Abejo vs.

dela Cruz
MAIN POINT: It did not require the registration of the transfer before considering the transferee a stockholder of the corporation.
Transferee held definite and uncontested titles to a specific number of shares of the corporation; after the transferee has established
prima facie ownership over the shares of stocks in question, registration became a mere formality in confirming their status as
stockholders.
These two cases, jointly heard, are jointly herein decided. They involve the question of who, between the Regional Trial Court and the
Securities and Exchange Commission (SEC), has original and exclusive jurisdiction over the dispute between the principal
stockholders of the corporation Pocket Bell Philippines, Inc. (Pocket Bell), a "tone and voice paging corporation," namely, the spouses
Jose Abejo and Aurora Abejo (hereinafter referred to as the Abejos) and the purchaser, Telectronic Systems, Inc. (hereinafter referred
to as Telectronics) of their 133,000 minority shareholdings (for P5 million) and of 63,000 shares registered in the name of Virginia
Braga and covered by five stock certificates endorsed in blank by her (for P1,674,450.00), and the spouses Agapito Braga and Virginia
Braga (hereinafter referred to as the Bragas), erstwhile majority stockholders. With the said purchases, Telectronics would become the
majority stockholder, holding 56% of the outstanding stock and voting power of the corporation Pocket Bell.
With the said purchases in 1982, Telectronics requested the corporate secretary of the corporation, Norberto Braga, to register and
transfer to its name, and those of its nominees the total 196,000 Pocket Bell shares in the corporation's transfer book, cancel the
surrendered certificates of stock and issue the corresponding new certificates of stock in its name and those of its nominees.
Norberto Braga, the corporate secretary and son of the Bragas, refused to register the aforesaid transfer of shares in t e corporate oo s,
asserting that the Bragas claim preemptive rights over the 133,000 Abejo shares and that Virginia Braga never transferred her 63,000
shares to Telectronics but had lost the five stock certificates representing those shares.
This triggered off the series of intertwined actions between the protagonists, all centered on the question of jurisdiction over the
dispute, which were to culminate in the filing of the two cases at bar.
The Bragas assert that the regular civil court has original and exclusive jurisdiction as against the Securities and Exchange
Commission, while the Abejos claim the contrary. A summary of the actions resorted to by the parties follows:
A. ABEJOS ACTIONS IN SEC
1. The Abejos and Telectronics and the latter's nominees, as new majority shareholders, filed SEC Cases Nos. 02379 and 02395
against the Bragas on December 17, 1982 and February 14, 1983, respectively.
2. In SEC Case No. 02379, they prayed for mandamus from the SEC ordering Norberto Braga, as corporate secretary of Pocket Bell to
register in their names the transfer and sale of the aforesaid 196,000 Pocket Bell shares (of the Abejos 1 and Virginia Braga 2, cancel
the surrendered certificates as duly endorsed and to issue new certificates in their names.
3. In SEC Case No.02395, they prayed for injunction and a temporary restraining order that the SEC enjoin the Bragas from
disbursing or disposing funds and assets of Pocket Bell and from performing such other acts pertaining to the functions of corporate
officers.
4. Pocket Bell's corporate secretary, Norberto Braga, filed a Motion to Dismiss the mandamus case (SEC Case No. 02379) contending
that the SEC has no jurisdiction over the nature of the action since it does not involve an intracorporate controversy between
stockholders, the principal petitioners therein, Telectronics, not being a stockholder of record of Pocket Bell.
5. On January 8, 1983, SEC Hearing Officer Joaquin Garaygay denied the motion. On January 14, 1983, the corporate secretary filed a
Motion for Reconsideration. On March 21, 1983, SEC Hearing Officer Joaquin Garaygay issued an order granting Braga's motion for
reconsideration and dismissed SEC Case No. 02379.
6. On February 11, 1983, the Bragas filed their Motion to Dismiss the injunction case, SEC Case No. 02395. On April 8, 1985, the
SEC Director, Eugenio Reyes, acting upon the Abejos'ex-parte motion, created a three-man committee composed of Atty. Emmanuel
Sison as Chairman and Attys. Alfredo Oca and Joaquin Garaygay as members, to hear and decide the two SEC cases (Nos. 02379 and
02395).
7. On April 13, 1983, the SEC three-man committee issued an order reconsidering the aforesaid order of March 21, 1983 of the SEC
Hearing Officer Garaygay (dismissing the mandamus petition SEC Case No. 02379) and directing corporate secretary Norberto Braga
to file his answer to the petitioner therein.
B. BRAGAS' ACTION IN SEC
8. On December 12, 1983, the Bragas filed a petition for certiorari, prohibition and mandamus with the SEC en banc, SEC Case No.
EB #049, seeking the dismissal of SEC Cases Nos.' 02379 and 02395 for lack of jurisdiction of the Comn-iission and the setting aside
of the various orders issued by the SEC three-man committee in the course of the proceedings in the two SEC cases.

