CIR vs. Club Filipino Inc.

de Cebu
GR No. L-12719
May 31, 1962

a) Capital stock divided into shares

b) Authority to distribute to the holders of such shares dividends.

Facts:
Respondent Club is a civic corporation organized under the laws of the
Philippines with an authorized capital stock of 22K which was increased to
200K. It owns and operates a club house, bowling alley a gold course and a
bar-restaurant.
The club is operated mainly with funds derived funds derived from
membership fees and dues. The profits were used to defray its overhead
expenses. In 1951, as a result of a capital surplus, the club declared stock
dividends but no actual cash dividends were distributed to the
stockholders.
In 1952, the petitioner assessed and demanded from the club percentage
tax on the gross receipts of its bar and restaurant as well as surcharge and
compromise penalty. The club by laws has no provision relative to
dividends.
The club requested for the cancellation of the assessment but the same
was denied. The CTA reversed the decision of petitioner.
Issues:
1.
2.

Whether respondent corporation is liable for the payment of

percentage tax.
Whether respondent is a stock corporation.

Held:
1.

No. The corporation is not liable for the payment of percentage tax.
Under the tax law, the liability for fixed and percentage taxes does
not ipso facto attached by mere operation of a bar and restaurant.
It is required that the operation must be engaged in the business
as a barkeeper and restaurant.
The fact that the club was organized to develop and cultivate
sports of all class and denomination and upon its dissolution its
remaining assets, after paying debts shall be donated to a
charitable institution, proves that it is not engaged in the business
of bar and restaurant.

2.

For a stock corporation to exist, two requisites must be complied

with to wit:

Respondent club is not a stock corporation.

The second requisite is lacking because nowhere in its articles of

incorporation could be found an authority for the distribution of its
dividends.

G.R. No. 155650

July 20, 2006

MANILA
INTERNATIONAL
AIRPORT
AUTHORITY, petitioner, vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF
PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY
ASSESSOR
OF
PARAAQUE,
and
CITY
TREASURER
OF
PARAAQUE, respondents.
Facts:
Manila International Airport Authority (MIAA) operates the NAIA Complex in
Paraaque City under EO No. 903, otherwise known as the Revised Charter
of
the
Manila International
Airport
Authority ("MIAA
Charter").
Subsequently, EO Nos. 909 and 298 amended the MIAA Charter.
MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600
hectares of land, including the runways and buildings ("Airport Lands and
Buildings") then under the Bureau of Air Transportation. The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by
the President of the Philippines.
The Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent
City of Paraaque to pay the real estate tax imposed by the City. MIAA then
paid some of the real estate tax already due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001.
The City of Paraaque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the
City of Paraaque threatened to sell at public auction the Airport Lands and

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Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus
sought a clarification of OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from
real estate tax to show proof of exemption. The OGCC opined that Section
21 of the MIAA Charter is the proof that MIAA is exempt from real estate
tax.
MIAA filed with the Court of Appeals an original petition for prohibition and
injunction, with prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of Paraaque from imposing
real estate tax on, levying against, and auctioning for public sale the
Airport Lands and Buildings.
CA dismissed the petition because MIAA filed it beyond the 60-day
reglementary period.
Hence, this petition.
Meanwhile, the City of Paraaque posted notices of auction sale. The City
of Paraaque published the notices in the 3 and 10 January 2003 issues of
the Philippine Daily Inquirer. The notices announced the public auction sale
of the Airport Lands and Buildings to the highest bidder. A day before the
public auction, MIAA filed before the SC an Urgent Ex-Parte and Reiteratory
Motion for the Issuance of a TRO. The motion sought to restrain
respondents

the
City
of
Paraaque,
City
Mayor
of
Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of
Paraaque, and the City Assessor of Paraaque, from auctioning the Airport
Lands and Buildings. SC issued a TRO effective immediately. SC heard the
parties in oral arguments.
Issue:
Whether or not the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. Yes
Ruling:
MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation
(GOCC) is not exempt from real estate tax. However, MIAA is not a
government-owned or controlled corporation. GOCC refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock

corporations, to the extent of at least 51% of its capital stock. A GOCC

must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into shares. MIAA
has no stockholders or voting shares. Clearly, under its Charter, MIAA does
not have capital stock that is divided into shares. Section 3 of the
Corporation Code defines a stock corporation as one whose "capital stock
is divided into shares and authorized to distribute to the holders of such
shares dividends. MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as
"one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a GOCC. What then is the legal status of MIAA within the
National Government? MIAA is a government instrumentality vested with
corporate powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is that MIAA
is vested with corporate powers. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock
or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA
exercises "all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order." Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains

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part of the National Government machinery although not integrated with

the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body" will make its
operation more "financially viable."
Petition, granted.
CIR vs St. Luke's Medical Center
Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock
and non-profit corporation. Under its articles of incorporation, among its corporate
purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian,
benevolent, charitable and scientific hospital which shall give curative,
rehabilitative and spiritual care to the sick, diseased and disabled persons;
provided that purely medical and surgical services shall be performed by duly
licensed physicians and surgeons who may be freely and individually contracted
by patients;
(b) To provide a career of health science education and provide medical services to
the community through organized clinics in such specialties as the facilities and
resources of the corporation make possible;
(c) To carry on educational activities related to the maintenance and promotion of
health as well as provide facilities for scientific and medical researches which, in
the opinion of the Board of Trustees, may be justified by the facilities, personnel,
funds, or other requirements that are available;
(d) To cooperate with organized medical societies, agencies of both government
and private sector; establish rules and regulations consistent with the highest
professional ethics;

