be adjudged to be the owner thereof is the prerogative of the said court as an incident to its primary responsibility of determining whether or not these assets fall under the category of "ill-gotten wealth." Accordingly, when it ordered that an accounting and audit be conducted on the assets and liabilities of PJI as prayed for by Olivares, respondent court was merely exercising said prerogative, which in no way can be considered as tantamount to grave abuse of discretion.

G.R. No. 123553 July 13, 1998 NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, respondents. Petitioner Nora A. Bitong before the SEC allegedly for the benefit of Mr. & Ms. Publishing Co., Inc., to hold spouses Eugenia and Jose Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. She alleged that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 1976 to 1989, and was the registered owner of 1,000 shares of stock of the total outstanding shares. The Apostol spouses refuted said allegations and contended that petitioner, being merely a holder-in-trust of JAKA shares at the time the acts complained of were made, was not the true party to this case, hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. After trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner. Petitioner Bitong appealed to the SEC En Banc, which reversed the decision of the Hearing Panel Consequently, respondent Apostol spouses, filed a petition for review before respondent Court of Appeals. The appellate court reversed the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and

therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Issue: Whether or not records found in the books of the corporation are conclusive as to the truth of the matters recorded therein? Ruling: Books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one's status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estopped cannot operate to create stock which under the law cannot have existence. As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the stock and transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholder's derivative suit against private respondents. Aside from petitioner's own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA.

G.R. No. 77860 November 22, 1988 BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS and NILCAR Y. FAJILAN, respondents.

The only issue in this case is. The resolution of that issue will determine whether the Securities and Exchange Commission (SEC) or a regular court has jurisdiction over the action. Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of BEDECO and to sell to the company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. At a meeting of the Board of Directors of BEDECO, Fajilan's resignation as president was accepted and his offer to sell his shares back to the corporation was approved. The Board promised to pay for them on a staggered basis, evidenced by a promissory note signed by BEDECO'S new president. However, BEDECO the first two installments amounting to P100,000 and defaulted in paying the balance of P200,000. Fajilan filed a complaint in the Regional Trial Court of Makati for collection of that balance from BEDECO. The trial court dismissed the complaint for lack of jurisdiction. His motion for reconsideration of that order having been denied, Fajilan filed a Petition for Certiorari in the Intermediate Appellate Court. The appellate court set aside the order of dismissal of the trial court and directed him to take cognizance of the case. BEDECO's motion for reconsideration was subsequently denied. Hence this petition. Issue: whether or not a suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due for the surrender of his shares of stock involves an intra-corporate dispute? Ruling: This case involves an intra-corporate controversy because the parties are a stockholder and the corporation. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan's participation and interests in BEDECO and the execution of the promissory note for payment of the price of the sale did not remove the dispute from the jurisdiction of the SEC, for both the said agreement and the promissory note (arose from intra-corporate relations. Indeed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an intra-corporate transaction, hence, this suit is an intra-corporate controversy. Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall

determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, based on the trust fund doctrine which means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void.

G.R. No. L-20850

November 29, 1965

THE EDWARD J. NELL COMPANY, petitioner, vs. PACIFIC FARMS, INC., respondent. Appellant Edward J. Nell Company secured in a Civil Case against Insular Farms, Inc. a judgment representing the unpaid balance of the price of a pump sold by appellant to Insular Farms. The writ of execution was returned unsatisfied, stating that Insular Farms had no leviable property. Thereafter, appellant filed before the municipal court the present action against Pacific Farms, Inc. for the collection of the judgment aforementioned, upon the theory that appellee is the alter ego of Insular Farms, because the former had purchased all or substantially all of the shares of stock, as well as the real and personal properties of the latter, including the pumping equipment sold by appellant to Insular Farms. The municipal court rendered judgment dismissing appellant's complaint. Appellant appealed, with the same result, to the court of first instance and, subsequently, to the Court of Appeals. Hence this appeal by certiorari. Issue: Whether or not Pacific Farms is liable for the debt of Insular Farms to the appellee in this case? Ruling: Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the

purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts. In the case at bar, there is neither proof nor allegation that appellee had expressly or impliedly agreed to assume the debt of Insular Farms in favor of appellant herein, or that the appellee is a continuation of Insular Farms, or that the sale of either the shares of stock or the assets of Insular Farms to the appellee has been entered into fraudulently, in order to escape liability for the debt of the Insular Farms. Appellee purchased the shares of stock of Insular Farms as the highest bidder at an auction sale held at the instance of a bank to which said shares had been pledged as security for an obligation of Insular Farms in favor of said bank. Neither is it claimed that these transactions have resulted in the consolidation or merger of the Insular Farms and appellee herein. On the contrary, appellant's theory to the effect that appellee is an alter ego of the Insular Farms negates such consolidation or merger, for a corporation cannot be its own alter ego.

G.R. No. 123793 June 29, 1998 ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO SARMIENTO JR., respondents. On or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, which subsequently changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, the defendant executed in favor of Citizens Bank and Trust Company a promissory note whereby the former undertook to pay the latter the sum of money. Despite repeated demands the defendant failed to pay the amount due. Thus, petitioner filed an action against Sarmiento. Sarmiento was declared in default. Based on the evidence presented by petitioner exparte, the trial court ordered Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. In his appeal, Sarmiento assigned to the trial court several errors. However, the appellate court found no need to tackle all the assigned errors and limited itself to the question of whether petitioner had established or proven a cause of action against Sarmiento. Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated

Bank with any interest arising from the promissory note executed in favor of CBTC after such merger. Thus, the appellate court set aside the decision of the trial court and dismissed the complaint. Petitioner now comes to us for a reversal of this ruling. Issue: Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed? Ruling: The petition is impressed with merit. Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The Corporation Code requires the approval by the SEC of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. The records do not show when the SEC approved the merger. In this case, however, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts irrespective of the date of execution entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes."

G.R. No. 142936

April 17, 2002

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent. Pampanga Sugar Mills (PASUMIL) engaged the services of Andrada Electric &Engineering Company for electrical rewinding and repair, and construction of certain improvements. The latter fulfilled its obligation, while PASUMIL defaulted in its payment. Subsequently, PNB acquired the assets of the defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines under LOI No. 311. Andrada Electric besought PNB to pay the outstanding obligation of the defendant PASUMIL, inasmuch as PNB now owned and possessed the assets of the PASUMIL. However, PNB refused to pay. Thus, Andrada Electric filed before the trial court a collection case against PNB, claiming that it should be held liable for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to merge or consolidate, among others. On the other hand, PNB contends that their takeover of the operations of PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its separate identity as a corporation. The trial court rendered a decision holding PNB liable for the debt if PASUMIL to Andrada Electric. On appeal, the CA affirmed said decision. Hence this petition. Issue: Whether or not there was a merger or consolidation of PNB and PASUMIL? Ruling: A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business. The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of law authorizing them. For a valid merger or consolidation, the

approval by the Securities and Exchange Commission (SEC) of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations. In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code was not followed. In fact, PASUMILs corporate existence, had not been legally extinguished or terminated. Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to respondent. LOI No. 11 explicitly provides that PNB shall study and submit recommendations on the claims of PASUMILs creditors. Clearly, the corporate separateness between PASUMIL and PNB remains, despite respondents insistence to the contrary.

G.R. No. 99398 & 104625

January 26, 2001

CHESTER BABST, petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL CORPORATION, respondents.

ELISCON obtained from CBTC a loan evidenced by a promissory note. ELISCON defaulted in its payments, leaving an outstanding indebtedness. Chester G. Babst executed a Continuing Suretyship, whereby he bound himself jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of. BPI and CBTC entered into a merger, wherein BPI, as the surviving corporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCON encountered financial difficulties and became heavily indebted to DBP. In order to settle its obligations, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors, but BPI expressly rejected the formula submitted to it for not being acceptable. Consequently, BPI instituted with the Regional Trial Court of Makati complaint for sum of money against ELISCON, MULTI and Babst. ELISCON and MULTI assail BPI's legal capacity to recover their obligation to CBTC based on novation on the part of the creditor.

Issue: Whether or not the defense of novation can be raised on the basis of a merger of the creditor corporation with another corporation, the latter being the surviving corporation? Ruling: At the outset, the preliminary issue of BPI's right of action must first be addressed. There is no question that there was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right to institute the case a quo.

G.R. No.148004

January 22, 2007

VINCENT E. OMICTIN, Petitioner, vs. HON. COURT OF APPEALS (Special Twelfth Division) and GEORGE I. LAGOS, Respondents. Petitioner Vincent E. Omictin, Operations Manager Ad Interim of Saag Phils., Inc., filed before the Office of the Prosecutor of Makati a complaint for two counts of estafa against private respondent George I. Lagos. He alleged that private respondent, despite repeated demands, refused to return the two company vehicles entrusted to him when he was still the president of Saag Phils., Inc. Subsequently, a criminal case for estafa was filed before the Makati RTC. Private respondent filed a motion to suspend proceedings on the basis of a prejudicial question because of a pending petition with the SEC involving the same parties. It appears that private respondent filed an SEC Case for the declaration of nullity of the appointment of petitioner as Operations Manager Ad Interim of Saag Phils., Inc., among others. The trial court denied respondents motion to suspend proceedings. His motion for reconsideration having been denied by the trial court, respondent filed with the CA the petition for certiorari assailing the aforesaid orders. The CA rendered its challenged decision holding that a prejudicial question exists which calls for the suspension of the criminal proceedings before the lower court. Hence, this petition.

Issue: Whether or not a prejudicial question exists to warrant the suspension of the criminal proceedings pending the resolution of the intra-corporate controversy that was originally filed with the SEC? Ruling: A prejudicial question is defined as that which arises in a case, the resolution of which is a logical antecedent of the issue involved therein and the cognizance of which pertains to another tribunal. Here, the case which was lodged originally before the SEC involves facts that are intimately related to those upon which the criminal prosecution is based. Ultimately, the resolution of the issues raised in the intra-corporate dispute will determine the guilt or innocence of private respondent in the crime of estafa filed against him by petitioner before the RTC of Makati. As correctly stated by the CA, one of the elements of the crime of estafa with abuse of confidence under Article 315, par. 1(b) of the Revised Penal Code is a demand made by the offended party to the offender. Logically, under the circumstances, since the alleged offended party is Saag Phils., Inc., the validity of the demand for the delivery of the subject vehicles rests upon the authority of the person making such a demand on the companys behalf. Private respondent is challenging petitioners authority to act for Saag Phils., Inc. in the corporate case pending before the RTC of Mandaluyong, Branch 214. Taken in this light, if the supposed authority of petitioner is found to be defective, it is as if no demand was ever made, hence, the prosecution for estafa cannot prosper.

G.R. No. 146667

January 23, 2007

JOHN F. McLEOD, Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents. John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc.(FETMI), Sta. Rosa Textiles (Peggy Mills), Inc., Patricio Lim and Eric Hu. He claimed alleged that that in 1991, Filsyn sold Peggy Mills, Inc. to FETMI as per agreement and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President

Respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them and complainant. The Labor Arbiter rendered his decision holding all respondents as jointly and solidarily liable for complainants money claims All respondents appealed to the NLRC, which held that only Peggy Mills, Inc. is liable. McLeod filed a motion for reconsideration which the NLRC denied. McLeod thus filed a petition for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC. The Court of Appeals affirmed with modification the decision of the NLRC, and included Patricio Lim as jointly and severally liable with Peggy Mills. Hence, this petition filed by McLeod. Issue: Whether or not the sale of assets in by one corporation to another amounts to merger or consolidation? Ruling: The petition must fail. What took place between PMI and SRTI was dation in payment with lease. Here, PMI transferred its assets to SRTI to settle its obligation to SRTI. We are not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. There was no merger or consolidation of PMI and SRTI. 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 corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations,

and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.

G.R. No. 167434 February 19, 2007 SPOUSES RAMON M. NISCE and A. NATIVIDAD PARAS-NISCE, Petitioners, vs. EQUITABLE PCI BANK, INC., Respondent. In 1994, the Equitable Banking Corporation and the PCIB were merged under the corporate name Equitable PCI Bank. Equitable PCI Bank as creditor-mortgagee filed a petition for extrajudicial foreclosure before the Office of the Clerk of Court as Ex-Officio Sheriff of the Regional Trial Court (RTC) of Makati City. It sought to foreclose the real estate mortgage contracts executed by the spouses Ramon and Natividad Nisce over several parcels of land. The Ex-Officio Sheriff set the sale at public auction. The Nisce spouses filed before the RTC of Makati City a complaint for "nullity of the Suretyship Agreement, damages and legal compensation" with prayer for injunctive relief against the Bank and the Ex-Officio Sheriff. They alleged that in a letter they had requested the bank to setoff the peso equivalent of their obligation against their US dollar account with PCI Capital Asia Limited, a fully-owned subsidiary in Hong Kong, which was accepted by the bank. In its Answer, the Bank alleged that the spouses had no cause of action for legal compensation since PCI Capital was a different corporation with a separate and distinct personality. The RTC issued an Order granting the spouses Nisces plea for a writ of preliminary injunction upon payment of a bond. The Bank opted not to file a motion for reconsideration of the order, and instead assailed the trial courts order before the CA via petition for certiorari under Rule 65 of the Rules of Court. The CA rendered judgment granting the petition and nullifying the assailed Order of the RTC. The spouses Nisce moved to have the decision reconsidered, but the appellate court denied the motion. They thus filed the instant petition for review.

Issue: Whether or not legal compensation is proper in this case? Ruling: When petitioner Natividad Nisce deposited her money with the PCIB on July 19, 1984, PCIB became the debtor of petitioner. However, when upon petitioners request, the amount was transferred to PCI Capital, PCI Capital, in turn, became the debtor of Natividad Nisce. The issuance of a certificate of deposit in exchange for currency creates a debtor-creditor relationship. Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital has an independent and separate juridical personality from that of the respondent Bank, its parent company; hence, any claim against the subsidiary is not a claim against the parent company and vice versa. The evidence on record shows that PCIB, which had been merged with Equitable Bank, owns almost all of the stocks of PCI Capital. However, the fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those arising in their respective business. A corporation has a separate personality distinct from its stockholders and from other corporations to which it may be conducted. This separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice. On hindsight, petitioners could have spared themselves the expenses and tribulation of a litigation had they just withdrawn their deposit from the PCI Capital and remitted the same to respondent. However, petitioner insisted on their contention of setoff.

G.R. No. 120294 February 10, 1998 ANTONIO LITONJUA and ARNOLD LITONJUA, petitioners, vs. THE HON. COURT OF APPEALS, EIGHT DIVISION, WACK WACK GOLF AND COUNTRY CLUB, BENIGNO CUA, ALFONSO CU-UNJIENG, VIVENCIO TINIO, EDUARDO C. LIM, BONIFACIO SISON, AMBROSIO VALDEZ and DANILO DIMAYUGA, in their capacity as members of the Membership Committee, Wack Wack Golf and Country Club, and ED UNSON, BENITO CUA, AGAPITO ROXAS and HENRY TAN, in their capacity as members of the Board of Directors of Wack Wack Golf and Country Club, respondents.

Respondent Wack Wack Golf and Country Club is a non-profit corporation which offers sports, recreational and social activities to its members. Petitioner Antonio Litonjua is an Associate Member of said corporation. In January 1985, respondent club posted the monthly list of delinquent members on its premises. Included therein was petitioner Antonio Litonjua. He proceeded to the Cashier's Office of the club and was informed about his failure to pay his November 1984 dues. Antonio Litonjua was able to convince the auxiliary clerks in the Cashier's Office to delete his name from the list of delinquent members. Consequently, Antonio Litonjua continued to avail of the club facilities. However, Antonio Litonjua received a letter dated 9 February 1985 from the General Manager of Wack Wack, informing him of the Membership Committee's decision to suspend him for a period of sixty days, effective 3 February 1985. He allegedly violated Sec. 34(d) of the club's by-laws when he availed of club privileges while listed as a delinquent member. In March 1985, petitioners sent a letter to Wack Wack demanding restitution in the sum of P5,000,000.00 for their wrongful and arbitrary suspension. When Wack Wack failed to respond, petitioners filed a complaint with the SEC for the nullification of their suspension and for actual, moral and exemplary damages. SEC Hearing Officer rendered its decision in favor of petitioners. Private respondents next recourse was to appeal to the SEC en banc. However, the latter affirmed the findings of Hearing Officer but reduced the amount of damages awarded. Private respondents filed a petition for review with the Court of Appeals. The Court of Appeals rendered its decision reversing the order of the SEC en banc and upholding the suspension of petitioners. Petitioners' motion for reconsideration was denied for lack of merit. Hence, this petition. Issue: Whether or not the Golf Club can suspend petitioner from the use of its facilities in this case? Ruling: In the case at bar, the Court of Appeals was justified in setting aside the findings of the SEC.

We disagree with the SEC on the ground that its ruling focused solely on the factual deletion of Antonio Litonjua's name from the list of delinquent club members. The Commission's approach was too rigid and blindly technical. That the auxiliary clerks in the Cashier's office of Wack Wack actually crossed out Antonio Litonjua's name from the delinquent list is not in dispute. However, the SEC should have considered and delved deeper into the reason and the circumstances behind the deletion. It was through misrepresentation that Antonio Litonjua was able to have his name deleted from the list of delinquent members. He insisted that he did not receive his statement of account for November 1984. As previously discussed, however, this claim turned out to be unsubstantiated. Hence, since it was under false pretenses that Antonio Litonjua managed to have his name deleted from the list of delinquent members the same has no force and effect. Consequently, being a delinquent member in the posted list and having used club facilities while posted as such, the imposition of suspension by respondents on Antonio Litonjua (and his son Arnold Litonjua) pursuant to Sec. 34 (d) of the club by-laws, was valid and legal.

G.R. Nos. 134963-64

September 27, 2001

ALFREDO LONG and FELIX ALMERIA, petitioners, vs. LYDIA BASA, ANTHONY SAYHEELIAM and YAO CHEK, respondents. In 1973, a religious group known as The Church In Quezon City (Church Assembly Hall), Incorporated was organized. It was registered in the same year with the SEC as a non-stock, non-profit religious corporation for the administration of its temporalities or the management of its properties. The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and operation shall be managed by a Board of Directors consisting of six members, who shall be members of the CHURCH. Alarmed that petitioners' conduct will continue to undermine the integrity of the Principles of Faith of the CHURCH, the Board of Directors, during its regular meeting removed from the list certain names of members, including the names of herein petitioners. They were removed for espousing doctrines inimical or injurious to the Principles of Faith of the CHURCH. The updated membership list approved by the Board together with the minutes of the meeting, were duly filed with the SEC.

Petitioners questioned their expulsion by filing with the SEC a petition which sought mainly the annulment of the revised membership list and the reinstatement of the original list on the ground that the expulsion was made without prior notice and hearing. Upon denial of the separate motions for reconsideration of both parties, the respondents filed with the SEC en banc a petition for review on certiorari. The SEC en banc issued an order setting aside the expulsion of certain members of the CHURCH approved by its Board of Directors for being void and ordering the reinstatement of petitioners as members of the CHURCH. Herein respondents filed a petition for review with the Court of Appeals. The CA promulgated its decision granting respondents petitions and reversing the order of the SEC en banc. Petitioners filed a motion for reconsideration but was denied by the appellate court in a resolution. Hence, the present petition for review by Certiorari Issue: Whether or not the expulsion of petitioners from the membership of the CHURCH by its Board of Directors through a resolution is in accordance with law? Ruling: We rule against the petitioners. The By-laws of the CHURCH, which the members have expressly adhered to, does not require the Board of Directors to give prior notice to the erring or dissident members in cases of expulsion. According to the By-law provision, the only requirements before a member can be expelled or removed from the membership of the CHURCH are: (a) the Board of Directors has been notified that a member has failed to observe any regulations and By-laws of the CHURCH, or the conduct of any member has been dishonorable or improper or otherwise injurious to the character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling the member concerned, without assigning any reason therefor. It is thus clear that a member who commits any of the causes for expulsion enumerated in the by-laws may be expelled by the Board of Directors, through a resolution, without giving that erring member any notice prior to his expulsion. The resolution need not even state the reason for such action. The CHURCH By-law provision on expulsion, as phrased, may sound unusual and objectionable to petitioners as there is no requirement of prior notice to be given to an erring member before he can be expelled. But that is how peculiar the nature of a religious corporation is vis--vis an ordinary corporation organized for profit. It must be stressed that the basis of the relationship between a religious corporation and its members

is the latters absolute adherence to a common religious or spiritual belief. Once this basis ceases, membership in the religious corporation must also cease. Thus, generally, there is no room for dissension in a religious corporation. And where, as here, any member of a religious corporation is expelled from the membership for espousing doctrines and teachings contrary to that of his church, the established doctrine in this jurisdiction is that such action from the church authorities is conclusive upon the civil courts. Obviously recognizing the peculiarity of a religious corporation, the Corporation Code leaves the matter of ecclesiastical discipline to the religious group concerned.

G.R. No. 128464

June 20, 2006

REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV. EDWINO MERCADO, REV. DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN GALAPIA, Petitioners, vs. HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO BASALONG, AUGUSTO CATANGI, PAUL GARCIA, QUIDO RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA, Respondents. The Lutheran Church in the Philippines is a religious organization duly registered with the Securities and Exchange Commission. Its members are comprised of the Lutheran clergymen and the local Lutheran congregations in the Philippines which, is divided into five districts. The governing body of the LCP is its national board of directors which is composed of eleven members serving a term of two years. 10 members of the LCP Board are elected separately in district conferences held in each district, with two members representing each. The eleventh member of the Board is the National President of the LCP who is elected at large in a national convention. The Ao-As group filed a motion for issuance of a writ of preliminary injunction seeking to enjoin the Batong group not only from continuing to act as LCP board of directors but also from calling a national convention to elect new set of officers and members of the Board as provided in the LCP Constitution and By-Laws. The SEC ordered the issuance of a writ of preliminary injunction prohibiting the Batong group from "acting as a board of directors or officers of Lutheran Church in the Philippines, Inc. (LCP) and from holding any convention or general or special membership meeting as well as election of the members of the LCP board of directors, until further orders". However, the LCP national convention had already been called in. Hence, by the time the writ of preliminary injunction was issued, all notices had already been received by all

local congregations and convention delegates had likewise already been chosen to attend the national convention. Thus, the 17th LCP National Convention was held as scheduled. During the LCP National Convention, the delegates representing the majority of the members issued a "Manifesto" to initiate by themselves the election for a new set of church leaders because the incumbent directors were enjoined to act as a board. The Batong group then filed with the SEC En Banc a Supplemental Petition alleging the supervening events in the case which took place after the filing of the original petition on. Pending the resolution of the above-mentioned petitions, the management committee took control of several church properties, replaced clergymen from their parsonages and froze all bank accounts in the name of LCP. All of the aforementioned petitions (sic) were denied by the SEC En Banc. A motion for reconsideration was filed but the same was likewise denied. The Batong group then filed a Petition for Review with the Court of Appeals seeking to annul the Decision of the Securities and Exchange Commission En Banc. In said Petition, the Court of Appeals ruled in favor of the Batong group. Hence, this petition by the Ao-As group. Issue: Whether or not the manner of election of the board was invalid? Ruling: The Court notes that the LCP By-Laws provide for a special procedure for the election of its directors. However, Section 24 of the Corporation Code provides that at all elections of directors or trustees, there must be present, either in person or by representative to act by written proxy, x x x if there be no capital stock, a majority of the members entitled to vote. It is clear from Section 24 that in the election of the trustees of a non-stock corporation, it is necessary that at least a majority of the members entitled to vote must be present at the meeting held for the purpose. It follows that trustees cannot be elected by zones or regions, each zone or region electing independently and separately a member of the board of trustees of the corporation, such method being violative of Section 24. The election of the directors by district or regions as provided in the LCP By-Laws where a majority of the members are not present is inconsistent with the Corporation Code and must be struck down as invalid. Consequently, the directors elected by district cannot be considered as bona fide directors.

In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the Corporation Code pertaining to non-stock corporations provides that the right of the members of any class or classes of a non-stock corporation to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws. This is an exception to Section 6 of the same code where it is provided that no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code. The stipulation in the ByLaws providing for the election of the Board of Directors by districts is a form of limitation on the voting rights of the members of a non-stock corporation as recognized under the aforesaid Section 89. Section 24, which requires the presence of a majority of the members entitled to vote in the election of the board of directors, applies only when the directors are elected by the members at large, such as is always the case in stock corporations by virtue of Section 6.

G.R. No. 91889 August 27, 1993 MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents. Petitioner Manuel R. Dulay Enterprises, Inc, a domestic close corporation owned a property known as Dulay Apartment located at Pasay City. Petitioner corporation through its president, Manuel Dulay, by virtue of a Board Resolution sold the subject property to spouses Veloso. Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to Manuel Torres for a loan which was duly annotated. Upon the failure of Veloso to pay Torres, the subject property was sold to Torres as the highest bidder in an extrajudicial foreclosure sale. As neither Veloso nor Manuel Dulay was able to redeem the subject property within the one year statutory period for redemption, Torres filed an Affidavit of Consolidation of Ownership. Petitioner corporation filed an action for the cancellation of the Certificate of Sheriff's Sale and TCT before the Court of First Instance of Rizal, alleging that the sale of the subject property between spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as the Board Resolution which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors.

Thereafter, the trial court rendered a decision in favor of private respondents. Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision affirming in full the decision of the trial court: Petitioners filed a Motion for Reconsideration which was denied. Hence, this petition. Issue: Whether or not a board resolution is a requirement before the president of a close corporation can do corporate acts? Ruling: We do not agree. In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting. Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding.

G.R. No. 116123 March 13, 1997 SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents. Petitioner CFTI held a concessionaire's contract with the AAFES for the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president. Like the Naguiat Enterprises, a trading firm, it was a family-owned corporation. Individual respondents were previously employed by CFTI as taxicab drivers. Due to the phase-out of the US military bases in the Philippines, the AAFES was dissolved, and the services of individual respondents were officially terminated.

The AAFES Taxi Drivers Association and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted said amount in. However, individual respondents herein refused to accept theirs. Instead, individual respondents filed a complaint against Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc. and CFTI for payment of separation pay due to termination/phase-out. In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises, although their individual applications for employment were approved by CFTI. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence managed, controlled and supervised their employment. The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay. Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. The motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this petition. Issue: Is Naguiat Enterprise liable in this case? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment of separation pay? Ruling: Naguiat Enterprise Not Liable From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. A closer scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the taxi drivers and determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business.

CFTI president solidarily liable In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A.C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees. Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were close family corporations owned by the Naguiat family. The Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation.

G.R. No. 129459 September 29, 1998 SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents. San Juan Structural and Steel Fabricators, Inc. entered into an agreement with Motorich Sales Corporation for the transfer to it of a parcel of land located Quezon City. As stipulated in the Agreement, San Juan paid the downpayment. ACL Development Corporation and Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject property. Aggrieved, San Juan filed a case for declaration of nullity of the sale of the subject land and specific performance before the trial court against ACL and Motorich on the strength of the Agreement entered into by San Juan and Motorich. On the basis of the evidence, the court a quo rendered the judgment dismissing the complaint. On appeal, San Juan argued that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since Spouses Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock of Motorich, petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract.