9. On May 15, 1984, the SEC en banc issued an order dismissing the Bragas' petition in SEC Case No. EB#049 for lack of merit and
at the same time ordering the SEC Hearing Committee to continue with the hearings of the Abejos and Telectronics SEC Cases Nos.
02379 and 02395, ruhng that the "issue is not the ownership of shares but rather the nonperformance by the Corporate Secretary of the
ministerial duty of recording transfers of shares of stock of the corporation of which he is secretary."
10. On May 15, 1984 the Bragas filed a motion for reconsideration but the SEC en banc denied the same on August 9, 1984.
C. BRAGAS' ACTION IN CFI (NOWRTC)
11. On November 25, 1982, following the corporate secretary's refusal to register the transfer of the shares in question, the Bragas
filed a complaint against the Abejos and Telectronics in the Court of First Instance of Pasig, Branch 21 (now the Regional Trial Court,
Branch 160) docketed as Civil Case No. 48746 for: (a) rescission and annulment of the sale of the shares of stock in Pocket Bell made
by the Abejos in favor of Telectronics on the ground that it violated the Bragas' alleged pre-emptive right over the Abej os'
shareholdings and an alleged perfected contract with the Abejos to sell the same shares in their (Bragas) favor, (Ist cause of
action); plus damages for bad faith; and (b) declaration ofnullity of any transfer, assignment or endorsement of Virginia Bragas' stock
certificates for 63,000 shares in Pocket Ben to Telectronics for want of consent and consideration, alleging that said stock certificates,
which were intended as security for a loan application and were thus endorsed by her in blank, had been lost (2nd cause of action).
12. On January 4, 1983, the Abejos filed a Motion to Dismiss the complaint on the ground that it is the SEC that is vested under PD
902-A with original and exclusive jurisdiction to hear and decide cases involving, among others, controversies "between and among
stockholders" and that the Bragas' suit is such a controversy as the issues involved therein are the stockholders' alleged pre-emptive
rights, the validity of the transfer and endorsement of certificates of stock, the election of corporate officers and the management and
control of the corporation's operations. The dismissal motion was granted by Presiding Judge G. Pineda on January 14, 1983.
13. On January 24, 1983, the Bragas filed a motion for reconsideration. The Abejos opposed. Meanwhile, respondent Judge Rafael de
la Cruz was appointed presiding judge of the court (renamed Regional Trial Court) in place of Judge G. Pineda.
14. On February 14, 1983, respondent Judge de la Cruz issued an order rescinding the January 14, 1983 order and reviving the
temporary restraining order previously issued on December 23, 1982 restraining Telectronics' agents or representatives from enforcing
their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming control of the corporation and
discharging their functions.
15. On March 2, 1983, the Abejos filed a motion for reconsideration, which motion was duly opposed by the Bragas. On March 11,
1983, respondent Judge denied the motion for reconsideration.
D. ABEJOS' PETITION AT BAR
16. On March 26, 1983, the Abejos, alleging that the acts of respondent Judge in refusing to dismiss the complaint despite clear lack of
jurisdiction over the action and in refusing to reconsider his erroneous position were performed without jurisdiction and with grave
abuse of discretion, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction. They prayed that the
challenged orders of respondent Judge dated February 14, 1983 and March 11, 1983 be set aside for lack of jurisdiction and that he be
ordered to permanently desist from further proceedings in Civil Case No. 48746. Respondent judge desisted from further proceedings
in the case, dispensing with the need of issuing any restraining order.
E. BRAGAS' PETITION AT BAR
17. On August 29, 1984, the Bragas, alleging in turn that the SEC has no jurisdiction over SEC Cases Nos. 02379 and 02395 and that
it acted arbitrarily, whimsically and capriciously in dismissing their petition (in SEC Case No. EB #049) for dismissal of the said
cases, filed their herein Petition for certiorari and Prohibition with Preliminary Injunction or TRO. The petitioner seeks the reversal
and/or setting aside of the SEC Order dated May 15, 1984 dismissing their petition in said SEC Case No. EB #049 and sustaining its
jurisdiction over SEC Cases Nos. 02379 and 02395, filed by the Abejos. On September 24, 1984, this Court issued a temporary
restraining order to maintain the status quo and restrained the SEC and/or any of its officers or hearing committees from further
proceeding with the hearings in SEC Cases Nos. 02379 and 02395 and from enforcing any and all orders and/or resolutions issued in
connection with the said cases.
The cases, having been given due course, were jointly heard by the Court on March 27, 1985 and the parties thereafter filed on April
16, 1985 their respective memoranda in amplification of oral argument on the points of law that were crystalled during the hearing,
The Court rules that the SEC has original and exclusive jurisdiction over the dispute between the principal stockholders of the
corporation Pocket Bell, namely, the Abejos and
Telectronics, the purchasers of the 56% majority stock (supra, at page 2) on the one hand, and the Bragas, erstwhile majority
stockholders, on the other, and that the SEC, through its en banc Resolution of May 15, 1984 co"ectly ruled in dismissing the Bragas'

Petition questioning its jurisdiction, that "the issue is not the ownership of shares but rather the nonperformance by the Corporate
Secretary of the ministerial duty of recording transfers of shares of stock of the Corporation of which he is secretary."
1. The SEC ruling upholding its primary and exclusive jurisdiction over the dispute is correctly premised on, and fully supported by,
the applicable provisions of P.D. No. 902-A which reorganized the SEC with additional powers "in line with the government's policy
of encouraging investments, both domestic and foreign, and more active publicParticipation in the affairs of private corporations and
enterprises through which desirable activities may be pursued for the promotion of economic development; and, to promote a wider
and more meaningful equitable distribution of wealth," and accordingly provided that:
SEC. 3. The Commission shall have absolute jurisdiction, supervision and control ouer all
corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit
issued by the government to operate in the Philippines; ...
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
a) Devices or schemes employed by or any acts, of the board of directors, business associations, its
officers or partners, amounting to fruud and misrepresentation which may be detrimental to the
interest of the public andlor of the stockholder, partners, members of associations or organizations
registered with the Commission.
b) Controversies arising out of intracorporate or partnership relations, between and among
stockholders, members, or associates; between any andlor all of them and the
corporation, partnership or association of which they are stockholders, members or assmiates,
respectively; and between such corporation, partnership or assmiation and the state insofar as it
concems their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors, trustees, officers ormanagers of such
corporations, partnerships or associations. 3
Section 6 further grants the SEC "in order to effectively exercise such jurisdiction," the power, inter alia, "to issue preliminary or
permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and in which cases the pertinent
provisions of the Rules of Court shall apply."
2. Basically and indubitably, the dispute at bar, as held by the SEC, is an intracorporate dispute that has arisen between and among the
principal stockholders of the corporation Pocket Bell due to the refusal of the corporate secretary, backed up by his parents as
erstwhile majority shareholders, to perform his "ministerial duty" to record the transfers of the corporation's controlling (56%) shares
of stock, covered by duly endorsed certificates of stock, in favor of Telectronics as the purchaser thereof. mandamus in the SEC to
compel the corporate secretary to register the transfers and issue new certificates in favor of Telectronics and its nominees was
properly resorted to under Rule XXI, Section 1 of the SEC's New Rules of Procedure, 4 which provides for the filing of such petitions
with the SEC. Section 3 of said Rules further authorizes the SEC to "issue orders expediting the proceedings ... and also [to] grant a
preliminary injunction for the preservation of the rights of the parties pending such proceedings, "
The claims of the Bragas, which they assert in their complaint in the Regional Trial Court, praying for rescission and annulment of the
sale made by the Abejos in favor of Telectronics on the ground that they had an alleged perfected preemptive right over the Abejos'
shares as well as for annulment of sale to Telectronics of Virginia Braga's shares covered by street certificates duly endorsed by her in
blank, may in no way deprive the SEC of its primary and exclusive jurisdiction to grant or not the writ of mandamus ordering the
registration of the shares so transferred. The Bragas' contention that the question of ordering the recording of the transfers ultimately
hinges on the question of ownership or right thereto over the shares notwithstanding, the jurisdiction over the dispute is clearly vested
in the SEC.
3. The very complaint of the Bragas for annulment of the sales and transfers as filed by them in the regular court questions the validity
of the transfer and endorsement of the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos' shares and
alleged loss of thio certificates and lack of consent and consideration in the case of Virginia Braga's shares. Such dispute c learly
involve's controversies "between and among stockholders, " as to the Abej os' right to sell and dispose of their shares to Telectronics,
the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and the Abejos' transferee should be
recognized as the controlling shareholders of the corporation, with the right to elect the corporate officers and the management and
control of its operations. Such a dispute and case clearly fag within the original and exclusive jurisdiction of the SEC to decide, under
Section 5 of P.D. 902-A, above-quoted. The restraining order issued by the Regional Trial Court restraining Telectronics agents and
representatives from enforcing their resolution constituting themselves as the new set of officers of Pocket Bell and from assuming
control of the corporation and discharging their functions patently encroached upon the SEC's exclusive jurisdiction over such
specialized corporate controversies calling for its special competence. As stressed by the Solicitor General on behalf of the SEC, the
Court has held that "Nowhere does the law [PD 902-A] empower any Court of First Instance [now Regional Trial Court] to interfere