The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary non-profit hospitals, should
be applicable to St. Luke's. According to the BIR, Section 27(B), introduced in
1997, "is a new provision intended to amend the exemption on non-profit hospitals
that were previously categorized as non-stock, non-profit corporations under
Section 26 of the 1997 Tax Code x x x." 5 It is a specific provision which prevails
over the general exemption on income tax granted under Section 30(E) and (G)
for non-stock, non-profit charitable institutions and civic organizations promoting
social welfare.
The BIR claimed that St. Luke's was actually operating for profit in 1998 because
only 13% of its revenues came from charitable purposes. Moreover, the hospital's
board of trustees, officers and employees directly benefit from its profits and
assets. St. Luke's had total revenues of P1,730,367,965 or approximately P1.73
billion from patient services in 1998.
St. Luke's contended that the BIR should not consider its total revenues, because
its free services to patients was P218,187,498 or 65.20% of its 1998 operating
income (i.e., total revenues less operating expenses) of P334,642,615. 8 St. Luke's
also claimed that its income does not inure to the benefit of any individual.
St. Luke's maintained that it is a non-stock and non-profit institution for charitable
and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued
that the making of profit per se does not destroy its income tax exemption.
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution
covered by Section 30(E) and (G) of the NIRC. This ruling would exempt all income
derived by St. Luke's from services to its patients, whether paying or non-paying.
The CTA reiterated its earlier decision in St. Luke's Medical Center, Inc. v.
Commissioner of Internal Revenue, 16 which examined the primary purposes of
St. Luke's under its articles of incorporation and various documents 17 identifying
St. Luke's as a charitable institution.
Issue
Whether or not St. Luke's is a non-stock corporation which entitles it to be tax
exempt.

xxxx
On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's
deficiency taxes amounting to P76,063,116.06 for 1998, comprised of deficiency
income tax, value-added tax, withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to P63,935,351.57 during trial in the
First Division of the CTA.
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against
the deficiency tax assessments. The BIR did not act on the protest within the 180day period under Section 228 of the NIRC. Thus, St. Luke's appealed to the CTA.

Held
There is no dispute that St. Luke's is organized as a non-stock and non-profit
charitable institution. However, this does not automatically exempt St. Luke's from
paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax exempt. To
be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section
30(E) of the NIRC requires that a charitable institution must be "organized and

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operated exclusively" for charitable purposes. Likewise, to be exempt from income

taxes, Section 30(G) of the NIRC requires that the institution be "operated
exclusively" for social welfare.

REPUBLIC v. SUNLIFE ASSURANCE

FACTS:
Sun Life is a mutual life insurance company organized and existing under the laws
of Canada. It is registered and authorized by the Securities and Exchange
Commission and the Insurance Commission to engage in business in the
Philippines as a mutual life insurance company
Sun Life filed with the CIR its insurance premium tax return for the third quarter of
1997 and paid the premium tax. For the period covering August 21 to December
18, 1997, petitioner filed with the CIR its DST declaration returns
The CTA rendered its decision in Insular Life Assurance Co. Ltd. v. CIR, which held
that mutual life insurance companies are purely cooperative companies and are
exempt from the payment of premium tax and DST.
Sun Life filed with the CTA a petition for review. In its petition, it prayed for the
issuance of a tax credit certificate. Sun Life stood firm on its contention that it is a
mutual life insurance company vested with all the characteristic features and
elements of a cooperative company or association as defined in Sec. 121 of the
Tax Code. Primarily, the management and affairs of Sun Life were conducted by its
members; secondly, it is operated with money collected from its members; and,
lastly, it has for its purpose the mutual protection of its members and not for profit
or gain.
The CTA found in favor of Sun Life,Quoting largely from its earlier findings in
Insular Life Assurance Company, It ruled that a mutual life insurance company is a
purely cooperative company; thus, exempted from the payment of premium and
documentary stamp taxes. Petitioner Sun Life is without doubt a mutual life
insurance company.
ISSUE:
Whether or not respondent is a purely cooperative company or association under
the NIRC.
RULING:

The Tax Code defines a cooperative as an association conducted by the members

thereof with the money collected from among themselves and solely for their own
protection and not for profit Without a doubt, respondent is a cooperative engaged
in a mutual life insurance business.
First, it is managed by its members. Both the CA and the CTA found that the
management and affairs of respondent were conducted by its memberpolicyholders.
A stock insurance company doing business in the Philippines may alter its
organization and transform itself into a mutual insurance company. Respondent
has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation. On the basis of its bylaws, its ownership
has been vested in its member-policyholders who are each entitled to one vote;
and who, in turn, elect from among themselves the members of its board of
trustees. Being the governing body of a non-stock corporation, the board exercises
corporate powers, lays down all corporate business policies, and assumes
responsibility for the efficiency of management.
Second, it is operated with money collected from its members. Since respondent is
composed entirely of members who are also its policyholders, all premiums
collected obviously come only from them.
The member-policyholders constitute both insurer and insured who contribute, by
a system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid. The premiums pooled into this fund are earmarked
for the payment of their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the profit of
anyone.
A stipulated insurance premium cannot be increased, but may be lessened
annually by so much as the experience of the preceding year has determined it to
have been greater than the cost of carrying the insurance x x x. The difference
between that premium and the cost of carrying the risk of loss constitutes the socalled dividend which, however, is not in any real sense a dividend. It is a technical
term that is well understood in the insurance business to be widely different from
that to which it is ordinarily attached.
The so-called dividend that is received by member-policyholders is not a portion of
profits set aside for distribution to the stockholders in proportion to their
subscription to the capital stock of a corporation. One, a mutual company has no
capital stock to which subscription is necessary; there are no stockholders to
speak of, but only members. And, two, the amount they receive does not partake
of the nature of a profit or income. The quasi-appearance of profit will not change
its character. It remains an overpayment, a benefit to which the memberpolicyholder is equitably entitled.

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Verily, a mutual life insurance corporation is a cooperative that promotes the

welfare of its own members. It does not operate for profit, but for the mutual
benefit of its member-policyholders. They receive their insurance at cost, while
reasonably and properly guarding and maintaining the stability and solvency of
the company. The economic benefits filter to the cooperative members. Either
equally or proportionally, they are distributed among members in correlation with
the resources of the association utilized.
It does not follow that because respondent is registered as a nonstock corporation
and thus exists for a purpose other than profit, the company can no longer make
any profits. Earning profits is merely its secondary, not primary, purpose. In fact, it
may not lawfully engage in any business activity for profit, for to do so would
change or contradict its nature as a non-profit entity.It may, however, invest its
corporate funds in order to earn additional income for paying its operating
expenses and meeting benefit claims. Any excess profit it obtains as an incident to
its operations can only be used, whenever necessary or proper, for the
furtherance of the purpose for which it was organized.

TAN VS. SYCIP

For stock corporations, the quorum referred to in Section 52 of the
Corporation Code is based on the number of outstanding voting stocks. For
non-stock corporations, only those who are actual, living members
WITH voting rights shall be counted in determining the existence of a
quorum during members meetings. Dead members shall not be counted.

SEC Hearing Officer: meeting null and void for lack of

quorum. She held that the basis for determining the quorum in a meeting
of members should be their number as specified in the articles of
incorporation, not simply the number of living members.
Moreover, Article III (2) of the By-Laws of GCHS, insofar as it
prescribed the mode of filling vacancies in the board of trustees, must be
interpreted in conjunction with Section 29 of the Corporation Code.
SEC en banc: affirmed the Decision of the hearing officer in
toto. It found to be untenable their contention that the word members, as
used in Section 52 of the Corporation Code, referred only to
the living members of a nonstock corporation.
ISSUES:
Whether or not in NON-STOCK corporations, dead members should
still be counted in determination of quorum for purposed of conducting the
Annual Members Meeting.
Petitioners: DEAD members should no longer be counted in
computing quorum primarily on the ground that members
rights are personal and non-transferable as provided in
Sections 90 and 91 of the Corporation Code of the
Philippines.
RULING:
The present Petition is partly meritorious.

FACTS:
Grace Christian High School (GCHS) is a non-stock, non-profit educational
corporation with 15 regular members, who also constitute the board of
trustees. During the annual members meeting, there were only:
11 living member-trustees
4 already died.
7 attended the meeting through their respective proxies
The meeting was convened and chaired by Atty. Sabino Padilla Jr.
over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum. In the meeting, Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and
Judith Tan were voted to replace the four deceased member-trustees.
Petitioners maintained that the deceased member-trustees should
not be counted in the computation of the quorum because, upon their
death, members automatically lost all their rights (including the right to
vote) and interests in the corporation.

Generally, stockholders or members meetings are called for the purpose

of electing directors or trustees and transacting some other business
calling for or requiring the action or consent of the shareholders or
members.
Under the Corporation Code, stockholders or members periodically elect
the board of directors or trustees, who are charged with the management
of the corporation. The board, in turn, periodically elects officers to carry
out management functions on a day-to-day basis.
While stockholders and members (in some instances) are entitled to
receive profits, the management and direction of the corporation are
lodged with their representatives and agents -- the board of directors or
trustees. In other words, acts of management pertain to the board; and
those of ownership, to the stockholders or members. In the latter case, the
board cannot act alone, but must seek approval of the stockholders or
members.

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One of the most important rights of a qualified shareholder or member is

the right to vote -- either personally or by proxy -- for the directors or
trustees who are to manage the corporate affairs. The right to choose the
persons who will direct, manage and operate the corporation is significant,
because it is the main way in which a stockholder can have a voice in the
management of corporate affairs, or in which a member in a nonstock
corporation can have a say on how the purposes and goals of the
corporation may be achieved. Once the directors or trustees are elected,
the stockholders or members relinquish corporate powers to the board in
accordance with law.
In the absence of an express charter or statutory provision to the contrary,
the general rule is that every member of a nonstock corporation, and every
legal owner of shares in a stock corporation, has a right to be present and
to vote in all corporate meetings. Conversely, those who are not
stockholders or members have no right to vote. Voting may be expressed
personally, or through proxies who vote in their representative capacities.
Generally, the right to be present and to vote in a meeting is determined
by the time in which the meeting is held.
In stock corporations, the presence of a quorum is ascertained and counted
on the basis of the outstanding capital stock.