The Court of Appeals affirmed the Decision of the RTC with the modification Hence, this petition. Issue: Whether or not ownership of almost all of the stocks of a corporation by a few persons makes the corporation a close corporation? Ruling: We rule that it is not. Section 96 of the Corporation Code defines a close corporation. The articles of incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities. So, too, a narrow distribution of ownership does not, by itself, make a close corporation. The Court is not unaware that there are exceptional cases where an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality. The present case, however, is not one of them.

G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees. In 1956, Plaintiff applied for an industrial loan with the Naga Branch of PNB. To secure the payment of the loan, the plaintiff mortgaged to defendant PNB owned by the former. The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958.

In 1961, PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him to take possession of the mortgaged properties and to sell it at public auction for the satisfaction of the unpaid obligation of the plaintiff. In compliance with the request, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. Plaintiff sent separate letters protesting against the foreclosure of the mortgages In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of ninety days, its obligation would be settled satisfactorily because an important negotiation was then going on for the sale of its whole interest for an amount more than sufficient to liquidate said obligation. The foreclosure sale of the mortgaged properties took place as scheduled and the said properties were sold to the PNB, possession of which was taken over by the latter. Upon the foregoing facts, the trial court rendered the decision appealed from which, sentenced the Mambulao Lumber Company to pay PNB. Mambulao Lumber Company interposed the instant appeal. Issue: Whether or not a dissolved corporation is entitled to recover moral damages on the basis of besmirched reputation? Ruling: Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.

G.R. No. L-39050 February 24, 1981 CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners, vs. THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents. FACTS: Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of 50 years, or up to September 17, 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry on this business, private respondent leased the paraphernal property of petitioner-wife Guillermina M. Gelano for P1,200.00/month. Petitioner-husband Carlos Gelano obtained from private respondent cash advances of P25,950.00 on the agreement that private respondent could deduct the same from the monthly rentals of the leased premises until said cash advances are fully paid. Petitioner Carlos was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay despite repeated demands by private respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for the personal account of her husband and was given to him without her knowledge. Petitioners husband and wife also made credit purchases of lumber materials from private respondent with a total price of P1,120.46 in connection with the repair and improvement of petitioners' residence. Partial payment was made by petitioners in the amount of P91.00, leaving the unpaid balance of P946.46 which petitioners failed to pay. Private respondent, through Joseph Su, executed a joint and several promissory note with Carlos Gelano in favor of China Bank in the amount of P8,000.00 payable in sixty (60) days. For failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the respondent corporation the amount of P9,106.00 including interests, by debiting it from the corporation's current account with the bank. Petitioner Carlos Gelano was able to pay private respondent the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. On May 1959 the corporation, thru Atty. German Lee later substituted by Atty. Eduardo Elizarde, filed a complaint for collection against herein petitioners before the Court of First Instance of Manila. In the meantime, private respondent amended its Articles of Incorporation to shorten its term of existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and approved by the Securities and Exchange Commission, but the trial court was not notified of the amendment shortening the corporate existence. On November, 1964, the trial court rendered a decision in favor of private respondent. Both parties appealed to the Court of Appeals, private respondent also appealing because it insisted that both spouses should be held liable for the substantial portion of the claim. Court of Appeals rendered a decision

modifying the judgment of the trial court by holding petitioner spouses jointly and severally liable on private respondent's claim. Petitioner came to know that the Insular Sawmill Inc. was dissolved way back on December 1960 upon receipt of the copy of the decision on August 1973. Hence, petitioners filed a motion to dismiss the case and/or reconsideration of the decision of the CA on grounds that the case was prosecuted even after dissolution of private respondent as a corporation and that a defunct corporation cannot maintain any suit for or against it without first complying with the requirements of the winding up of the affairs of the corporation and the assignment of its property rights within the required period. CA issued a resolution denying the aforesaid motion. Hence, present petition. ISSUE: Whether or not a corporation, whose corporate life had ceased by the expiration of its term of existence, could still continue prosecuting and defend suits after its dissolution and beyond the period of three years; and to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee. HELD: The complaint in this case was filed on May 1959 when private respondent Insular Sawmill, Inc. was still existing. While the case was being tried, the stockholders amended its Articles of Incorporation by shortening the term of its existence from December 1995 to December 1960, which was approved by SEC. In American corporate law, upon which our Corporation Law was patterned, it is well settled that, unless the statutes otherwise provide, all pending suits and actions by and against a corporation are abated by a dissolution of the corporation. Section 77 of the Corporation Law provides that the corporation shall "be continued as a body corporate for 3 years after the time when it would have been dissolved, for the purpose of prosecuting and defending suits by or against it" so that, thereafter, it shall no longer enjoy corporate existence for such purpose. For this reason, Section 78 authorizes the corporation, "at any time during said three years, to convey all of its property to trustees for the benefit of members, Stockholders, creditors and other interested," evidently for the purpose, among others, of enabling said trustees to prosecute and defend suits by or against the corporation begun before the expiration of said period. When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it still has the right until December 31, 1963 to prosecute in its name the present case. After the expiration of said period, the corporation ceased to exist for all purposes and it can no longer sue or be sued. However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the Three-year period. Although private respondent did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at

least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this Court. The word "trustee" as sued in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation.

G.R. No. L-20395 May 13, 1985 ELTON W. CHASE, as minority Stockholder and on behalf of other Stockholders similarly situated and for the benefit of AMERICAN MACHINERY AND PARTS MANUFACTURING, INC., plaintiff-appellant, vs. DR. VICTOR BUENCAMINO, SR., VICTOR BUENCAMINO, JR., JULIO B. FRANCIA and DOLORES A. BUENCAMINO, respondents. FACTS: Defendants Dr. Buencamino, Sr., a Filipino and William Cranker, an American, are business associates. Plaintiff Elton Chase, was the owner of Production Manufacturing Company of USA, a corporation primarily dedicated to the operation of a machine shop and heat-treating plant for the production of tractor parts. Sometime in 1954, Chase was advised by the Highway Commission of the State of Oregon to sell his factory or face expropriation, within a year. His distributor Craig Carrol told him about Dr. Buencamino of Manila who was interested in establishing a manufacturing plant in the Philippines. Thereafter, a series of negotiations took place between Chase, and Cranker and Buencamino, for the purchase of Chase's factory and the establishment of a new factory in Manila which was to be called the American Machinery Engineering Parts, Inc. (Amparts). These negotiations came in a final agreement, that Elton Chase was to be paid $100,000.00 and he would also be given a one-third interest in Amparts, with the other two, Dr. Buencamino and Cranker, as the owner of the other 2/3 interest; that in exchange for said $100,000.00 and the 1/3 interest, Chase was to transfer to Amparts his tractor plant, ship his machineries to Manila, assuming all costs of dismantling, preserving and crating for shipment to Manila, install said machineries at Amparts plant and finally, he has to be the production manager of Amparts. Amparts was formally organized as a corporation on July 1955. Chase had already shipped his machineries and had them installed in the Amparts plant in Rizal. Amparts then began operation with Dr. Buencamino as President, William Cranker as Manager and Elton Chase as Production Manager. For sometime the three maintained harmonious relations but later on distrust came in until finally Chase tendered his letter of resignation as Production Manager, which was accepted by both Dr. Buencamino and Cranker.

Chase thru his lawyer addressed a letter to both Dr. Buencamino and Cranker enforcing his claim for breach of contract, unpaid salaries and expenses, and damages. Dr. Buencamino answered denying the aforementioned claims. Sometime in August 1958, Cranker sold out all his interest in Amparts to Dr. Buencamino. In August 1960, Chase in his capacity as director and minority stockholder of AMPARTS and in behalf of the other stockholders of said corporation and for the benefit of Amparts filed this case before the CFI of Manila alleging various acts of fraud which he claimed had been committed by both Dr. Buencamino and Cranker. The complaint seeks among others the removal of Dr. Buencamino from the office held by him, enjoin defendants from participating in the management, operation and control of Amparts and if necessary, order a dissolution and liquidation of Amparts. In their counterclaim, defendants allege fraud on the part of plaintiff. CFI ruled in favor of plaintiffs ordering defendants to pay plaintiffs for damages due to fraud and/or breach of legal obligation. However, it constrained to rule on the dissolution of Amparts and removal of defendants from the management of the said corporation. Thus, the present petition. ISSUES: Whether or not the defendants are guilty of "fraud" and/or breach of a legal obligation as would entitle plaintiff not only to a "money judgment" but also to the dissolution of Amparts and/or the removal of defendants Buencaminos from the management of the said corporation; and whether or not plaintiff Chase himself guilty of fraud as would entitle defendants to recover on their counterclaims. HELD: The cannot Court grant a dissolution because the action is a derivative one for the benefit of Amparts and not for the personal benefit of Chase, and Amparts can not be benefited by its extinction. As to the ouster of Dr. Buencamino from management, it should not be forgotten that Dr. Buencamino is not only a manager, but is in fact 2/3 owner of Amparts and to oust him from management would amount to his disenfranchisement as owner of the majority of the enterprise apart from the fact that it is also established in the proofs that Amparts is already picking up and has been a going concern after Cranker left unto him the direction of its affairs. The Court therefore finds that the solution most equitable and just would be to limit its decision to imposing a monetary judgment upon the guilty parties for the benefit of Amparts. The removal of a stockholder (in this case a majority stockholder) from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear which is not the situation in the case at bar.

G.R. No. 71837 July 26, 1988 CHUNG KA BIO, WELLINGTON CHUNG, CHUNG SIONG PEK, VICTORIANO CHUNG, and MANUEL CHUNG TONG OH, petitioners, vs. INTERMEDIATE APPELLATE COURT (2nd Special Cases Division), SECURITIES and EXCHANGE COMMISSION EN BANC, HON. ANTONIO R. MANABAT, HON. JAMES K. ABUGAN, HON. ANTERO F.L. VILLAFLOR, JR., HON. SIXTO T.J. DE GUZMAN, JR., ALFREDO CHING, CHING TAN, CHIONG TIONG TAY, CHUNG KIAT HUA, CHENG LU KUN, EMILIO TAEDO, ROBERTO G. CENON and PHILIPPINE BLOOMING MILLS COMPANY, INC., respondents. FACTS: The Philippine Blooming Mills Company, Inc. was incorporated on January 19, 1952, for a term of 25 years which expired on January 19,1977. On May 14, 1977, the members of its board of directors executed a deed of assignment of all of the accounts receivables, properties, obligations and liabilities of the old PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM, then in the process of reincorporation. On June 14, 1977, the new PMB was issued a certificate of incorporation by the Securities and Exchange Commission. In May 1981, Chung Ka Bio and the other petitioners herein, all stockholders of the old PBM, filed with the SEC a petition for liquidation (but not for dissolution) of both the old PBM and the new PBM. Petitioners insist that they have never given their consent to the creation of the new corporation nor have they indicated their agreement to transfer their respective stocks in the old PBM to the new PBM. The creation of the new corporation with the transfer thereto of the assets of the old corporation was not within the powers of the board of directors of the latter as it was authorized only to wind up the affairs of such company and not in any case to continue its business. Moreover, no stockholders' meeting had been convened to discuss the deed of assignment and the 2/3 vote required by the Corporation Law to authorize such conveyance had not been obtained. Upon appeal to SEC en banc, it ordered the proper accounting of the assets and liabilities of the old PBM. The said order was appealed to Intermediate Appellate Court. Alfredo Ching, one of the members of the board of directors of the old PBM who executed the deed of assignment, filed with IAC a separate petition for certiorari, in which he questioned the same order and the decision of the SEC. He alleged that the SEC had gravely erred in not dismissing the petition for liquidation.

The abovementioned cases were consolidated in the respondent court which issued the decision now challenged on certiorari by the petitioners in the case at bar. The decision set aside SECs order of requirement for the accounting of the assets of the old PBM. ISSUE: Whether or not the board of directors of an already dissolved corporation has the power to transfer assets of the old corporation to the new corporation.

HELD: Petitioners allegation is based on the negative averment that no stockholders' meeting was held and the 2/3 consent vote was not obtained, there is no need for affirmative proof. Even so, there is the presumption of regularity which must operate in favor of the private respondents, who insist that the proper authorization as required by the Corporation Law was duly obtained at a meeting called for the purpose. Such authorization was embodied in a unanimous resolution dated March 19, 1977, which was reproduced verbatim in the deed of assignment. Otherwise, the new PBM would not have been issued a certificate of incorporation, which should also be presumed to have been done regularly. It must also be noted that under Section 28-1/2, "any stockholder who did not vote to authorize the action of the board of directors may, within forty days after the date upon which such action was authorized, object thereto in writing and demand payment for his shares." The record does not show, nor have the petitioners alleged or proven, that they filed a written objection and demanded payment of their shares during the reglementary forty-day period. This circumstance should bolster the private respondents' claim that the authorization was unanimous. While the board of directors is not normally permitted to undertake any activity outside of the usual liquidation of the business of the dissolved corporation, there is nothing to prevent the stockholders from conveying their respective shareholdings toward the creation of a new corporation to continue the business of the old. Winding up is the sole activity of a dissolved corporation that does not intend to incorporate anew. If it does, however, it is not unlawful for the old board of directors to negotiate and transfer the assets of the dissolved corporation to the new corporation intended to be created as long as the stockholders have given their consent. This was not prohibited by the Corporation Act. In fact, it was expressly allowed by Section 28-1/2. The deed of assignment was executed in 1977, it was only in 1981 when petitioners questioned the same. All of four years had elapsed before the petitioners filed their action for liquidation of both the old and the new corporations, and during this period, the new PBM was in full operation, openly and quite visibly conducting the same business undertaken earlier by the old dissolved PBM. Surely, these circumstances must operate to bar the petitioners now from questioning the deed of assignment after this long

period of inaction in the protection of the rights they are now belatedly asserting. Laches has operated against them.

G.R. No. 82407 March 27, 1995 LUIS C. CLEMENTE, LEONOR CLEMENTE DE ELEPAO, HEIRS OF ARCADIO C. OCHOA, represented by FE O. OCHOA-BAYBAY, CONCEPCION, MARIANO, ARTEMIO, VICENTE, ANGELITA, ROBERTO, HERNANDO AND LOURDES, all surnamed ELEPAO, petitioners, vs. THE HON. COURT OF APPEALS, ELVIRA PANDINCO-CASTRO AND VICTOR CASTRO, respondents. FACTS: The "Sociedad Popular Calambea" was organized, did business and held itself out as a corporation from November, 1909, up to September 24, 1932. Its principal business was cockfighting or the operation and management of a cockpit. During its existence, the Sociedad acquired by installments a parcel of land from the Friar Lands Estate of Calamba, Laguna. Thereafter, a patent was issued in the name of the Sociedad. Mariano Elepao and Pablo Clemente, now both deceased, were original stockholders of the sociedad. Mariano Elepao subscribed and paid for 40 shares of stocks worth P200.00. While Pablo Clemente subscribed and paid 418 shares of stocks worth P2,000.00. Pablo Clemente's shares of stocks were however later distributed and apportioned to his now herein petitioner heirs, in accordance with a Project of Partition. The sociedad then issued stock certificates to the aforesaid heirs of Pablo Clemente. On the basis of their respective stocks certificates, Pablo Clementes Heirs, together with Mariano Elepaos heirs filed with RTC of Calamba Laguna a case for Declaration of Ownership with Receivership, jointly claiming ownership over the subject property, asserting that their fathers being the only known stockholders of the sociedad. The trial court dismissed the complaint not merely on what it apparently perceived to be an insufficiency of the evidence that firmly could establish petitioners' claim of ownership over the property in dispute but also on its thesis that, absent a corporate liquidation, it is the corporation, not the stockholders, which can assert, if at all, any title to the corporate assets. Upon appeal, the Court of Appeals affirmed RTCs decision. ISSUE: Whether or not petitioners can be held to have succeeded in establishing for themselves a firm title to the property in question.

HELD: Except in showing that they are the successors-in-interest of Elepao and Clemente, petitioners have been unable to come up with any evidence to substantiate their claim of ownership of the corporate asset. If, indeed, the sociedad has long become defunct, it should behoove petitioners, or anyone else who may have any interest in the corporation, to take appropriate measures before a proper forum for a peremptory settlement of its affairs. The Corporation Code provides various modes for dissolving, liquidating or winding up, and terminating the life of the corporation. Among the causes for such dissolution are when the corporate term has expired or when, upon a verified complaint and after notice and hearing, the Securities and Exchange Commission orders the dissolution of a corporation for its continuous inactivity for at least five (5) years. The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) itself, may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representations with the Securities and Exchange commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns.

G.R. No. 102965. January 21, 1999 JAMES REBURIANO and URBANO REBURIANO, petitioners,

vs. HONORABLE COURT OF APPEALS, and PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., respondents. FACTS: In Civil Case a entitled Pepsi Cola Bottling Company of the Philippines, Inc. v. Urbano (Ben) Reburiano and James Reburiano, RTC rendered in June 1987 a decision ordering the defendants to pay jointly and severally the plaintiff the sum of P55,000.00, less whatever empties (cases and bottles) may be returned by said defendants valued at the rate of P55.00 per empty case with bottles. Private respondent Pepsi Cola Bottling appealed to CA seeking the modification of the portion of the decision, which stated the value of the cases with empty bottles as P55.00 per case, and obtained a favorable decision. The trial court thereafter, after the case had been remanded to it and the judgment had become final and executor, issued a writ of execution in February 1991. Prior to the promulgation of the decision of the trial court, private respondent amended its articles of incorporation to shorten its term of existence to July 8, 1983. The amended articles of incorporation was approved by the SEC on March 2, 1984. The trial court was not notified of this fact. In February 1991, petitioners moved to quash the writ of execution alleging that when the trial of this case was conducted, when the decision was rendered by the trial court, when the said decision was appealed to the Court of Appeals, and when the Court of Appeals rendered its decision, the private respondent was no longer in existence and had no more juridical personality and so, as such, it no longer had the capacity to sue and be sued. Private respondent opposed petitioners motion. It argued that the jurisdiction of the court as well as the respective parties capacity to sue had already been established during the initial stages of the case; and that when the complaint was filed in 1982, private respondent was still an existing corporation so that the mere fact that it was dissolved at the time the case was yet to be resolved did not warrant the dismissal of the case or oust the trial court of its jurisdiction. Private respondent further claimed that its dissolution was effected in order to transfer its assets to a new firm of almost the same name and was thus only for convenience. The trial court issued an order denying petitioners motion to quash which was appealed to the appellate court. The appellate court dismissed petitioners appeal and its subsequent motion for reconsideration. Hence present petition. ISSUE: Whether or not by reason of private respondents dissolution it had no more juridical personality and so, it no longer had the capacity to sue and be sued. HELD: A corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized under Sec. 78 [now 122] of the Corporation Law to convey all its property to trustees to enable it to prosecute and defend

suits by or against the corporation beyond the three-year period. Although private respondent did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this Court. There was substantial compliance with Sec. 78 [now 122] of the Corporation Law and such private respondent, could still continue prosecuting the present case even beyond the period of three (3) years from the time of dissolution. . The trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed to proceed to final judgment and execution thereof. It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but there is no time limit within which the trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the threeyear period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued, but trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the liquidation.

G.R. Nos. L-24177-85. June 29, 1968 PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC., WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY MILLAR LUMBER CO.,

INC., ET AL., INSULAR LUMBER CO., ANAKAN LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees. FACTS: The Philippine Lumber Distributing Agency, Inc. was organized sometime in the early part of 1947 upon the initiative of the late President Manuel Roxas of the Republic of the Philippines who had called several conferences between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc. The purpose was to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated homes. He convinced the lumber producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this business from time immemorial, but because the late President Roxas made it clear that such a cooperative agency would not be successful without a substantial working capital which the lumber producers could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the Government invest P9.00 by way of counterpart for every peso that the members would invest therein. This was the assurance relied upon, which stated that the amount thus contributed by such lumber producers was not enough for the operation of its business especially having in mind the primary purpose of putting an end to alien domination in the retail trade of lumber products. Nor was there any appropriation by the legislature of the counterpart fund to be put up by the Government, namely, P9.00 for every peso invested by defendant lumber producers. Accordingly, the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the sum of P350,000.00, which was approved by said Board of Directors of the PNB and secured by the chattel mortgages on the stock of lumber of said agency. The Philippine Government did not invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine National Bank was not paid. Hence, Philippine National Bank, as creditor, and therefore the real party in interest, was allowed by the lower court to substitute the receiver of the Philippine Lumber Distributing Agency in these respective actions for the recovery from defendant lumber producers the balance of their stock subscriptions. The lower court dismissed the complaints filed by PNB. To its mind, it is grossly unfair and unjust for the plaintiff bank now to compel the lumber producers to pay the balance of their subscriptions. Hence, present petition. ISSUE: Whether or not PNB, as creditor and substitute receiver of the Philippine Lumber Distributing Agency may recover from defendant lumber producers the balance of their stock subscriptions.

HELD: It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debt. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the articles of incorporation. One of the latest cases, Lingayen Gulf Electric Power v. Baltazar, speaks to this effect: "In the case of Velasco v. Poizat, the corporation involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee." It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be invested by the Government would not be available. Even if such were the case, however, and such a promise were in fact made, to further the laudable purpose to which the proposed corporation would be devoted and the possibility that the lumber producers would lose money in the process, still the plain and specific wording of the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms.

G.R. No. 104726. February 11, 1999 VICTOR YAM & YEK SUN LENT, doing business under the name and style of Philippine Printing Works, petitioners, vs. THE COURT OF APPEALS and MANPHIL INVESTMENT CORPORATION, Respondents. FACTS: Between May 1979 to July 1981, the parties in this case entered into 2 loan agreement denominated as the Industrial Guarantee and Loan Fund (IGLF) secured by

chattel mortgage. Petitioners were given a loan of P500,000.00 and P300,000.00 by private respondent. By April 1985, petitioners had paid their first loan of P500,000.00. In November 1985, private respondent was placed under receivership by the Central Bank and Ricardo Lirio and Cristina Destajo were appointed as receiver and in-house examiner, respectively. Petitioners made a partial payment of P50,000.00 on the second loan. They later wrote private respondent a letter proposing to settle their obligation. In July 1986, the latter replied with a counter-offer that it would reduce the penalty charges up to P140,000.00, provided petitioners can pay their obligation on or before July 30, 1986. As of July 31, 1986, petitioners total liability to private respondent was P727,001.35. On this date, petitioners paid P410,854.47 which was acknowledged by Destajo. The corresponding voucher for the check bears the following notation: full payment of IGLF LOAN. The amount of P410,854.47 was the sum of the principal (P295,469.47) and the interest (P165,385.00) less the partial payment of P50,000.00. The private respondent sent two demand letters to petitioners seeking payment of the balance of P266,146.88. As petitioners did not respond, private respondent filed this case in the Regional Trial Court of Metro Manila for the collection of the said amount. Petitioners claimed that they had fully paid their loan obligation. They contended that some time after receiving private respondents letter of July 2, 1986, petitioners met with Carlos Sobrepeas, president of respondent corporation, during which the latter agreed to waive the penalties and service charges, provided petitioners paid the principal and interest, computed as of July 31, 1986, less the earlier payment of P50,000.00. This is the reason why according to them they only paid P410,854.47. Petitioners added that this fact of full payment is reflected in the voucher which bore the notation full payment of IGLF loan. RTC rendered a decision in favor of private respondent ordering petitioners to pay the loan balance. CA affirmed. ISSUE: Whether or not petitioners are liable for the payment of the penalties and service charges on their loan which, as of July 31, 1986, amounted to P266,146.88. HELD: The alleged agreement to condone the amount in question was supposedly entered into by the parties sometime in July 1986, that is, after respondent corporation had been placed under receivership on November 4, 1985. As held in Villanueva v. Court of Appeals the appointment of a receiver operates to suspend the authority of a corporation and of its directors and officers over its property and effects, such authority being reposed in the receiver. Thus, Sobrepeas had no authority to condone the debt. Indeed, Mrs. Yam herself testified that when she and her husband sought the release of the chattel mortgage over their property, they were told that only the Central

Bank would authorize the same because the CB is the receiver. Considering this, petitioners cannot feign ignorance and plead good faith.

G.R. No. 142924. December 5, 2001 TEODORO B. VESAGAS, and WILFRED D. ASIS, petitioners, vs. The Honorable COURT OF APPEALS and DELFINO RANIEL and HELENDA RANIEL, respondents. FACTS: Respondent spouses Raniel are members in good standing of the Luz Village Tennis Club, Inc. (club). They alleged that petitioner Teodoro B. Vesagas, the clubs president, in conspiracy with clubs vice-president, petitioner Wilfred D. Asis, summarily stripped them of their lawful membership without due process of law. Thereafter, respondent spouses filed a Complaint with SEC on March 26, 1997 against the petitioners. Respondents asked the Commission to declare as illegal their expulsion from the club as it was allegedly done in utter disregard of the provisions of its by-laws as well as the requirements of due process. They likewise sought the annulment of the amendments to the by-laws made on December 8, 1996, changing the annual meeting of the club from the last Sunday of January to November and increasing the number of trustees from nine to fifteen. On January 5, 1997, by unanimous Board approval, the clubs Board issued a resolution dissolving the corporate structure of LVTC which is filed with the SEC. Meanwhile, the operational structure of the LVTC was reverted to its former status as an ordinary club/Association.

Petitioners filed a motion to dismiss on the ground that the SEC lacks jurisdiction over the subject matter of the case. The motion was denied on August 5, 1997. Their subsequent move to have the ruling reconsidered was likewise denied. They filed a petition for certiorari with the SEC En Banc. The petition was again denied for lack of merit, and so was the motion for its reconsideration. Petitioners sought relief with the Court of Appeals contesting the ruling of the Commission en banc. The appellate court, however, dismissed the petition for lack of merit, similarly denied their motion for reconsideration. Hence, present petition. Petitioners contend that since its inception in the 1970s, the club in practice has not been a corporation. They add that it was only the respondent spouses, motivated by their own personal agenda to make money from the club, who surreptitiously caused its registration with the SEC. They then assert that the club has already ceased to be a corporate body. Therefore, no intra-corporate relations can arise as between the respondent spouses and the club or any of its members. Petitioners insist that since the club, by their reckoning is not a corporation, the SEC does not have the power or authority to inquire into the validity of the expulsion of the respondent spouses. ISSUES: Whether or not SEC has jurisdiction over the subject matter of the case; and whether or not a resolution approved by the board of directors is sufficient to dissolve a corporation.