with the orders of the Commission," 5 and consequently "any ruling by the trial court on the issue of ownership of the shares of stock
is not binding on the Commission 6 for want of jurisdiction.
4. The dispute therefore clearly falls within the general classification of cases within the SEC's original and exclusive jurisdiction to
hear and decide, under the aforequoted governing section 5 of the law. Insofar as the Bragas and their corporate secretary's refusal on
behalf of the corporation Pocket Bell to record the transfer of the 56% majority shares to Telectronics may be deemed a device or
scheme amounting to fraud and misrepresentation emplolyed by them to keep themselves in control of the corporation to the detriment
of Telectronics (as buyer and substantial investor in the corporate stock) and the Abejos (as substantial stockholders-sellers), the case
falls under paragraph (a). The dispute is likewise an intra-corporate controversy between and among the majority and minority
stockholders as to the transfer and disposition of the controlling shares of the corporation, failing under paragraph (b). As stressed by
the Court in DMRC Enterprises v. Este del Sol Mountain Reserve, Inc, 7 Considering the announced policy of PD 902-A, the expanded
jurisdiction of the respondent Securities and Exchange Commission under said decree extends exclusively to matters arising from
contracts involving investments in private corporations, partnerships and associations." The dispute also concerns the fundamental
issue ofwhether the Bragas or Telectronics have the right to elect the corporate directors and officers and manage its business and
operations, which falls under paragraph (c).
5. Most of the cases that have come to this Court involve those under paragraph (b), i.e. whether the controversy is an intra-corporate
one, arising "between and among stockholders" or "between any or allof them and the corporation." The parties have focused their
arguments on this question. The Bragas' contention in his field must likewise fail. In Philex Mining Corp. v. Reyes, 8 the Court spelled
out that"'an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no distinction,
qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and
corporations. The issue of whether or not a corporation is bound to replace a stockholder's lost certificate of stock is a matter purely
between a stockholder and the corporation. It is a typical intra-corporate dispute. The quqsjion of damage's raised is merely incidental
to that main issue. The Court rejected the stockholders' theory of excluding his complaint (for replacement of a lost stock [dividend]
certificate which he claimed to have never received) from the classification of intra-corporate controversies as one that "does not
square with the intent of the law, which is to segregate from the general jurisdiction of regular Courts controversies involving
corporations and their stockholders and to bring them to the SEC for exclusive resolution, in much the same way that labor disputes
are now brought to the Ministry-of Labor and Employment (MOLE) and the National Labor Relations Commission (NLRC), and not
to the Courts."
(a) The Bragas contend that Telectronics, as buyertransferee of the 56% majority shares is not a registered
stockholder, because they, through their son the corporate secretary, appear to have refused to perform "the
ministerial duty of recording transfers of shares of stock of the corporation of which he is the secretary," and that the
dispute is therefore, not an intracorporate one. This contention begs the question which must properly be resolved by
the SEC, but which they would prevent by their own act, through their son, of blocking the due recording of the
transfer and cannot be sanctioned. It can be seen from their very complaint in the regular courts that they with their
two sons constituting the plaintiffs are all stockholders while the defendants are the Abejos who are also
stockholders whose sale of the shares to Telectronics they would annul.
(b) There can be no question that the dispute between the Abejos and the Bragas as to the sale and transfer of the
former's shares to Telectronics for P5 million is an intracorporate one under section 5 (b), prescinding from the
applicability of section 5 (a) and (c), (supra, par. 4) lt is the SEC which must resolve the Bragas' claim in their own
complaint in the court case filed by them of an alleged pre-emptive right to buy the Abejos' shares by virtue of "ongoing negotiations," which they may submit as their defense to the mandamus petition to register the sale of the
shares to Telectronics. But asserting such preemptive rights and asking that the same be enforced is a far cry from
the Bragas' claim that "the case relates to questions of ownership" over the shares in question. 9 (Not to mention, as
pointed out by the Abejos, that the corporation is not a close corporation, and no restriction over the free
transferability of the shares appears in the Articles of Incorporation, as well as in the by-laws 10 and the certificates
of stock themselves, as required by law for the enforcement of such restriction. See Go Soc & Sons, etc. v. IAC,
G.R. No. 72342, Resolution of February 19, 1987.)
(c) The dispute between the Bragas and Telectronics as to the sale and transfer for P1,674,450.00 of Virginia Braga's
63.000 shares covered by Street certificates duly endorsed in blank by her is within the special competence and
jurisdiction of the SEC, dealing as it does with the free transferability of corporate shares, particularly street
certificates," as guaranteed by the Corporation Code and its proclaimed policy of encouraging foreign and domestic
investments in Philippine private corpora. tions and more active public participation therein for the Promotion of
economic development. Here again, Virginia Braga's claim of loss of her street certificates 11 or theft thereof
(denounced by Telectronics as 11 perjurious" 12 ) must be pleaded by her as a defense against Telectronics'petition
for mandamus and recognition now as the controlling stockholder of the corporation in the light of the joint affidavit
of Geneml Cerefino S. Carreon of the National Telecommunications Commission and private respondent Jose Luis
Santiago of Telectronics narrating the facts and circumstances of how the former sold and delivered to Telectronics
on behalf of his compadres, the Bragas, Virginia Braga's street certificates for 63,000 shares equivalent to 18% of
the corporation's outstanding stock and received the cash price thereof. 13 But as to the sale and transfer of the
Abejos' shares, the Bragas cannot oust the SEC of its original and exclusive jurisdiction to hear and decide the case,
by blocking through the corporate secretary, their son, the due recording of the transfer and sale of the shares in