The Right to Vote in Stock Corporations

It is settled that unissued stocks may not be voted or considered in
determining whether a quorum is present in a stockholders meeting, or
whether a requisite proportion of the stock of the corporation is voted to
adopt a certain measure or act. Only stock actually issued and outstanding
may be voted.
Neither the stockholders nor the corporation can vote or represent shares
that have never passed to the ownership of stockholders; or, having so
passed, have again been purchased by the corporation. These shares are
not to be taken into consideration in determining majorities.
The Right to Vote in Nonstock Corporations
In nonstock corporations, the voting rights attach to
membership. Members vote as persons, in accordance with the law and
the bylaws of the corporation. Each member shall be entitled to one vote
unless so limited, broadened, or denied in the articles of incorporation or
bylaws. We hold that when the principle for determining the quorum for
stock corporations is applied by analogy to nonstock corporations, only
those who are actual members with voting rights should be counted.

Section 52 of the Corporation Code, the majority of the members

representing the actual number of voting rights, not the number or
numerical constant that may originally be specified in the articles of
incorporation, constitutes the quorum.
The best evidence of who are the present members of the
corporation is the membership book; in the case of stock corporations, it is
the stock and transfer book.
Section 25 of the Code specifically provides that a majority of
the directors or trustees, as fixed in the articles of incorporation, shall
constitute a quorum for the transaction of corporate business (unless the
articles of incorporation or the bylaws provide for a greater majority).
Effect of the Death of a Member or Shareholder
What happens in the event of the death of one of them?
In stock corporations, shareholders may generally transfer their
shares. Thus, on the death of a shareholder, the executor or administrator
duly appointed by the Court is vested with the legal title to the stock and
entitled to vote it. Until a settlement and division of the estate is effected,
the stocks of the decedent are held by the administrator or executor.
On the other hand, membership in and all rights arising from a non-stock
corporation are personal and non-transferable, unless the articles of
incorporation or the bylaws of the corporation provide otherwise. In other
words, the determination of whether or not dead members are entitled to
exercise their voting rights (through their executor or administrator),
depends on those articles of incorporation or bylaws.

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

others, be terminated by the death of the member. Section 91 of the
Corporation Code further provides that termination extinguishes all the
rights of a member of the corporation, unless otherwise provided in the
articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who
are dropped from the membership roster in the manner and for the cause
provided for in the By-Laws of GCHS are not to be counted in determining
the requisite vote in corporate matters or the requisite quorum for the
annual members meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual
members meeting, conducted with six members present, was valid.

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Vacancy in the Board of Trustees

Undoubtedly, trustees may fill vacancies in the board, provided
that those remaining still constitute a quorum. Filling of vacancies in the
board by the remaining directors or trustees constituting a quorum is
merely permissive, not mandatory. Corporations, therefore, may choose
how vacancies in their respective boards may be filled up -- either by the
remaining directors constituting a quorum, or by the stockholders or
members in a regular or special meeting called for the purpose.
The By-Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a majority vote of the
remaining members of the board.
While a majority of the remaining corporate members were
present, however, the election of the four trustees cannot be legally upheld
for the obvious reason that it was held in an annual meeting of the
members, not of the board of trustees. Remaining member-trustees must
sit as a board in order to validly elect the new ones.
Indeed, there is a well-defined distinction between a corporate act to be
done by the board and that by the constituent members of the
corporation. The board of trustees must act, not individually or separately,
but as a body in a lawful meeting. On the other hand, in their annual
meeting, the members may be represented by their respective proxies, as
in the contested annual members meeting of GCHS.
AO-AS VS. CA
FACTS: The Lutheran Church in the Philippines (hereinafter referred to as
the LCP) 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,
at the time of its incorporation, was divided into three districts, namely: the
North Luzon District (hereinafter referred to as the NLD); the South Luzon
District (hereinafter referred to as the SLD); [and] the Mindanao district
(hereinafter referred to as the MDD).
The governing body of the LCP is its national board of directors (hereinafter
referred to as the LCP Board) which was originally composed of seven (7)
members serving a term of two years. Six members of the LCP Board are
elected separately in district conferences held in each district, with two
members representing each district the elected district president
becomes the clergy representative to the LCP Board and the other is a lay
representative to the LCP Board. The seventh member of the Board is the
National President of the LCP who is elected at large in a national
convention held in October of every even-numbered year.

During the 1976 LCP national convention, a resolution was passed dividing
the North Luzon district (NLD) into two districts: the NLD Highland District
(NLHD) and the NLD Lowland District (NLLD) -- thereby increasing the
number of directors from seven (7) to nine (9). Again in the 1984 LCP
national convention, a resolution was passed creating another district,
namely, the Visayan Islands District (VID) thereby increasing further the
number of directors to eleven (11). Both resolutions were passed pursuant
to Section 2 of Article 7 of the LCP By-Laws which provides that: "LCP in
convention may form additional districts as it sees fit".
Since the addition of two or more districts, an eleven (11) member board of
directors representing the five (5) districts managed the LCP without any
challenge from the membership until several years later when certain
controversies arose involving the resolutions of the Board terminating the
services of the LCP business manager and corporate treasurer since 1979,
Mr. Eclesio Hipe.
The termination of Mr. Hipe sparked a series of intracorporate complaints
lodged before the Securities and Exchange Commission (SEC). For the first
time, the legality of the eleven (11) member Board was put in issue as
being in excess of the number of directors provided in the Articles of
Incorporation since no amendments were made thereto to reflect the
increase.
On August 17, 1990, [the Ao-As group] filed SEC-SICD Case No. 3857 for
accounting and damages with prayer for preliminary injunction and
appointment of a management committee for certain causes of actions.
During the hearings on the application for creation of a management
committee, [the Batong group] filed an Urgent Motion to Suspend the
Proceedings of the Case in view of an amicable settlement agreed upon by
the parties but was denied by SEC-SICD.