HELD: Noteworthy is the resolution of the Board issued on January 5, 1997 contained in the Minutes of the First Board Meetings, which contained pertinent portions dissolving the corporate structure of the club which is filed with the SEC. Similarly, petitioners Motion to Dismiss alleged that SEC has no jurisdiction over the club because since 5 January 1997, it had already rid itself, as it had to in order to maintain respect and decency among its members, of the unfortunate experience of being a corporate body. Thus at the time of the filing of the complaint, the club had already dissolved its corporate existence and has functioned as a mere association of respectable and respecting individual members who have associated themselves since the 1970s. The necessary implication of all these is that petitioners recognized and acknowledged the corporate personality of the club. Otherwise, there is no need for its dissolution. Petitioners were therefore well aware of the incorporation of the club and even agreed to get elected and serve as its responsible officers before they reconsidered dissolving its corporate form. However, the Corporation Code establishes the procedure and other formal requirements a corporation needs to follow in case it elects to dissolve and terminate its structure voluntarily and where no rights of creditors may possibly be prejudiced. To

substantiate their claim of dissolution, petitioners submitted only two relevant documents: the Minutes of the First Board Meeting held on January 5, 1997, and the board resolution issued on April 14, 1997 which declared to continue to consider the club as a non-registered or a non-corporate entity and just a social association of respectable and respecting individual members who have associated themselves, since the 1970s, for the purpose of playing the sports of tennis. Obviously, these two documents will not suffice. The requirements mandated by the Corporation Code should have been strictly complied with by the members of the club. The records reveal that no proof was offered by the petitioners with regard to the notice and publication requirements. Similarly wanting is the proof of the board members certification. Lastly, and most important of all, the SEC Order of Dissolution was never submitted as evidence. The present dispute is intra-corporate in character. In the first place, the parties here involved are officers and members of the club. Respondents claim to be members of good standing of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on the other hand, are its President and Vice-President, respectively. More significantly, the present conflict relates to, and in fact arose from, this relation between the parties. The subject of the complaint, namely, the legality of the expulsion from membership of the respondents and the validity of the amendments in the clubs by-laws are, furthermore, within the Commissions jurisdiction.

G.R. No. 139370. July 4, 2002 RENE KNECHT and KNECHT, INC., petitioners, vs. UNITED CIGARETTE CORP., represented by ENCARNACION GONZALES WONG, and EDUARDO BOLIMA, Sheriff, Regional Trial Court, Branch 151, Pasig City, respondents. FACTS: Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns the subject land located in Cainta, Rizal. Such land is mortgaged with the Philippine Commercial and Industrial Bank (PCIB). Rose Packing, through its President Rene Knecht, sold to the United Cigarette Corporation (UCC) the said parcel of land for P800,000.00. UCC promised to pay the purchase price under the terms and conditions that a P250,000.00 down payment must be made upon signing of the deed of sale with mortgage; it will assume Rose Packings P250,000.00 overdraft line obligation with the PCIB; and the balance of P300,000.00 shall be paid in two annual installments To secure the deal, UCC initially paid Rose Packing P80,000.00 as earnest money.

Before the deed of sale could be executed, the parties found that Rose Packings actual obligation with the PCIB far exceeded the P250,000.00 which UCC assumed to pay under their agreement. So the PCIB demanded additional collateral from UCC as a condition precedent for the approval of the sale of the mortgaged property. However, UCC did not comply. Aggrieved, UCC filed with the then CFI of Rizal a complaint against Rose Packing and Rene Knecht, docketed as Civil Case No. 9165. The CFI rendered a Decision in favor of UCC. Rose Packing appealed to CA. On March 30, 1973, during the pendency of this appeal, UCCs corporate life expired. Alberto Wong, one of UCCs major stockholders, was appointed trustee/liquidator of the dissolved corporation. He then represented UCC in the proceedings in Civil Case 9165. Thereafter, CA affirmed the CFI Decision. Rose Packing and Rene Knecht appealed to SC which was denied for lack of merit, so as its motion for reconsideration. Thus, the decision became final and executory. Unfortunately, several supervening incidents hampered the due execution of the CFI Decision. The records show that even before the trial court could render its Decision in Civil Case No 9165, Rose Packing filed Civil Case No. 11015 with CFI to enjoin the PCIB from proceeding with the foreclosure sale of the subject land. The CFI denied the application for injunction. Thus, the foreclosure sale proceeded and title over the subject lot was consolidated in the name of the PCIB. On appeal, CA upheld the validity of the foreclosure sale but but declared void ab initio the consolidation of ownership in the name of PCIB over the subject property for being premature. Unsatisfied, Rose Packing appealed to SC. The latter rendered a decision declaring the foreclosure sale void and remanding Civil Case No. 11015 to the lower court for further proceedings. The ownership over the subject property reverted to Rose Packing. At that time, however, Rose Packing had been dissolved with the expiration of its corporate charter on June 10, 1986. Thereupon, Knecht, Inc., a domestic corporation, undertook the liquidation of Rose Packings assets as well as the winding-up of its pending affairs. Subsequently, UCC, through its liquidator Alberto Wong, filed with the RTC, a motion for leave to intervene and to admit its complaint-in-intervention in Civil Case No. 11015.The complaint-in-intervention sought to compel Rose Packing to comply with the Decision in Civil Case No. 9165 and prayed that a writ of execution be issued to enforce that decision. Rose Packing, through its liquidator/trustee, Knecht, Inc., opposed the motion claiming that the Decision in Civil Case No. 9165 which became final can no longer be enforced since more than ten (10) years had elapsed from its finality. RTC granted UCCs motion for leave to intervene and issued an Order granting the writ of execution. Rose Packing, through Knecht, Inc. questioned the validity of these twin orders with the CA. The latter nullified RTCs questioned orders but nonetheless stressed that UCCs right to execute the judgment in Civil Case No. 9165 has not yet prescribed, hence, UCC should have then sought the execution of the judgment.

Pursuant to the abovementioned CA decision, the RTC of Pasig City issued an Order granting UCCs motion for the issuance of a writ of execution of the judgment in Civil Case No. 9165. Thereafter, Rose Packing, through Knecht, Inc. and Rene Knecht, filed with the CA for certiorari. CA rendered a decision reiterating its ruling that UCCs right to file a motion for execution of the Decision in Civil Case No. 9165 has not yet prescribed. Upon appeal to SC, the latter affirmed CAs decision. Knecht, Inc. and Rene Knecht, claiming that they had just discovered UCCs dissolution on April 10, 1973 and that the three-year period to liquidate its affairs had already expired, again questioned before the RTC of Pasig City, the validity Order granting the writ of execution in Civil Case No. 9165. They averred that upon its dissolution, UCC may no longer move for execution. The trial court ordered the issuance of an alias writ of execution in favor of UCC. The alias writ was subsequently issued. Upon appeal to CA, it dismissed the same and ruled on the validity of the enforcement of the decision in civil case No. 9165. SC affirmed. Thereafter, the trial court, upon motion by UCC, issued an Order directing Sheriff Eduardo L. Bolima to execute the corresponding deed of sale with mortgage in compliance with the judgment in Civil Case No. 9165. Rene Knecht filed a motion for reconsideration which was denied. Upon appeal to CA, it dismissed the same. Hence, present petition. ISSUE: Whether or not UCC may move for execution of judgment rendered in Civil Case No. 9165 notwithstanding its dissolution during the pendency of the said case. HELD: There is no doubt that the judgment in Civil Case No. 9165 became final and executory on March 23, 1977. In Reburiano vs. Court of Appeals, a case with similar facts, SC held that the trustee (of a dissolved corporation) may commence a suit which can proceed to final judgment even beyond the three-year period (of liquidation), no reason can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation, should not be accorded similar treatment to proceed to final judgment and execution thereof. Indeed, the rights of a corporation (dissolved pending litigation) are accorded protection by law. This is clear from Section 145 of the Corporation Code that no right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. The dissolution of UCC itself, or the expiration of its three-year liquidation period, should not be a bar to the enforcement of its rights as a corporation. One of these

rights, to be sure, includes the UCCs right to seek from the court the execution of a valid and final judgment in Civil Case No. 9165 through its trustee/liquidator Encarnacion Gonzales Wong for the benefit of its stockholders, creditors and any other person who may have legal claims against it. To hold otherwise would be to allow petitioners to unjustly enrich themselves at the expense of UCC. This, in effect, renders nugatory all the efforts and expenses of UCC in its quest to secure justice, not to mention the undue delay in disposing of this case prejudicial to the administration of justice.

G.R. No. 175109. August 06, 2008 PARAMOUNT INSURANCE CORPORATION, petitioner, vs. A.C. ORDOEZ CORPORATION and FRANKLIN SUSPINE, respondents. FACTS: Petitioner Paramount Insurance Corp. is the subrogee of Maximo Mata, the registered owner of a Honda City sedan involved in a vehicular accident with a truck mixer owned by respondent corporation and driven by respondent Franklin A. Suspine on September 10, 1997, at Brgy. Panungyanan, Gen. Trias, Cavite. In February 2000, petitioner filed before the MTC of Makati, a complaint for damages against respondents. Based on the Sheriff's Return of Service, summons remained unserved on respondent Suspine, while it was served on respondent corporation and received by Samuel D. Marcoleta of its Receiving Section on April 3, 2000. Petitioner filed a Motion to Declare Defendants in Default; however, thereafter, respondent corporation filed an Omnibus Motion alleging that summons was improperly served upon it because it was made to a secretarial staff who was unfamiliar with court processes; and that the summons was received by Mr. Armando C. Ordonez, President and General Manager of respondent corporation only on June 24, 2000. Then, respondent corporation filed a Motion to Admit Answer alleging honest mistake and business reverses that prevented them from hiring a lawyer until July 10, 2000, as well as justice and equity. MTC issued an Order admitting the answer and setting the case for pre-trial.

Petitioner moved for reconsideration but it was denied. Petitioner appealed to the RTC raising grave abuse of discretion in the part of MTC in admitting the answer which did not contain a notice of hearing, contrary to Sections 4 and 5, Rule 15 of the Rules of Court. It also assailed respondent corporation's Omnibus Motion for being violative of Section 9, Rule 15 because while it sought leave to file an answer, it did not attach said answer but only asked for a 15-day extension to file the same. RTC issued preliminary injunction and granted petitioners petition for certiorari. Upon appeal to CA by respondent corporation, it granted the same appeal and reinstated MTCs orders. Hence, present petition. ISSUE: Whether or not respondent has legal personality to file an appeal given the fact that its corporate certificate was already cancelled. HELD: Although the cancellation of a corporation's certificate of registration puts an end to its juridical personality, Sec. 122 of the Corporation Code, however provides that a corporation whose corporate existence is terminated in any manner continues to be a body corporate for three years after its dissolution for purposes of prosecuting and defending suits by and against it and to enable it to settle and close its affairs. Moreover, the rights of a corporation, which is dissolved pending litigation, are accorded protection by law pursuant to Sec. 145 of the Corporation Code, which provides that no right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. Dissolution or even the expiration of the three-year liquidation period should not be a bar to a corporation's enforcement of its rights as a corporation. (GUYS, baka maconfuse kayo bakit hindi namention kung kailan nacancel yung certificate of registration ng ac Ordonez. Hindi din nakalagay sa mismong full text e. basta yung issue ng cancellation nakalagay nalang dun agad sa mga assigned errors)

G.R. No. L-34382 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. G.R. No. L-34383 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. FACTS: In January 1967, S. Kajita & Co. shipped from Japan 2,361 coals on board the vessel owned by defendant Eastern Shipping Lines, to be delivered at Manila. The said VESSEL is owned and operated by defendant Eastern Shipping Lines. The shipment was covered by Bill of Lading with Phelps Dodge Copper Products Corporation of the Philippines, as consignee. The shipment was insured with plaintiff against all risks under its Insurance Policy. The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. Thus, for the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Petitioner made demands for payment against respondent Eastern Shipping for reimbursement but refused to pay the same. In December 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts of Farm Equipment on board the VESSEL owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant Columbian Philippines, Inc. The shipment was covered by Bill of Lading for transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. The shipment was insured with plaintiff company under its Cargo Policy. The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in bad order. For the short-delivery of 1 package, petitioner paid the CONSIGNEE under its Insurance Cargo Policy, by virtue of which plaintiff

became subrogated to the rights and actions of the CONSIGNEE. Demands were made on respondent V. Nedlloyd and Columbian for reimbursement but they failed and refused to pay the same. During the abovementioned transaction, petitioner was a foreign corporation doing business in the Philippines without necessary license prescribed by the Corporation Law. However, upon institution of the present action, petitioner was able to obtain the said necessary license to do business in the Philippines. Respondents however, in its answer to the complaint, denied petitioners capacity to sue. Trial court then dismissed the complaints in the two cases on the ground that petitioner failed to prove its capacity to sue and further ruled that the insurance contract involved in the case is void for having been entered into by petitioner without the necessary license to do business in the Philippines. Hence, present petition. ISSUES: Whether or not petitioners capacity to sue has been cured by its subsequent registration; and whether or not the contract entered into by petitioner not having license to do business in the Philippines is void. HELD: The purpose of requiring foreign corporations doing business in the Philippines to obtain necessary license is to subject the such foreign corporation to the jurisdiction of our courts. The Corporation Law however does not prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law imposed a penal sanction-imprisonment for not less than six months nor more than two years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court. There is a penalty for transacting business without registration. And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. Where a contract which is entered into by a foreign corporation without complying with the local requirements of doing business is rendered void either by the express terms of a statute or by statutory construction, a subsequent compliance with the statute by the corporation will not enable it to maintain an action on the contract. But where the statute merely prohibits the maintenance of a suit on such contract (without expressly declaring the contract "void"), it was held that a failure to comply with the statute rendered the contract voidable and not void, and compliance at any time before suit was sufficient. Thus, there is no question that the contracts are enforceable. The requirement of registration affects only the remedy.

Thus, a contract entered into by petitioner not licensed to do business in the Philippines is not void. Lack of capacity to sue by petitioner at the time of execution of the insurance contract is cured by its subsequent registration without prejudice to the imposition of the appropriate penal sanctions.

G.R. No. L-61523 July 31, 1986 ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA CONSOLIDATED SECURITIES and INVESTMENT CORPORATION, petitioners, vs. THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC., respondents. FACTS: Strokely Van Camp. Inc. and one of its subdivision, Capital City Product Company are corporations organized and existing under the laws of the state of Indiana, U.S.A. and were not engaged in business in the Philippines prior to the commencement of the present suit. Capital City and Coconut Oil Manufacturing Phil. Inc. (Comphil), now Antam Consolidated Inc., entered into a contract wherein Comphil undertook to sell and deliver and Capital City agreed to buy 500 long tons of crude coconut oil but Comphil failed to deliver the coconut oil so that Capital City covered its coconut oil needs in the open market at a price substantially in excess of the contract and sustained a loss.. To settle Capital City's loss under the contract, the parties entered into a second contract wherein Comphil undertook to buy and Capital City agreed to sell 500 long tons of coconut crude oil under the same terms and conditions but at an increased. In the second contract, Comphil was supposed to repurchase the undelivered coconut oil at US$0.3925 from Capital City by paying the latter the sum of US$103,600.00 which is the same amount of loss that Capital City sustained under the first contract. Comphil again failed to pay said amount, so to settle Capital City's loss, it entered into a third contract with Comphil on wherein the latter undertook to sell and deliver and Capital City agreed to buy the same quantity of crude coconut oil in a discounted price.However, Comphil failed to deliver the coconut oil. After repeated demands from Comphil to pay the said amount, the latter still refuses to pay the same. Thus, Stroke and Capital City instituted the present action. Petitioners filed a motion to dismiss the complaint on the ground that the respondent, being a foreign corporation not licensed to do business in the Philippines, has

no personality to maintain the instant suit. CFI and IAC, upon appeal to the latter, denied petitioners motion to dismiss and ruled in favor of respondent Stroke and Capital City. Hence, present petition. Petitioners maintain that to maintain the suit filed with the trial court, the respondent should have secured the requisite license to do business in the Philippines because, in fact, it is doing business here. Petitioners anchor their argument that the respondent is a foreign corporation doing business in the Philippines on the fact that by the respondent's own allegations, it has participated in three transactions, either as a seller or buyer, which are by their nature, in the pursuit of the purpose and object for which it was organized. ISSUE: Whether or not respondent is doing business in the Philippines by virtue of the transactions it entered into with the petitioners, thus, is required to obtain a license to commence the present suit. HELD: There is no general rule or governing principle laid down as to what constitutes doing or engaging in or transacting business in the Philippines. Each case must be judged in the Light of its peculiar circumstance. In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. Instead of making an outright demand on the petitioners, the respondent opted to try to push through with the transaction to recover the amount of US$103,600.00 it lost. This explains why in the second transaction, the petitioners were supposed to buy back the crude coconut oil they should have delivered to the respondent in an amount which will earn the latter a profit of US$103,600.00. When this failed the third transaction was entered into by the parties whereby the petitioners were supposed to sell crude coconut oil to the respondent at a discounted rate, the total amount of such discount being US$103,600.00. Unfortunately, the petitioners failed to deliver again, prompting the respondent to file the suit below. From these facts alone, it can be deduced that in reality, there was only one agreement between the petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Thus, the trial court, and the appellate court did not err in denying the petitioners' motion to dismiss not only because the ground thereof does not appear to be

indubitable but because the respondent, being a foreign corporation not doing business in the Philippines, does not need to obtain a license to do business in order to have the capacity to sue.

G.R. No. L-27906 January 8, 1987 CONVERSE RUBBER CORPORATION, petitioner, vs. UNIVERSAL RUBBER PRODUCTS, INC. and TIBURCIO S. EVALLE, DIRECTOR OF PATENTS, respondents. FACTS: Respondent Universal Rubber Products, Inc. filed an application with the Philippine Patent office for registration of the trademark "UNIVERSAL CONVERSE AND DEVICE" used on rubber shoes and rubber slippers. Petitioner Converse Rubber Corporation filed its opposition to the application for registration on grounds that the trademark sought to be registered is confusingly similar to the word "CONVERSE" which is part of petitioner's corporate name "CONVERSE RUBBER CORPORATION" as to likely deceive purchasers of products on which it is to be used to an extent that said products may be mistaken by the unwary public to be manufactured by the petitioner; and, the registration of respondent's trademark will cause great and irreparable injury to the business reputation and goodwill of petitioner in the Philippines. Petitioner's corporate name is "CONVERSE RUBBER CORPORATION" and has been in existence since July 31, 1946 and it is duly organized under the laws of Massachusetts, USA and doing business in the same state. Petitioner is not licensed to do business in the Philippines and it is not doing business on its own in the Philippines. The Director of Patents dismissed the opposition of the petitioner and gave due course to respondent's application. And concluded that since the petitioner is not licensed to do business in the country and is actually not doing business on its own in the

Philippines, it has no name to protect in the forum and thus, it is futile for it to establish that "CONVERSE" as part of its corporate name identifies its rubber shoes. Its motion for reconsideration having been denied by the respondent Director of Patents, petitioner instituted the instant petition for review. ISSUE: Whether or not petitioner, not licensed to do business in the Philippines, can protect its name in this forum. HELD: A foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation.

G.R. No. 97816 July 24, 1992 MERRILL LYNCH FUTURES, INC., petitioner, vs. HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G. LARA, respondents. FACTS: Petitioner Merrill Lynch Futures, Inc. (ML FUTURES) is non-resident foreign corporation, not doing business in the Philippines, duly organized and existing under and by virtue of the laws of the state of Delaware, U.S.A. It entered into a Futures Customer Agreement with the defendant spouses, in virtue of which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S. Pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers. From the outset, the Lara Spouses knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts, and that it did not have a license from the Securities and Exchange Commission to operate as a commodity trading advisor. Through Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures contracts, for 4 years or so, there being more or less regular accounting and corresponding remittances of money made between the spouses and ML FUTURES. But because of a loss amounting to US$160,749.69 incurred in respect of three (3)

transactions involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for the ensuing balance of US$84,836.27, which the latter asked them to pay. The Lara Spouses however refused to pay this balance, alleging that the transactions were null and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of plaintiff, had no license to operate as a 'commodity and/or financial futures broker. Thus, petitioner ML FUTURES instituted this present action for collection of sum of money against respondent Lara spouses. The latter then filed a motion to dismiss alleging among others that plaintiff ML FUTURES had "no legal capacity to sue. They future averred that they had never been informed that Merrill Lynch Philippines, Inc. was not licensed to do business in this country. The Trial Court promulgated an Order sustaining the motion to dismiss. CA affirmed RTCs judgment. Hence, present petition. ISSUE: Whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights against said spouses, in light of the fact that it had transacted business in this country without being licensed to do so. HELD: ML FUTURES, operating in the United States, had indeed done business with the Lara Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this country, and had executed all these transactions without ML FUTURES being licensed to so transact business here, and without MLPI being authorized to operate as a commodity futures trading advisor. The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations; one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes. There would seem to be no question that the Laras received benefits generated by their business relations with ML FUTURES. Evidently found those relations to be of such profitability as warranted their maintaining them for not insignificant period of time; otherwise, it is reasonably certain that they would have terminated their dealings with ML FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Given these

facts, and assuming that the Lara Spouses were aware from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a "commodity and/or financial futures broker."

G.R. No. 91332 July 16, 1993 PHILIP MORRIS, INC., BENSON & HEDGES (CANADA), INC., AND FABRIQUES OF TABAC REUNIES, S.A., petitioners vs. THE COURT OF APPEALS AND FORTUNE TOBACCO CORPORATION, respondents. FACTS: Philip Morris Inc. is a corporation organized under the laws of the State of Virginia, USA, and does business at New York, New York. The two other plaintiff foreign corporations, which are wholly-owned subsidiaries of Philip Morris, Inc., are similarly not doing business in the Philippines but are suing on an isolated transaction. As registered owners "MARK VII", "MARK TEN", and "LARK" per certificates of registration issued by the Philippine Patent Office, plaintiffs-petitioners asserted that defendant Fortune Tobacco Corporation has no right to manufacture and sell cigarettes

bearing the allegedly identical or confusingly similar trademark "MARK, and should, therefore, be precluded during the pendency of the case from performing the acts complained of via a preliminary injunction. To sustain a successful prosecution of their suit for infringement, petitioners, as foreign corporations not engaged in local commerce, relied on section 21-A of the Trademark Law which provides that: Any foreign corporation or juristic person to which a mark or trade-name has been registered or assigned under this act may bring an action hereunder for infringement, for unfair competition, or false designation of origin and false description, whether or not it has been licensed to do business in the Philippines under the Corporation Law, at the time it brings complaint xxx. Fortune Tobacco Corporation alleged that it has been authorized by the Bureau of Internal Revenue to manufacture and sell cigarettes bearing the trademark "MARK", and that "MARK" is a common word which cannot be exclusively appropriated. Petitioners' prayer for preliminary injunction was denied RTC of Pasig holding that they are not doing business in the Philippines and are suing on an isolated transaction. This simply means that they are not engaged in the sale, manufacture, importation, exportation and advertisement of their cigarette products in the Philippines. Thus, it is impossible for defendant's "MARK" cigarettes cause the plaintiff "irreparable damage" within the territorial limits of the Philippines. Upon appeal to the Court of Appeals, it initially issued a resolution which set aside the RTCs order and granted the issuance of a writ of preliminary injunction enjoining Fortune, its agents, employees, and representatives, from manufacturing, selling, and advertising "MARK" cigarettes. After private respondent Fortune's motion for reconsideration was rejected, a motion to dissolve the disputed writ of preliminary injunction with offer to post a counterbond was submitted which was favorably acted upon by the Court of Appeals. Hence, present petition. ISSUE: Whether or not petitioner may institute the present case of infringement against private respondent notwithstanding the fact that it is a foreign corporation not doing in business in the Philippines. HELD: A foreign corporation not doing business in the Philippines may have the right to sue before Philippine Courts, but is however necessary that the assertion of such right should first be affirmatively. Indeed, it is not sufficient for a foreign corporation suing under Section 21-A to simply allege its alien origin. Rather, it must additionally allege its personality to sue. Relative to this condition precedent, it may be observed that petitioners were not remiss in averring their personality to lodge a complaint for infringement especially so when they asserted that the main action for infringement is anchored on an isolated transaction. Given these confluence of existing laws amidst the cases involving trademarks, there can be no disagreement to the guiding principle in commercial law that foreign

corporations not engaged in business in the Philippines may maintain a cause of action for infringement primarily because of Section 21-A of the Trademark Law when the legal standing to sue is alleged, which petitioners have done in the case at hand.

G.R. No. 105141 August 31, 1993 SIGNETICS CORPORATION, Petitioner, vs. COURT OF APPEALS and FRUEHAUF ELECTRONICS PHILS. INC., Respondents. FACTS: The petitioner, Signetics Corporation (Signetics), was organized under the laws of the U.S.A. Through Signetics Filipinas Corporation (SigFil), a wholly-owned subsidiary,

Signetics entered into lease contract over a piece of land with Fruehauf Electronics Phils., Inc. Freuhauf sued Signetics for damages, accounting or return of certain machinery, equipment and accessories, as well as the transfer of title and surrender of possession of the buildings, installations and improvements on the leased land, before the RTC of Pasig. On the basis of the allegation that Signetics is a "subsidiary of US PHILIPS CORPORATION, and may be served summons at Philips Electrical Lamps, Inc., Las Pias, Metro Manila and/or c/o Technology Electronics Assembly & Management (TEAM) Pacific Corporation, Electronics Avenue, FTI Complex, Taguig, Metro Manila," service of summons was made on Signetics through TEAM Pacific Corporation. By special appearance, Signetics filed a motion to dismiss the complaint on the ground of lack of jurisdiction over its person. It alleged that the fact of doing business in the Philippines should first be established in order that summons could be validly made and jurisdiction acquired by the court over a foreign corporation. The trial court denied the motion to dismiss as well as the subsequent motion for reconsideration. Upon appeal to the CA, it dismissed the petition and affirmed the trial courts orders. Hence, present petition. ISSUE: Whether or not "a foreign corporation can be sued in the Philippines and validly summoned by a Philippine court without prior 'proof' that it was doing business here at the time of the suit. HELD: The petitioner opines that the phrase, "(the) fact (of doing business in the Philippines) must first be established in order that summons be made and jurisdiction acquired," would indicate that a mere allegation to that effect in the complaint is not enough - there must instead be proof of doing business. In any case, the petitioner, points out, the allegations themselves did not sufficiently show the fact of its doing business in the Philippines. A foreign corporation, although not engaged in business in the Philippines, may still look up to our courts for relief; reciprocally, such corporation may likewise be sued in Philippine courts for acts done against a person or persons in the Philippines, provided that, in the latter case, it would not be impossible for court processes to reach the foreign corporation, a matter that can later be consequential in the proper execution of judgment. For purposes of acquiring jurisdiction by way of service of summons, there is no need to prove first the fact that defendant is doing business in the Philippines. Where a complaint alleges that defendant has an agent in the Philippines, summons can validly be served thereto even without prior evidence of the truth of such factual allegation. If in fact a foreign corporation does not do business here, that is a matter that should be ventilated in the trial on the merits but not in a motion to dismiss.