question and claiming that Telectronics is not a stockholder of the corporation which is the very issue that the SEC
is called upon to resolve. As the SEC maintains, "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." 14 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 purchaser's 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 regular court procedure. Furthermore, as stated in
the SEC order of April 13, 1983, notice given to the corporation of the sale of the shares and presentation of the
certificates for transfer is ,equivalent to registration: "Whether the refusal of the (corporation) to effect the same is
ivalid or not is still subject to the outcome of the hearing on the merits of the case. 15
6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to
resolve specialized disputes in the field of labor (as in corporations, public transportation and public utilities) ruled that Congress in
requiring the Industrial Court's intervention in the resolution of labor-management controversies likely to cause strikes or lockouts
meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making
and expeditious doctrine of primary jurisdiction ... the courts cannot or will n6t determine a controversy involving a question which is
within the jurisdiction of an administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience, and seruices of the administratiue tribunal to determine technical and intricate matters
of fact, and a uniformity of ruling is essential to comply uith the purposes of the regulatory statute administered " 16
In this era of clogged court dockets, the need for specialized administrative boards or commissions with the special knowledge,
experience and capability to hear and determine promptly disputes on technical matters or essentially factual matters, subject to
judicial review in case of grave abuse of discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between
the power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the former. 'Increasingly, this
Court has been committed to the view that unless the law speaks clearly and unequivocably, the choice should fall on [an
administrative agency.]' " 17 The Court in the earlier case of Ebon vs. De Guzman 18 noted that the lawmaking authority, in restoring
to the labor arbiters and the NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D.
amendment splitting their jurisdiction with the regular courts, "evidently ... had second thoughts about depriving the Labor Arbiters
and the NLRC of the jurisdiction to award damages in labor cases because that setup would mean duplicity of suits, splitting the cause
of action and possible conflicting findings and conclusions by two tribunals on one and the same claim."
7. Thus, the Corporation Code (B.P. No. 178) enacted on May 1, 1980 specifically vests the SEC with the Rule-making power in the
discharge of its task of implementing the provisions of the Code and particularly charges it with the duty of preventing fraud and
abuses on the part of controlling stockholders, directors and officers, as follows:
SEC. 143. Rule-making power of the Securities and Exchange Commission. The Securities and Exchange
Commission shall have the power and authority to implement the provisions of this Code, and to promulgate rules
and regulations reasonably necessary to enable it to perform its duties hereunder, particularly in the prevention of
fraud and abuses on the part of the controlling stockholders, members, directors, trustees or officers. (Emphasis
supplied)
The dispute between the contending parties for control of thecorporation manifestly fans within the primary and exclusive jurisdiction
of the SEC in whom the law has reserved such jurisdiction as an administrative agency of special competence to deal promptly and
expeditiously therewith.
As the Court stressed in Union Glass & Container Corp. v. SEC, 19 "This grant of jurisdiction [in Section 51 must be viewed in the
light of the nature and functions of the SEC under the law. Section 3 of PD No. 902-A confers upon the latter 'absolute jurisdiction,
supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or
permit issued by the government to operate in the Philippines ... The principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected,
and their activities pursued for the promotion of economic development.
"It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delin-dted its
jurisdiction to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with
the internal affairs of such corporations, partnerships or associations.
"Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following
relationships: [al 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 in
so far as its franchise, permit or license to operate is concerned; and Id] among the stockholders, partners or associates themselves." 20
Parenthetically, the cited case of Union Glass illustrates by way of contrast what disputes do not fall within the special jurisdiction of
the SEC. In this case, the SEC had properly assumed jurisdiction over the dissenting stockholders' com. Plaint against the corporation