On January 23, 1992, petitioners filed a Motion to Dismiss alleging again

the compromise agreement. Again, the SEC-SICD denied [the Batong
groups] motion.
SEC-SICD: Order creating a management committee to undertake the
management of the Lutheran Church in the Philippines until such time that
new members of the LCP Board of Directors shall have been elected and
qualified in the election to be called and conducted by the Management
Committee in accordance with the LCPs Articles of Incorporation and ByLaws
MR: by [the Batong group] but denied.

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[the Batong group] filed with the SEC En Banc a Petition for Certiorari with
prayer for a temporary restraining order alleging that the SEC-SIDC acted
with grave abuse of discretion in creating the management committee.
Shortly thereafter, on September 29, 1992, the following were appointed to
the management committee: Atty. Puno as Chairman; and private
respondents Jose Laking, Eduardo Ladlad, Romeo Celiz as members.
However, Atty. Puno later resigned and was replaced by Atty. Oscar
Almazan who was appointed as Chairman. After the death of Romeo Celiz,
he was replaced by private respondent Luis Ao-As.
On October 6, 1992, [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. SEC-SIDC: granted.
The [the Batong group] allege that the SEC-SIDC management committee
used the Order dated October 16, 1992 to carry out ultra vires acts, more
specifically:
(i)

to take control of and closing down church buildings;

(ii)

to evict LCP clergymen from their church parsonages;

(iii)
to ordain and appoint new clergymen to replace incumbent
members of the church hierarchy.
During the 17th LCP National Convention, the delegates representing the
majority of the members which comprised the three districts (North Luzon,
South Luzon and Mindanao) 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.
Similarly, prior to the issuance of the writ of preliminary injunction and the
appointment of the management committee, the SLD (South Luzon
District) of LCP already held its district conference which elected, among
other of its officers, the SLD Lay Representative pursuant to the LCP
Constitution and By Laws.

[The Batong group] then filed with the SEC En Banc a Supplemental
Petition dated November 13, 1992 alleging the supervening events in the
case which took place after the filing of the original petition on September
23, 1992.
Subsequent to the 17th LCP national convention of October 1992, a special
convention was called by the SEC Management Committee to elect a
different set of officers for LCP. [The Batong group] allege that the required
notices were not sent to several local congregations and even fewer LCP
members were permitted by [the Ao-As group] to attend the special
convention as evidenced by the list of official delegates contained in the
minutes of the special convention.
On July 21, 1993, [the Batong Group] filed a Second Supplement to its
petition for certiorari in the SEC En Banc alleging the supervening events
and seeking the review of an Order of the Hearing Officer dated June 9,
1993 which enlisted the aid of the Secretary of the Department of Interior
and Local Government and the PNP Director General to enforce the writ of
preliminary injunction.
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.
[The Batong group] then filed a Petition for Mandamus and Damages with
Prayer for Preliminary Mandatory Injunction on August 19, 1993 seeking to
unfreeze the bank accounts and recover the seized buildings.
All of the aforementioned petitioners (sic) were denied by the SEC En Banc.
MR-denied.
The Batong group then filed a Petition for Review with the Court of Appeals
seeking to annul the Decision of the SEC En Banc. In said Petition, the
Batong group alleged that the Ao-As group persisted in carrying out ultra
vires and illegal acts
On 10 October 1996, the Court of Appeals ruled in favor of the Batong
group and directed the SEC to conduct a new election of the directors of
the LCP consistent with the provisions of the Corporation Code.5
Hence, this petition.

The district conference for NLD was likewise held before the issuance of
the writ of preliminary injunction. In said convention, the local
congregations and clergymen executed a manifesto expressing their own
opposition to the appointment of a management committee.

ISSUE: Whether or not the Court of Appeals committed reversible error in

declaring as invalid the manner of elections of the Board of Directors of the
Lutheran Church in the Philippines as provided for in its By-Laws.