G.R. No. 109272 August 10, 1994 GEORG GROTJAHN GMBH & CO., petitioner, vs. HON. LUCIA VIOLAGO ISNANI, Presiding Judge, Regional Trial Court, Makati, Br. 59; ROMANA R. LANCHINEBRE; and TEOFILO A. LANCHINEBRE, respondents.

FACTS: Petitioner is a multinational company organized and existing under the laws of the Federal Republic of Germany. On July 6, 1983, by virtue of PD 218, petitioner filed an application, with the SEC for the establishment of a regional or area headquarters in the Philippines. The application was approved by the Board of Investment. Consequently, the SEC issued a Certificate of Registration and License to petitioner. Private respondent Romana Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. In March 1992, she secured a loan of P25,000.00 from petitioner. Then she made additional cash advances in the sum P10,000.00. Of the total amount of P12,170.37 remained unpaid. Despite demand, private respondent Romana failed to settle her obligation with petitioner. Private respondent Lanchinebre filed with the Arbitration Branch of the National Labor Relations Commission in Manila, a Complaint for illegal suspension, dismissal and non-payment of commissions against petitioner. Petitioner in turn filed against private respondent a Complaint for damages with the NLRC Arbitration Branch. The two cases were consolidated. Petitioner filed another Complaint for collection of sum of money against private respondents spouses Romana and Teofilo Lanchinebre with RTC. Instead of filing their Answer, private respondents moved to dismiss the Complaint. This was opposed by petitioner. Respondent judge then issued the impugned Order, granting the motion to dismiss. The trial court further held that petitioner has no capacity to sue and be sued in the Philippines. Hence, present petition. ISSUE: Whether or not petitioner has no capacity to sue or be sued in the Philippines despite the fact that it is duly licensed by the SEC the set up and operate a regional or area headquarters in the country and that it has continuously operated as such for the last 9 years. HELD: There is no general rule or governing principle as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. Each case must be judged in the light of its peculiar circumstances. In the case at bench, petitioner does not engage in commercial dealings or activities in the country because it is precluded from doing so by P.D. No. 218, under which it was established. Nonetheless, it has been continuously, since 1983, acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and in the process has named its local agent and has employed Philippine nationals like private respondent Romana Lanchinebre. From this uninterrupted performance by petitioner of acts pursuant to its primary purposes and functions as a regional/area headquarters for its home office, it is clear that petitioner is doing business in the country. Moreover, private respondents are estopped from assailing the personality of petitioner. The rule is that a party is estopped to challenge the

personality of a corporation after having acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" "one who has dealth with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity."

G.R. No. 94980. May 15,1996 LITTON MILLS INC., petitioner, vs. COURT OF APPEALS and GELHAAR UNIFORM COMPANY, INC., respondents. FACTS: Petitioner Litton Mills, Inc. (Litton) entered into an agreement with Empire Sales Philippines Corporation (Empire), as local agent of private respondent Gelhaar Uniform Company (Gelhaar), a corporation organized under the laws of the United States, whereby Litton agreed to supply Gelhaar 7,770 dozens of soccer jerseys. The agreement stipulated that before it could collect from the bank on the letter of credit, Litton must present an inspection certificate issued by Gelhaars agent in the Philippines, Empire Sales, that the goods were in satisfactory condition. Litton sent four shipments totalling 4,770 dozens of the soccer jerseys. A fifth shipment, consisting of 2,110 dozens of the jerseys, was inspected by Empire, but Empire refused to issue the required certificate of inspection. Alleging that Empires refusal to issue a certificate was without valid reason, Litton filed a complaint with the RTC of Pasig, for specific performance. On January 29,1985, the law firm of Sycip, Salazar, Feliciano and Hernandez entered a special appearance for the purpose of objecting to the jurisdiction of the court over Gelhaar. On February 4,1985, it moved to dismiss the case and to quash the summons on the ground that Gelhaar was a foreign corporation not doing business in the Philippines, and as such, was beyond the reach of the local courts. Litton opposed the motion. On the other hand, Empire moved to dismiss on the ground of failure of the complaint to state a cause of action since the complaint alleged that Empire only acted as agent of Gelhaar; that it was made party-defendant only for the purpose of securing the issuance of an inspection certificate; and that it had already issued such certificate and the shipment had already been shipped on time. The trial court issued an order denying for lack of merit Gelhaars motion to dismiss and to quash the summons. It held that Gelhaar was doing business in the Philippines, and that the service of summons on Gelhaar was therefore valid. Gelhaar filed a motion for reconsideration, but its motion was denied. Gelhaar appealed to the Court of Appeals, which set aside the orders of the trial court. Hence, present petition. Petitioner now contends that it is not doing business in the Philippines as it only engaged itself to a single act or transaction with Litton. ISSUE: Whether or not petitioners transaction with Litton is considered as doing business in the Philippines. HELD:

It is not really the fact that there is only a single act done that is material. The other circumstances of the case must be considered. Thus, in Wang Laboratories, Inc. v. Mendoza, it was held that where a single act or transaction of a foreign corporation is not merely incidental or casual but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, such act will be considered as constituting doing business. SC referred to acts which were in the ordinary course of business of the foreign corporation. In the case at bar, the trial court was certainly correct in holding that Gelhaars act in purchasing soccer jerseys to be within the ordinary course of business of the company considering that it was engaged in the manufacture of uniforms. The acts noted above are of such a character as to indicate a purpose to do business. In accordance with Rule 14, 14, service upon Gelhaar could be made in three ways: (1) by serving upon the agent designated in accordance with law to accept service of summons; (2) if there is no resident agent, by service on the government official designated by law to that effect; and (3) by serving on any officer or agent of said corporation within the Philippines. Here, service was made through Gelhaars agent, the Empire Sales Philippines Corp. There was, therefore, a valid service of summons on Gelhaar, sufficient to confer on the trial court jurisdiction over the person of Gelhaar.

G.R. No. 102223. August 22, 1996 COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTITRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC., respondents. FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI) and ASPAC MULTI-TRADE INC., (ASPAC) are both domestic corporations, while petitioner Francisco S. Aguirre is their President and majority stockholder. Private Respondents ITEC, INC. (ITEC) is a corporation duly organized and existing under the laws of the State of Alabama, USA, not licensed to do business in the Philippines. ITEC entered into a contract with petitioner ASPAC referred to as Representative Agreement wherein ITEC engaged ASPAC as its exclusive representative in the Philippines for the sale of ITECs products, in consideration of which, ASPAC was paid a stipulated commission. Through a License Agreement entered into by the same parties, ASPAC was able to incorporate and use the name ITEC in its own name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines). By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole customer, the Philippine Long Distance Telephone Company, (PLDT). One year into the second term of the parties Representative Agreement, ITEC decided to terminate the same, because petitioner ASPAC allegedly violated its contractual commitment as stipulated in their agreements. ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL) of using knowledge and information of ITECs products specifications to develop their own line of equipment and product support, which are similar, to ITECs own, and offering them to ITECs former customer. Thus, ITEC filed with the RTC of Makati a complaint against ASPAC, CMDI and DIGITAL, with a prayer for issuance of writ of preliminary injunction to permanently cease and desist petitioners from selling or attempting to sell to PLDT and to any other party, products which have been copied or manufactured in like manner, similar or identical to the products, wares and equipment of private respondent. Petitioners filed a motion to dismiss the complaint on the ground that ITEC has no legal capacity to sue as it is a foreign corporation doing business in the Philippines without the required BOI authority and SEC license. RTC denied the motion to dismiss

filed by petitioners and issued writ of preliminary injunction. Upon appeal to CA, it affirmed the trial courts decision. Hence, present petition.

ISSUE: Whether or not private respondent ITEC is an unlicensed corporation doing business in the Philippines, and if it is, whether or not this fact bars it from invoking the injunctive authority of our courts. HELD: In determining whether a corporation does business in the Philippines or not, aside from their activities within the forum, reference may be made to the contractual agreements entered into by it with other entities in the country. ITEC entered into different contracts with its various business contacts in this country, particularly ASPAC. ITEC appointed ASPAC, under the Representative Agreement, to be its local technical representative and to create a service center for the formers products sold locally and the latter was obliged to provide the foreign corporation with monthly report detailing the failure and repair of the products and to requisition monthly the materials and components needed to replace stock consumed, ITEC was deemed to be doing business in the Philippines. This arrangement with ASPAC indicates its purpose to bring about the situation among its customers and the general public that they are dealing with the foreign corporation. The provisions of the agreement are also highly restrictive in nature reducing the local firm to a mere extension or instrument of ITEC. Notwithstanding such finding that ITEC is doing business in the country, petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case against it. A foreign corporation doing business in the Philippines may sue in Philippine Courts although not authorized to do business here against a Philippine citizen or entity who had contracted with and benefited by said corporation. A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. The principle will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract. By entering into the Representative Agreement with ITEC, Petitioner is charged with knowledge that ITEC was not licensed to engage in business activities in the country, and is thus estopped from raising in defense such incapacity of ITEC, having chosen to ignore or even presumptively take advantage of the same.

G.R. No. 110318. August 28, 1996 COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION, UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners, vs. COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A. PELINDARIO, respondents. FACTS: Petitioners lodged a formal complaint with the National Bureau of Investigation for violation of PD No. 49, as amended, and sought its assistance in their anti-film piracy drive. Agents of the NBI and private researchers made discreet surveillance on various video establishments in Metro Manila including Sunshine Home Video Inc., owned and operated by Danilo A. Pelindario with address at No. 6 Mayfair Center, Magallanes, Makati, Metro Manila. On November 14, 1987, NBI Senior Agent Lauro C. Reyes applied for a search warrant with the court a quo against Sunshine seeking the seizure, among others, of pirated video tapes of copyrighted films all of which were enumerated in a list attached to the application; and, television sets, video cassettes and/or laser disc recordings equipment and other machines and paraphernalia used or intended to be used in the unlawful exhibition, showing, reproduction, sale, lease or disposition of videograms tapes in the premises above described. On the basis of the affidavits and depositions of NBI Senior Agent Lauro C. Reyes, Rene C. Baltazar and Atty. Rico V. Domingo, Search Warrant No 87-053 was issued by the court a quo. The search warrant was served on December 14, 1987 to Sunshine and/or their representatives. In the course of the search of the premises indicated in the search warrant, the NBI Agents found and seized various video tapes of duly copyrighted motion pictures/films owned or exclusively distributed by private complainants, and machines, equipment, television sets, paraphernalia, materials, accessories all of which were included in the receipt for properties accomplished by the raiding team. Thereafter, a Return of Search Warrant was filed with the Court. A Motion To Lift the Order of Search Warrant was filed but was later denied for lack of merit. A Motion for reconsideration of the Order of denial was filed. The court a quo granted the said motion for reconsideration and justified that it is undisputed

that the master tapes of the copyrighted films from which the pirated films were allegedly copies, were never presented in the proceedings for the issuance of the search warrants in question. The orders of the Court granting the search warrants and denying the urgent motion to lift order of search warrants were set aside. Upon appeal to CA, it affirmed RTCs order to lift search warrant. Hence, present petition. Private respondents now aver that being foreign corporations, petitioners should have such license to be able to maintain an action in Philippine courts. ISSUE: Whether or not petitioners has the legal capacity to sue private respondents being foreign corporations without license to do business in the Philippines. HELD: In so challenging petitioners personality to sue, private respondents point to the fact that petitioners are the copyright owners or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures or films, and also to the appointment of Atty. Rico V. Domingo as their attorney-in-fact, as being constitutive of doing business in the Philippines under Section 1(f) (1) and (2), Rule 1 of the Rules of the Board of Investments. As foreign corporations doing business in the Philippines, Section 133 of the Corporation Code, denies them the right to maintain a suit in Philippine courts in the absence of a license to do business. Consequently, they have no right to ask for the issuance of a search warrant. A foreign corporation which owns the copyright to foreign films and exclusive distribution rights in the Philippines and appointed an attorney-in-fact to file criminal cases is not doing business in the Philippines. In the present case, the contracts are consummated abroad, as the hiring of the attorney-in-fact is merely for the protection of petitioners property a right. Doing business implies a continuity if commercial dealings and arrangement, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to or in progressive prosecution of the purpose of and subject of its organization.

G.R. No. 113074. January 22, 1997 ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), respondents. FACTS: Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany. Petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney" wherein the petitioner as the present owner and holder of the BMW trademark and device in the Philippines which he uses and has been using on the products manufactured by private respondent, and for which petitioner is the authorized exclusive Dealer of private respondent in the Philippines, the same being evidenced by certificate of registration issued by the Director of Patents. Petitioner therein has agreed to transfer and consequently record said transfer of the said BMW trademark and device in favor of the private respondent herein with the Philippines Patent Office. Per the agreement, the parties "continued business relations as has been usual in the past without a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC. Thereafter, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales and deteriorating services. Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have to terminate petitioner's exclusive dealership.

Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of Assignment. Because of Hahn's insistence on the former business relation, BMW withdrew its offer of a "standard importer contract" and terminated the exclusive dealer relationship. Hahn filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership. Summons and copies of the complaint were thereafter served on the private respondent through the Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court. BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It contended that the execution of the Deed of Assignment was an isolated transaction. Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines. The trial court deferred resolution of the Motion to dismiss until after trial on the merits for the reason that the grounds advanced by BMW in its motion did not seem to be indubitable. Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court of Appeals. The latter enjoined the trial court from hearing petitioner's complaint and rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the motion to dismiss and that BMW is not doing business in the Philippines. Hence, present appeal. ISSUE: Whether or not petitioner is distributor or agent of private respondent BMW thus considering the latter as doing business in the Philippines. HELD: If the defendant is a foreign corporation, or a nonresident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. Under the Foreign Investments Act of 1991, the phrase "doing business" shall include xxx appointing representatives or distributors domiciled in the Philippines xxx and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive

prosecution of, commercial gain or of the purpose and object of the business organization. Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the representative or distributor "transacts business in its name and for its own account." Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing charges, notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including, warranty services, for which he received reimbursement from BMW. All orders were on invoices and forms of BMW. These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of Appeals. This arrangement shows an agency. G.R. No. 118843. February 6, 1997 ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ, JR., respondents. FACTS: Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial uses. It is a corporation duly organized and existing under the laws of the Republic of Singapore and is not licensed to do business in the Philippines and i(s) not so engaged. On various dates covering the period January 17 to August 16, 1989, private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The ordered materials were delivered via airfreight. The transfers of goods were perfected in Singapore, for private respondents account, with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to settle his account, but the latter failed/refused to do so. Thus, petitioner filed with RTC of Makati, for the recovery of S$41,939.63 or its equivalent in Philippine currency. It alleged that it is suing on an isolated transaction for which it has capacity to sue. Private respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal capacity to sue. The trial court dismissed the action on the ground that petitioner is a foreign corporation doing business

in the Philippines without a license. On appeal, respondent Court affirmed said order. Hence, present petition. ISSUE: Whether or not petitioner may maintain an action in Philippine courts considering that it has no license to do business in the country. HELD: The term doing business implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. The accepted rule in jurisprudence is that each case must be judged in the light of its own environmental circumstances. It should be kept in mind that the purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render it amenable to suits in the local courts. The transaction cannot be considered as an isolated one. Note that there were 17 orders and deliveries (only sixteen per our count) over a four-month period. The private respondent made separate orders at various dates. The transactions did not consist of separate deliveries for one single order. In the case at bar, the transactions entered into by the petitioner with private respondent are a series of commercial dealings which would signify an intent on the part of the petitioner to do business in the Philippines and could not by any stretch of the imagination be considered an isolated one, thus would fall under the category of doing business. It can be clearly gleaned from the four-month period of transactions between petitioner and private respondent that it was a continuing business relationship, which would, without doubt, constitute doing business without a license. For all intents and purposes, petitioner is doing or transacting business in the Philippines without a license and that, therefore, in accordance with the specific mandate of Section 144 of the Corporation Code, it has no capacity to sue.

[guys, sorry di ko talaga mahanap yung PSBA case, pasensya na talaga, tapos yung dalawang kaso ng reyes dtto, pareho lang po yun. Love, Bunyeta] Avon Insurance PLC v. Court of Appeals, 278 SCRA 312 (1997) FACTS: Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties for the periods July 6, 1979 to July 6, 1980 for a coverage of P100,000,000.00 and from October 1, 1980 to October 1, 1981, also for P100,000,000.00. Both contracts were covered by reinsurance treaties between Worldwide Surety and Insurance and several foreign reinsurance companies, including the petitioners. The reinsurance arrangements had been made through international broker C.J. Boatwright and Co. Ltd., acting as agent of Worldwide Surety and Insurance. As fate would have it, within the respective effectivity periods of the contracts, the properties therein insured were razed by fire, thereby giving rise to the obligation of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by Worldwide Surety and Insurance and some of the reinsurance companies. Worldwide Surety and Insurance, in a Deed of Assignment, acknowledged a remaining balance of P19,444,447.75 still due Yupangco Cotton Mills, and assigned to the latter all reinsurance proceeds still collectible from all the foreign reinsurance companies. Thus, in its interest as assignee and original insured, Yupangco Cotton Mills instituted this collection suit against the petitioners. Service of summons upon the petitioners was made by notification to the Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court. Petitioners claim that the trial court's jurisdiction does not extend to them, since they are foreign reinsurance companies that are not doing business in the Philippines. Having entered into reinsurance contracts abroad, petitioners are beyond the jurisdictional ambit of our courts and cannot be served summons through extraterritorial service, as under Section 17, Rule 14 of the Rules of Court, nor through the Insurance Commissioner, under Section 14. Private respondent Yupangco Cotton Mills contend on the other hand that petitioners are within our courts' cognitive powers, having submitted voluntarily to their jurisdiction by filing motions to dismiss.

Court of Appeals: 1. Petitioners were properly served with summons and whatever defect, if any, in the service of summons were cured by their voluntary appearance in court, via motion to dismiss. 2. Even assuming that petitioners have not yet voluntarily appeared as co-defendants in the case below even after having filed the motions to dismiss adverted to, still the situation does not deserve dismissal of the complaint as far as they are concerned, since as held by this Court in Lingner Fisher GMBH vs. IAC, 125 SCRA 523; A case should not be dismissed simply because an original summons was wrongfully served. It should be difficult to conceive for example, that when a defendant personally appears before a court complaining that he had not been validly summoned, that the case filed against him should be dismissed. An alias summons can be actually served on said defendant. 3. Being reinsurers of respondent Worldwide Surety and Insurance of the risk which the latter assumed when it issued the fire insurance policies in dispute in favor of respondent Yupangco, petitioners cannot now validly argue that they do not do business in this country. At the very least, petitioners must be deemed to have engaged in business in the Philippines no matter how isolated or singular such business might be, even on the assumption that among the local domestic insurance corporations of this country, it is only in favor of Worldwide Surety and Insurance that they have ever reinsured any risk arising from any reinsurance within the territory.

ISSUE: 1. Whether or not the petitioners were determined to be "doing business in the Philippines" or not.

HELD: A reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of insurance. Thus, a foreign reinsurance company which accepted reinsurance from a domestic insurance company cannot be sued in the Philippines, since it is not doing business in the Philippines. To qualify the petitioners' business of reinsurance within the Philippine forum, resort must be made to the established principles in determining what is meant by "doing business in the Philippines." In Communication Materials and Design, Inc. et. al. vs. Court of Appeals, it was observed that.

There is no exact rule or governing principle as to what constitutes doing or engaging in or transacting business. Indeed, such case must be judged in the light of its peculiar circumstances, upon its peculiar facts and upon the language of the statute applicable. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include: soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity or commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. The term ordinarily implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution of the purpose and object of its organization. A single act or transaction made in the Philippines, however, could qualify a foreign corporation to be doing business in the Philippines, if such singular act is not merely incidental or casual, but indicates the foreign corporation's intention to do business in the Philippines. The Court is cognizant that for the purpose of acquiring jurisdiction by way of summons on a defendant foreign corporation, there is no need to prove first the fact that defendant is doing business in the Philippines. The plaintiff only has to allege in the complaint that the defendant has an agent in the Philippines for summons to be validly served thereto, even without prior evidence advancing such factual allegation. As it is, private respondent has made no allegation or demonstration of the existence of petitioners' domestic agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker, and not through any entity or means remotely connected with the Philippines. Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state merely because the property or lives which are insured by the original insurer company are located in that state. The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the original contract of

insurance, whose contracted risk is insured in the reinsurance agreement. Hence, the original insured has generally no interest in the contract of reinsurance. Before a foreign corporation can transact business in the country, it must first obtain a license to transact business here and secure the proper authorizations under existing law. If a foreign corporation engages in business activities without the necessary requirements, it opens itself to court actions against it, but it shall not be allowed to maintain or intervene in an action, suit or proceeding for its own account in any court or tribunal or agency in the Philippines. The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the State's regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal existence. Therefore, to subject such corporation to the courts' jurisdiction would violate the essence of sovereignty.

Hutchison Ports Philippines Ltd. V. Subic Bay Metropolitan Authority, 339 SCRA 34 (2000)

FACTS: The Subic Bay Metropolitan Authority (or SBMA) advertised an invitation offering to the private sector the opportunity to develop and operate a modern marine container terminal within the Subic Bay Freeport Zone. Out of seven bidders who responded to the published invitation, three were declared by the SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the SBMAs Technical Evaluation Committee (or SBMA-TEC). These are:

(1) International Container Terminal Services, Inc. (or ICTSI); (2) a consortium consisting of Royal Port Services, Inc. and HPC Hamburg Port Consulting GMBH (or RPSI); and (3) Hutchison Ports Philippines Limited (or HPPL), representing a consortium composed of HPPL, Guoco Holdings (Phils.), Inc. and Unicol Management Services, Inc.

Thereafter, the services of three (3) international consultants recommended by the World Bank

for their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders. All the consultants, after such review and evaluation unanimously concluded that HPPLs Business Plan was far superior to that of the two other bidders.

Thereafter, SBMA Board, in a resolution, declared HPPL is accordingly selected as the winning bidder and is hereby awarded the concession for the operation and development of the Subic Bay Container Terminal: the conforming bid with a realistic Business Plan offering the greatest financial return to the SBMA; the best possible offer in the market, and the most advantageous to the government in accordance with the Tender Document.

Notwithstanding the SBMA Boards recommendations and action awarding the project to HPPL, then Executive Secretary Ruben Torres submitted a memorandum to the Office of the President recommending that another rebidding be conducted. Consequently, the Office of the President issued a Memorandum directing the SBMA Board of Directors to refrain from signing the Concession Contract with HPPL and to conduct a rebidding of the project.

HPPL, feeling aggrieved by the SBMAs failure and refusal to commence negotiations and to execute the Concession Agreement despite its earlier pronouncements that HPPL was the winning bidder, filed a complaint, against SBMA for specific performance, mandatory injunction and damages.

While the case before the trial court was pending litigation, the SBMA sent notices to HPPL, ICTSI and RPSI requesting them to declare their interest in participating in a rebidding of the proposed project. HPPL received a copy of the minutes of the pre-bid conference, then HPPL learned that the SBMA had accepted the bids of ICTSI and RPSI who were the only bidders who qualified.

HPPL sought redress from the court.

ICTSI and RPSI filed a motion to dismiss on the ground that HPPL has not obtained license to do business and therefore has no legal capacity to sue.

HPPL raised as defense, that participating in a bidding is a mere isolated transaction.

ISSUE: Whether or not participating in the bidding is a mere isolated transaction, or did it constitute engaging in or transacting business in the Philippines such that HPPL needed a license to do

business in the Philippines before it could come to court.

HELD: There is no general rule or governing principle laid down as to what constitutes doing or engaging in or transacting business in the Philippines. Each case must be judged in the light of its peculiar circumstances. Thus, it has often been held that a single act or transaction may be considered as doing business when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do business.

Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or existence. Thus, it has been held that a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required. In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not.

The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the regulation of their activities in this country. If a foreign corporation operates a business in the Philippines without a license, and thus does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them in our courts when the need arises. While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar. The requirement of a license is not intended to put foreign corporations at a disadvantage, for the doctrine of lack of capacity to sue is based on considerations of sound public policy. Accordingly, petitioner HPPL must be held to be incapacitated to bring this petition for injunction before this Court for it is a foreign corporation doing business in the Philippines without the requisite license.

Lorenzo Shipping Corp. v. Chubb and Sons, 431 SCRA 266 (2004)

FACTS: Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW black steel pipes worth US$137,912.84 on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo

Shipping, for shipment to Davao City. Lorenzo Shipping issued a clean bill of lading for the account of the consignee, Sumitomo Corporation of San Francisco, California, USA, which in turn, insured the goods with Chubb and Sons, Inc.

The M/V Lorcon IV arrived at the Sasa Wharf in Davao City. Transmarine Carriers received the subject shipment. It discovered seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del Pans Survey Report showed that the subject shipment was no longer in good condition, as in fact, the pipes were found with rust formation on top and/or at the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was rusty, thinning, and with several holes at different places. The rusty condition of the cargo was noted on the mates receipts and the checker of M/V Lorcon IV signed his conforme thereon.

After the survey, Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for carriage to the United States. It issued Bills of Lading covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., an another covering 217 bundles of steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked ALL UNITS HEAVILY RUSTED.

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter of intent Lorenzo Shipping, informing, that it will be filing a claim based on the damaged cargo once such damage had been ascertained.

M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364 bundles of the subject steel pipes. It then sailed to Vancouver, Washington where it unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel pipes, and also discovered the latter heavily rusted. When the steel pipes were tested with a silver nitrate solution, Toplis and Harding found that they had come in contact with salt water.

Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and declared them unfit for the purpose they were intended. It then filed a marine insurance claim with Chubb and Sons, Inc. which the latter settled.

Chubb and Sons, Inc., in turn, filed a complaint for collection of a sum of money Lorenzo Shipping, Gearbulk, and Transmarine. Chubb and Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing under an isolated transaction. Gearbulk and Transmarine opposed and contended among others that Chubb and Sons, Inc. has no capacity to sue before Philippine courts.

Trial Court affirmed by the Court of Appeals: Ruled in favor of the respondent Chubb and Sons, Inc., finding that Chubb and Sons, Inc. has the right to institute this action.

ISSUE: Whether or not Chubb and Sons, an insurance company and subrogee of a foreign corporation (Sumitomo) doing business in the Philippines has capacity to sue before the Philippine courts.

HELD: Assuming arguendo that Sumitomo cannot sue in the Philippines, it does not follow that respondent, as subrogee, has also no capacity to sue in our jurisdiction. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers the situation under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to enforce payment. The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted he cannot acquire any claim, security, or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if insured likewise could have recovered. However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The person substituted (the insurer) will succeed to all the rights of the creditor (the insured), having reference to the debt due the latter. In the instant case, the rights inherited by the insurer, Chubb and Sons, pertain only to the payment it made to the insured Sumitomo as stipulated in the insurance contract between them, and which amount it now seeks to recover from petitioner Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The capacity to sue of respondent Chubb and Sons could not perchance belong to the group of rights, remedies or securities pertaining to the payment respondent insurer made for the loss which was sustained by the insured Sumitomo and covered by the contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims. It refers to a plaintiffs general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality, or any other disqualifications of a party. Respondent Chubb and Sons who was plaintiff in the trial court does not possess any of these disabilities. On the contrary, Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it is not doing business in the Philippines, but is suing only under an isolated transaction, i.e., under the one (1) marine insurance policy issued in favor of the consignee Sumitomo covering the damaged steel pipes.