Pioneer Glass questioning its dacion en pago of its glass plant and all its assets in favor of the DBP which was clearly an intracorporate controversy dealing with its internal affairs. But the Court held that the SEC had no jurisdiction over petitioner Union Glass
Corp., imPle,aded as third party purchaser of the plant from DBP in the action to annul the dacion en pago. The Court held that such
action for recovery of the glass plant could be brought by the dissenting stockholder to the regular courts only if and when the SE C
rendered final judgment annulling the dacion en pago and furthermore subject to Union Glass' defenses as a third party buyer in good
faith. Similarly, in the DMRC case, therein petitioner's,tomplaint for collection of the amounts due to it as payment of rentals for the
lease of its heavy equipment in the form mainly of cash and part in shares of stock of the debtor-defendant corporation was held to be
not covered by the SEC's exclusive jurisdiction over intracorporate disputes, since "to 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." 21 Such an action for collection of a debt
does not involve enforcement Of rights and obligations under the Corporation Code nor the in. temal or intracorporate affairs of the
debtor corporation. But in aR disputes affecting and dealing With the interests of the corporation and its stockholders, following the
trend and clear legislative intent of entmsting all disputes of a specialized nature to administrative agencies possessing. the requisite
competence, special knowledge, experience and services and facilities to expeditiously resolve them and determine the essential facts
including technical and intricate matters, as in labor and public utilities rates disputes, the SEC has been given "the original and
exclusive jurisdiction to hear anddecide" them (under section 5 of P.D. 902-A) "in addition to [its] regulatory and adjudicative
functions" (under Section 3, vesting in it "absolute jurisdiction, supervision and control over all corporations" and the Rule-making
power granted it in Section 143 of the Corporation Code, supra). As stressed by the Court in the Philex case, supra, "(T)here is no
distinction, qualification, nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between
stockholders and corporations."
It only remains now to deal with the Order dated April 15, 1983 (Annex H, Petition) 22 of the SEC's three-member Hearing Conunittee
granting Telectronics' motion for creation of a receivership or management committee with the ample powers therein enumerated for
the preservation pendente lite of the corporation's assets and in discharge of its "power and duty to preserve the rights of the parties,
the stockholders, the public availing of the corporation's services and the rights of creditors," as well as "for reasons of equity and
justice ... (and) to prevent possible paralization of corporate business." The said Order has not been implemented notwithstanding its
having been upheld per the SEC en banc's Order of May 15, 1984 (Annex "V", Petition) dismissing for lack of merit the petition for
certiorari, prohibition and mandamus with prayer for restraining order or injunction filed by the Bragas seeking the disbandment of the
Hearing Committee and the setting aside of its Orders, and its Resolution of August 9, 1984, denying reconsideration (Annex "X",
Petition), due to the Bragas' filing of the petition at bar.
Prescinding from the great concern of damage and prejudice expressed by Telectronics due to the Bragas having remained in control
of the corporation and having allegedly committed acts of gross mismanagement and misapplication of funds, the Court finds that
under the facts and circumstances of record, it is but fair and just that the SEC's order creating a receivership committee be
implemented forthwith, in accordance with its terms, as follows:
The three-man receivership committee shall be composed of a representative from the commission, in the person of
the Director, Examiners and Appraisers Department or his designated representative, and a representative from the
petitioners and a representative of the respondent.
The petitioners and respondent are therefore directed to sub. mit to the Commission the name of their designated
representative within three (3) days from receipt of this order. The Conunission shall appoint the other
representatives if either or both parties fafl to comply with the requirement within the stated time.
ACCORDINGLY, judgment is hereby rendered:
(a) Granting the petition in G.R. No. 63558, annulling the challenged Orders of respondent Judge clated February
14, 1983 and March i 1, 1983 (Annexes "L" and "P" of the Abejos' petition) and prohibiting respondent Judge from
further proceeding in Civil Case No. 48746 filed in his Court other than to dismiss the same for lack or jurisdiction
over the subject-matter;
(b) Dismissing the petition in G.R. Nos. 68450-51 and lifting the temporary restraining order issued on September
24, 1984, effective immediately upon promulgation hereof,
(c) Directing the SEC through its Hearing Committee to proceed immediately with hearing and resolving the
pending mandamus petition for recording in the corporate books the transfer to Telectronics and its nominees of the
majority (56%) shares of stock of the corporation Pocket Bell pertaining to the Abejos and Virginia Braga and all
related issues, taking into consideration, without need of resubmittal to it, the pleadings, annexes and exhibits filed
by the contending parties in the cases at bar; and
(d) Likewise directing the SEC through its Hearing Committee to proceed immediately with the implementation of
its receivership or management committee Order of April 15, 1983 in SEC Case No. 2379 and for the purpose, the
contending parties are ordered to submit to said Hearing Committee the name of their designated representatives in
the receivership/management committee within three (3) days from receipt of this decision, on pain of forfeiture of
such right in case of failure to comply herewith, as provided in the said Order; and ordering theBragas to perform

only caretaker acts in the corporation pending the organization of such receivership/management committee and
assumption of its functions.
This decision shall be immediately executory upon its promulgation.
SO ORDERED.

Pioneer Insurance vs. CA (175 SCRA 668)

MAIN POINT: Where persons associate themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se,
and their rights as members of the company to the property acquired by the company will be recognized. However, such a relation
does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their
purpose is that no partnership shall exist, and it should be implied only when necessary to do justice between the parties; thus, one
who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner
with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution.

FACTS: Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced Constancio Maglana,
Modesto Cervantes, Francisco Cervantes, and Border Machinery and Heavy Equipment Company (BORMAHECO) to contribute
funds and to buy two aircrafts which would form part a corporation which will be the expansion of Southern Air Lines. Maglana et al
then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge of Maglana et al, made an
agreement with Pioneer Insurance for the latter to insure the two aircrafts which were brought in installment from Japan Domestic
Airlines (JDA) using said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were foreclosed by Pioneer
Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
RULING: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business through a corporation but
failed to incorporate, a de facto partnership would have been formed, and as such, all must share in the losses and/or gains of the
venture in proportion to their contribution. But in this case, it was shown that Lim did not have the intent to form a corporation with
Maglana et al. This can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and not using the funds he got
from Maglana et al. The record shows that Lim was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.