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HELD: The Court of Appeals erred in declaring as invalid the manner of

elections of the Board of Directors of the LCP as provided in its By-Laws.
The Ao-As group stresses that the Court of Appeals committed reversible
error in declaring as invalid the manner of elections of the Board of
Directors of the Lutheran Church in the Philippines as provided in its ByLaws. The Court of Appeals ruled:
The Court notes that the LCP By-Laws provide for a special procedure for
the election of its directors. This was the procedure followed by both the
[Batong group] and the [Ao-As group].
"Section 2. Composition of the Board of Directors of LCP.
a. The Board of Directors shall be composed of the President of LCP and
the President and lay representative of each District.
b. Newly elected members of the LCP Board of Directors shall assume their
positions immediately after LCP conventions or the October LCP Board of
Directors meeting in the year in which they are elected."
However, Section 24 of the Corporation Code provides that "[a]t 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 ByLaws 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. Even the election of LCP officers in the SEC-SICD sponsored
national convention of the LCP must be considered as invalid.28
Even the Batong group agrees with the Ao-As group on the validity of the
by-laws provision concerning the election of the directors by districts:
[The Batong group] respectfully submit[s] that the matter of how the
directors or other leaders of a church shall be chosen is a matter of
ecclesiastical law or custom which is outside the jurisdiction of civil courts.
Hence, even assuming arguendo, that the mode of election of the LCP is
not strictly in accordance with the Corporation Code, it was improper for

the Securities and Exchange Commission to apply the provisions of the

said Code to the LCP.30

In any case, the stipulation in the By-Laws is not contrary to the

Corporation Code. Section 89 of the Corporation Code pertaining to nonstock corporations provides that "(t)he 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 bylaws."31 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."32 The stipulation in the By-Laws
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.

Valley Golf & Country Club, Inc. vs. Rosa O. Vda. De Caram
G.R. No. 158805
April 16, 2009
Facts:
Valley Golf 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 avail of the facilities and privilege. The
shareholders are likewise assessed monthly membership dues. Cong.
Fermin Z. Caram, Jr., respondents husband, subscribed and paid in full 1
Golf Share of the petitioner and was subsequently issued with a stock
certificate which indicated a par value of P9,000.00. It was alleged by the
petitioner that Caram stopped paying his monthly dues and that it has sent
5 letters to Caram concerning his delinquent account. The Golf Share was
subsequently sold at public auction for P25,000.00 after the BOD had
authorized the sale and the Notice of Auction Sale was published in the
Philippine Daily Inquirer Caram thereafter died and his wife initiated
intestate proceedings before the RTC of IloIlo.
Unaware of the pending controversy over the Golf Share, the Caram family
and the RTC included the Golf Share as part of Carams estate.

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The RTC approved a project of partition of Carams estate and the Golf
Share was adjudicated to the wife, 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 Golf Share.
After a series of correspondence, the Caram heirs were subsequently
informed in a letter that they were entitled to the refund of P11,066.52 out
of the proceeds of the sale of the Golf Share, which amount had been in
the custody of the petitioner.
Carams wife filed an action for reconveyance of the Golf Share with
damages before the SEC against Valley Golf. The SEC Hearing Officer
rendered a decision in favor of the wife, 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 of the same class as the Golf Share to the wife.
Damages totaling P90,000.00 were also awarded to the wife.
The SEC hearing officer ruled that under Section 67, paragraph 2 of the
Corporation Code, a share stock could only be deemed delinquent and sold
in an extrajudicial sale at public auction only upon the failure of the
stockholder to pay the unpaid subscription or balance for the share.
However, the section could not have applied in Carams case since he had
fully paid for the Golf Share and he had been assessed not for the share
itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded
that the auction sale had no basis in law and was thus a nullity. The SEC en
banc and the Court of Appeals affirmed the hearing officers decision,
hence, the petitioner appealed before SC.
Issue:
Whether or not a non-stock corporation can 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.
Held:
No. The Court ruled that there is a specific provision under Title XI on NonStock Corporations of the Corporation Code dealing with the termination of
membership in a non-stock corporation such as Valley Golf. Section 91 of
the Corporation Code provides:
SEC. 91. Termination of membership.Membership shall be terminated in
the manner and for the causes provided in the articles of incorporation or
the by-laws. Termination of membership shall have the effect of

10

extinguishing all rights of a member in the corporation or in its property,

unless otherwise provided in the articles of incorporation or the by-laws.
(Emphasis supplied)
A share can only be deemed delinquent and sold at public auction only
upon the failure of the stockholder to pay the unpaid subscription.
Delinquency in monthly club dues was merely an ordinary debt enforceable
by judicial action in a civil case. A provision creating a lien upon shares of
stock for unpaid debts, liabilities, or assessments of stockholders to the
corporation, should be embodied in the Articles of Incorporation, and not
merely in the by-laws. Moreover, the by-laws of petitioner should have
provided formal notice and hearing procedure before a members share
may be seized and sold. The procedure for stock corporations recourse on
unpaid subscription is not applicable in members shares in a non-stock
corporation. SC proceeded to declare the sale as invalid. SC found that
Valley Golf acted in bad faith when it sent the final notice to Caram under
the pretense they believed him to be still alive, when in fact they had very
well known that he had already died.
The Court stated:
Whatever the reason Caram was unable to respond to the earlier notices,
the fact remains that at the time of the final notice, Valley Golf knew that
Caram, having died and gone, would not be able to settle the obligation
himself, yet they persisted in sending him notice to provide a color of
regularity to the resulting sale. That reason alone, evocative as it is of the
absence of substantial justice in the sale of the Golf Share, is sufficient to
nullify the sale and sustain the rulings of the SEC and the Court of Appeals.
Moreover, the utter and appalling bad faith exhibited by Valley Golf in
sending out the final notice to Caram on the deliberate pretense that he
was still alive could bring into operation Articles 19, 20 and 21 under the
Chapter on Human Relations of the Civil Code. These provisions enunciate
a general obligation under law for every person to act fairly and in good
faith towards one another.
Non-stock corporations and its officers are not exempt from that obligation.

The commentaries of Lopez advert to an SEC Opinion dated 29 September

1987 which we can cite with approval. Lopez cites:
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

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the body of persons before whom it is heard or who are to decide the case
must be unprejudiced.

Petitioners, however, ignored the demand. This prompted RHAI to file an

action for recovery of possession of the subject property.

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.

Petitioners denied RHAIs claim that they were illegal occupants. They
argued that they could not be ejected from the said property because they
were entitled to own the land that they had occupied for several years
prior to RHAIs acquisition of title therein.

ARROYO ET AL vs. ROSAL HOMEOWNERS ASSOCIATION, INC.

RTC: in favor of RHAI. Petitioners as already non-members, having been

expelled from the RHAI. They had no more right to remain in the land they
are occupying.

FACTS:
Respondent Rosal Homeowners Association, Incorporated (RHAI) is a nonstock, non-profit organization duly organized and existing under the laws of
the Philippines. Its membership is composed mainly of occupants of a
parcel of land in Bacolod City, and formerly owned by Philippine
Commercial International Bank (PCIB).
Petitioners were among the actual occupants of the subject land. They
occupied the land by mere tolerance long before the said land was
acquired by PCIB in 1989. To evade eviction from PCIB and in order to avail
of the benefits of acquiring land under the Community Mortgage Program
(CMP) of the National Home Mortgage Finance Corporation (NHMFC), the
said occupants formally organized themselves into an association, the
RHAI. With the aid and representation of the Bacolod Housing Authority
(BHA), RHAI was able to obtain a loan from the NHMFC and acquired the
subject land from PCIB. Registry of Deeds of Bacolod City issued a Transfer
Certificate of Title in the name of RHAI. By virtue of the land acquisition by
RHAI, all the occupants of the land became automatic members of RHAI. To
fully avail of the benefits of the CMP, the NHMFC required the RHAI
members to sign the Lease Purchase Agreement (LPA) and to maintain
their membership in good standing in accordance with the provisions of the
By-Laws of RHAI.
Petitioners refused to sign the LPA as a precondition under the CMP. They
likewise failed to attend the regular meetings and pay their membership
dues as required by the RHAI By-Laws. As a result, RHAI through its Board
of Directors, approved a resolution to enforce the eviction of petitioners
and recover possession of the portions of land which they were occupying.

11

CA: affirming the RTC decision. It sustained the RTCs finding that
petitioners refused to become members of RHAI or were considered
expelled from the same because of their failure to comply with their duties
and responsibilities.
ISSUE: whether petitioners were denied of their right to own a piece of
land for their homes under the socialized housing program of the
government.
RULING:
The records of this case disclose that there was a board resolution issued
for the expulsion of the erring or defaulting members of RHAI. The latter
were duly informed that they were already expelled as members of the
association through notices sent to them. These notices, however, were
refused to be received by petitioners. Their expulsion was made pursuant
to the By-Laws of RHAI as shown by the testimony of Mildred de la Pea
(dela Pea), President.
There is nothing irregular when they were expelled for non-payment of
dues and for non-attendance of meetings. This is expressly sanctioned by
the By-Laws of RHAI.
Like any other organization, plaintiff-appellee association has to set certain
rules and regulations. The evidence adduced in the court a quo by the
plaintiff-appellee association proved that the defendants-appellants failed
to pay their membership fees and other reasonable fees. A perusal of the
by-laws of the plaintiff-appellee association reveals that a member is only

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required to pay a membership fee of P100.00 to be paid every fiscal year

and a monthly maintenance fee in the amount of P10.00.
SAN JUAN STRUCTURAL & STEEL v. CA
The court a quo was correct in holding that defendants-appellants were
deemed expelled from their membership of the plaintiff-appellee
association because of their irrational failure to obey the rules and
regulations of the latter. The defendants-appellants likewise refused to
acknowledge and sign the Lease Purchase Agreement (LPA) as required by
the NHMFC. Because of the defendants-appellants refusal to be members
in good standing of the plaintiff-appellee corporation, they remained
squatters of the subject land in the true sense of the word. As such, their
possession is only by tolerance of the plaintiff-appellee association, and
the latter can recover possession of the subject land as the lawful owner
thereof. Squatting is unlawful and no amount of acquiescence converts it
into a lawful act.
Apparently, petitioners refusal to sign and submit the LPA, the most
important requirement of the NHMFC for the acquisition of the land,
disqualified them as loan beneficiaries. As such, they acquire no better
rights than mere occupants of the subject land.
Petitioners must be reminded that they have to comply with certain
requirements and obligations to qualify as beneficiaries and be entitled to
the benefits under the program. Their unreasonable refusal to join RHAI
and their negative response to comply with their obligations compelled
RHAI to either expel them or declare them as non-members of the
association. Petitioners cannot now claim that they were denied the right
to own the portions of land they were occupying for their homes under the
CMP.

FACTS:
San Juan Structural and Steel Fabricators, Inc.'s amended complaint
alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the
transfer to it of a parcel of land. On March 1, 1989. Mr. Andres T. Co,
president of plaintiff-appellant corporation, wrote a letter to defendantappellee Motorich Sales Corporation requesting for a computation of the
balance to be paid: that said letter was coursed through defendantappellee's broker. Linda Aduca, who wrote the computation of the balance:
that on March 2, 1989, plaintiff-appellant was ready with the amount
corresponding to the balance, covered by Metrobank Cashier's Check No.
004223, payable to defendant-appellee Motorich Sales Corporation; that
plaintiff-appellant and defendant-appellee Motorich Sales Corporation were
supposed to meet in the office of plaintiff-appellant but defendantappellee's treasurer, Nenita Lee Gruenberg, did not appear; that
defendant-appellee Motorich Sales Corporation 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.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate fiction be
applied to Motorich.
RULING:
NO. First, petitioner itself concedes having raised the issue belatedly, not
having done so during the trial, but only when it filed its sur-rejoinder
before the Court of Appeals. Thus, this Court cannot entertain said issue at
this late stage of the proceedings. It is well-settled the points of law,
theories and arguments not brought to the attention of the trial court need
not be, and ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first time on appeal. Allowing petitioner to change
horses in midstream, as it were, is to run roughshod over the basic
principles of fair play, justice and due process.

12

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Second, even if the above mentioned argument were to be addressed at

this time, the Court still finds no reason to uphold it. True, one of the
advantages of a corporate form of business organization is the limitation of
an investor's liability to the amount of the investment. This feature flows
from the legal theory that a corporate entity is separate and distinct from
its stockholders. However, the statutorily granted privilege of a corporate
veil may be used only for legitimate purposes. On equitable considerations,
the veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity; defeat public convenience; confuse legitimate issues;
or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation.
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.
Facts:
Manuel R. Dulay Enterprises, Inc. (MDEI), a domestic corporation with the
following as members of its Board of Directors: Manuel R. Dulay,
designated as president, treasurer and general manager, Atty. Virgilio E.
Dulay, designated as vice-president; Linda E. Dulay; Celia Dulay-Mendoza;
and Atty. Plaridel C. Jose, designated as secretary, owned a property and
known as Dulay Apartment consisting of 16 apartment units.
MDEI through its president, Manuel Dulay, obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick
Hotel). It even had to borrow money from Virgilio Dulay to be able to
continue the hotel project. As a result of said loan, Virgilio Dulay occupied
one of the unit apartments of the subject property while at the same time
managing the Dulay Apartment at his shareholdings in the corporation was
subsequently increased by his father.
Manuel Dulay by virtue of Board Resolution of MDEI sold the subject
property to spouses Maria Theresa and Castrense Veloso. Subsequently,
Manuel Dulay and spouses Veloso executed a Memorandum to the Deed of
Absolute Sale giving Manuel Dulay within (2) years to repurchase the
subject property.
Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the
subject property to Manuel A. Torres for a loan. Upon the failure of Maria
Veloso to pay Torres, the subject property was sold to Torres as the highest
bidder in an extrajudicial foreclosure sale. Maria Veloso executed a Deed of

13

Absolute Assignment of the Right to Redeem in favor of Manuel Dulay

assigning her right to repurchase the subject property from Torres as a
result of the extra sale held. As neither Maria Veloso nor her assignee
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.
Torres filed a petition for the issuance of a writ of possession against
spouses Veloso and Manuel Dulay. However, when Virgilio Dulay was never
authorized by the MDEI to sell or mortgage the subject property, the trial
court ordered Torres to implead MDEI as an indispensable party but the
latter moved for the dismissal of his petition which was granted.
Torres and Edgardo Pabalan, real estate administrator of Torres, filed an
action against MDEI, Virgilio Dulay and Nepomuceno Redovan, a tenant of
Dulay Apartment for the recovery of possession, sum of money and
damages.
MDEI filed an action against spouses Veloso and Torres for the cancellation
of the Certificate of Sheriff's Sale.
Pabalan and Torres filed an action against spouses Florentino and Elvira
Manalastas, a tenant of Dulay Apartment Unit, with MDEI as intervenor for
ejectment which was granted by the MTC of Pasay City.
MDEI and Virgilio Dulay filed an action against the presiding judge of the
MTC of Pasay City, Pabalan and Torres for the annulment of said decision
with the RTC of Pasay City.
Thereafter, the three (3) cases were jointly tried and the trial court
rendered a decision in favor of Pabalan and Torres. CA, affirmed. Hence,
this petition.
Issue:
Whether or not MDEI 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. Yes
Ruling:
MDEI 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 which, in his case,
petitioner Virgilio Dulay failed to do.

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It is relevant to note that although a corporation is an entity which has a

personality distinct and separate from its individual stockholders or
members, 19 the veil of corporate fiction may be pierced when it is used to
defeat public convenience justify wrong, protect fraud or defend
crime. 20 The privilege of being treated as an entity distinct and separate
from its stockholder or members is therefore confined to its legitimate uses
and is subject to certain limitations to prevent the commission of fraud or
other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation as
the act of that person. 21 The Supreme Court had repeatedly disregarded
the separate personality of the corporation where the corporate entity was
used to annul a valid contract executed by one of its members.

14

Besides, the fact that Virgilio Dulay executed an affidavit that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale
of the subject property in favor of Torres indicates that he was aware of the
transaction executed between his father and private respondents and had,
therefore, adequate knowledge about the sale of the subject property to
private respondents.
Petition, denied.

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