The law on corporations is clear in depriving foreign corporations which are doing business in the Philippines without a license from bringing or maintaining actions before, or intervening in Philippine courts. Art. 133 of the Corporation Code states: Doing business without a license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

The law does not prohibit foreign corporations from performing single acts of business. A foreign corporation needs no license to sue before Philippine courts on an isolated transaction. . . . What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions.

Where an insurance company as subrogee pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in interest and must sue in its own name to enforce its right of subrogation against the third party which caused the loss. This is because the insurer in such case having fully compensated its insured, which payment covers the loss in full, is subrogated to the insureds claims arising from such loss. The subrogated insurer becomes the owner of the claim and, thus entitled to the entire fruits of the action. It then, thus possesses the right to enforce the claim and the significant interest in the litigation. In the case at bar, it is clear that respondent insurer was suing on its own behalf in order to enforce its right of subrogation.

Expertravel and Tours, Inc. v. CA, 459 SCRA 147 (2005)

FACTS: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm.

KAL, through Atty. Aguinaldo, filed a Complaint against ETI for the collection of the principal amount of P260,150.00, plus attorneys fees and exemplary damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Appended to the said opposition was the identification card of Atty. Aguinaldo, showing that he was the lawyer of KAL. During the hearing, Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. The trial court granted the motion. Atty. Aguinaldo subsequently filed other similar motions, which the trial court granted. Finally, KAL submitted an Affidavit, executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. The trial court issued an Order denying the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a teleconference, during which it approved a resolution as quoted in the submitted affidavit. Court of Appeals: Dismissed the petition, ruling that the verification and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court, Atty. Aguinaldo had been duly authorized by the board resolution. As such, the RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors. ISSUE: Whether or not the resident agent of a foreign corporation, doing business in the Philippines is necessarily authorized to execute certificate of non-forum shopping. HELD: It is settled that the requirement to file a certificate of non-forum shopping is mandatory and that the failure to comply with this requirement cannot be excused. The certification is a

peculiar and personal responsibility of the party, an assurance given to the court or other tribunal that there are no other pending cases involving basically the same parties, issues and causes of action. Hence, the certification must be accomplished by the party himself because he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or tribunals. Even his counsel may be unaware of such facts. Hence, the requisite certification executed by the plaintiffs counsel will not suffice. In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents. The reason was explained by the Court in National Steel Corporation v. Court of Appeals, as follows: Unlike natural persons, corporations may perform physical actions only through properly delegated individuals; namely, its officers and/or agents. The corporation, such as the petitioner, has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly-authorized officers and agents. Physical acts, like the signing of documents, can be performed only by natural persons duly-authorized for the purpose by corporate by-laws or by specific act of the board of directors. "All acts within the powers of a corporation may be performed by agents of its selection; and except so far as limitations or restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons." For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean that he is authorized to execute the requisite certification against forum shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign corporation, services and other legal processes in all actions and other legal proceedings against such corporation. Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of nonforum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing

business in the Philippines), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen.

B.Van Zuiden Bros. Ltd v. GTVL Manufacturing Industries, 523 SCRA 233 (2007)

FACTS: ZUIDEN, a corporation incorporated under the laws of Hong Kong, is engaged in the importation and exportation of several products, including lace products. On several occasions, GTVL purchased lace products from ZUIDEN. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd., and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by GTVL.KENZAR had the obligation to deliver the products to the Philippines and/or to follow whatever instructions GTVL had on the matter. Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in Hong Kong, the transaction is concluded; and GTVL became obligated to pay the agreed purchase price. However, GTVL failed and refused to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN. In spite of said demands and in spite of promises to pay and/or admissions of liability, GTVL has failed and refused, and continues to fail and refuse, to pay the overdue amount. ZUIDEN filed a complaint for sum of money against GTVL. GTVL filed a Motion to Dismiss on the ground that petitioner has no legal capacity to sue, alleging that ZUIDEN is doing business in the Philippines without securing the required license, accordingly, it cannot sue before Philippine courts. The Trial Court and Court of Appeals dismissed the complaint.

Court of Appeals: The transaction involved cannot be considered as an isolated transaction. ZUIDEN is indeed doing business in the Philippines without the necessary license, hence, doesnt have the capacity to sue.

ISSUE: Whether ZUIDEN, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts. The resolution of this issue depends on whether petitioner is doing business in the Philippines.

HELD: The mere act of exporting from ones own country, without doing any specific commercial act within the territory of the importing country can not be deemed as doing business in the importing country. Section 133 of the Corporation Code provides: Doing business without license. No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. The series of transactions between ZUIDEN and GTVL cannot be classified as "doing business" in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as "doing business" in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. Here, there is no showing that ZUIDEN performed within the Philippine territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. ZUIDEN did not also open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While ZUIDEN and GTVL entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation of these transactions were done outside the Philippines. The series of transactions between ZUIDEN and GTVL transpired and were consummated in Hong Kong. We also find no single activity which ZUIDEN performed here in the Philippines pursuant to its purpose and object as a business organization. Moreover, ZUIDENs desire to do business within the Philippines is not discernible from the allegations of the complaint or from its attachments. Therefore, there is no basis for ruling that ZUIDEN is doing business in the Philippines. An exporter in one country may export its products to many foreign importing countries without performing in the importing countries specific commercial acts that would constitute doing business in the importing countries. The mere act of exporting from ones own country, without

doing any specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing country. The importing country does not acquire jurisdiction over the foreign exporter who has not performed any specific commercial act within the territory of the importing country. Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do business in the importing country. Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered by the importing countries to be doing business in those countries. This will require Philippine exporters to secure a business license in every foreign country where they usually export their products, even if they do not perform any specific commercial act within the territory of such importing countries. Such a legal concept will have a deleterious effect not only on Philippine exports, but also on global trade. To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account. Actual transaction of business within the Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure a Philippine business license. If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license. Considering that ZUIDEN is not doing business in the Philippines, it does not need a license in order to initiate and maintain a collection suit against GTVL for the unpaid balance of GTVLs purchases.

Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation 470 SCRA 650 (2005) FACTS: RIMBUNAN and NIUGINI are nonresident foreign corporations, not doing business in the Philippines, duly organized and existing under and by virtue of the laws of Papua New Guinea (PNG') with principal office at Port Moresby, Papua New Guinea. Niugini is a subsidiary of plaintiff Rimbunan and has the same set of directors and officers as the latter. In Papua New Guinea, they are engaged in the business of extraction and exportation of PNG round logs. Rimbunan and Niugini sold and delivered to Oriental Wood Processing Corporation a total of 8,364,608 cubic meters of mixed group of species of PNG round logs. In accordance with the company practice, Rimbunan nominated Niugini to enter into sale transaction with the Oriental Wood. Oriental Wood, on the other hand, promised to open a letter of credit in favor of Niugini to cover the transaction.

Pursuant to the agreement, Oriental Wood, purchased from Niugini PNG round logs. To pay for the purchase price of shipment, Oriental Wood undertook to obtain a letter of credit from its bank in favor of Niugini to cover the transaction. However, after the vessel 'MV Bintang Harapan left the port of Cape Monggil, Papua New Guinea, Oriental Wood in a fax message, informed Ribunan and Nuigini, that it would resort to telegraphic transfer directly to Ribunan and Nuigini, bank account to pay the said purchase price citing as reason tight government regulations which allegedly made the processing of letter of credit difficult. Despite the delivery of the shipment to Oriental Wood, the latter failed to fulfil its undertaking to remit immediately by telegraphic transfer the remaining balance on the purchase price of the said shipment. Demands were made, and Oriental Wood made only two partial payments. After that, Oriental Wood did not make any further payments despite receipt of Ribunan and Nuiginis demand letters. Ribunan and Nuigini filed complaint for sum of money with application of writ of preliminary attachment against Oriental Wood. Oriental Wood filed a Motion to Dismiss on the grounds that petitioners have no legal capacity to sue in this jurisdiction and that Niugini has no legal personality to sue.

Trial Court: Concluded that petitioners were not doing business in the Philippines but were merely suing on an isolated transaction. As such, Ribunan and Nuigini were legally capacitated to institute and maintain an action against Oriental Wood notwithstanding their lack of license to do business in this jurisdiction.

Court of Appeals: Reversed TC, holding Ribunan and Nuiginis acts and transactions constitute not merely incidental or casual performance of business, but are of such character as distinctly to indicate a purpose on their part to do business in the Philippines, hence, they were proscribed from suing Oriental Wood in Philippine courts. Appeal by Ribunan ang Nuigini contending that the Court of Appeals rendered the decision based merely on the petition for certiorari by Oriental Wood and without proof as to the alleged transactions by Ribunan and Nuigini here in the Philippines.

ISSUE: Whether or not an unlicensed foreign corporation has access to the Domestic Courts.

HELD: An unlicensed foreign corporation is nonetheless permitted to bring suit in the Philippines if it is suing in an isolated transaction. Thus the ascertainment of whether a foreign corporation is merely suing on an isolated transaction or is actually doing business in the Philippines requires the elicitation of at least a preponderant set of facts. It simply cannot be answered through conjectures or acceptance of unsubstantiated allegations. Even if the challenge to a foreign corporation-plaintiff's capacity to sue is raised in the preliminary stage that a motion to dismiss is, the demand for a clear factual finding to justify the dismissal cannot be dispensed with. Section 2, Rule 16 of the 1997 Rules of Civil Procedure allows not only a hearing on the motion to dismiss, but also for the parties to submit their evidence on the questions of fact involved. Evidently, the factual question of whether an unlicensed foreign corporation is indeed suing merely on an isolated transaction may be litigated extensively at the hearing or hearings on the motion to dismiss. The parties are allowed to submit their respective evidence, and even rebut the opposing parties' evidence. The hearing should provide the parties the forum for full presentation of their sides. From the trial court's perspective, the extent of such hearing would depend on its satisfaction that the unlicensed foreign corporation's capacity to sue has been established or disestablished. What is essential is that if the trial court grants the motion to dismiss on this ground, the fact that the corporation is actually doing business in the Philippines or is not suing on an isolated transaction must be established by a preponderance of evidence, in accordance with Section 1, Rule 133. The standard of preponderance of evidence would apply in that instance since the order granting the motion to dismiss is a final order dispository of the case and also since the burden of proof to establish the ground for dismissal is on the defendant-movant. If, as in this case, the appellate court were to reverse the trial court and order the dismissal of the complaint, it must be clear that the incapacity to sue of the unlicensed foreign corporation has been established by a preponderance of evidence; otherwise the lower court's denial of the motion to dismiss should be affirmed.

Aboitiz Shipping Corporation v. Insurance Co. of north America, 561 SCRA 262 (2008) FACTS:

MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the

consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. ICNA issued an "all-risk" open marine policy. The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City. The ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. The cargo was received by Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading issued by Aboitiz contained the notation "grounded outside warehouse." The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report. The container van was loaded on board Aboitiz's vessel. The vessel left Manila en route to Cebu City. The shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report Aboitiz's checker noted that the crates were slightly broken or cracked at the bottom. The cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. Mayo B. Perez, then Claims Head of, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness. Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the "grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the cargo. In a letter, Willig informed Aboitiz of the damage noticed upon opening of the cargo.The consignee contacted the Philippine office of ICNA for insurance claims. Aboitiz refused to settle the claim. ICNA paid the amount to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz. ICNA filed a civil complaint against Aboitiz for collection of actual damages. Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no cause of action, ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there being no claim made upon Aboitiz.

Trial Court: ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. It also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts.

Court of Appeals: Reversed TC. The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation.

ISSUE: Whether or not a Foreign Corporation is absolutely incapacitated from filing a suit in local courts.

HELD: A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover internationalbound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.

Right of First Refusal J.G. Summit Holdings, Inc. v. Court of Appeals, 450 SCRA 169 (2005) FACTS:

The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture. NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government. A trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government's share in PHILSECO. as a result of a quasireorganization of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%. In the interest of the national economy and the government, the Committee on Privatization (COP) and the Asset Privatization Trust (APT) deemed it best to sell the National Government's share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the right to top. KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top. The bidders were informed of the set up, that, should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof As J.G. Summit was declared the highest bidder, the COP approved the sale "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules." J.G. Summit informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings. J.G. Summit was notified that PHI had fully paid the balance of the purchase price of the subject bidding, and that PHI had exercised its option to top the highest bid and that the COP had approved the same. APT and PHI executed a Stock Purchase Agreement. J.G. Summit filed a petition for mandamus, which the Court of Appeals denied.

J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on landholding by corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently be converted into the right to top. J.G. Summit also asserts that, at present, PHILSECO continues to violate the constitutional provision on landholdings as its shares are more than 40% foreign-owned.

ISSUE: Whether or not the right of first refusal was validly exercised.

HELD: Upheld the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The agreement of coshareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders ownership of the shares which is adversely affected but the capacity of the corporation to own land that is, the corporation becomes disqualified to own land. This finds support under the basic corporate law principle that the corporation and its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land.

Intra-Corporate Controversy

a. Cases under the old rules where the SEC had jurisdiction over intra-corporate disputes

Philippine School of Business Administration v. Leano, 127 SCRA 778 (1984)

FACTS:

DMRC Enterprises v. Este Del Sol Mountain Reserve, Inc., 132 SCRA 293 (1984) FACTS: DMRC Enterprises is a partnership engaged in the business of general construction and leasing heavy equipment and other allied transactions. DMRC Enterprises made an offer in writing to Este Del Sol Mountain Resort., for the lease to it of three (3) units of heavy equipment namely: One 1 unit Payloader "KIMCO" 21/2 cubic yard at P 130.00 per hour; One (1) unit Bulldozer D-80-A with ripper at P150.00 per hour; and One (1) unit Bulldozer at P130.00 per hour with a guaranteed minimum use of two hundred (200) hours, a month, excluding breakdown and that the expenses of bringing the subject equipment to the jobsite shall be for the account of the Este Del Sol Mountain Reserve, Inc. As further conditions of the agreement, Este Del Sol Mountain Resort, was to advance the sum of P5,000.00 per unit to be deducted from the first collection to be made by the DMRC Enterprise; that the payments due to the DMRC Enterprise shall be made every 15th and 30th of each calendar month and that an amount equivalent to 30% of the collection shall be invested in the purchase of shares of stock of the Este Del Sol Mountain Resort at the market value of P37,000.00 per share. The offer was accepted virtual law library As a result of the agreement between DMRC Enterprise and Este Del Sol Mountain Resort, the former proceeded to perform what was incumbent upon it. However, despite repeated demands for the payment of outstanding obligations, Este Del Sol Mountain Resort refused to comply with its obligations.Thus, DMRC Enterprise filed a Este del Sol Mountain Resort.In due time, Este del Sol Mountain Resort interposed a motion to dismiss on the sole ground that the respondent court has no jurisdiction over the nature of the action or suit. The trial court issued an order granting the motion to dismiss. Hence, this petition. Este del Sol Mountain Resort states that to compel a corporation to issue its shares of stock in the name of subscribers or stockholders involves controversies arising out of intracorporate affairs of the corporation and its stockholders or subscribers. It is further argued that since DMRC Enterprise seeks to recover from Este del Sol Mountain Resort some shares allegedly arising out of contractual relations whereby DMRC Enterprise undertook to render services for the Este del Sol Mountain Resort and the Este del Sol Mountain Resort agreed to issue shares of stock to the DMRC Enterprise, the latter is thereby made a stockholder or shareholder of the Este del Sol Mountain Resort. Thus, the Securities and Exchange Commission is the proper forum to take cognizance of the present controversy.

On the other hand, DMRC maintains that the complaint is simply an action for the collection of money and delivery of personal property representing unpaid obligations within the competence of the regular courts.

ISSUE: Which has jurisdiction over controversy, the issuance of sharer, of stock as payment of a valid debt of a corporation, the regular courts or the Securities and Exchange Commission?

HELD: An action against a corporation to collect on a contractual obligation payable in cash and partly payable in shares of stock without averment of fraud and misrepresentation, falls within the jurisdiction of ordinary courts, not Securities and Exchange Commission. The expanded jurisdiction of the respondent Securities an exchange Commission under said decree extends only and exclusively to matters arising from contracts involving investments in private corporations, partnerships, and associations Jurisdiction over all other claims remains with the regular courts. A perusal of the complaint, styled "sum of money ", shows that the case at bar does not involve intra-corporate matters as to make it fall within the original and exclusive jurisdiction of the Securities and Exchange Commission. It is clear that DMRC has no intra-corporate relation with the respondent corporation. Nor can petitioner's cause of action be said to involve or arise from an intra-corporate matter. The fact that the case involves shares of stock to be used as payment for lease rentals does not convert it into an intra-corporate controversy. In fact, the greater of the DMRC's claim is in terms of cash or money, or pass upon a money claim under a lease contract would be beyond the competence of the Securities and Exchange Commission and to separate the claim for money from the claim for shares of stock would be splitting a single cause of action resulting in a multiplicity of suits. Nowhere do we find even so much as an intimidation that absolute jurisdiction and control is vested in the Securities and Exchange Commission in all matters affecting corporations. To uphold the Este del Sol Mountain Resorts argument would remove without legal imprimatur from the regular courts all conflicts over matters involving or affecting corporations, regardless of the nature of the transactions which give rise to such disputes. The courts would then be divested of jurisdiction not by reason of the nature of the dispute submitted to them for adjudication, but solely for the reason that the dispute involves a corporation. This cannot be done. Further buttressing the DMRC's stand is the fact that it is not a shareholder of the Este del Sol Mountain Resort, no transfer or registration of shares having been made in its name yet. Precisely, DMRC prays that it be made a stockholder of the corporation by virtue of the

agreement in the lease contract. Hence, there can be no intra-corporate controversy between a stockholder and the corporation in the case at bar. It must be remembered that a determination of the rights of the parties under the contract is necessary before any mention can be made of the issuance of shares of stock. DMRC must first be shown to be entitled to its claim under the disputed contract. Such a determination falls under the jurisdiction of the Regional Trial Court, particularly as it involves not only a question of issuance of shares but more so, the interpretation of a contract of lease and a claim for a sum of money under the said contract. Only after a finding of entitlement and the implementation according to the contractual terms may the Securities and Exchange Commission assume jurisdiction in case a question later arises regarding said shares. To enforce the basic contract is clearly beyond the power of the Securities and Exchange Commission and would be excess of jurisdiction if it were to act thereon.

Malayan Integrated Industries Corporation v. Mendoza, 154 SCRA 548 (1987) FACTS: The deceased Bonifacio Abuyen is an incorporator and shareholder of at least 12% of the total paid up capital of the Malayan Integrated Industries Corporation. Allegedly, the deceased Bonifacio Abuyen has never received any dividend, salary or benefits from the corporation from the time it was incorporated; that after several years of operation, the corporation acquired cash, properties and other assets which amount is beyond the knowledge of the plaintiffs; For this reason, an accounting and inventory of all the properties of the corporation was cemanded by the heirs of Bonifacio Abuyen, and that it is necessary likewise that the shares of the deceased Bonifacio Abuyen in the corporation be appraised and determined by a competent appraiser. After the share of the deceased Bonifacio Abuyen has been determined in relation to his 12% share of the total assets of the corporation, the same is distributed and partitioned among the plaintiffs as legitimate children and sole heirs of the deceased Bonifacio Abuyen; That the heirs have demanded from the President of the corporation several times for their inheritance claim from the share of their deceased father but the said President and the Board of Directors kept on postponing their decision over their claim; The Heirs filed this suit to enforce their claims (accounting and division). Malayan opposed, contending that the court has no jurisdiction over the subject-matter and over the nature of the action which is an intra corporate affair brought in the instant complaint, which is clearly asking for the accounting and payment of the fair value of the alleged shares of the late Bonifacio Abuyen, for the reason that the subject-matter and nature of the action involved fall within the original, exclusive and absolute jurisdiction of the Securities and Exchange Commission, pursuant to Sections 3 and 5 (a) and be of Presidential Decree No. 902-A.

Trial Court: Court has jurisdiction over the subject matter, it being not an intra corporate squable or conflict neither it arose between and among the stockholders, members or associates.

ISSUE: Which has jurisdiction over the controversy, the regular courts or the Securities and Exchange Commission?

HELD: Respondents asking for an accounting and distribution of shares and dividends of their father in the corporation is in the nature of intra corporate conflicts in view of the corporations denial of said demands and Securities and Exchange Commission has exclusive jurisdiction.

Reyes V. RTC of Makati, 561 SCRA 593 (2008) FACTS: Oscar and Rodrigo C. Reyes are two of the four children of the spouses Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and Rodrigo each owned shares of stock of Zenith Insurance Corporation (Zenith), a domestic corporation established by their family. Pedro and Anastacia died. Although Pedro's estate was judicially partitioned among his heirs, no similar settlement and partition appear to have been made with Anastacia's estate, which included her shareholdings in Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange Commission (SEC) against Oscar, the complaint stated that it is "a derivative suit initiated and filed by the complainant Rodrigo C. Reyes to obtain an accounting of the funds and assets of ZENITH INSURANCE CORPORATION which are now or formerly in the control, custody, and/or possession of Oscar and to determine the shares of stock of deceased spouses Pedro and Anastacia Reyes that were arbitrarily and fraudulently appropriated by Oscar for himself and which were not collated and taken into account in the partition, distribution, and/or settlement of the estate of the deceased spouses, for which he should be ordered to account for all the income from the time he took these shares of stock, and should now deliver to his brothers and sisters their just and respective shares."

Oscar denied the charge that he illegally acquired the shares of Anastacia Reyes. He asserted, as a defense, that he purchased the subject shares with his own funds from the unissued stocks of Zenith. He claimed that the complaint is a mere nuisance or harassment suit and should, according to the Interim Rules of Procedure for Intra-Corporate Controversies, be dismissed; and that it is not a bona fide derivative suit as it partakes of the nature of a petition for the settlement of estate of the deceased Anastacia that is outside the jurisdiction of a special commercial court.

Trial Court (affirmed by the Court of Appeals: Not a derivative suit and should properly be threshed out in a petition for settlement of estate.

ISSUES: Whether or not the controversy is a derivative suit. Whether or not the court has jurisdiction over the controversy.

HELD: Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The types of relationships embraced under Section 5(b), were as follows: a) between the corporation, partnership, or association and the public;

b) between the corporation, partnership, or association and its stockholders, partners, members, or officers; c) between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and d) among the stockholders, partners, or associates themselves. The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC, regardless of the subject matter of the dispute. This came to be known as the relationship test. However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test. The Court declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate

controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute. Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. Thus under the relationship test, the transfer of title by means of succession, though effective and valid between the parties involved (i.e. between the decedents estate and her heirs) does not bind the corporation and third parties. The transfer must be registered in the books of the corporation to make the transferee-heir a stockholder entitled recognition as such both by the corporation and by third parties. Therefore, each of the decedents heirs holds only an undivided interest in the shares. This interest is still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs to specific, distributive shares of inheritance will not will not be determined until all the debts of the estate of the decedent are paid. Insofar as the subject shares of stock are concernedthe heir of the deceased stockholder cannot be considered a stockholder of the corporation. Applying the nature of the controversy test, an accounting of funds and assets of the corporation to determine the extent and value of the decedents shareholdings will be undertaken by the probate court and not by a special commercial court is consistent with the probate courts limited jurisdiction. Hence, no intracorporate dispute exists. In other words, the case is not considered intra-corporate controversy even if the dispute is among stockholders if the issue is determination and distribution of successional rights to the shareholdings of a deceased shareholder.

Boman Environmental Corporation v. Court of Appeals, 167 SCRA 540 (1998) FACTS:

Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the company's Isuzu pick-up truck which he had been using. At a meeting of the Board of Directors of BEDECO on Fajilan's resignation as president was accepted and new officers were elected. Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay for them on a staggered basis. The resolution of the Board was communicated to Fajilan to which he affixed his conformity .

A promissory note was signed by BEDECO'S new president, Alfredo Pangilinan, in the presence of two directors, committing BEDECO to pay him P300,000 over a six-month period from July 15, 1984 to December 15, 1984. However, BEDECO paid only P50,000 on July 15, 1984 and another P50,000 on August 31, 1984 and defaulted in paying the balance of P200,000. Fajilan filed a complaint for collection of that balance from BEDECO.

Trial Court: Dismissed the complaint for lack of jurisdiction. It ruled that the controversy arose out of intracorporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide it.

Court of Appeals: While it is true that the circumstances which led to the execution of the promissory note by the Board of Directors of BEDECO was an intra- corporate matter, there arose no controversy as to the sale of Fajilan's interests and rights as well as his shares as Member of the Board of Directors and President of BEDECO. The intra-corporate matter of the resignation of petitioner as Member of the Board of Directors and President of BEDECO has long been settled without issue. The Board of Directors of BEDECO has likewise long settled the sale by petitioner of all his shares, rights and interests in favor of the corporation. No controversy arose out of this transaction. The jurisdiction of the Securities and Exchange Commission therefore need not be invoked on this matter.

ISSUE: Whether or not a suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due on the consideration (evidenced by a corporate promissory note) for the surrender of his shares of stock and interests in the corporation, involves an intracorporate dispute. The resolution of that issue will determine whether the Securities and Exchange Commission (SEC) or a regular court has jurisdiction over the action.

HELD:

This case involves an intra-corporate controversy because the parties are a stockholder and the corporation. As correctly observed by the trial court, the perfection of the agreement to sell Fajilan's participation and interests in BEDECO and the execution of the promissory note for payment of the price of the sale did not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as amended, for both the said agreement and the promissory arose from intracorporate relations. Indeed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an intra-corporate transaction, hence, this suit is an intra-corporate controversy. Fajilan's offer to resign as president and director "effective as soon as my shares and interests thereto are sold and fully paid" implied that he would remain a stockholder until his shares and interests were fully paid for, for one cannot be a director or president of a corporation unless he is also a stockholder thereof. The fact that he was replaced as president of the corporation did not necessarily mean that he ceased to be a stockholder considering how the corporation failed to complete payment of the consideration for the purchase of his shares of stock and interests in the goodwill of the business. There has been no actual transfer of his shares to the corporation. In the books of the corporation he is still a stockholder Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code.

Fortune Cement Corporation v. National Labor Relations Commission, 193 SCRA 391 (1991) FACTS: Antonio M. Lagdameo is a registered stockholder of Fortune Cement Corporation. At the FCC Board of Directors' regular monthly meeting, he was elected Executive Vice-President of FCC. Some eight (8) years later, during a regular meeting, the FCC Board resolved that all of its incumbent corporate officers, including Lagdameo, would be "deemed" retained in their respective positions without necessity of yearly reappointments, unless they resigned or were terminated by the Board. At subsequent regular meetings, however, the FCC Board approved and adopted a resolution dismissing Lagdameo as Executive Vice-President of the company, effective immediately, for loss of trust and confidence. Lagdameo filed with the National Labor Relations Commission (NLRC) a complaint for illegal dismissal against FCC alleging that his dismissal was done without a formal hearing and investigation and, therefore, without due process.