Zuellig Freight and Cargo Systems vs. NLRC (701 SCRA 561)
MAIN POINT: The mere change = in the corporate name is not considered under the law as the creation of a new corporation; hence,
the renamed corporation remains liable for the illegal dismissal of its employee separated under that guise. Verily, the amendments of
the articles of incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo Systems, Inc. did not produce the
dissolution of the former as a corporation.
PRIVATE respondent Ronaldo V. San Miguel was employed as a checker/customs representative of Zeta Brokerage Corp. (Zeta) since
Dec. 15, 1985. In January 1994, he and other employees of Zeta were informed that Zeta would cease operations and that all affected
employees, including him, would be separated from the service effective March 31, 1994. He reluctantly accepted separation pay
subject to the outstanding offer to be hired for his former position by the petitioner. Petitioner Zuellig Freight and Cargo Systems
contended that San Miguel is termination from Zeta had been for a cause authorized by the Labor Code. Zeta, its predecessor-ininterest, had complied with the requirements for termination due to the cessation of business operations.
Did this contention find merit?
The Supreme Court ruling: No. The unanimous conclusions of the Court of Appeals (CA), the National Labor Relations Commission
(NLRC) and the Labor Arbiter, being in accord with law, were not tainted with any abuse of discretion, least of all grave, on the part of
the NLRC. The amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo
Systems, Inc. did not produce the dissolution of the former as a corporation. For sure, the Corporation Code defined and delineated the
different modes of dissolving a corporation, and amendment of the articles of incorporation was not one of such modes. The effect of
the change of name was not a change of the corporate being, for, as well stated in Philippine First Insurance Co., Inc. v. Hartigan, No.
L-86370, July 31, 1970, 34 SCRA 252, 266, citing Pacific Bank v. De Ro, 37 Cal. 538: The changing of the name of a corporation
is no more the creation of a corporation than the changing of the name of a natural person is begetting of a natural person. The act, in
both cases, would seem to be what the language which we use to designate it imports a change of name, and not a change of
being. x x x In short, Zeta and petitioner remained one and the same corporation. The change of name did not give petitioner the
license to terminate employees of Zuellig like San Miguel without just or authorized cause. The situation was not similar to that of an
enterprise buying the business of another company where the purchasing company had no obligation to rehire terminated employees
of the latter. Petitioner, despite its new name, was the mere continuation of Zuellig is corporate being, and still held the obligation to
honor all of Zuellig is obligations, one of which was to respect San Miguel is security of tenure. The dismissal of San Miguel from

employment on the pretext that petitioner, being a different corporation, had no obligation to accept him as its employee, was illegal
and ineffectual
Salvatierra vs. Garlitos
In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc. (PFPC). PFPC was
represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land to PFPC in exchange of rental
payments plus shares from the sales of crops. However, PFPC failed to comply with its obligations and so in 1955, Manuela sued
PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against
Refuerzos property (there being no property under PFPC). Refuerzo moved for reconsideration on the ground that he should not be
held personally liable because he merely signed the lease contract in his official capacity as president of PFPC. Garlitos granted
Refuerzos motion.
Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she initially
believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was not actually registered with the
Securities and Exchange Commission (SEC) hence Refuerzo should be personally liable.
ISSUE: Whether or not Manuela is correct.
HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its incorporators and as such
the incorporators cannot be held personally liable for the obligations of the corporation. However, this doctrine is not applicable to
unincorporated associations. The reason behind this doctrine is obvious-since an organization which before the law is non-existent has
no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law;
it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability
cannot be limited or restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a corporation which he
knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such
transaction.

This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of the Court of First Instance of
Leyte in Civil Case No. 1912, dated March 21, 1956, relieving Segundino Refuerzo of liability for the contract entered into between
the former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of the case are as follows:
Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Teyte. On
March 7, 1954, said landholder entered into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation
"duly organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte, Philippines, and with business address
therein, represented in this instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said contract, among other
things, that the lifetime of the lease would be for a period of 10 years; that the land would be planted to kenaf, ramie or other crops
suitable to the soil; that the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any, crop without
being responsible for the cost of production thereof; and that after every harvest, the lessee was bound to declare at the earliest
possible time the income derived therefrom and to deliver the corresponding share due the lessor.
Apparently, the aforementioned obligations imposed on the alleged corporation were not complied with because on April 5, 1955,
Alanuela T. Vda, de Salvatierra filed with the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers Co.,
Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil Case No. 1912). She averred that sometime in April,
1954, defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of the commencement of the action,
already harvested, processed and sold by defendants; that notwithstanding that fact, defendants refused to render an accounting of the
income derived therefrom and to deliver the lessor's share; that the estimated gross income was P4,500, and the deductible expenses
amounted to P1,000; that as defendants' refusal to undertake such task was in violation of the terms of the covenant entered into
between the plaintiff and defendant corporation, a rescission was but proper.
As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified, the Court declared them in
default and proceeded to receive plaintiff's evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer,
and required defendants to render a complete accounting of the harvest of the land subject of the proceeding within 15 days from
receipt of the decision and to deliver 30 per cent of the net income realized from the last harvest to plaintiff, with legal interest from
the date defendants received payment for said crop. It was further provide that upon defendants' failure to abide by the said
requirement, the gross income would be fixed at P4,200 or a net income of P3,200 after deducting the expenses for production, 30 per
cent of which or P960 was held to be due the plaintiff pursuant to the aforementioned contract of lease, which was declared rescinded.
No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of
execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of
Segundino Refuerzo. No property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On January 31,

1956, defendant Segundino Refuerzo filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null and void
with respect to him, there being no allegation in the complaint pointing to his personal liability and thus prayed that an order be issued
limiting such liability to defendant corporation. Over plaintiff's opposition, the Court a quo granted the same and ordered the
Provincial Sheriff of Leyte to release all properties belonging to the movant that might have already been attached, after finding that
the evidence on record made no mention or referred to any fact which might hold movant personally liable therein. As plaintiff's
petition for relief from said order was denied, Manuela T. Vda. de Salvatierra instituted the instant action asserting that the trial Judge
in issuing the order complained of, acted with grave abuse of discretion and prayed that same be declared a nullity.
From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by tile respondent Judge upon motion
of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the
period within which such a motion may be filed, prescribes that:
SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition provided for in either of the
preceding sections of this rule must be verified, filed within sixty days after the petitioner learns of the judgment, order, or
other proceeding to be set aside, and not more than six months after such judgment or order was entered, or such proceeding
was taken; and must be must be accompanied with affidavit showing the fraud, accident, mistake, or excusable negligence
relied upon, and the facts constituting the petitioner is good and substantial cause of action or defense, as the case may be,
which he may prove if his petition be granted". (Rule 38)
The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment, and not more than 6 months after the
judgment or order was rendered, both of which must be satisfied. As the decision in the case at bar was under date of June 8, 1955,
whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the lapse of 7 months and 23 days, the filing of
the aforementioned motion was clearly made beyond the prescriptive period provided for by the rules. The remedy allowed by Rule 38
to a party adversely affected by a decision or order is certainly an alert of grace or benevolence intended to afford said litigant a
penultimate opportunity to protect his interest. Considering the nature of such relief and the purpose behind it, the periods fixed by
said rule are non-extendible and never interrupted; nor could it be subjected to any condition or contingency because it is of itself
devised to meet a condition or contingency (Palomares vs. Jimenez,* G.R. No. L-4513, January 31, 1952). On this score alone,
therefore, the petition for a writ of certiorari filed herein may be granted. However, taking note of the question presented by the
motion for relief involved herein, We deem it wise to delve in and pass upon the merit of the same.
Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the obligation imposed on defendant
Philippine Fibers Producers Co., Inc., interposed the defense that the complaint filed with the lower court contained no allegation
which would hold him liable personally, for while it was stated therein that he was a signatory to the lease contract, he did so in his
capacity as president of the corporation. And this allegation was found by the Court a quo to be supported by the records. Plaintiff on
the other hand tried to refute this averment by contending that her failure to specify defendant's personal liability was due to the fact
that all the time she was under the impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly
registered corporation as appearing in the contract, but a subsequent inquiry from the Securities and Exchange Commission yielded
otherwise. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence
as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, (Asia Banking
Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.;
vs. Steamship Pompey, 49 Phil., 117), yet this doctrine may not be held to be applicable where fraud takes a part in the said
transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had
no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the
contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such
corporation was duly organized in accordance with law.
There can be no question that a corporation with registered has a juridical personality separate and distinct from its component
members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even
if he should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420) and conversely, a stockholder or member cannot be
held personally liable for any financial obligation be, the corporation in excess of his unpaid subscription. But this rule is understood
to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association.
The reason behind this doctrine is obvious-since an organization which before the law is non-existent has no personality and would be
incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or
confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without
authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or
without a principal is himself regarded as the principal, possessed of all the rights and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and
comes personally liable for contracts entered into or for other acts performed as such, agent (Fay vs. Noble, 7 Cushing [Mass.] 188.
Cited in II Tolentino's Commercial Laws of the Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as president
of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the consummation of the lease
agreement by acting as its representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In
acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or
resultant rights, if any, arising out of such transaction.

Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this matter and ordering the Provincial
Sheriff of Leyte to release any and all properties of movant therein which might have been attached in the execution of such judgment,
is hereby set aside and nullified as if it had never been issued. With costs against respondent Segundino Refuerzo. It is so ordered.

Loyola Grand Villas Homeowners vs. CA (276 S 681)

May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section
46 of the Corporation Code, result in its automatic dissolution?
This is the issue raised in this petition for review on certiorari of the Decision[1] of the Court of Appeals affirming the decision of
the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners
Association (LGVHA) as the sole homeowners association in Loyola Grand Villas, a duly registered subdivision in Quezon City and
Marikina City that was owned and developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand
Villas Homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners
(South) Association Incorporated (the South Association).
LGVHAI was organized on February 8, 1983 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 HIGC, as the sole homeowners organization in
the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first
president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its
corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. [2] To the officers consternation,
they discovered that there were two other organizations within the subdivision the North Association and the South Association.
According to private respondents, a non-resident and Soliven himself, respectively headed these associations. They also discovered
that these associations had five (5) registered homeowners each who were also the incorporators, directors and officers thereof. None
of the members of the LGVHAI was listed as member of the North Association while three (3) members of LGVHAI were listed as
members of the South Association.[3] The North Association was registered with the HIGC on February 13, 1989 under Certificate of
Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted its by-laws on December 20, 1988.
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of
the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the
period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any
report on the associations activities. Apparently, this information resulted in the registration of the South Association with the HIGC
on July 27, 1989 covering Phases West I, East I and East 11. It filed its by-laws on July 26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation
of LGVHAIs certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates
of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of
LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC Hearing Officer
Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc., under Certificate of
Registration No. 04-197 as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and
declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North) Association, Inc. and Loyola Grand Villas
Homeowners (South) Association, Inc. as hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby
ordered to render an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc., all assets and records of the
Association now under his custody and possession.
The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the
Board[4] dismissed the appeal for lack of merit.
Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not LGVHAIs
failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of
LGVHAI. Second,whether or not two homeowners associations may be authorized by the HIGC in one sprawling subdivision.
However, in the Decision of August 23, 1994 being assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals
Board.
In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation commences to have
corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal. The requirement for the filing of by-laws under Section 46 of the Corporation Code within one

month from official notice of the issuance of the certificate of incorporation presupposes that it is already incorporated, although it
may file its by-laws with its articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals
said:
We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22, Corporation Code, or in any other provision of
the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the
corporation. While Section 46, in prescribing that by-laws must be adopted within the period prescribed therein, may be interpreted as
a mandatory provision, particularly because of the use of the word must, its meaning cannot be stretched to support the argument that
automatic dissolution results from non-compliance.
We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to adopt and file the bylaws within the required period. Thus, Section 46 and other related provisions of the Corporation Code are to be construed with
Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed
therein. Among the grounds stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125).
Such suspension or revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A refers
to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or suspend the
certificates of registration or homeowners associations. (Section 2 [a], E.O. 535, series 1979, transferred the powers and authorities of
the SEC over homeowners associations to the HIGC.)
We also do not agree with the petitioners interpretation that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and that
the latter is invalid because it contravenes the former. There is no basis for such interpretation considering that these two provisions
are not inconsistent with each other. They are, in fact, complementary to each other so that one cannot be considered as invalidating
the other.
The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it
continued to be the duly registered homeowners association in the Loyola Grand Villas. More importantly, the South Association did
not dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business within the period prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling [5] that the HIGC has the authority to order the holding of a
referendum to determine which of two contending associations should represent the entire community, village or subdivision.
Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for resolution the
first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAIs failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation.
Petitioner contends that, since Section 46 uses the word must with respect to the filing of by-laws, noncompliance therewith
would result in self-extinction either due to non-occurrence of a suspensive condition or the occurrence of a resolutory condition under
the hypothesis that (by) the issuance of the certificate of registration alone the corporate personality is deemed already formed. It
asserts that the Corporation Code provides for a gradation of violations of requirements. Hence, Section 22 mandates that the
corporation must be formally organized and should commence transactions within two years from date of incorporation. Otherwise,
the corporation would be deemed dissolved. On the other hand, if the corporation commences operations but becomes continuously
inoperative for five years, then it may be suspended or its corporate franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for non-filing
of the by-laws. However, it insists that no sanction need be provided because the mandatory nature of the provision is so clear that
there can be no doubt about its being an essential attribute of corporate birth. To petitioner, its submission is buttressed by the facts
that the period for compliance is spelled out distinctly; that the certification of the SEC/HIGC must show that the by-laws are not
inconsistent with the Code, and that a copy of the by-laws has to be attached to the articles of incorporation. Moreover, no sanction is
provided for because in the first place, no corporate identity has been completed. Petitioner asserts that non-provision for remedy or
sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence had yet evolved, and therefore, there
was no need to proclaim its demise.[6] In a bid to convince the Court of its arguments, petitioner stresses that:
x x x the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its compulsion is integrated
in its very essenceMUST is always enforceable by the inevitable consequence that is, OR ELSE. The use of the word MUST in Sec.
46 is no exception it means file the by-laws within one month after notice of issuance of certificate of registration OR ELSE. The OR
ELSE, though not specified, is inextricably a part of MUST. Do this or if you do not you are Kaput. The importance of the by-laws to
corporate existence compels such meaning for as decreed the by-laws is `the government of the corporation. Indeed, how can the
corporation do any lawful act as such without by-laws. Surely, no law is intended to create chaos.[7]
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does
not providesanctions for non-filing of by-laws. For the petitioner, it is not proper to assess the true meaning of Sec. 46 x x x on an
unauthorized provision on such matter contained in the said decree.