FCC moved to dismiss Lagdameo's complaint on the ground that his dismiss as a corporate officer is a purely intra-corporate controversy over which the Securities and Exchange Commission (SEC) has original and exclusive jurisdiction. The Labor Arbiter granted the motion to dismiss. On appeal, however, the NLRC set aside the Labor Arbiter's order and remanded the case to the Arbitration Branch "for appropriate proceedings".

ISSUE: Whether or not the NLRC has jurisdiction over a complaint filed by a corporate executive vicepresident for illegal dismissal, resulting from a board resolution dismissing him as such officer.

HELD: A complaint filed by a corporate executive vice-president for alleged dismissal resulting from a board resolution dismissing him as such officer falls within the jurisdiction of the Securities and Exchange Commission. In PSBA vs. Leao, this Court, confronted with a similar controversy, ruled that the SEC, not the NLRC, has jurisdiction: This is not a case of dismissal. The situation is that of a corporate office having been declared vacant, and of Tan's not having been elected thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and involves the exercise of deliberate choice and the faculty of discriminative selection. Generally speaking, the relationship of a person to a corporation, whether as officer or as agent or employee is not determined by the nature of the services performed, but by the incidents of the relationship as they actually exist. The issue of the SEC's power or jurisdiction is decisive and renders unnecessary a consideration of the other questions raised by Lagdameo. Thus did this Court rule in the case of Dy vs. National Labor Relations Commission (145 SCRA 211) which involved a similar situation: It is of no moment that Vailoces, in his amended complaint, seeks other reliefs which would seemingly fall under the jurisdiction of the Labor Arbiter, because a closer look at these underpayment of salary and non-payment of living allowance shows that they are actually part of the perquisites of his elective position, hence, intimately linked with his relations with the corporation. The question of remuneration, involving as it does, a person who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter that comes within the

area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code.

Torio v. Court of Appeals, 230 SCRA 626 (1994) FACTS: The tenants of Medel Compound, desirous of owning the land they were leasing, which some of them have been occupying since their birth, organized themselves to form the Medel Compound Tenants Association, Inc. The Association was later registered with the Securities and Exchange Commission with some 300 or so original members, including spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista. With the full support and assistance of the Mandaluyong Municipal Government and the National Home Mortgage Finance Corp (NHMFC), the land was finally acquired and its five titles were transferred in favor of the Association. The land was subdivided among the Association members pursuant to the guidelines set by the NHMFC in relation to the Community Mortgage Program of the government. Spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista, were sent a letter by the Association, through its lawyer, demanding that they vacate the lots which were respectively held by them as tenant-lessees. When spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista refused to do so, Association filed a complaint for "Unlawful Detainer with Damages." The Association alleged that spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista never became active members and refused to participate in the acquisition of the lot, that although they were one of the incorporators of the Association, they did not pay a single centavo of the membership dues, other assessments, the critical downpayment for the respective lots they were leasing and rentals despite demands and grace period given them. On the other hand, spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista raised as defense that they never relinquished their membership. However, they could not immediately pay their obligation to the Association because they allegedly had to put up the money to pay their dues. When they were ready to pay, the Association allegedly ignored them. They further claimed that they never received any formal notices of deadline for payment of membership dues as most of the time they were staying in Wawa, Baras, Rizal. MTC ordered spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista to vacate the premises. Spouses Mariano Torio and Maria Bautista, Florentina Bautista, and Renato Bautista questioned the MTC's jurisdiction over the case, arguing that since the controversy is between the Association and its members, the case should have been adjudicated before the Securities and Exchange Commission (SEC).

The RTC affirmed by the Court of Appeals upheld the jurisdiction of MTC.

ISSUE: Whether or not the Court has jurisdiction over the subject- matter of the dispute. HELD: On the question of jurisdiction, we cite the decision Appeals, penned by Mr. Justice Isagani Cruz, which states that: in Viray vs. Court of

It should be obvious that not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi judicial powers. If, for example, a person leases an apartment owned by a corporation of which he is a stockholder, there should be no question that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of the regular courts and not of the SEC. Indeed a contrary interpretation would distort the meaning and intent of P.D. 902-A, the law reorganizing the Securities and Exchange Commission. The better policy in determining which body has jurisdiction over a case would be to consider not only the relationship of the parties but also the nature of the question that is the subject of their controversy.

Pearson & George, (S.E. Asia) inc. v. National Labor Relations Commission, 253 SCRA 136 (1996) FACTS: Leopoldo Llorente was a member of the Board of Directors of Pearson. In its organizational meeting, the Board of Directors elected among themselves the corporate officers. Llorente was elected as Vice-Chairman of the Board and as Managing Director for a term of one year and until his successor should have been duly elected pursuant to the Pearsons by-laws. Thereafter, Llorente was preventively suspended, with pay, by reason of alleged anomalous transactions entered by him, which were prejudicial to the interest of the Pearson. In a letter, Llorente demanded from the Pearson access to his room which the latter allegedly sealed; compensation for his suspension or termination; and delivery of his stock certificates for 9,998 shares. Pearson sent Llorente a letter requiring him to explain the acts enumerated therein which he allegedly committed.

Llorente, through his counsel, protested his suspension and requested an examination of the supporting documents to enable him to explain the accusations leveled against him, but to no avail. At the regular stockholders meeting, the stockholders of the petitioner elected a new set of directors. Llorente was not reelected. On the same day, the new Board of Directors held a meeting wherein it elected a new set of officers and abolished the position of Managing Director. Pearsons counsel informed Llorente of his non-reelection, the abolition of the position of Managing Director, and his termination for cause. Llorente filed with the Labor Arbiter a complaint for unfair labor practice, illegal dismissal, and illegal suspension alleging therein that he was dismissed without due process of law. Pearson insists that the Labor Arbiter and the NLRC do not have jurisdiction over the Llorentes complaint for illegal dismissal arising out of his removal as Managing Director of the petitioner due to his non-reelection and the abolition of the said position. It claims that the matter is intracorporate and thus falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC). The Labor Arbiter denied the said motion on the ground that Llorente was not merely acting as a Director but was likewise doing the functions of a manager or line officer of the corporation, and Labor Arbiter found for Llorente, ruled that he was illegally terminated from employment.

ISSUE: Whether it is the SEC or the NLRC which has jurisdiction over the complaint for illegal dismissal which the Llorente had filed with the NLRC.

HELD: We agree with both the petitioner and the Office of the Solicitor General that the removal of Llorente as Managing Director is purely an intra-corporate dispute which falls within the exclusive jurisdiction of the SEC and not of the NLRC. In reality, Llorente was not dismissed. If he lost the position of Managing Director, it was primarily because he was not reelected as Director during the regular stockholders meeting on 5 March 1990. The office of Managing Director presupposes that its occupant is a Director; hence, one who is not a Director of the petitioner or who has ceased to be a Director cannot be elected or appointed as a Managing Director. Elsewise stated, the holding of the position of Director is a prerequisite for the election, appointment, or designation of Managing Director. If a Managing Director should lose his position because he ceased to be a Director for any reason, such as non-

reelection as in the case of Liorente, such loss is not dismissal but failure to qualify or to maintain a prerequisite for that position. Then too, the position of Managing Director was abolished. Any question relating or incident to the election of the new Board of Directors, the nonreelection of Liorente as a Director, his loss of the position of Managing Director, or the abolition of the said office are intra-corporate matters. Disputes arising therefrom are intracorporate disputes which, if unresolved within the corporate structure of the petitioner, may be resolved in an appropriate action only by the SEC.

Ongkingco v. National Labor Relations Commission, 270 SCRA 613 (1997) FACTS: Galeria de Magallanes Condominium Association, Inc is a non-stock, non-profit corporation formed in accordance with R.A. No. 4726, otherwise known as the Condominium Act. "Its primary purpose is to hold title to the common areas of the Galeria de Magallanes Condominium Project and to manage and administer the same for the use and convenience of the residents and/or owners." Bienvenido Ongkingco was the president of Galeria at the time this complaint was filed. Galeria's Board of Directors appointed Federico B. Guilas as Administrator/Superintendent. Subsequently, however, through a resolution passed by the Board of Directors of Galeria, Guilas was not re-appointed as Administrator. As a result, Guilas instituted a complaint for illegal dismissal and non-payment of salaries with the NLRC. Galeria and Ongkinco filed a motion to dismiss alleging that it is the SEC, and not the labor arbiter, which has jurisdiction over the subject matter of the complaint. Labor Arbiter Lorenzo granted the motion to dismiss. It ruled that that this case is within the jurisdiction of the Securities and Exchange Commission and not this Office (Labor Arbiter). The NLRC reversed the decision of the Labor Arbiter.

ISSUE: Whether or not the NLRC may take cognizance of the complaint by a corporate officer which includes money claims.

HELD:

A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action. Guilas was indeed a corporate officer. He was appointed directly by the Board of Directors not by any managing officer of the corporation and his salary was, likewise, set by the same Board. Having thus determined, his dismissal or non-appointment is clearly an intra-corporate matter and jurisdiction, therefore, properly belongs to the SEC and not the NLRC. It is of no consequence, likewise, that the complaint of private respondent for illegal dismissal includes money claims, jurisdiction remains with the SEC, the Supreme Court subsequently held: Although the reliefs sought appear to fall under the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other remunerations for services rendered, a close scrutiny thereof shows that said claims are actually part of the perquisites of his position in, and therefore interlinked with his relations with the corporation. In Dy v. NLRC, the Court said: "(t)he question of remuneration involving as it does, a person who is not a mere employee but a stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter that comes within the area of corporate affairs and, management, and is in fact a corporate controversy in contemplation of the Corporation Code."

Garcia v. Eastern Telecommunications Philippines, Inc., 585 SCRA 450 (2009)

FACTS: Atty. Virgilio R. Garcia was the Vice President and Head of Business Support Services and Human Resource Departments of the Eastern Telecommunications Philippines, Inc. (ETPI), a corporation duly organized and existing under the laws of the Republic of the Philippines. Atty. Salvador C. Hizon is the President/Chief Executive Officer of ETPI. Atty. Garcia was placed under preventive suspension based on three complaints for sexual harassment. In response to the complaints, the Human Resources Department constituted a Committee on Decorum to investigate the complaints. By reason of said complaints, Atty. Garcia was placed in preventive suspension. The committee conducted an investigation where Atty. Garcia was given copies of affidavits of the witnesses against him and a chance to defend himself and to submit affidavits of his witnesses. The Committee submitted a report which recommended his dismissal. In a letter, Atty. Hizon advised Atty. Garcia that his employment with ETPI was, per recommendation of the Committee, terminated. A complaint-affidavit for illegal dismissal with prayer for full backwages and recovery of moral and exemplary damages was filed by Atty. Virgilio R. Garcia against ETPI and Atty. Hizon with the NLRC.

Labor Arbiter Reyes found the preventive suspension and subsequent dismissal of Atty. Garcia illegal. ETPI and Hizon questioned the jurisdiction of the Labor Arbiter. NLRC rendered a decision reversing the decision of Labor Arbiter Reyes and dismissing the case for lack of jurisdiction.

Court of Appeals: Atty. Garcia, being the Vice President for Business Support Services and Human Resource Departments of ETPI, was a corporate officer at the time he was removed. Being a corporate officer, his removal was a corporate act and/or an intra-corporate controversy, the jurisdiction of which rested with the Securities and Exchange Commission (now with the Regional Trial Court), and not the Labor Arbiter and the NLRC.

ISSUE: Whether the question of legality or illegality of the removal or termination of employment of an officer of a corporation is an intra-corporate controversy that falls under the original exclusive jurisdiction of the regional Trial Courts.

HELD: The Supreme Court, in a long line of cases, has decreed that a corporate officers dismissal or removal is always a corporate act and/or an intra-corporate controversy, over which the Securities and Exchange Commission [SEC] (now the Regional Trial Court) has original and exclusive jurisdiction. Before a dismissal or removal could properly fall within the jurisdiction of the SEC, it has to be first established that the person removed or dismissed was a corporate officer. "Corporate officers" in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporations by-laws.There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the corporations by-laws. Thus, one who is included in the by-laws of a corporation in its roster of corporate officers is an officer of said corporation and not a mere employee. Atty. Garcia is considered a corporate officer of the Corporation because his position as Vice President for Business Support Services and Human Resources is included in the by-laws. Being a corporate officer, his removal is deemed to be an intra-corporate dispute cognizable by the SEC (now RTC) and not by the Labor Arbiter.

1.b. Cases under the new rule that the RTC exercises jurisdiction over intra-corporate diputes.

Calleja v. Panday, 483 SCRA 680 (2006)

FACTS: Panday et al. were members of the Board of Directors and officers of St. John Hospital, but allegedly, Calleja et. al, who were also among the incorporators and stockholders of the said corporation, forcibly and with the aid of armed me usurped the powers which were supposedly belonged to Panday et. al. Panday et.al. filed a petition for quo warranto with Damages and Prayer for Mandatory and Prohibitory Injunction, Damages and Issuance of Temporary Restraining Order against Calleja et.al.

RTC-Br. 58 issued an Order transferring the case to the Regional Trial Court in Naga City, since the verified petition showed Calleja et. al appear to be residents of Naga City, then pursuant to Section 7, Rule 66 of the 1997 Rules of Civil Procedure, the action for quo warranto should be brought in the Regional Trial Court exercising jurisdiction over the territorial area where the respondents or any of the respondents resides. However, the Executive Judge of RTC, Naga City refused to receive the case folder of the subject case for quo warranto, stating that improper venue is not a ground for transferring a quo warranto case to another administrative jurisdiction. RTC-Br. 58 issued the assailed order remanding the case to the RTC-Br. 23, Naga City which has been designated as a Special Court to try and decide intra-corporate controversies.

ISSUE: Whether a branch of the Regional Trial Court which has no jurisdiction to try and decide a case has authority to remand the same to another co-equal court in order to cure the defects on venue and jurisdiction.

HELD: Evidently, the RTC-Br. 58 in San Jose, Camarines Sur is bereft of jurisdiction over respondents petition for quowarranto. Based on the allegations in the petition, the case was clearly one involving an intra-corporate dispute. The trial court should have been aware that under R.A. No. 8799 and the aforementioned administrative issuances of this Court, RTC-Br. 58 was never designated as a Special Commercial Court; hence, it was never vested with jurisdiction over cases previously cognizable by the SEC.

Such being the case, RTC-Br. 58 did not have the requisite authority or power to order the transfer of the case to another branch of the Regional Trial Court. The only action that RTC-Br. 58 could take on the matter was to dismiss the petition for lack of jurisdiction. In HLC Construction and Development Corp. v. Emily Homes Subdivision Homeowners Association. the Court held that the trial court, having no jurisdiction over the subject matter of the complaint, should dismiss the same so the issues therein could be expeditiously heard and resolved by the tribunal which was clothed with jurisdiction.

Orendain v. BF Homes, Inc. 506 SCRA 348 (2006)

FACTS:

BF Homes, Inc. is a domestic corporation operating under Philippine laws and organized primarily to develop and sell residential lots and houses and other related realty business. BF Homes had to avail itself of financial assistance from various sources to enable it to buy properties and convert them into residential subdivisions. This resulted in its incurring liabilities amounting to PhP 1,542,805,068.23. On the other hand, during its business operations, it was able to acquire properties and assets worth PhP 2,482,843,358.81, which, if liquidated, were more than enough to pay all its creditors. Despite its solvent status, BF Homes filed a Petition for Rehabilitation and for Declaration in a State of Suspension of Payments before the Securities and Exchange Commission (SEC). In the said petition, BF Homes prayed thatin the meantime it was continuing its business operationsit be afforded time to pay its aforesaid obligations, freed from various proceedings either judicially or extra-judicially against its assets and properties. The SEC granted the petition. With Atty. Orendain appointed as Chairman of the Management Committee. Subsequently, a Deed of Absolute Sale was executed by and between BF Homesrepresented Orendainas absolute and registered owner, and the Local Superior of the Franciscan Sisters of the Immaculate Phils., Inc. (LSFSIPI) over a parcel of land situated at Barangay Pasong Papaya, BF International, Municipality of Las Pias, Metro Manila. Meanwhile, SEC appointed a new Committee of Receivers composed of the eleven (11) members of the Board of Directors of BF Homes with Albert C. Aguirre as the Chairman of the Committee. Consequently, receiver Orendain was relieved of his duties and responsibilities. BF Homes filed a Complaint before the Las Pias RTC against LSFSIPI and Orendain, and for reconveyance of the property, alleging, that the LSFSIPI transacted with Orendain in his individual capacity and therefore, neither FBO Management, Inc. nor Orendain had title to the property transferred. Moreover, BF Homes averred that the selling price was grossly inadequate or insufficient amounting to fraud and conspiracy with the LSFSIPI.

Florencio B. Orendain filed a Motion to Dismiss stating that the RTC had no jurisdiction over the reconveyance suit, since BF Homes suit was instituted against him as its former receiver. He also avers that BF Homes allegations were nothing more than protestations against the former receiver who entered into a transaction during BF Homes regime of rehabilitation; and that the assailed transaction was consummated at the time the SEC had placed BF Homes under rehabilitation. Therefore, according to petitioner, the SEC, which appointed the rehabilitation receiver, has the sole power to decide the issue as to whether petitioner acted within the scope of the vested authority.

Court of Appeals (affirming RTC) The action for reconveyance filed by BF Homes was within the exclusive jurisdiction of the RTC. In the rehabilitation case, the LSFSIPI was not a party to the said case and did not have any intracorporate relation with petitioner at the time of the sale. The SEC could not acquire jurisdiction over the Franciscan Sisters; while petitioner Orendain was sued in his individual capacity and not in his official capacity as receiver.

ISSUE: Which has jurisdiction over the action for reconveyancethe RTC or SEC?

HELD: Section 5.2 of RA 8799 transferred exclusive and original jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction or the appropriate RTC. In the transition, all intra-corporate cases pending in the SEC, which were not ripe for adjudication as of August 8, 2000, were turned over to the RTC. Congress thereby recognized the expertise and competence of the RTC to take cognizance of and resolve cases involving intra-corporate controversies. Thus, "whether or not the issue is intra-corporate, it is now the [RTC] and no longer the SEC that takes cognizance of [and resolves cases involving intracorporate controversies]." Thus, it is unequivocal that the jurisdiction to try and decide cases originally assigned to the SEC under Section 5 of PD 902-A has been transferred to the RTC. Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were retained by the SEC, it is clear that the SEC retained its administrative, regulatory, and oversight powers over all corporations, partnerships, and associations who are grantees of primary franchises, and/or a license or permit issued by the Government. However, the Securities Regulations Code (SRC) is clear that when there is a controversy arising out of intra-corporate relations, between and among stockholders, members or associates, and between, any, or all of them and the corporation, it is the RTC, not SEC, which has jurisdiction over the case.

Thus, when the complaint involves "an active antagonistic assertion of a legal right on one side and a denial thereof on the other concerning a real, and not a mere theoretical question or issue, a cause of action involving a delict or wrongful act or omission committed by a party in violation of the primary right of another, or an actual controversy involving rights which are legally demandable or enforceable, the jurisdiction over this complaint is lodged with the RTC but not the SEC. The passage of RA 8799 has put to rest petitioner Orendains claim that it is the SEC and not the RTC that has jurisdiction over case. At present, the instant petition has nothing to stand on and perforce must fail.

Yujuico v. Quiambao, 513 SCRA 243 92007) FACTS: Strategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in the business of providing financial and investment advisory services and investing in projects through consortium or joint venture information. From its inception, STRADECs principal place of business was located at the 24th Floor, One Magnificent Mile-Citra Building, San Miguel Avenue, Ortigas Center, Pasig City. The Securities and Exchange Commission (SEC) approved the amendment of STRADECs Articles of Incorporation authorizing the change of its principal office from Pasig City to Bayambang, Pangasinan. STRADEC held its annual stockholders meeting in its Pasig City office as indicated in the notices sent to the stockholders. Yujuivo was one of the elected members of the Board of Directors; he was also elected Chairman and President, while Bonifacio Sumbilla was elected Treasurer. After five (5) months, Quiambao et. al filed with the Regional Trial Court (RTC), San Carlos City, Pangasinan a Complaint against STRADEC, praying that the election be nullified on the ground of improper venue, pursuant to Section 51 of the Corporation Code; all ensuing transactions conducted by the elected directors be likewise nullified; and a special stockholders meeting be held anew and to enjoin Yujuico et al from discharging their functions as directors and officers of STRADEC.

Trial Court: Granted the prayer of Quaimbao et al.

Court of Appeals:

RTC has the power to call a special stockholders meeting involving an intra-corporate controversy.

ISSUE: Whether or not has the power to call a special stockholders meeting involving an intracorporate controversy.

HELD: Upon the enactment of R.A. No. 8799, otherwise known as The Securities Regulation Code which took effect on August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or the appropriate RTC. Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein. Concomitant to said power is the authority to issue orders necessary or incidental to the carrying out of the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special meeting of stockholders or members of a corporation involving an intra-corporate dispute under its supervision.

Reyes V. RTC of Makati, 561 SCRA 593 (2008) FACTS: Oscar and Rodrigo C. Reyes are two of the four children of the spouses Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and Rodrigo each owned shares of stock of Zenith Insurance Corporation (Zenith), a domestic corporation established by their family. Pedro and Anastacia died. Although Pedro's estate was judicially partitioned among his heirs, no similar settlement and partition appear to have been made with Anastacia's estate, which included her shareholdings in Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange Commission (SEC) against Oscar, the complaint stated that it is "a derivative suit initiated and filed by the complainant Rodrigo C. Reyes to obtain an accounting of the funds and assets of ZENITH INSURANCE CORPORATION which are now or formerly in the control, custody, and/or possession of Oscar and to determine the shares of stock of deceased spouses Pedro and Anastacia Reyes that were arbitrarily and fraudulently appropriated by Oscar for himself and which were not collated and taken into account in the partition, distribution, and/or settlement of the estate of the deceased spouses, for which he should be ordered to account for all the income from the time

he took these shares of stock, and should now deliver to his brothers and sisters their just and respective shares." Oscar denied the charge that he illegally acquired the shares of Anastacia Reyes. He asserted, as a defense, that he purchased the subject shares with his own funds from the unissued stocks of Zenith. He claimed that the complaint is a mere nuisance or harassment suit and should, according to the Interim Rules of Procedure for Intra-Corporate Controversies, be dismissed; and that it is not a bona fide derivative suit as it partakes of the nature of a petition for the settlement of estate of the deceased Anastacia that is outside the jurisdiction of a special commercial court.

Trial Court (affirmed by the Court of Appeals: Not a derivative suit and should properly be threshed out in a petition for settlement of estate.

ISSUES: Whether or not the controversy is a derivative suit. Whether or not the court has jurisdiction over the controversy.

HELD: Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The types of relationships embraced under Section 5(b), were as follows:

a)

between

the

corporation,

partnership,

or

association

and

the

public;

b) between the corporation, partnership, or association and its stockholders, partners, members, or officers; c) between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and d) among the stockholders, partners, or associates themselves.

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction

to the SEC, regardless of the subject matter of the dispute. This came to be known as the relationship test. However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test. The Court declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute. Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy. Thus under the relationship test, the transfer of title by means of succession, though effective and valid between the parties involved (i.e. between the decedents estate and her heirs) does not bind the corporation and third parties. The transfer must be registered in the books of the corporation to make the transferee-heir a stockholder entitled recognition as such both by the corporation and by third parties. Therefore, each of the decedents heirs holds only an undivided interest in the shares. This interest is still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs to specific, distributive shares of inheritance will not will not be determined until all the debts of the estate of the decedent are paid. Insofar as the subject shares of stock are concernedthe heir of the deceased stockholder cannot be considered a stockholder of the corporation. Applying the nature of the controversy test, an accounting of funds and assets of the corporation to determine the extent and value of the decedents shareholdings will be undertaken by the probate court and not by a special commercial court is consistent with the probate courts limited jurisdiction. Hence, no intracorporate dispute exists. In other words, the case is not considered intra-corporate controversy even if the dispute is among stockholders if the issue is determination and distribution of successional rights to the shareholdings of a deceased shareholder.

Unlad Resources Devt., Corp. et al. v. Renato P. Dragon, 560 SCRA 63 (2008) FACTS: Dragon et al. and Unlad Resources, through its Chairman Helena Z. Benitez entered into a Memorandum of Agreement wherein it is provided that Dragon et al., as controlling stockholders of the Rural Bank of Noveleta shall allow Unlad Resources to invest four million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank in the form of additional

equity. On the other hand, Unlad Resources bound itself to invest the said amount of 4.8 million pesos in the Rural Bank; upon signing, it was, likewise, agreed that Unlad Resources shall subscribe to a minimum of four hundred eighty thousand pesos (P480,000.00) common or preferred non-voting shares of stock with a total par value of four million eight hundred thousand pesos (P4,800,000.00) and pay up immediately one million two hundred thousand pesos (P1,200,000.00) for said subscription; that Dragon et al., upon the signing of the said agreement shall transfer control and management over the Rural Bank to Unlad Resources. According to Dragon et al, immediately after the signing of the agreement, they complied with their obligation and transferred control of the Rural Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad Rural Bank of Noveleta, Inc. However, Dragon et al claim that despite repeated demands, Unlad Resources has failed and refused to comply with their obligation under the said Memorandum of Agreement when it did not invest four million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank in the form of additional equity and, likewise, it failed to immediately infuse one million two hundred thousand pesos (P1,200,000.00) as paid in capital upon signing of the Memorandum of Agreement. Unlad Resources President and General Manager, entered into a Contract of Lease over the Naic, Cavite mango plantation, as a consequence of this venture, the bank incurred expenses amounting to P475,371.57, equivalent to 25.76% of its capital and surplus. Unlad Rural Bank wrote Dragon et al. regarding the Central Banks approval to retire its Development Bank of the Philippines preferred shares in the amount of P219,000.00 and giving notice for subscription to proportionate shares. Dragon et al. objected on the grounds that there is already a sinking fund for the retirement of the said DBP-held preferred shares provided for annually and that it could deprive the Rural Bank of a cheap source of fund. Dragon et al. filed before the Regional Trial Court (RTC) for rescission of the agreement and the return of control and management of the Rural Bank from Unlad Resources to Dragon et al. plus damages. Trial Court declared that the Memorandum of Agreement is rescinded, ordered that the management be returned to Dragon et al. and enjoined from placing the retired DBP-held preferred shares available for subscription and the same is hereby ordered to be placed under a sinking fund. Unlad Resources questioned the jurisdiction of the Trial Court contending that the issues that respondents raised before the trial court are intra-corporate in nature and are, therefore, beyond the jurisdiction of the trial court. They point out that respondents complaint charged them with mismanagement and alleged dissipation of the assets of the Rural Bank. Since the complaint challenges corporate actions and decisions of the Board of Directors and prays for the recovery of the control and management of the Rural Bank, these matters fall outside the jurisdiction of the trial court.

Court of Appeals:

Affirmed the Trial Court in all respect.

ISSUE: Whether or not RTC have jurisdiction over the subject matter of the case.

HELD: Nowhere in said decree (PD 902-A) do we find even so much as an intimation that absolute jurisdiction and control is vested in the Securities and Exchange Commission in all matters affecting Corporations. Be that as it may, this point has been rendered moot and academic by Republic Act 8799, also known as the Securities Regulation Code. This law, which took effect in 2000, has transferred jurisdiction over intra-corporate disputes to the RTC.

PENEYRA vs INTERMEDIATE APPELLATE COURT FACTS: On May 7, 1976, the Board of Trustees of the Corregidor College Inc. awarded the management and operation of its canteen at a monthly rental of P80.00 to petitioners herein who are stockholders of the said College. Subsequently, upon instructions of Eulogio Dizon, Chairman of the Board of Trustees of Corregidor College, Inc., the rental payments of petitioners were refused, and on August 6, 1980, partial demolition of the canteen was effected. Consequently, on September 9, 1980, petitioners filed in the then Court of First Instance of Nueva Ecija an action against Eulogio R. Dizon for damages with preliminary mandatory injunction. Petitioners filed a motion for leave to amend the complaint so as to include Corregidor College, Inc. as additional defendant. The trial court denied petitioners' motion, ruling that the proposed amendment would substantially alter petitioners' cause of action. On December 25, 1983, Eulogio Dizon died. The trial court dismissed petitioners' complaint on the ground that the action for damages did not survive the death of Eulogio Dizon. Arguing that the trial court gravely abused its discretion in denying admission of their amended complaint and in subsequently dismissing their case, petitioners filed a special civil action of certiorari and mandamus against respondent judge before the IAC. The Appellate Court dismissed the petition holding that the Securities and Exchange Commission (SEC) has jurisdiction over the case, the same being an intracorporate dispute, that the amendment to include Corregidor College, Inc.

cannot be allowed and that the action for damages against Eulogio Dizon was extinguished by his death. ISSUE: Whether or not the jurisdiction over the case pertain to the Securities and Exchange Commission RULING: While it is true that petitioners herein are stockholders of Corregidor College, Inc., the. Complaint did not stem directly from such relationship, but rather from the award to petitioners of the management and operation of its canteen at a monthly rental of P80.00. The management of a canteen, even if awarded to a stockholder, is outside or merely incidental to the central operations of an educational institution. Petitioners thus convincingly argue that the controversy is not one where petitioners are bringing the action as stockholders but rather as operators of the canteen under an agreement with said Board. In short, the cause of action here is for damages arising from a violation of a contract of management operation of the College canteen by defendant Dizon. Certainly, the present controversy cannot qualify as an intracontroversy, its root being a contractual breach separate and distinct from the corporate relationship between petitioners and Corregidor College, Inc., which, it must be noted, was not even named as a defendant in the original complaint. It was therefore patent error for the Court of Appeals to immediately rule that the present case belongs to the SEC just because petitioners alleged that they are stockholders of Corregidor College, Inc. Under Section 3 of Presidential Decree 902-A, the jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such entities. P.D. 902-A does not confer in the SEC absolute jurisdiction and control over all matters affecting corporations. To uphold the appellate court's ruling would remove without legal imprimatur from the regular courts all controversies over matters involving or affecting corporations regardless of the nature of the transactions which give rise to such disputes.

SECURITIES & EXCHANGE COMMISSION vs COURT OF APPEALS FACTS: Cualoping Securities Corporation (CUALOPING for brevity) is a stockbroker, Fidelity Stock Transfer, Inc. (FIDELITY for brevity), on the other hand, is the stock transfer agent of Philex Mining Corporation (PHILEX for brevity). On or about the first half of 1988, certificates of stock of PHILEX representing one million four hundred [thousand] (1,400,000) shares were stolen from the premises of FIDELITY. Later, the stolen stock certificates ended in the hands of a certain Agustin Lopez, a messenger of New World Security Inc., an entirely different stock brokerage firm. In the first half of 1989, Agustin Lopez brought the stolen stock certificates to CUALOPING for trading and sale with the stock exchange. When the said stocks were brought to CUALOPING, all of the said stock certificates bore the "apparent" indorsement (signature) in blank of the owners (the stockholders to whom the stocks were issued by PHILEX) thereof. At the side of these indorsements (signatures), the words "Signature Verified" apparently of FIDELITY were stamped on each and every certificate. Further, on the words "Signature Verified" showed the usual initials of the officers of FIDELITY. Upon receipt of the said certificates from Agustin Lopez, CUALOPING stamped each and every certificate with the words "Indorsement

Guaranteed," and thereafter traded the same with the stock exchange. After the stock exchange awarded and confirmed the sale of the stocks represented by said certificates to different buyers, the same were delivered to FIDELITY for the cancellation of the stocks certificates and for issuance of new certificates in the name of the new buyers. Agustin Lopez on the other hand was paid by CUALOPING with several checks for Four Hundred Thousand (P400,000.00) Pesos for the value of the stocks. After acquiring knowledge of the pilferage, FIDELITY conducted an investigation with assistance of the National Bureau of Investigation (NBI) and found that two of its employees were involved and signed the certificates. After two (2) months from receipt of said stock certificates, FIDELITY rejected the issuance of new certificates in favor of the buyers for reasons that the signatures of the owners of the certificates were allegedly forged and thus the cancellation and new issuance thereof cannot be effected. On 11 August 1988, FIDELITY sought an opinion on the matter from SEC. Commission rendered its decision and concluded that both Cualoping Securities Corporation and Fidelity Stock Transfers, Inc. equally negligent in the performance of their duties hereby orders them to (1) jointly replace the subject shares and for Fidelity to cause the transfer thereof in the names of the buyers and (2) to pay a fine of P50,000,00 each for hav[ing] violated Section 29 (a) of the Revised Securities Act. ISSUE: Whether or not the imposition of the fine is warranted under the circumstances RULING: There is no question that both FIDELITY and CUALOPING have been guilty of negligence in the conduct of their affairs involving the questioned certificates of stock. To constitute, however, a violation of the Revised Securities Act that can warrant an imposition of a fine under Section 29(3), in relation to Section 46 of the Act, fraud or deceit, not mere negligence, on the part of the offender must be established. Fraud here is akin to bad faith which implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is unlike that of the negative idea of negligence in that fraud or bad faith contemplates a state of mind affirmatively operating with furtive objectives. Given the factual circumstances found by the appellate court, neither FIDELITY nor CUALOPING, albeit indeed remiss in the observance of due diligence, can be held liable under the above provisions of the Revised Securities Act. PHILIPPINE STOCK EXCHANGE vs SECURITIES & EXCHANGE COMMISSION FACTS: The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed the said stock exchange an application to list its shares, with supporting documents attached. The Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs Board of Governors the approval of PALIs listing application. Before it could act upon PALIs application, the Board of Governors of PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that

the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALIs application to be deferred. The Board of Governors of the PSE reached its decision to reject PALIs application, citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange. PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing application and institute such measures as are just and proper and under the circumstances. SEC ordered PSE to immediately cause the listing of the PALI shares in the Exchange. ISSUE: Whether or not SEC may overrule the decision of PSE in rejecting the application of PALI RULING: The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some other government office. This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers. A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body. As to its corporate and management decisions, therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters of application for listing in the market, the SEC may exercise such power only if the PSEs judgment is attended by bad faith. It is also alleged that the properties belong to naval and forest reserves, and therefore beyond private dominion. PHILIPPINE NATIONAL CONSTRUCTION CORPORATION vs PABION FACTS: On September 16, 1994, private respondents Ernesto Pabion and Louella Ramiro, claiming to be stockholders of the PNCC, filed with the SEC a verified petition, therein alleging that since 1982 or for a period of twelve (12) years, there has been no stockholders meeting of the PNCC to elect the corporations board of directors, thus enabling the incumbent directors to hold on to their position beyond their 1-year term, in violation of PNCCs By-Laws and the Corporation Code. Pabion and Ramiro, therefore, prayed the SEC to issue an order ordering the

officers of PNCC or, in the alternative, authorizing petitioners, to call and hold a meeting of the stockholders for the purpose of electing new directors. PNCC claimed that it is a governmentowned corporation whose organizational and functional management, administration, and supervision are governed by Administrative Order (AO) No. 59, issued by then President Corazon Aquino on February 16, 1988. PNCC asserts that its board of directors does not hold office by virtue of a stockholders election but by appointment of the President of the Philippines. ISSUE: Whether or not SEC has jurisdiction to order PNCC to hold a stockholders meeting for the purpose of electing the members of its Board of Directors RULING: SEC can exercise jurisdiction over GOCCs established or organized under the Corporation Code. These GOCCs are regarded as private corporations despite common misconceptions. That the government may own the controlling shares in the corporation does not diminish the fact that the latter owes its existence to the Corporation Code. More pointedly, Section 143 of the Corporation Code gives SEC the authority and power to implement its provisions, specifically for the purpose of regulating the entities created pursuant to such provisions. These entities include corporations in which the controlling shares are owned by the government or its agencies. PNCC is a corporation created in accordance with the general corporation statute. Hence, it is essentially a private corporation, notwithstanding the governments interest therein through the debt-to-equity conversion imposed by PD 1295. Being a private corporation, PNCC is subject to SEC regulation and jurisdiction. While the SEC may not have the authority over government corporations with original charters or those created by special law, it does have jurisdiction over acquired asset corporation under Administrative Order 59. Acquired asset corporation is a corporation (1) which is under private ownership, the voting or outstanding shares of which (i) were conveyed to the government agency, instrumentality or corporation in satisfaction of debts whether by foreclosure or otherwise, or (ii) were duly acquired by the government through final judgment in a sequestration proceeding; or (2) which is a subsidiary of a government corporation organized exclusively to own and manage, or lease, or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith, and which in any case by law or by enunciated policy is required to be disposed of to private ownership within a specified period of time.

TCL SALES CORPORATION vs COURT OF APPEALS FACTS: Respondent TCL Corporation was organized and registered sometime in 1973. The incorporators were Teng Ching Lay, Henry Teng (son of Teng Ching Lay), Anna Teng (daughter of Teng Ching Lay), Ismaelita Maluto and Peter Chiu. The corporation started with an authorized capital stock of 5,000 shares valued at P1,000.00 per share with an aggregate value of P500,000.00. In 1974 the Articles of Incorporation was amended increasing its authorized capital stock to 20,000 shares valued at P2,000,000.00 of which 8,000 shares were subscribed

and fully paid. Petitioner Ting Ping Lay (the brother of Teng Ching Lay) acquired by purchase four-hundred eighty (480) shares of stocks of the corporation from stockholder Peter Chiu. Ting Ping Lay purchased another one-thousand four-hundred (1,400) shares from his brother Teng Ching Lay. Ting Ping Lay acquired 1,440 more shares from Ismaelita Maluto. Teng Ching Lay served as president and operations manager until his death in 1989. Respondent Anna Teng served as the Corporate Secretary. Thereafter, Henry Teng took over the management of the company after his fathers death. Ting Ping Lay in order to protect his shareholdings with the company requested Anna Teng to enter the transfer of shares of stocks (sic) for the proper recording of his acquisitions in the Stock and Transfer Book of the corporation. Likewise, he demanded the issuance of the new certificates of stock in his favor. However, respondents refused despite repeated demands. Ting Ping Lay filed a petition for mandamus with the Securities and Exchange Commission against TCL Corporation and Anna Teng. The petitioners allege in the present petition that the SEC did not have jurisdiction over the petition for mandamus filed by Ting Ping Lay, as the same did not arise out of an intra-corporate controversy. They claim that Ting Ping Lay was not yet a stockholder of record of TCL Corporation. ISSUE: Whether or not SEC has jurisdiction over the petition for mandamus filed by Ting Ping Lay RULING: There is no requirement that a stockholder of a corporation must be a registered one in order that the Securities and Exchange Commission may take cognizance of a suit seeking to enforce his rights as such stockholder. This is because the SEC by express mandate has absolute jurisdiction, supervision and control over all corporations and is called upon to enforce the provisions of the Corporation Code, among which is the stock purchasers right to secure the corresponding certificate in his name under the provisions of Section 63 of the Code. Needless to say, any problem encountered in securing the certificates of stock representing the investment made by the buyer must be expeditiously dealt with through administrative mandamus proceedings with the SEC, rather than through the usual tedious court procedure.

PILIPINAS LOAN COMPANY INC vs SECURITIES & EXCHANGE COMMISSION FACTS; Private respondent Filipinas Pawnshop, Inc. (private respondent) is a duly organized corporation registered with the Securities and Exchange Commission (SEC) on February 9, 1959 with its principal place of business located along Pedro Gil St Paco, Metro Manila. The articles of incorporation of private respondent states that its primary purpose is to extend loans at legal interest on the security of either personal properties or on the security of real properties, and to finance installment sales of motor vehicles, home appliances and other chattels. Private respondent filed a complaint against petitioner with the Prosecution and Enforcement Department (PED) of the SEC. The complaint alleged that: (1) petitioner, contrary to the restriction set by the Commission, has been operating and doing business as a pawnbroker,

pawnshop or "sanglaan" in the same neighborhood where private respondent has had its own pawnshop for 30 years in violation of its primary purpose and without the imprimatur of the Central Bank to engage in the pawnshop business thereby causing unjust and unfair competition with private respondent; and (2) the business name of petitioner, "PILIPINAS" Loan, bears similarity in spelling and phonetics with the corporate name of private respondent, "FILIPINAS" Pawnshop, creating constant confusion in the minds of the public and the customers of private respondent. Petitioner filed its Comment/Answer questioning the power of the SEC to take cognizance of the complaint involving (1) a supposed violation of the Pawnshop Regulations Act which is more properly within the jurisdiction of the Central Bank; and (2) the determination of whether a corporate name is confusingly similar to another which is within the jurisdiction of the regular courts. ISSUE: Whether or not SEC has jurisdiction over the case RULING: When the thrust of a complaint is on the ultra vires act of a corporation, that is the complained act of a corporation is contrary to its declared corporate purposes, the SEC has jurisdiction to entertain the complaint before it. It must be recalled that the complaint of private respondent alleged that the articles of incorporation of petitioner contained this prohibition: "without, however, engaging in pawnbroking as defined in PD 114" and despite this restriction, petitioner allegedly continued to actually operate and do business as a pawnshop. The complaint thus treats of a violation of petitioners primary franchise. Section 5 of PD 114, the same law invoked by petitioner, mandates that a corporation desiring to engage in the pawnshop business must first register with the SEC. Without question, the complaint filed by private respondent against petitioner called upon the SEC to exercise its adjudicatory and supervisory powers. By law, the SEC has absolute jurisdiction, supervision and control over all corporations that are enfranchised to act as corporate entities. A violation by a corporation of its franchise is properly within the jurisdiction of the SEC. A corporation, under the Corporation Code, has only such powers as are expressly granted to it by law and by its articles of incorporation, those which may be incidental to such conferred powers, those reasonably necessary to accomplish its purposes and those which may be incident to its existence.

MOBILIA PRODUCTS INC vs UMEZAWA FACTS; Mobilia Products, Inc. is a corporation engaged in the manufacture and export of quality furniture which caters only to the purchase orders booked and placed through Mobilia Products Japan, the mother company which does all the marketing and booking. Mobilia Products Japan sent Hajime Umezawa to the Philippines in order to head Mobilia Products, Inc. as President and General Manager. Sometime in the last week of January 1995, Umezawa, then the President and General Manager of Mobilia Products, Inc., organized another company with his wife Kimiko, and his sister, Mitsuyo Yaguchi, to be known as Astem Philippines Corporation, without the knowledge of the Chairman and Chief Executive Officer Susumo Kodaira and the other members of the Board of Directors of Mobilia. Pending formal organization, Spouses Umezawa, Justin

Legaspi and Yoshikazu Hayano wanted to accelerate the market potentials of Astem by participating in the International Furniture Fair 1995 held at the Word Trade Centre of Singapore on March 6 to 10, 1995. One of the requirements of such Fair was that the furniture exhibits must arrive and be received at Singapore not later than February 23, 1995. Pressed for time, with less than one month to prepare and while Astem had yet no equipment and machinery, no staff and no ready personnel, Umezawa, with grave abuse of the confidence reposed on him as President and General Manager of Mobilia Products, Inc., and in conspiracy with his wife, his sister Mitsuyo Yaguchi, Yoshikazu Hayano and Justin Legaspi, all with intent to gain for themselves and for their company Astem Philippines Corporation, stole prototype furniture from petitioner Mobilia so that the said pieces of furniture would be presented and exhibited as belonging to Astem in the International Furniture Fair 95 in Singapore. The Board of Directors of MPI, consisting of its Chairman Susumo Kodaira and members Yasushi Kato and Rolando Nonato, approved a Resolution on May 2, 1995 authorizing the filing of a complaint against Umezawa for two counts of qualified theft. Umezawa filed a petition with the Securities and Exchange Commission (SEC) for the nullification of the Resolution issued by the three alleged members of MPI Board of Directors, authorizing the filing of criminal complaints against him in behalf of the corporation. ISSUE: Whether the RTC has jurisdiction over the crimes charged in the said Information RULING: It is settled that the jurisdiction of the court in criminal cases is determined by the allegations of the complaint or Information and not by the findings based on the evidence of the court after trial. The bare fact that the respondent was the president and general manager of the petitioner corporation when the crimes charged were allegedly committed and was then a stockholder thereof does not in itself deprive the court a quo of its exclusive jurisdiction over the crimes charged. The property of the corporation is not the property of the stockholders or members or of its officers who are stockholders. The filing of the civil/intra-corporate case before the SEC does not preclude the simultaneous and concomitant filing of a criminal action before the regular courts; such that, a fraudulent act may give rise to liability for violation of the rules and regulations of the SEC cognizable by the SEC itself, as well as criminal liability for violation of the Revised Penal Code cognizable by the regular courts, both charges to be filed and proceeded independently, and may be simultaneously with the other.

ABACUS SECURITIES vs AMPIL FACTS: Petitioner is engaged in business as a broker and dealer of securities of listed companies at the Philippine Stock Exchange Center. Respondent opened a cash or regular account with petitioner for the purpose of buying and selling securities as evidenced by the Account Application Form. Respondent actively traded his account, and as a result of such trading activities, he accumulated an outstanding obligation in favor of petitioner in the principal sum of P6,617,036.22. Despite the lapse of the period within which to pay his account as well as sufficient time given by petitioner for respondent to comply with his proposal to settle his account, the latter failed to do so.Such that petitioner thereafter sold respondents securities to set off against his unsettled obligations. After the sale of respondent's securities and application

of the proceeds thereof against his account, respondents remaining unsettled obligation to petitioner was P3,364,313.56. Petitioner then referred the matter to its legal counsel for collection purposes. the Regional Trial Court (RTC) of Makati City held that petitioner violated Sections 23 and 25 of the Revised Securities Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules) when it failed to: 1) require the respondent to pay for his stock purchases within three (T+3) or four days (T+4) from trading; and 2) request from the appropriate authority an extension of time for the payment of respondent's cash purchases. The trial court noted that despite respondent's non-payment within the required period, petitioner did not cancel the purchases of respondent. Neither did it require him to deposit cash payments before it executed the buy and/or sell orders subsequent to the first unsettled transaction. According to the RTC, by allowing respondent to trade his account actively without cash; petitioner effectively induced him to purchase securities thereby incurring excessive credits. ISSUE: Whether the trial court had jurisdiction over the case RULING: The instant controversy is an ordinary civil case seeking to enforce rights arising from the Agreement (AOF) between petitioner and respondent. It relates to acts committed by the parties in the course of their business relationship. The purpose of the suit is to collect respondent's alleged outstanding debt to petitioner for stock purchases. The Revised Securities Act and its Rules are to be read into the Agreement entered into between petitioner and respondent. Compliance with the terms of the AOF necessarily means compliance with the laws. Thus, to determine whether the parties fulfilled their obligations in the AOF, this Court had to pass upon their compliance with the RSA and its Rules. This, in no way, deprived the Securities and Exchange Commission (SEC) of its authority to determine willful violations of the RSA and impose appropriate sanctions therefor, as provided under Sections 45 and 46 of the Act.

SECURITIES & EXCHANGE COMMISSION vs PERFORMANCE FOREIGN EXCHANGE CORPORATION FACTS: Performance Foreign Exchange Corporation is a domestic corporation duly registered under Securities and Exchange Commission with purposes as a broker/agent between market participants in transactions and to engage in money changer or exchanging foreign currencies. After two years of operation, respondent received a letter from the petitioner, requiring it to appear before the Compliance and Enforcement Department (CED) for a clarificatory conference regarding its business operations. Respondents officers complied and explained before the CED the nature of their business. Director of CED, issued a Cease and Desist Order, stating that his department conducted an inquiry on respondents business operations for possible violation of Republic Act (R.A.) No. 8799 showing that respondent is engaged in the trading of foreign currency futures contracts in behalf of its clients without the necessary license. Respondent filed with petitioner SEC a motion praying for the lifting of the Cease and Desist Order. Without waiting for BSPs determination of the matter, petitioner, the following day issued an order

denying respondents motion for the lifting of the Cease and Desist Order and directing that the same stays until respondent shall have submitted the appropriate "endorsement" from the BSP that it can engage in financial derivative transactions. Petitioner then issued an order making the Cease and Desist Order permanent. Upon appeal the Court of Appeals rendered a decision in favor of respondent. ISSUE: Whether or not SEC acted with grave abuse of discretion in issuing the Cease and Desist Order and its subsequent Order making it permanent RULING: Section 64 of R.A. No. 8799, provides that there are two essential requirements that must be complied with by the SEC before it may issue a cease and desist order: First, it must conduct proper investigation or verification; and Second, there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. Petitioners act of referring the matter to the BSP is an essential part of the investigation and verification process. In fact, such referral indicates that petitioner concedes to the BSPs expertise in determining the nature of respondents business. It bears stressing, however, that such investigation and verification, to be proper, must be conducted by petitioner before, not after, issuing the Cease and Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even before it could finish its investigation and verification on respondents business activity obviously contravenes Section 64 of R.A. No. 8799.

PHILIPPINE ASSOCIATION OF STOCK TRANSFER AND REGISTRY AGENCIES, INC. vs COURT OF APPEALS FACTS: Petitioner Philippine Association of Stock Transfer and Registry Agencies, Inc. is an association of stock transfer agents principally engaged in the registration of stock transfers in the stock-and-transfer book of corporations. On May 10, 1996, petitioners Board of Directors unanimously approved a resolution allowing its members to increase the transfer processing fee they charge their clients from P45 per certificate to P75 per certificate, effective July 1, 1996; and eventually to P100 per certificate, effective October 1, 1996.The resolution also authorized the imposition of a processing fee for the cancellation of stock certificates at P20 per certificate effective July 1, 1996. According to petitioner, the rates had to be increased since it had been over five years since the old rates were fixed and an increase of its fees was needed to sustain the financial viability of the association and upgrade facilities and services. After a dialogue with petitioner, public respondent Securities and Exchange Commission (SEC) allowed petitioner to impose the P75 per certificate transfer fee and P20 per certificate cancellation fee effective July 1, 1996. But, approval of the additional increase of the transfer fees to P100 per certificate effective October 1, 1996, was withheld until after a public hearing. The Philippine Association of Securities Brokers and Dealers, Inc. registered its objection to the measure advanced by

petitioner and requested the SEC to defer its implementation. SEC issued Order No. 104, series of 1996, enjoining petitioner from imposing the new fees. ISSUE: Whether the SEC acted with grave abuse of discretion or lack or excess of jurisdiction in issuing the controverted Order RULING: As a securities-related organization under the jurisdiction and supervision of the SEC by virtue of Section 40 of The Revised Securities Act and Section 3 of Presidential Decree No. 902-A, petitioner was under the obligation to comply with the Order. Defiance of the order was subject to administrative sanctions provided in Section 46 of The Revised Securities Act. Petitioner failed to show that the SEC, which undoubtedly possessed the necessary expertise in matters relating to the regulation of the securities market, gravely abused its discretion in finding that there was a possibility that the increase in fees and imposition of cancellation fees will cause grave or irreparable injury or prejudice to the investing public. Indeed, petitioner did not advance any argument to counter the SECs finding. Thus, there appears to be no substantial reason to nullify the Order. This is true, especially considering that, as pointed out by the OSG, petitioners fee increases have far-reaching effects on the capital market. Charging exorbitant processing fees could discourage many small prospective investors and curtail the infusion of money into the capital market and hamper its growth.

EUSTACIO ATWEL vs CONCEPTION PROGRESSIVE ASSOCIATION, INC FACTS: In 1948, then Assemblyman Emiliano Melgazo founded and organized Concepcion Progressive Association (CPA) in Hilongos, Leyte. The organization aimed to provide livelihood to and generate income for his supporters. In 1968, after his election as CPA president, Emiliano Melgazo bought a parcel of land in behalf of the association. The property was later on converted into a wet market where agricultural; livestock and other farm products were sold. It also housed a cockpit and an area for various forms of amusement. The income generated from the property, mostly rentals from the wet market, was paid to CPA. When Emiliano Melgazo died, his son, petitioner Manuel Melgazo, succeeded him as CPA president and administrator of the property. On the other hand, petitioners Atwel and Pilpil were elected as CPA vice-president and treasurer, respectively. In 1997, while CPA was in the process of registering as a stock corporation, its other elected officers and members formed their own group and registered themselves in the Securities and Exchange Commission (SEC) as officers and members of respondent Concepcion Progressive Association, Inc. (CPAI). Petitioners were not listed either as officers or members of CPAI. Later, CPAI objected to petitioners' collection of rentals from the wet market vendors. In 2000, CPAI filed a case in the SEC for mandatory injunction. With the passage of RA 8799, the case was transferred to Branch 24 of the Southern Leyte RTC and subsequently, to Branch 8 of the Tacloban City RTC. Both were special commercial courts. In the complaint, CPAI alleged that it was the owner of the property and petitioners, without authority, were collecting rentals from the wet market vendors.

ISSUE: Whether or not the case involves intra-corporate controversy RULING: To determine whether a case involves an intra-corporate controversy to be heard and decided by the RTC, two elements must concur: (1) the status or relationship of the parties and (2) the nature of the question that is subject of their controversy. The first element requires that the controversy must arise out of intra-corporate or partnership relations: (a) between any or all of the parties and the corporation, partnership or association of which they are stockholders, members or associates; (b) between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates and (c) between such corporation, partnership or association and the State insofar as it concerns their individual franchises. On the other hand, the second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy. In the case at bar, these elements are not present. The records reveal that petitioners were never officers nor members of CPAI. CPAI itself admitted this in its pleadings. In fact, petitioners were the only remaining members of CPA which, obviously, was not the CPAI that was registered in the SEC. Moreover, the issue in this case does not concern the regulation of CPAI (or even CPA). The determination as to who is the true owner of the disputed property entitled to the income generated therefrom is civil in nature and should be threshed out in a regular court. Cases of this nature are cognizable by the RTC under BP 129. Therefore, the conflict among the parties here was outside the jurisdiction of the special commercial court.