In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not mandatory. They
point to P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka
Bio v. Intermediate Appellate Court,[8] private respondents contend that Section 6(I) of that decree provides that non-filing of by-laws
is only a ground for suspension or revocation of the certificate of registration of corporations and, therefore, it may not result in
automatic dissolution of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which does not affect
the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the
corporate existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation under
its official seal. Consequently, even if the by-laws have not yet been filed, a corporation may be considered a de facto corporation. To
emphasize the fact the LGVHAI was registered as the sole homeowners association in the Loyola Grand Villas, private respondents
point out that membership in the LGVHAI was an unconditional restriction in the deeds of sale signed by lot buyers.
In its reply to private respondents comment on the petition, petitioner reiterates its argument that the word must in Section 46 of
the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied
to this case, this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and
regulations to implement the Corporation Code can rise above and change the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:
Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after receipt of official notice of
the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government
not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or of at least a majority of the members, in the case of non-stock corporations, shall
be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of
the corporation, subject to the stockholders or members voting for them and shall be kept in the principal office of the corporation,
subject to inspection of the stockholders or members during office hours; and a copy thereof, shall be filed with the Securities and
Exchange Commission which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case,
such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission,
together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the
by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking
institution, building and loan association, trust company, insurance company, public utility, educational institution or other special
corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that
such by-laws or amendments are in accordance with law.
As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and
import of the word must in this section. Ordinarily, the word must connotes an imperative act or operates to impose a duty which may
be enforced.[9] It is synonymous with ought which connotes compulsion or mandatoriness. [10] However, the word must in a statute, like
shall, is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to
interpret shall as the context or a reasonable construction of the statute in which it is used demands or requires. [11] This is equally true
as regards the word must.Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals
that the legislature intended to use the words shall and must to be directory, they should be given that meaning. [12]
In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must
immediately be filed within one month after the issuance? In other words, would this be mandatory or directory in
character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation
to file these by-laws within one month?
MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the
consequences of violations of any provision of this Code. One such consequence is the dissolution of the corporation
for its inability, or perhaps, incurring certain penalties.

MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing
to file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the mandatory
penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the
corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is
brought, one takes into account the gravity of the violation committed. If the by-laws were late the filing of the bylaws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are delayed over
a period of months as is happening now because of the absence of a clear requirement that by-laws must be completed
within a specified period of time, the corporation must suffer certain consequences. [13]
This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was
never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the
law itself provides the answer to the issue propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est
ipsum statutum),[14] Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the
word must in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws
even priorto incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of
filing the by-laws within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission. It necessarily follows that failure to file the by-laws within that period does not imply the
demise of the corporation. By-laws may be necessary for the government of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes. [15] There are in fact cases where by-laws are unnecessary to
corporate existence or to the valid exercise of corporate powers, thus:
In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to
the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of
the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure
to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would
otherwise be valid.[16] (Italics supplied.)
As Fletcher aptly puts it:
It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been adopted the corporation may
not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them. This
would seem to follow as a matter of principle from the office and functions of by-laws. Viewed in this light, the adoption of by-laws is
a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may
impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes. And the statute or
general laws from which the corporation derives its corporate existence may expressly require it to make and adopt by-laws and
specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the existence of power in
the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life,
or to the validity of any of its acts.[17]
Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the nonfiling of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No.
902-A, the pertinent provisions on the jurisdiction of the SEC of which state:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
xxx xxx xxx xxx
(l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships
or associations, upon any of the grounds provided by law, including the following:
xxx xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction of the Commissions or by a Commissioner or by such other bodies, boards,
committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty

(30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of
procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for
review in accordance with the pertinent provisions of the Rules of Court.
Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because
the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no
outright demise of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and
remedy the same.
That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A,
which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the
provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and
harmonized with other statutes as to form a uniform system of jurisprudence.[18]
As the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it,
[19]
by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are
required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period
required by law by no means tolls the automatic dissolution of a corporation.
In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v. Intermediate
Appellate Court,[20] as follows:
x x x. Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a
ground for such dissolution.
Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the
corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works
within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the
Corporation Code, expressly declared that every corporation formed under this Act, must within one month after the filing of the
articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws. Whether this provision should be
given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or
revocation of the certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD 902-A, the SEC is
empowered to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporation on the
ground inter alia of failure to file by-laws within the required period. It is clear from this provision that there must first of all be a
hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but
may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be
penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm.
It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate
personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites
for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the
Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date
the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the
filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted within one month after receipt of official
notice of the issuance of its certificate of incorporation.[21]
That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has
taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December
17, 1986.[22]With respect to homeowners associations, the HIGC shall exercise all the powers, authorities and responsibilities that are
vested on the Securities and Exchange Commission x x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary
notwithstanding.[23]
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of
Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.