BAVIERA vs STANDARD CHARTERED BANK FACTS: Petitioner Manuel Baviera was the former head of the HR Service Delivery and Industrial Relations of Standard Chartered Bank-Philippines (SCB). SCB is a foreign banking corporation duly licensed to engage in banking, trust, and other fiduciary business in the Philippines. The conduct of SCBs business in this jurisdiction is subject to the certain conditions. SCB did not comply with the conditions. Instead, it acted as a stock broker, soliciting from local residents foreign securities called GLOBAL THIRD PARTY MUTUAL FUNDS (GTPMF), denominated in US dollars. These securities were not registered with the Securities and Exchange Commission (SEC). These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore. The Investment Capital Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised Securities Act, particularly the provision prohibiting the selling of securities without prior registration with the SEC; and that its actions are potentially damaging to the local mutual fund industry. SEC indorsed ICAPs complaint and its supporting documents to the BSP. SEC informed the Secretary of Finance that it withdrew GTPMF securities from the market and that it will not sell the same without the necessary clearances from the regulatory authorities. BSP directed SCB not to include investments in global mutual funds issued abroad in its trust investments portfolio without prior registration with the SEC. However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell GTPMF securities in this country.This prompted petitioner to enter into an Investment Trust Agreement

with SCB wherein he purchased US$8,000.00 worth of securities upon the banks promise of 40% return on his investment and a guarantee that his money is safe. After six (6) months, however, petitioner learned that the value of his investment went down to US$7,000.00. He tried to withdraw his investment but was persuaded by SCB to hold on to it for another six (6) months in view of the possibility that the market would pick up. Petitioner learned from Marivel Gonzales, head of the SCB Legal and Compliance Department, that the latter had been prohibited by the BSP to sell GPTMF securities. Petitioner filed with the DOJ a complaint for violation of Section 8.1 of the Securities Regulation Code against private respondents. DOJ dismissed petitioners complaint. ISSUE: Whether or not the dismissal of the complaint by the DOJ is proper RULING: A criminal complaint for violation of any law or rule administered by the SEC must first be filed with the latter. If the Commission finds that there is probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint. A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact.[12] The Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier quoted.

CEMCO HOLDINGS vs NATIONAL LIFE INSURANCE COMPANY FACTS: Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC equivalent to 29.69%. In the PSE Circular for Brokers No. 3146-2004, it was stated that as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC. As a consequence of this disclosure, the PSE inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC. SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule. Feeling aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with

the rule on mandatory tender offer. Cemco, however, refused. Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares ISSUE: Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company RULING: The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of shares. Control may be effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The bottomline of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control.

PROVIDENT INTERNATIONAL RESOURCES CORPORATION vs JOAQUIN T. VENUS FACTS: Petitioner Provident International Resources Corporation (PIRC) is a corporation duly organized under Philippine law. It was registered with the SEC on September 20, 1979. Edward T. Marcelo, Constancio D. Francisco, Lydia J. Chuanico, Daniel T. Pascual, and Jose A. Lazaro, collectively known as the Marcelo group, were its incorporators, original stockholders, and directors. Another group, known as the Asistio group, composed of Luis A. Asistio, Lazaro L. Madara, Alfredo D. Roa III, Joaquin T. Venus, and Jose Ma. Carlos L. Zumel, claimed that the Marcelo group acquired shares in PIRC as mere trustees for the Asistio group. The Marcelo group allegedly executed a waiver of pre-emptive right, blank deeds of assignment, and blank deeds of transfer; endorsed in blank their respective stock certificates over all of the outstanding capital stock registered in their names; and completed the blank deeds in 2002 to effect transfers to the Asistio group. The Company Registration and Monitoring Department (CRMD) of the SEC issued a certification stating that verification made on the available records of PIRC showed failure to register its stock and transfer book (STB). On August 7, 2002, the Asistio group registered PIRC's STB. Upon learning of this, PIRC's assistant corporate secretary, Celedonio Escao, Jr., requested the SEC for a certification of the registration in 1979 of PIRC's STB. Escao presented the 1979-registered STB bearing the SEC stamp and the signature of the

officer in charge of book registration. The CRMD of the SEC issued a letter recalling the certification it had issued on August 6, 2002 and cancelling the 2002-registered STB. The Asistio group appealed to the SEC Board of Commissioners. They claimed that the issue of which of the two STBs is valid is intra-corporate in nature; hence, the RTC, not the SEC, has jurisdiction. ISSUE: Whether or not the SEC has jurisdiction to recall and cancel a stock and transfer book RULING: SEC's regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporation's concerns. This authority more vividly springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners' association, and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted. Considering that the SEC, after due notice and hearing, has the regulatory power to revoke the corporate franchise -- from which a corporation owes its legal existence -- the SEC must likewise have the lesser power of merely recalling and cancelling a STB that was erroneously registered. The SEC has the primary competence and means to determine and verify whether the subject 1979 STB presented by the incumbent assistant corporate secretary was indeed authentic, and duly registered by the SEC as early as September 1979. As the administrative agency responsible for the registration and monitoring of STBs, it is the body cognizant of the STB registration procedures, and in possession of the pertinent files, records and specimen signatures of authorized officers relating to the registration of STBs. The evaluation of whether a STB was authorized by the SEC primarily requires an examination of the STB itself and the SEC files. This function necessarily belongs to the SEC as part of its regulatory jurisdiction. Contrary to the allegations of respondents, the issues involved in this case can be resolved without going into the intra-corporate controversies brought up by respondents.

SECURITIES AND EXCHANGE COMMISSION vs INTERPORT RESOURCES CORPORATION FACTS: The Board of Directors of Interport Resources Corporation (IRC) approved a Memorandum of Agreement with Ganda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc. (GEHI), which would own and operate a 102 megawatt (MW) gas turbine power-generating barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract with National Power Corporation. At that time, GEHIs power-generating barge was 97% complete and would go on-line by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to 40.88 billion shares which had a total par value of P488.44 million. On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI.IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile

machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider information. The SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRCs failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts. SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the officers and directors of IRC entered into transactions involving IRC shares in violation of Section 30, in relation to Section 36, of the Revised Securities Act. The Court of Appeals, however, determined that there were no implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of the Revised Securities Acts which the respondents allegedly violated. It should be noted that while this case was pending, Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect on 8 August 2000. Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was already repealed as provided for in Section 76 of the Securities Regulation Code. ISSUE: whether or not the Court of Appeals erred when it ruled that there is no statutory authority for petitioner SEC to initiate and file any suit against respondent with respect to SECTION8, SECTION 30 (INSIDERS DUTY TO DISCOLSED WHEN TRADING) and 36 (DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) of the Revised Securities Act RULING: Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment of implementing rules to make them binding and effective. The mere absence of implementing rules cannot effectively invalidate provisions of law, where a reasonable construction that will support the law may be given. The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, reenacted in the Securities Regulations Code, despite the abolition of the PED. Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of rules and regulations enforced or administered by the SEC shall be referred to the Department of Justice (DOJ) for preliminary investigation, while the SEC nevertheless retains limited investigatory powers. Additionally, the SEC may still impose the appropriate administrative sanctions under Section 54 of the aforementioned law. GSIS vs COURT OF APPEALS FACT: The annual stockholders meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled on 27 May 2008. In connection with the annual meeting, proxies were required to be submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May. In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco became vacant. On 15 May 2008, the board of directors of Meralco designated Jose Vitug to act as corporate secretary for the annual meeting. However, when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco. Private respondents nonetheless argue that Rosete was the acting corporate secretary of

Meralco. Petitioner Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting certification of proxies in favor of the Meralco management. GSIS filed an Urgent Petition with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from "recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise honoring the shares covered by" the proxies in favor of respondents Manuel Lopez, Felipe Alfonso, Jesus Francisco, Oscar Lopez, Christian Monsod, Elpidio Ibaez, Francisco Giles-Puno "or any officer representing MERALCO Management," and to annul and declare invalid said proxies. GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting scheduled for the following day. A CDO to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the annual meeting held on the following day, Rosete announced that the meeting would push through, expressing the opinion that the CDO is null and void. ISSUE: Whether or not the CDO issued by the SEC are valid. RULING: There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or detail is tied to this CDO authorized under Section 5(i).The second basis, found in Section 53.3, involves a determination by the SEC that "any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-regulatory organization." The provision additionally requires a finding that "there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person." The maximum duration of the CDO issued under Section 53.3 is ten (10) days.The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which unless restrained, "will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public". Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention is made whether the CDO defined under Section 5(i) may be issued ex-parte, while the CDO under Section 64.1 requires "grave and irreparable" injury, language absent in Section 5(i). Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains clear that the CDO issued under Section 53.3 is a distinct creation from that under Section 64. The CDO as contemplated in Section 53.3 or in Section 64, may be issued "ex-parte" (under Section 53.3) or "without necessity of hearing" (under Section 64.1). Nothing in these provisions impose a requisite hearing before the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of the SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64. In the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any such act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further or future violations by such person. In the case of Section 64, the SEC must adjudge that the act,

unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public." The CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3 or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. At the very least, the CDO under Section 53.3 and under Section 64 have their respective requisites and terms.The error of the SEC in granting the CDO without stating which kind of CDO it was issuing is more unpardonable, as it is an act that contravenes due process of law. To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated upon, by only by one commissioner likewise renders the order fatally infirm.The SEC is a collegial body composed of a Chairperson and four (4) Commissioners.58 In order to constitute a quorum to conduct business, the presence of at least three (3) Commissioners is required.

NESTLE PHILIPPINES, INC. vs COURT OF APPEALS FACTS: Sometime in February 1983, the authorized capital stock of petitioner Nestle Philippines Inc. ("Nestle") was increased from P300 million divided into 3 million shares with a par value of P100.00 per share, to P600 million divided into 6 million shares with a par value of P100.00 per share. Nestle underwent the necessary procedures involving Board and stockholders approvals and effected the necessary filings to secure the approval of the increase of authorized capital stock by respondent Securities and Exchange Commission ("SEC"), which approval was in fact granted. Nestle also paid to the SEC the amount of P50,000.00 as filing fee in accordance with the Schedule of Fees and Charges being implemented by the SEC under the Corporation Code. Nestle has only two (2) principal stockholders: San Miguel Corporation and Nestle S.A. The other stockholders, who are individual natural persons, own only one (1) share each, for qualifying purposes, i.e., to qualify them as members of the Board of Directors being elected thereto on the strength of the votes of one or the other principal shareholder. The Board of Directors and

stockholders of Nestle approved resolutions authorizing the issuance of 344,500 shares out of the previously authorized but unissued capital stock of Nestle, exclusively to San Miguel Corporation and to Nestle S.A. San Miguel Corporation subscribed to and completely paid up 168,800 shares, while Nestle S.A. subscribed to and paid up the balance of 175,700 shares of stock. Nestle filed a letter signed by its Corporate Secretary, M.L. Antonio, with the SEC seeking exemption of its proposed issuance of additional shares to its existing principal shareholders, from the registration requirement of Section 4 of the Revised Securities Act and from payment of the fee referred to in Section 6(c) of the same Act. ISSUE: Whether or not the issuance by a corporation of previously authorized but unissued capital stock to existing shareholders is exempt from registration RULING: The issuance by a corporation of previously authorized but unissued capital stock to existing stockholders is not automatically exempt from registration and requires an application from exemption with the Securities and Exchange Commission.an issuance of previously authorized but still unissued capital stock may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration under the Revised Securities Act are "not necessary in the public interest and for the protection of the investors" by reason, inter alia, of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves. In fine, petitioner Nestle's proposed construction of Section 6(a) (4) would establish aninflexible rule of automatic exemption of issuances of additional, previously authorized but unissued, capital stock. The court rejected an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection may be most needed.

ONAPAL PHILIPPINE COMMODITIES, INC vs COURT OF APPEALS FACTS: The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized and existing corporation, was licensed as commission merchant/broker by the SEC, to engage in commodity futures trading in Cebu City under Certificate of Registration No. CEB-182. On April 27, 1983, petitioner and private respondent concluded a "Trading Contract". Like all customers of the petitioner, private respondent was furnished regularly with "Commodities Daily Quotations" showing daily movements of prices of commodity futures traded and of market reports indicating the volume of trade in different future exchanges in Hongkong, Tokyo and other centers. Every time a customer enters into a trading transaction with petitioner as broker, the trading order is communicated by telex to its principal, Frankwell Enterprises of Hongkong. If the transaction, either buying or selling commodity futures, is consummated by the principal, the petitioner issues a document known as "Confirmation of Contract and Balance Sheet" to the customer. An order of a customer of the petitioner is supposed to be transmitted from Cebu to petitioner's office in Manila. From Manila, it should be forwarded to Hongkong and from there, transmitted to the Commodity Futures Exchange in Japan. It appears from plaintiff's testimony

that sometime in April of 1983, she was invited by defendant's Account Executive Elizabeth Diaz to invest in the commodity futures trading by depositing the amount of P500,000.00; She was further told that the business is "profitable" and that she could withdraw her money anytime; she was furthermore instructed to go to the Onapal Office where she met the Manager, Mr. Ciam, and the Account Executive Elizabeth Diaz who told her that they would take care of how to trade business and her account. She was then made to sign the Trading Contract and other documents without making her aware/understand the risks involved; that at the time they let her sign "those papers" they were telling her that those papers were for "formality sake"; that when she was told later on that she made a profit of P20,480.00 in a span of three days in the first transaction, they told her that the business is "very profitable". On June 2, 1983, plaintiff was informed by Miss Diaz that she had to deposit an additional amount of P300,000.00 "to pay the difference" in prices, otherwise she will lose her original deposit of P500,000.00; Fearing the loss of her original deposit, plaintiff was constrained to deposit an additional amount of P300,000.00 ; Since she was made to understand that she could withdraw her deposit/investment anytime, she not knowing how the business is operated/managed as she was not made to understand what the business was all about, she wanted to withdraw her investment; but Elizabeth Diaz, defendant's Account Executive, told her she could not get out because there are some accounts hanging on the transactions. Plaintiff further testified that she understood the transaction of buying and selling as speculating in prices, and her paying the difference between gains and losses without actual delivery of the goods to be gambling, and she would like to withdraw from this kind of business, the risk of which she was not made aware of. Plaintiff further testified that she stopped trading in commodity futures in September, 1983 when she realized she was engaged in gambling. She was able to get only P470,000.00 out of her total deposit of P800,000.00. ISSUE: Whether or not the contract is void RULING: As a contract in printed form, prepared by petitioner and served on private respondent, for the latter's signature, the trading contract bears all the indicia of a valid trading contract because it complies with the Rules and Regulations on Commodity Futures Trading as prescribed by the SEC. But when the transaction which was carried out to implement the written contract deviates from the true import of the agreement as when no such delivery, actual or constructive, of the commodity or goods is made, and final settlement is made by payment and receipt of only the difference in prices at the time of delivery from that prevailing at the time the sale is made, the dealings in futures become mere speculative contracts in which the parties merely gamble on the rise or fall in prices. A contract for the sale or purchase of goods/commodity to be delivered at future time, if entered into without the intention of having any goods/commodity pass from one party to another, but with an understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices, is a transaction which the law will not sanction, for being illegal. The written trading contract in question is not illegal but the transaction between the petitioner and the private respondent purportedly to implement the contract is in the nature of a gambling agreement and falls within the ambit of Article 2018 of the New Civil Code. After considering all the evidence in this case, it appears that petitioner and private respondent did not intend, in the deals of purchasing and selling for future delivery, the actual or constructive delivery of the goods/commodity, despite the payment of the full price therefor. The contract between them falls under the definition of what is called "futures". The payments made under said contract were payments of difference in prices arising out of the rise or fall in

the market price above or below the contract price thus making it purely gambling and declared null and void by law.

UNION BANK OF THE PHILIPPINES vs SECURITIES AND EXCHANGE COMMISSION FACTS: Petitioner, through its General Counsel and Corporate Secretary, sought the opinion of Chairman Perfecto Yasay, Jr. of respondent Commission as to the applicability and coverage of the Full Material Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or guaranteed by banking institutions from the registration requirement provided by Section 4 of the same Act. Chairman Yasay, in a letter dated April 8, 1997, informed petitioner that while the requirements of registration do not apply to securities of banks which are exempt under Section 5 (a) (3) of the Revised Securities Act, however, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules governing the filing of various reports with respondent Commission. ISSUE: Whether or not petitioner is required to comply with the respondent SEC's full disclosure rules RULING: This RSA exempts from registration the securities issued by banking or financial institutions mentioned in the law. Nowhere does it state or even imply that petitioner, as a listed corporation, is exempt from complying with the reports required by the assailed RSA Implementing Rules. The exemption from the registration requirement enjoyed by a bank does not necessarily connote that it is exempted from the other reportorial requirements. Having

confined the exemption enjoyed by the petitioner merely to the initial requirement of registration of securities for public offering, and not to the subsequent filing of various periodic reports, respondent Commission, as the regulatory agency, is able to exercise its power of supervision and control over corporations and over the securities market as a whole. Otherwise, the objectives of the 'Full Material Disclosure' policy would be defeated since Petitioner Corporation and its dealings would be totally beyond the reach of respondent Commission and the investing public.

FABIA vs COURT OF APPEALS FACTS: Private respondent filed a Motion for Clarification of Judgment which seeks the elucidation of the 20 August 2001 Decision of this Court by praying that the Regional Trial Court of Manila that will hear Crim. Case No. 98-162570 be directed to arraign petitioner, try the case and render judgment thereon as the facts may warrant. The subject Decision of 20 August 2001 the Court reversed and set aside the Decision of the Court of Appeals of 12 November 1997 as well as its Resolution of 9 February 1998, the Court holding that Crim. Case No. 98-162570 involves an intra-corporate dispute over which the Securities and Exchange Commission (SEC) has jurisdiction and not the regular courts. Cognizant however that The Securities Regulation Code (RA 8799) amending PD 902-A has effectively vested upon the Regional Trial Courts jurisdiction over all cases formerly cognizable by the SEC, this Court ordered that Crim. Case No. 98-162570 be transferred to the appropriate branch of the Regional Trial Court of Manila tasked to handle intra-corporate matters pursuant to A.M. No. 00-11-3-SC. It appears that the affidavitcomplaint alleged that petitioner Fabia failed to liquidate his cash advances amounting to P1,291,376.61. These cash advances were drawn by petitioner in his capacity as then president of the corporation and include those which were taken purportedly for the purpose of buying office equipment and appliances which petitioner however failed to deliver despite demands as he apparently had converted or misappropriated it to his own use and benefit to the prejudice and damage of respondent MTCP. ISSUE: Whether the prosecution for violation of PD 902-A as amended by RA 8799 is without prejudice to any liability for violation of The Revised Penal Code RULING: The criminal case for estafa currently pending before the RTC can then independently and simultaneously proceed with a civil/intra-corporate case to be filed with the Regional Trial Court vested with special jurisdiction pursuant to The Securities Regulation Code (RA 8799). With RA 8799 signed into law on 19 July 2000, which effectively amended Sec. 5 of PD 902-A, jurisdiction over intra-corporate disputes is now vested in the Regional Trial Courts designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000. However,

while Sec. 5 of PD No. 902-A was amended by Sec. 5.2 of RA 8799, there is no repeal of Sec. 6 thereof declaring that prosecution under the Decree, or any Act, law, rules and regulations enforced and administered by the SEC shall be without prejudice to any liability for violation of any provision of The Revised Penal Code. It could be concluded that the fraudulent devices, schemes or representations which, originally, the Prosecution and Enforcement Department of the SEC would exclusively investigate and prosecute, are those in violation of any law or rules and regulations administered and enforced by the SEC and shall be without prejudice to any liability for violation of any provision of The Revised Penal Code. Hence, if the fraudulent act is punished under The Revised Penal Code, like estafa under Art. 315, the responsible person may be criminally prosecuted before the regular courts in addition to proceedings before the branches of the RTC designated by this Court to try and decide intra-corporate controversies.Therefore, since the alleged fraudulent acts committed by petitioner pertaining to the non-liquidation of his cash advances amounting to P1,291,376.61 constitute the offense of estafa under Art. 315 of The Revised Penal Code, the criminal case may be prosecuted independently and simultaneously with the corporate/civil case that may be filed for violation of Sec. 5 of PD 902-A, as amended by RA 8799. In light of the amendment brought about by RA 8799, the doctrine of primary jurisdiction no longer precludes the simultaneous filing of the criminal case with the corporate/civil case.

GABIOZA vs COURT OF APPEALS FACTS: Petitioners Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed their respective Complaints-affidavit1 charging private respondents Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with several criminal acts. Roxas was the president of ASB Holdings, Inc. (ASBHI) while Nolasco was the senior vice president and treasurer of the same corporation. ASBHI was incorporated in 1996 with its declared primary purpose to invest in any and all real and personal properties of every kind or otherwise acquire the stocks, bonds, and other securities or evidence of indebtedness of any other corporation, and to hold or own, use, sell, deal in, dispose of, and turn to account any such stocks. Both petitioners had previously placed monetary investment with the Bank of Southeast Asia (BSA). They alleged that between 1996 and 1997, they were convinced by the officers of ASBHI to lend or deposit money with the corporation. They and other investors were urged to lend, invest or deposit money with ASBHI, and in return they would receive checks from ASBHI for the amount so lent, invested or deposited. At first, they were issued receipts reflecting the name "ASB Realty Development" which they were told was the same entity as BSA or was connected therewith, but beginning in March 1998, the receipts were issued in the name of ASBHI. They claimed that they were told that ASBHI was exactly the same institution that they had previously dealt with. ASBHI would issue two (2) postdated checks to its lenders, one representing the principal amount and the other covering the interest thereon. The checks were drawn against DBS Bank and would mature in 30 to 45 days. On the maturity of the checks, the individual lenders would renew the loans, either collecting only the interest earnings or rolling over the same with the principal amounts. In the first quarter of 2000, DBS Bank started to refuse to pay for the checks purportedly by virtue of "stop payment" orders from ASBHI. In May of 2000, ASBHI filed a petition for rehabilitation and receivership with the Securities and Exchange Commission (SEC), and it was able to obtain an order enjoining it from paying its outstanding liabilities. This series of events led to the filing of the complaints by petitioners, together with Christine Chua, Elizabeth Chan, Ando Sy and Antonio Villareal,

against ASBHI. The complaints were for estafa under Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa under Presidential Decree No. 1689, violation of the Revised Securities Act and violation of the General Banking Act. ISSUE: Whether or not there is a violation of the Securities Regulation Code RULING: The issuance of checks for the purpose of securing a loan to finance the activities of the corporation is well within the ambit of a valid corporate act to and that a corporation does not need prior registration with the SEC in order to be able to issue a check, which is a corporate prerogative. However, it is one thing for a corporation to issue checks to satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme where it would comport itself to the public as a pseudo-investment house and issue post-dated checks instead of stocks or traditional securities to evidence the investments of its patrons. The Revised Securities Act was geared towards maintaining the stability of the national investment market against activities such as those apparently engaged in by ASBHI. ASBHI adopted this scheme in an attempt to circumvent the Revised Securities Act, which requires a prior license to sell or deal in securities. After all, if ASBHIs activities were actually regulated by the SEC, it is hardly likely that the design it chose to employ would have been permitted at all. The scheme was to designed to circumvent the law. Checks constitute mere substitutes for cash if so issued in payment of obligations in the ordinary course of business transactions. But when they are issued in exchange for a big number of individual non-personalized loans solicited from the public, numbering about 700 in this case, the checks cease to be such. In such a circumstance, the checks assume the character of evidences of indebtedness. This is especially so where the individual loans were not evidenced by appropriate debt instruments, such as promissory notes, loan agreements, etc., as in this case. Purportedly, the post-dated checks themselves serve as the evidences of the indebtedness. A different rule would open the floodgates for a similar scheme, whereby companies without prior license or authority from the SEC. This cannot be countenanced. The subsequent repeal of the Revised Securities Act does not spare respondents Roxas and Nolasco from prosecution thereunder, since the repealing law, Republic Act No. 8799 known as the "Securities Regulation Code," continues to punish the same offense (see Section 8 in relation to Section 73, R.A. No. 8799).

POWER HOMES UNLIMITED CORPORATION vs SECURITIES AND EXCHANGE COMMISSION FACTS: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is: To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing. Respondent Noel Manero requested public respondent SEC to investigate petitioners business. He claimed that he attended a seminar conducted by petitioner where the latter claimed to sell properties that were inexistent and without any brokers license. One Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioners business involves legitimate network marketing. On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioners incorporators John Lim, Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioners marketing scheme and list of its members with addresses. After finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act, public respondent SEC issued a CDO. ISSUE: Whether petitioners business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public RULING: An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799 as a contract, transaction or scheme (collectively contract) whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. The business operation or the scheme of petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by public respondent SEC. The CDO was proper even without a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets depend on the investing publics level of confidence in the system.

TIMESHARE REALTY CORPORATION vs CESAR LAO and CYNTHIA CORTEZ FACTS: On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V. Cortez (respondents), one timeshare of Laguna de Boracay for US$7,500.00 under Contract No. 135000998 payable in eight months and fully paid by the respondents. Sometime in February 1998, the SEC issued a resolution to the effect that petitioner was without authority to sell securities, like timeshares, prior to February 11, 1998. It further stated in the resolution/order that the Registration Statement of petitioner became effective only on February 11, 1998. It also held that the 30 days within which a purchaser may exercise the option to unilaterally rescind the purchase agreement and receive the refund of money paid applies to all purchase agreements entered into by petitioner prior to the effectivity of the Registration Statement. On March 30, 1998, respondents wrote petitioner demanding their right and option to cancel their Contract, as it appears that Laguna de Boracay is selling said shares without license or authority from the SEC. For failure to get an answer to the said letter, respondents this time, through counsel, reiterated their demand through another letter dated June 29, 1998. But despite repeated demands, petitioner failed and refused to refund or pay respondents. Respondents directly filed with SEC En Banc a Complaint against petitioner and the Members of its Board of Directors - Julius S. Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178. ISSUE: Whether or not the eventual approval or issuance of license has retroactive effect and therefore ratifies all earlier transactions RULING: Provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration as a corporation already authorizes it to deal with unregistered timeshares. Corporate registration is just one of several requirements before it may deal with timeshares: Section 8. Procedure for registration. - (a) All securities required to be registered under subsection (a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration statement with respect to such securities, containing or having attached thereto, the following: (36) Unless previously filed and registered with the Commission and brought up to date: (a) A copy of its articles of incorporation with all amendments thereof and its existing by-laws or instruments corresponding thereto, whatever the name, if the issuer be a corporation. Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed under Section 4 from dealing with unregistered timeshares, thus: Section 4. Requirement of registration of securities. - (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution

to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided.