CORPORATION CASE DIGESTS
Palawan. SMMI subsequently conveyed, transferred and assigned its
NARRA NICKEL MINING VS REDMONT (G.R. NO. 195580
APRIL 21, 2014)
Narra Nickel Mining and Development Corp. vs Redmont
Consolidated Mines Corporation
G.R. No. 195580 April 21, 2014
Facts: Sometime in December 2006, respondent Redmont Consolidated
Mines Corp. (Redmont), a domestic corporation organized and existing
under Philippine laws, took interest in mining and exploring certain
areas of the province of Palawan. After inquiring with the Department
of Environment and Natural Resources (DENR), it learned that the areas
where it wanted to undertake exploration and mining activities where
already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur. Petitioner
McArthur, through its predecessor-in-interest Sara Marie Mining, Inc.
(SMMI), filed an application for an MPSA and Exploration Permit (EP)
with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office
of the Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an
area of over 1,782 hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44 which includes an area
of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The
MPSA and EP were then transferred to Madridejos Mining Corporation
(MMC) and, on November 6, 2006, assigned to petitioner McArthur.
Petitioner Narra acquired its MPSA from Alpha Resources and
Development Corporation and Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an application for an
MPSA with the MGB, Region IV-B, DENR on January 6, 1992.
Through the said application, the DENR issued MPSA-IV-1-12
covering an area of 3.277 hectares in barangays Calategas and San
Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC
conveyed, transferred and/or assigned its rights and interests over the
MPSA application in favor of Narra. Another MPSA application of
SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-
IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays
Malinao and Princesa Urduja, Municipality of Narra, Province of
rights and interest over the said MPSA application to Tesoro. On
January 2, 2007, Redmont filed before the Panel of Arbitrators (POA)
of the DENR three (3) separate petitions for the denial of petitioners’
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154
and MPSA IV-1-12. In the petitions, Redmont alleged that at least 60%
of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners’
filing of the MPSAs over the areas covered by applications since it
knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that
given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through
MPSAs, which are reserved only for Filipino citizens.
Issue: Whether or not the petitioner corporations are Filipino and can
validly be issued MPSA and EP.
Held: No. The SEC Rules provide for the manner of calculating the
Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the ‘Investee
Corporation’). Such manner of computation is necessary since the
shares in the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said rules thus provide for
the determination of nationality depending on the ownership of the
Investee Corporation and, in certain instances, the Investing
Corporation.
Under the SEC Rules, there are two cases in determining the nationality
of the Investee Corporation. The first case is the ‘liberal rule’, later
coined by the SEC as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, ‘(s)hares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality.’ Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is
at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, “but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine nationality.” Under
the Strict Rule or Grandfather Rule Proper, the combined totals in the
Investing Corporation and the Investee Corporation must be traced (i.e.,
“grandfathered”) to determine the total percentage of Filipino
ownership. Moreover, the ultimate Filipino ownership of the shares
must first be traced to the level of the Investing Corporation and added
to the shares directly owned in the Investee Corporation.
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only when
the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases
where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests
in other joint venture corporation which is either 60-40% Filipino-alien
or the 59% less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule will not
apply.
NARRA NICKEL MINING AND DEVELOPMENT CORP.,
TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC.,vs.REDMONT CONSOLIDATED
MINES CORP.,
G.R. No. 195580 April 21, 2014
Facts: Sometime in December 2006, respondent Redmont
Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in
mining and exploring certain areas of the province of Palawan.
After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already
covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled
by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the driving force
behind petitioners’ filing of the MPSAs over the areas covered
by applications since it knows that it can only participate in
mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners’ capital
stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.
On December 14, 2007, the POA issued a Resolution
disqualifying petitioners from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified
applicants to engage in mining activities. On the other hand,
[Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents
may be considered if and when they are qualified under the law.
The violation of the requirements for the issuance and/or grant
of permits over mining areas is clearly established thus, there is
reason to believe that the cancellation and/or revocation of
permits already issued under the premises is in order and open
the areas covered to other qualified applicants.
WHEREFORE, the Panel of Arbitrators finds the Respondents,
McArthur Mining Inc., Tesoro Mining and Development, Inc.,
and Narra Nickel Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign Corporations.
Their Mineral Production Sharing Agreement (MPSA) are
hereby x x x DECLARED NULL AND VOID.6
With respect to the applications of respondents McArthur,
Tesoro and Narra for Financial or Technical Assistance
Agreement (FTAA) or conversion of their MPSA applications to
FTAA, the matter for its rejection or approval is left for
determination by the Secretary of the DENR and the President
of the Republic of the Philippines.
After a careful review of the records, the CA found that there
was doubt as to the nationality of petitioners when it realized
that petitioners had a common major investor, MBMI, a
corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ)
Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and
other laws pertaining to the exploitation of natural resources, the
CA used the "grandfather rule" to determine the nationality of
petitioners.
Issues:
I.The Court of Appeals erred when it did not dismiss the case for
mootness despite the fact that the subject matter of the
controversy, the MPSA Applications, have already been
converted into FTAA applications and that the same have
already been granted.
Held: We find the petition to be without merit.This case not moot
and academic. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being
committed by a foreign corporation right under our country’s
nose through a myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional
character and involves paramount public interest since it
undeniably affects the exploitation of our Country’s natural
resources. The corresponding actions of petitioners during the
lifetime and existence of the instant case raise questions as
what principle is to be applied to cases with similar issues. No
definite ruling on such principle has been pronounced by the
Court; hence, the disposition of the issues or errors in the
instant case will serve as a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of repetition yet
evading review, since the Canadian company, MBMI, can keep
on utilizing dummy Filipino corporations through various
schemes of corporate layering and conversion of applications to
skirt the constitutional prohibition against foreign mining in
Philippine soil.
the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is
in doubt (i.e., in cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation
which is either 60-40% Filipino-alien or the 59% less Filipino).
Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply.
(emphasis supplied)
the Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by the
OP, doubt prevails and persists in the corporate ownership of
petitioners. Also, as found by the CA, doubt is present in the 60-
40 Filipino equity ownership of petitioners Narra, McArthur and
Tesoro, since their common investor, the 100% Canadian
corporation––MBMI, funded them. However, petitioners also
claim that there is "doubt" only when the stockholdings of
Filipinos are less than 60%.43
The assertion of petitioners that "doubt" only exists when the
stockholdings are less than 60% fails to convince this Court.
DOJ Opinion No. 20, which petitioners quoted in their petition,
only made an example of an instance where "doubt" as to the
ownership of the corporation exists. It would be ludicrous to limit
the application of the said word only to the instances where the
stockholdings of non-Filipino stockholders are more than 40% of
the total stockholdings in a corporation. The corporations
interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless
for these applying corporations to state in their respective
articles of incorporation that they have less than 60% Filipino
stockholders since the applications will be denied instantly.
Thus, various corporate schemes and layerings are utilized to
circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a
scheme employed by stockholders to circumvent the law,
creating a cloud of doubt in the Court’s mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the
grandfather rule must be used.
II.The Court of Appeals erred when it did not dismiss the case
for lack of jurisdiction considering that the Panel of Arbitrators
has no jurisdiction to determine the nationality of Narra, Tesoro
and McArthur.
We affirm the ruling of the CA in declaring that the POA has
jurisdiction over the instant case. The POA has jurisdiction to
settle disputes over rights to mining areas which definitely
involve the petitions filed by Redmont against petitioners Narra,
McArthur and Tesoro. It is clear that POA has exclusive and
original jurisdiction over any and all disputes involving rights to
mining areas. One such dispute is an MPSA application to
which an adverse claim, protest or opposition is filed by another
interested applicantn the case at bar, the dispute arose or
originated from MPSA applications where petitioners are
asserting their rights to mining areas subject of their respective
MPSA applications. Since respondent filed 3 separate petitions
for the denial of said applications, then a controversy has
developed between the parties and it is POA’s jurisdiction to
resolve said disputes.
Furthermore, the POA has jurisdiction over the MPSA
applications under the doctrine of primary jurisdiction. Euro-med
Laboratories v. Province of Batangas elucidates:The doctrine
of primary jurisdiction holds that if a case is such that its
determination requires the expertise, specialized training
and knowledge of an administrative body, relief must first
be obtained in an administrative proceeding before resort
to the courts is had even if the matter may well be within
their proper jurisdiction.
IV.The Court of Appeals’ ruling that Narra, Tesoro and McArthur
are foreign corporations based on the "Grandfather Rule" is
contrary to law, particularly the express mandate of the Foreign
Investments Act of 1991, as amended, and the FIA Rules.
We disagree. "Corporate layering" is admittedly allowed by the
FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been
abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision
of the State. The State may directly undertake such activities, or
it may enter into co-production, joint venture or production-
sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may
be provided by law.
The President may enter into agreements with Foreign-owned
corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to
the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use
of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State
entering into different types of agreements for the exploration,
development, and utilization of natural resources with entities
who are deemed Filipino due to 60 percent ownership of capital
is pertinent to this case, since the issues are centered on the
utilization of our country’s natural resources or specifically,
mining. Thus, there is a need to ascertain the nationality of
petitioners since, as the Constitution so provides, such
agreements are only allowed corporations or associations "at
least 60 percent of such capital is owned by such citizens."
Under the above-quoted SEC Rules, there are two cases in
determining the nationality of the Investee Corporation. The first
case is the ‘liberal rule’, later coined by the SEC as the Control
Test in its 30 May 1990 Opinion, and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares
belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality.’ Under the liberal Control Test, there
is no need to further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered
as Filipino.
The second case is the Strict Rule or the Grandfather Rule
Proper and pertains to the portion in said Paragraph 7 of the
1967 SEC Rules which states, "but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage
shall be counted as of Philippine nationality." Under the Strict
Rule or Grandfather Rule Proper, the combined totals in the
Investing Corporation and the Investee Corporation must be
traced (i.e., "grandfathered") to determine the total percentage
of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must
first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation
x x x.
Concluding from the above-stated facts, it is quite safe to say
that petitioners McArthur, Tesoro and Narra are not Filipino
since MBMI, a 100% Canadian corporation, owns 60% or more
of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely: MMI,
SMMI and PLMDC. Going further and adding to the picture,
MBMI’s Summary of Significant Accounting Policies statement–
–regarding the "joint venture" agreements that it entered into
with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro,
PLMDC and Narra. Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or corporations under
the "Alpha" group wherein MBMI has joint venture agreements
with, practically exercising majority control over the corporations
mentioned. In effect, whether looking at the capital structure or
the underlying relationships between and among the
corporations, petitioners are NOT Filipino nationals and must be
considered foreign since 60% or more of their capital stocks or
equity interests are owned by MBMI.
VI.The Court of Appeals erred when it concluded that the
conversion of the MPSA Applications into FTAA Applications
were of "suspicious nature" as the same is based on mere
conjectures and surmises without any shred of evidence to
show the same.
We disagree.
x x x The filing of the FTAA application on June 15, 2007, during
the pendency of the case only demonstrate the violations and
lack of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an admission
that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders
in their head office in Canada suggest that they are conducting
operation only through their local counterparts.36
Respondent Redmont, in its Comment dated October 10, 2011,
made known to the Court the fact of the OP’s Decision and
Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming
that they were granted FTAAs and, thus, the case was moot.
Petitioners filed a Manifestation and Submission dated October
19, 2012,40 wherein they asserted that the present petition is
moot since, in a remarkable turn of events, MBMI was able to
sell/assign all its shares/interest in the "holding companies" to
DMCI Mining Corporation (DMCI), a Filipino corporation and, in
effect, making their respective corporations fully-Filipino owned.
The only thing clear and proved in this Court is the fact that the
OP declared that petitioner corporations have violated several
mining laws and made misrepresentations and falsehood in their
applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going
against or around the law using shifty actions and strategies.
Thus, in this instance, we can say that their claim of mootness is
moot in itself because their defense of conversion of MPSAs to
FTAAs has been discredited by the OP Decision.
Selling of MBMI’s shares to DMCI -As stated before, petitioners’
Manifestation and Submission dated October 19, 2012 would
want us to declare the instant petition moot and academic due
to the transfer and conveyance of all the shareholdings and
interests of MBMI to DMCI, a corporation duly organized and
existing under Philippine laws and is at least 60% Philippine-
owned.56 Petitioners reasoned that they now cannot be
considered as foreign-owned; the transfer of their shares
supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should
stand since "even wholly-owned foreign corporations can enter
into an FTAA with the State."57 Petitioners stress that there
should no longer be any issue left as regards their qualification
to enter into FTAA contracts since they are qualified to engage
in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities
of petitioners cannot be doubted since it would pass both
tests.The sale of the MBMI shareholdings to DMCI does not
have any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered by
us since it is being tackled in G.R. No. 202877 pending before
this Court.1âwphi1 Thus, the question of whether petitioners,
allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into FTAAs
with the State is a non-issue in this case.In ending, the "control
test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2,
Art. II of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the natural resources
of the Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in
the 60-40 Filipino-equity ownership in the corporation, then it
may apply the "grandfather rule."WHEREFORE, premises
considered, the instant petition is DENIED. The assailed Court
of Appeals Decision dated October 1, 2010 and Resolution
dated February 15, 2011 are hereby AFFIRMED.
NARRA NICKEL MINING v. REDMONT CONSOLIDATED MINES
CORP., GR No. 195580, 2014-04-21
Facts:
Redmont... took interest in mining and exploring certain areas of the
province of Palawan.
it learned that the areas where it wanted to undertake exploration
and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie
Mining, Inc. (SMMI), filed an application for an MPSA and Exploration
Permit (EP) with the Mines and Geo-Sciences Bureau (MGB),... DENR
issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan.
In the petitions, Redmont alleged that at least 60% of the capital
stock of McArthur, Tesoro and Narra are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it... was the driving force behind
petitioners' filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining
activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners'... capital stocks
were mostly owned by MBMI, they were likewise disqualified from
engaging in mining activities through MPSAs, which are reserved
only for Filipino citizens.
they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines.
They asserted that... though MBMI owns 40% of the shares of PLMC
(which owns 5,997 shares of Narra),[3] 40% of the shares of MMC
(which owns 5,997 shares of McArthur)[4] and 40% of the shares of
SLMC (which, in turn, owns 5,997 shares of Tesoro),[5] the shares of
MBMI will not make it the owner of at least 60% of the capital stock
of each of petitioners. They added that the best tool used in
determining the nationality of a corporation is the "control test,"
embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991.
Issues:
issue of petitioners' nationality, whether Filipino or foreign.
Ruling:
Basically, there are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the
1967 SEC Rules which implemented the requirement of the
Constitution and... other laws pertaining to the controlling interests
in enterprises engaged in the exploitation of natural resources owned
by Filipino citizens
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares
belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or the liberal...
rule. On the other hand, the second part of the DOJ Opinion which
provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as
Philippine... nationality," pertains to the stricter, more stringent
grandfather rule.
"Corporate layering" is admittedly allowed by the FIA; but if it is used
to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the
grandfather rule has already been abandoned must be... discredited
for lack of basis.
It is apparent that it is the intention of the framers of the Constitution
to apply the grandfather rule in cases where corporate layering is
present. Elementary in statutory construction is when there is
conflict between the Constitution and a statute, the Constitution...
will prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and
Patrimony, Sec. 3 of the FIA will have no place of application. As
decreed by the honorable framers of our Constitution, the...
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
In other words, based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in
cases where the joint venture corporation with Filipino and foreign...
stockholders with less than 60% Filipino stockholdings [or 59%]
invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino-foreign equity ownership is not in doubt, the
Grandfather Rule will not apply.
After a scrutiny of the evidence extant on record, the Court finds that
this case calls for the application of the grandfather rule since, as
ruled by the POA and affirmed by the OP, doubt prevails and persists
in the corporate ownership of petitioners. Also, as found by... the
CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common
investor, the 100% Canadian corporation MBMI, funded
them. However, petitioners also claim that there is "doubt" only
when the stockholdings of
Filipinos are less than 60%.
Obviously, the instant case presents a situation which exhibits a
scheme employed by stockholders to circumvent the law, creating a
cloud of doubt in the Court's mind. To determine, therefore, the
actual participation, direct or indirect, of MBMI, the grandfather rule
must... be used.
To establish the actual ownership, interest or participation of MBMI
in each of petitioners' corporate structure, they have to be
"grandfathered."
Interestingly, looking at the corporate structure of MMC, we take
note that it has a similar structure and composition as McArthur. In
fact, it would seem that MBMI is also a major investor and
"controls"[45] MBMI and also, similar nominal... shareholders were
present,... Noticeably, Olympic Mines & Development Corporation
(Olympic) did not pay any amount with respect to the number of
shares they subscribed to in the corporation, which is quite absurd
since Olympic is the major stockholder in MMC.
Thus, as demonstrated in this first corporation, McArthur, when it is
"grandfathered," company layering was utilized by MBMI to gain
control over McArthur. It is apparent that MBMI has more than 60%
or more equity interest in McArthur, making the latter a foreign...
corporation.
Tesoro, which acquired its MPSA application from SMMI, has a
capital stock of ten million pesos (PhP 10,000,000) divided into ten
thousand (10,000) common shares at PhP 1,000 per share
Except for the name "Sara Marie Mining, Inc.," the table above shows
exactly the same figures as the corporate structure of petitioner
McArthur, down to the last centavo. All the other shareholders are
the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell.
The figures under "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same. Delving
deeper, we scrutinize SMMI's corporate structure:
After subsequently studying SMMI's corporate structure, it is not
farfetched for us to spot the glaring similarity between SMMI and
MMC's corporate structure. Again, the presence of identical
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar,... Hernando, Mason and Cawkell. The figures
under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the
amount paid by MBMI which now reflects the amount of two million
seven hundred ninety four thousand... pesos (PhP 2,794,000). Oddly,
the total value of the amount paid is two million eight hundred nine
thousand nine hundred pesos (PhP 2,809,900).
Concluding from the above-stated facts, it is quite safe to say that
petitioners McArthur, Tesoro and Narra are not Filipino since MBMI,
a 100% Canadian corporation, owns 60% or more of their equity
interests. Such conclusion is derived from grandfathering
petitioners'... corporate owners, namely: MMI, SMMI and
PLMDC. Going further and adding to the picture, MBMI's Summary
of Significant Accounting Policies statement regarding the "joint
venture" agreements that it entered into with the "Olympic" and
"Alpha" groups involves SMMI,... Tesoro, PLMDC and
Narra. Noticeably, the ownership of the "layered" corporations boils
down to MBMI, Olympic or corporations under the "Alpha" group
wherein MBMI has joint venture agreements with, practically
exercising majority control over the corporations... mentioned. In
effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are
NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned... by MBMI.
G.R. No. 159108 June 18, 2012
GOLD LINE TOURS, INC., Petitioner,
vs.
HEIRS OF MARIA CONCEPCION LACSA, Respondents.
FACTS:
Ma. Concepcion Lacsa (Concepcion) boarded a Goldline
passenger bus owned and operated by Travel &Tours Advisers,
Inc. Before reaching their destination, the Goldline bus collided
with a passenger jeepneys and as a result, a metal part of the
jeepney was detached and struck Concepcion in the chest,
causing her instant death. Then, Concepcion’s heirs, represented
by Teodoro Lacsa, instituted in the RTC a suit against Travel &
Tours Advisers Inc. to recover damages arising from breach of
contract of carriage. The RTC ruled in favor of the heirs of
Concepcion and thereafter, Gold Line appealed the decision to
the CA but the CA dismissed the appeal for failure of the
defendants to pay the docket and other lawful fees within the
required period as provided in Rule 41, Section 4 of the Rules of
Court. The dismissal became final.
Thereafter, the heirs of concepcion moved for the issuance of a
writ of execution to implement the decision and RTC granted their
motion. Petitioner submitted a verified third party claim, claiming
that the tourist bus be returned to petitioner because it was the
and that petitioner was a corporation entirely different from Travel
& Tours Advisers, Inc. then RTC dismissed petitioner’s verified
third-party claim, observing that the identity of Travel & Tours
Adivsers, Inc. could not be divorced from that of petitioner
considering that Cheng had claimed to be the operator as well as
the President/Manager/incorporator of both entities; and that
Travel & Tours Advisers, Inc. had been known in Sorsogon as
Goldline. They (Goldline) appealed the decision to CA but CA
dismissed their petition and affirmed the decision of RTC. Hence
this appeal to the Supreme Court where petitioner seeks to
reverse the decision of CA.
ISSUE:
Whether or not the proposition of the third party claimant by the
petitioner where Travel & Tours Advises, Inc. has an existence
separate and/or distinct from Gold Line Tours, Inc.
RULING:
The Supreme Court the DENIED the petition for review on
certiorari, and AFFIRMED the decision promulgated by the
Court of Appeals.
The two corporations are liable to the death of Ma. Concepcion
Lacsa.
The Court was not persuaded by the proposition of the third party
claimant that a corporation has an existence separate and/or
distinct from its members insofar as this case at bar is concerned,
for the reason that whenever necessary for the interest of the
public or for the protection of enforcement of their rights, the
notion of legal entity should not and is not to be used to
defeat public convenience, justify wrong, protect fraud or
defend crime.
In the case of Palacio vs. Fely Transportation Co., the
Supreme Court held that:
"Where the main purpose in forming the corporation was to evade
one’s subsidiary liability for damages in a criminal case, the
corporation may not be heard to say that it has a personality
separate and distinct from its members, because to allow it to do
so would be to sanction the use of fiction of corporate entity
as a shield to further an end subversive of justice (La Campana
Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et
al., L-5677, May 25, 1953).
This is what the third party claimant wants to do including the
defendant in this case, to use the separate and distinct
personality of the two corporation as a shield to further an end
subversive of justice by avoiding the execution of a final
judgment of the court.
The RTC thus rightly ruled that petitioner might not be shielded
from liability under the final judgment through the use of the
doctrine of separate corporate identity. Truly, this fiction of law
could not be employed to defeat the ends of justice.
PIONEER INSURANCE SURETY CORPORATION v. MORNING STAR et
al.
Topic: The Corporation and the State
FACTS:
 Morning Start is a travel and tours agency with Benny Wong, Estelita
Wong, Arsenio Chua, Sonny Chua, and Wong Yan Tak as
shareholders and members of the board of directors
 International Air Transport Association (IATA) is a Canadian
corporation licensed to do business in the Philippines
 IATA appointed Morning Star as an accredited travel agent
 IATA and Morning Star entered into a passengers sales agency
agreement in which Morning Star is tasked to report all air transport
ticket sales to IATA
 Pioneer Insurance Surety Corp. is the surety company of Morning
Star
 Morning Star accumulated over Php 100m and USD 457k of debt
from IATA which was paid for by Pioneer Insurance
 Pioneer Insurance filed a case against Morning Start and its
shareholders for a sum of money
 Pioneer’s arguments included:
o They included the individual respondents because they,
as shareholders and members of the board of directors,
were grossly negligent and were in bad faith when they
handled Morning Star (massive debt was caused by
their gross negligence and bad faith)
o Cited Section 31 of the Corporation Code
 Individual respondents argued that:
o The shareholders are separate and distinct from the
corporation, hence they cannot be sued
 RTC: Morning Star and the individual respondents are liable
 CA: absolved the individual respondents and only held Morning Star
liable for the debt
ISSUE: WON the individual respondents should be held liable for the
company’s debt
HELD:
 NO
 The SC maintained that the corporation’s personality is separate and
distinct from those that represent the corporation
 This separate corporate personality shields corporate officers
acting in good faith and within the scope of their authority from
personal liability except for situations enumerated by law and
jurisprudence
 The Court also found that the individual respondents DID NOT act in
bad faith
o Bad faith imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, not simply bad
judgement or negligence
 Also, individual respondents did no exhibit gross negligence because
the Court found out that the same board of directors were also
managing another corporation which did fairly well compared to
Morning Star. The mere fact that Morning Star incurred huge losses
and that it has no assets at the time it contracted the large financial
obligations did not amount to gross negligence by the members of
the board of directors (individual respondents).
JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No.
207246, 2016-11-22
Facts:
On June 28, 2011, the Court issued the Gamboa Decision,... that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares).
The Gamboa Decision attained finality on October 18, 2012, and Entry
of Judgment was thereafter issued on December 11, 2012
On May 20, 2013, the SEC, through respondent Chairperson Teresita J.
Herbosa, issued SEC-MC No. 8
Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the
Petition,[15] assailing the validity of SEC-MC No. 8 for not conforming
to the letter and spirit of the Gamboa Decision and Resolution and for
having been issued by the SEC with grave abuse of discretion.
Issues:
whether the SEC gravely abused its discretion in issuing SEC-MC No. 8
in light of the Gamboa Decision and Gamboa Resolution
Ruling:
SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa
Decision and Resolution.
Gamboa Decision
"capital" in Section II, Article XII of the I987 Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares).
the Gamboa Resolution
Foreign Investments Act of 1991 ("FIA")
Gamboa Resolution put to rest the Court's interpretation of the term
"capital"
Full beneficial ownership of stocks, coupled with appropriate voting
rights is essential... reiterates and confirms the interpretation that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers to
shares with voting rights, as well as with full beneficial ownership.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test
or the controlling interest requirement. In fact, Section 2 goes beyond
requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks;
it moreover requires the 60-40 percentage ownership in the total
number of outstanding shares of stock, whether voting or not. The SEC
formulated SEC-MC No. 8 to adhere to the Court's unambiguous
pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights is
required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued
with grave abuse of discretion
While SEC-MC No. 8 does not expressly mention the Beneficial
Ownership Test or full beneficial ownership of stocks requirement in the
FIA, this will not, as it does not, render it invalid meaning, it does not
follow that the SEC will not apply this test in determining whether the
shares claimed to be owned by Philippine nationals are Filipino, i.e., are
held by them by mere title or in full beneficial ownership. To be sure, the
SEC takes its guiding lights also from the FIA and its implementing rules,
the Securities Regulation Code
JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No.
207246, 2016-11-22
Facts:
the Court issued the Gamboa Decision, the dispositive portion of which
reads:... we PARTLY GRANT the petition and rule that the term "capital"
in Section 11, Article XII of the 1987 Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present
case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to
apply this definition of the term "capital" in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII
of the Constitution, to impose the appropriate sanctions under the law.
The Gamboa Decision attained finality... on October 18, 2012
SEC posted a Notice in its website inviting the public to attend a public
dialogue and to submit comments on the draft memorandum circular...
on the guidelines to be followed in determining compliance with the
Filipino ownership requirement in public utilities under Section 11,
Article XII of the Constitution pursuant to the Court's directive in the
Gamboa Decision.
SEC received a copy of the Entry of Judgment... from the Court
certifying that on October 18, 2012, the Gamboa Decision had become
final and executory.
petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments
on the draft guidelines.
the SEC, through respondent Chairperson Teresita J. Herbosa, issued
SEC-MC No. 8 entitled "Guidelines on Compliance with the Filipino-
Foreign Ownership Requirements Prescribed in the Constitution and/or
Existing Laws by Corporations Engaged in Nationalized and Partly
Nationalized Activities." It was published in the Philippine Daily Inquirer
and the Business Mirror
Section 2 of SEC-MC No. 8 provides:
Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.
petitioner Roy, as a lawyer and taxpayer, filed the Petition,... assailing
the validity of SEC-MC No. 8 for not conforming to the letter and spirit
of the Gamboa Decision and Resolution and for having been issued by
the SEC with grave abuse of discretion. Petitioner Roy seeks to apply
the 60-40 Filipino ownership requirement separately to each class of
shares of a public utility corporation, whether common, preferred non-
voting, preferred voting or any other class of shares. Petitioner Roy also
questions the ruling of the SEC that respondent Philippine Long
Distance Telephone Company ("PLDT") is compliant with the
constitutional rule on foreign ownership. He prays that the Court declare
SEC-MC No. 8 unconstitutional and direct the SEC to issue new
guidelines regarding the determination of compliance with Section 11,
Article XII of the Constitution in accordance with Gamboa.
respondent PLDT filed its Comment
PLDT posited that the Petition should be dismissed because it violates
the doctrine of hierarchy of courts as there are no compelling reasons to
invoke the Court's original jurisdiction; it is prematurely filed because
petitioner Roy failed to exhaust administrative remedies before the SEC;
the principal actions/remedies of mandamus and declaratory relief are
not within the exclusive and/or original jurisdiction of the Court; the
petition for certiorari is an inappropriate remedy since the SEC issued
SEC-MC No. 8 in the exercise of its quasi-legislative power; it deprives
the necessary and indispensable parties of their constitutional right to
due process; and the SEC merely implemented the dispositive portion of
the Gamboa Decision.
respondents Chairperson Teresita Herbosa and SEC filed their
Consolidated Comment.
They sought the dismissal of the petitions on the following grounds: (1)
the petitioners do not possess locus standi to assail the constitutionality
of SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the
appropriate and proper remedy to assail the validity and
constitutionality of the SEC-MC No. 8; (3) the direct resort to the Court
violates the doctrine of hierarchy of courts; (4) the SEC did not abuse its
discretion; (5) on PLDT's compliance with the capital requirement as
stated in the Gamboa ruling, the petitioners' challenge is premature
considering that the SEC has not yet issued a definitive ruling thereon.
Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene...
and its Comment-in Intervention.
The PSE alleged that it has standing to intervene as the primary
regulator of the stock exchange and will sustain direct injury should the
petitions be granted. The PSE argued that in the Gamboa ruling,
"capital" refers only to shares entitled to vote in the election of directors,
and excludes those not so entitled; and the dispositive portion of the
decision is the controlling factor that determines and settles the
questions presented in the case. The PSE further argued that adopting a
new interpretation of Section 11, Article XII of the Constitution violates
the policy of conclusiveness of judgment, stare decisis, and the State's
obligation to maintain a stable and predictable legal framework for
foreign investors under international treaties; and adopting a new
definition of "capital" will prove disastrous for the Philippine stock
market. The Court granted the Motion to Intervene filed by PSE.
Issues:
whether the SEC gravely abused its discretion in issuing SEC-MC No. 8
in light of the Gamboa Decision and Gamboa Resolution... whether the
SEC gravely abused its discretion in ruling that PLDT is compliant with
the constitutional limitation on foreign ownership.
whether the SEC's issuance of SEC-MC No. 8 is tainted with grave abuse
of discretion.
Was the definition of the term "capital" in Section 11, Article XII of the
1987 Constitution declared for the first time by the Court in the Gamboa
Decision modified in the Gamboa Resolution?
Ruling:
he Court issued the Gamboa Decision, the dispositive portion of which
reads:
At the outset, the Court disposes of the second issue for being without
merit. In its Consolidated Comment dated September 13, 2013,... the
SEC already clarified that it "has not yet issued a definitive ruling anent
PLDT's compliance with the limitation on foreign ownership imposed
under the Constitution and relevant laws [and i]n fact, a careful perusal
of x x x SEC-MC No. 8 readily reveals that all existing covered
corporations which are non-compliant with Section 2 thereof were given
a period of one (1) year from the effectivity of the same within which to
comply with said ownership requirement. x x x."
Thus, in the absence of a definitive ruling by the SEC on PLDT's
compliance with the capital requirement pursuant to the Gamboa
Decision and Resolution, any question relative to the inexistent ruling is
premature.
Also, considering that the Court is not a trier of facts and is in no position
to make a factual determination of PLDT's compliance with the
constitutional provision under review, the Court can only resolve the
first issue
, which is a pure question of law.
SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa
Decision and Resolution.
To determine what the Court directed the SEC to do - and therefore
resolve whether what the SEC did amounted to grave abuse of
discretion - the Court resorts to the decretal portion of the Gamboa
Decision, as this is the portion of the decision that a party relies upon to
determine his or her rights and duties
To recall, the sole issue in the Gamboa case was: "whether the term
'capital' in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock (combined
total of common and non-voting preferred shares) of PLDT, a public
utility."
The Court directly answered the Issue and consistently defined the term
"capital" as follows:x x x The term "capital" in Section 11, Article XII of
the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both
common and non voting preferred shares.
In short, the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors.
The decretal portion of the Gamboa Decision follows the definition of
the term "capital" in the body of the decision, to wit: "x x x we x x x rule
that the term 'capital' in Section 11, Article XII of the 1987 Constitution
refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares)."
The Court adopted the foregoing definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution in furtherance of "the
intent and letter of the Constitution that the 'State shall develop a self-
reliant and independent national economy effectively controlled by
Filipinos' [because a] broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of
the public utility.
urther, the Court noted that the foregoing interpretation is consistent
with the intent of the framers of the Constitution to place in the hands
of Filipino citizens the control and management of public utilities; and,
as revealed in the deliberations of the Constitutional Commission,
"capital" refers to the voting stock or controlling interest of a
corporation.
The Court is convinced that it was not. The Gamboa Resolution consists
of 51 pages
For the most part of the Gamboa Resolution, the Court, after reviewing
SEC and DOJ
Opinions as well as the provisions of the FIA and its predecessor
statutes,... reiterated that both the Voting Control Test and the
Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national"... and that a "Philippine national,"
as defined in the FIA and all its predecessor statutes, is "a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the
capital stock outstanding and entitled to vote," is owned by Filipino
citizens. A domestic corporation is a "Philippine national" only if at least
60% of its voting stock is owned by Filipino citizens."
The Court also reiterated that, from the deliberations of the
Constitutional Commission, it is evident that the term "capital" refers to
controlling interest of a corporation,[76] and the framers of the
Constitution intended public utilities to be majority Filipino-owned and
controlled.
The "Final Word" of the Gamboa Resolution put to rest the Court's
interpretation of the term "capital"
The assailed SEC-MC No. 8.The relevant provision in the assailed SEC-
MC No. 8 IS Section 2, which provides:Section 2. All covered
corporations shall, at all times, observe the constitutional or statutory
ownership requirement. For purposes of determining compliance
therewith, the required percentage of Filipino ownership shall be
applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in the
election of directors.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test
or the controlling interest requirement. In fact, Section 2 goes beyond
requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks;
it moreover requires the 60-40 percentage ownership in the total
number of outstanding shares of stock, whether voting or not. The SEC
formulated SEC-MC No. 8 to adhere to the Court's unambiguous
pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights is
required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued
with grave abuse of discretion.
As noted earlier, the FIA-IRR states:Compliance with the required
Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks
which are generally entitled to vote are considered.For stocks to be
deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting
rights is essential. Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be considered held by Philippine
citizens or Philippine nationals.
t"
The emphasized portions in the foregoing provision is the equivalent of
the so-called "beneficial ownership test". That is all.
The term "full beneficial ownership" found in the FIA-IRR is to be
understood in the context of the entire paragraph defining the term
"Philippine national". Mere legal title is not enough to meet the required
Filipino equity, which means that it is not sufficient that a share is
registered in the name of a Filipino citizen or national, i.e., he should
also have full beneficial ownership of the share. If the voting right of a
share held in the name of a Filipino citizen or national is assigned or power over the "specific stock" (he can dispose of the stock or direct
transferred to an alien, that share is not to be counted in the another to dispose it for him), or he has both (he can vote and dispose of
determination of the required Filipino equity. In the same vein, if the the "specific stock" or direct another to vote or dispose it for him), then
dividends and other fruits and accessions of the share do not accrue to a such Filipino is the "beneficial owner" of that "specific stock" and that
Filipino citizen or national, then that share is also to be excluded or not "specific stock" is considered (or counted) as part of the 60% Filipino
counted. ownership of the corporation. In the end, all those "specific stocks" that
are determined to be Filipino (per definition of "beneficial owner" or
In this regard, it is worth reiterating the Court's pronouncement in the
"beneficial ownership") will be added together and their sum must be
Gamboa Decision, which is consistent with the FIA-IRR, viz:Mere legal
equivalent to at least 60% of the total outstanding shares of stock
title is insufficient to meet the 60 percent Filipinoowned "capital"
entitled to vote in the election of directors and at least 60% of the total
required in the Constitution. Full beneficial ownership of 60 percent of
number of outstanding shares of stock, whether or not entitled to vote
the outstanding capital stock, coupled with 60 percent of the voting
in the election of directors.
rights, is required.
To reiterate, the "beneficial owner or beneficial ownership" definition in
The legal and beneficial ownership of 60 percent of the outstanding
the SRC-IRR is understood only in determining the respective
capital stock must rest in the hands of Filipinos in accordance with the
nationalities of the outstanding capital stock of a public utility
constitutional mandate. Full beneficial ownership of 60 percent of the
corporation in order to determine its compliance with the percentage of
outstanding capital stock, coupled with 60 percent of the voting rights,
Filipino ownership required by the Constitution.
is constitutionally required (or the State's grant of authority to operate a
public utility. As worded, effective control by Filipino citizens of a public utility is
already assured in the provision. With respect to a stock corporation
And the "Final Word" of the Gamboa Resolution is in full accord with the
engaged in the business of a public utility, the constitutional provision
foregoing pronouncement of the Court, to wit:XII.Final Wordx x x The
mandates three safeguards: (1) 60% of its capital must be owned by
FIA's implementing rules explain that "[f]or stocks to be deemed owned
Filipino citizens; (2) participation of foreign investors in its board of
and held by Philippine citizens or Philippine nationals, mere legal title is
directors is limited to their proportionate share in its capital; and (3) all
not enough to meet the required Filipino equity. Full beneficial
its executive and managing officers must be citizens of the Philippines.
ownership of the stocks, coupled with appropriate voting rights is
essential." Indisputably, one of the rights of a stockholder is the right to participate
in the control or management of the corporation. This is exercised
Given that beneficial ownership of the outstanding capital stock of the
through his vote in the election of directors because it is the board of
public utility corporation has to be determined for purposes of
directors that controls or manages the corporation. In the absence of
compliance with the 60% Filipino ownership requirement, the definition
provisions in the articles of incorporation denying voting rights to
in the SRC-IRR can now be applied to resolve only the question of who is
preferred shares, preferred shares have the same voting rights as
the beneficial owner or who has beneficial ownership of each "specific
common shares. However, preferred shareholders are often excluded
stock" of the said corporation. Thus, if a "specific stock" is owned by a
from any control, that is, deprived of the right to vote in the election of
Filipino in the books of the corporation, but the stock's voting power or
directors and on other matters, on the theory that the preferred
disposing power belongs to a foreigner, then that "specific stock" will
shareholders are merely investors in the corporation for income in the
not be deemed as "beneficially owned" by a Filipino.Stated inversely, if
same manner as bondholders. In fact, under the Corporation Code only
the Filipino has the "specific stock's" voting power (he can vote the stock
preferred or redeemable shares can be deprived of the right to vote.
or direct another to vote for him), or the Filipino has the investment
Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the
right of common shareholders to vote is invalid.Considering that
common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the
term "capital" in Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term "capital" shall include
such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in
the election of directors. In short, the term "capital" in Section 11, Article
XII of the Constitution refers only to shares of stock that can vote in the
election of directors.
As revealed in the deliberations of the Constitutional Commission,
"capital" refers to the voting stock or controlling interest of a
corporation x x x.
The Gamboa Decision held that preferred shares are to be factored in
only if they are entitled to vote in the election of directors. If preferred
shares have no voting rights, then they cannot elect members of the
board of directors, which wields control of the corporation.
The onus rests on petitioners to clearly and sufficiently establish that the
SEC, in issuing SEC-MC No. 8, acted in a capricious, whimsical, arbitrary
or despotic manner in the exercise of its jurisdiction as to be equivalent
to lack of jurisdiction or that the SEC's abuse of discretion is so patent
and gross as to amount to an evasion of a positive duty or to a virtual
refusal to perform a duty enjoined by law, or to act at all in
contemplation of law and the Gamboa Decision and Resolution.
Petitioners miserably failed in this respect.
the fallo or decretal/dispositive portions of both the Gamboa Decision
and Resolution are definite, clear and unequivocaL While there is a
passage in the body of the Gamboa Resolution that might have
appeared contrary to the fallo of the Gamboa Decision - capitalized
upon by petitioners to espouse a restrictive re-interpretation of "capital"
- the definiteness and clarity of the fallo of the Gamboa Decision must
control over the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to
"each class of shares, regardless of differences in voting rights,
privileges and restrictions."
Petitioners cannot, after Gamboa has attained finality, seek a belated
correction or reconsideration of the Court's unequivocal definition of the
term "capital".
Indeed, the definition of the term "capital" in the fallo of the Gamboa
Decision has acquired finality.
Because the SEC acted pursuant to the Court's pronouncements in both
the Gamboa Decision and Gamboa Resolution, then it could not have
gravely abused its discretion
That portion found in the body of the Gamboa Resolution which the
petitioners rely upon is nothing more than an obiter dictum and the SEC
could not be expected to apply it as it was not - is not - a binding
pronouncement of the Court.
Court rules that SEC-MC No. 8 is not contrary to the Court's definition
and interpretation of the term "capital". Accordingly, the petitions must
be denied for failing to show grave abuse of discretion in the issuance of
SEC-MC No. 8.
the key to nationalism is in the individual. Particularly for a public utility
corporation or association, whether stock or non-stock, it starts with the
Filipino shareholder or member who, together with other Filipino
shareholders or members wielding 60% voting power, elects the Filipino
director who, in turn, together with other Filipino directors comprising a
majority of the board of directors or trustees, appoints and employs the
all-Filipino management team. This is what is envisioned by the
Constitution to assure effective control by Filipinos. If the safeguards,
which are already stringent, fail, i.e., a public utility corporation whose
voting stocks are beneficially owned by Filipinos, the majority of its
directors are Filipinos, and all its managing officers are Filipinos, is pro-
alien (or worse, dummies), then that is not the fault or failure of the
Constitution. It is the breakdown of nationalism in each of the Filipino
shareholders, Filipino directors and Filipino officers of that corporation.
No Constitution, no decision of the Court, no legislation, no matter how
ultranationalistic they are, can guarantee nationalism.
WHEREFORE, premises considered, the Court DENIES the Petition and
Petition-in-Intervention.
JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No.
207246, 2016-11-22
Facts:
The Gamboa Decision attained finality... the SEC posted a Notice in its
website inviting the public to attend a public dialogue and to submit
comments on the draft memorandum circular... on the guidelines to be
followed in determining compliance with the Filipino ownership
requirement in public utilities under Section 11, Article XII of the
Constitution pursuant to the Court's directive in the Gamboa
Decision.[7]... petitioner Atty. Jose M. Roy III ("Roy") submitted his
written comments on the draft guidelines.[12]... the SEC, through
respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8
entitled "Guidelines on Compliance with the Filipino-Foreign Ownership
Requirements Prescribed in the Constitution and/or Existing Laws by
Corporations Engaged in Nationalized and Partly Nationalized
Activities."
Section 2 of SEC-MC No. 8 provides:Section 2. All covered corporations
shall, at all times, observe the constitutional or statutory ownership
requirement. For purposes of determining compliance therewith, the
required percentage of Filipino ownership shall be applied to BOTH (a)
the total number of outstanding shares of stock entitled to vote in the
election of directors; AND (b) the total number of outstanding shares of
stock, whether or not entitled to vote in the election of directors.
petitioner Roy... filed the Petition,[15] assailing the validity of SEC-MC
No. 8 for not conforming to the letter and spirit of the Gamboa Decision
and Resolution and for having been issued by the SEC with grave abuse
of discretion.
Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement
separately to each class of shares of a public utility corporation, whether
common, preferred nonvoting, preferred voting or any other class of
shares.
Wilson C. Gamboa, Jr.,... filed a Motion for Leave to File Petition-in-
Intervention
PLDT posited that the Petition should be dismissed because it violates
the doctrine of hierarchy of courts as there are no compelling reasons to
invoke the Court's original jurisdiction;... respondents Chairperson
Teresita Herbosa and SEC... sought the dismissal of the petitions... the
Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene with
Leave of Court[25] and its Comment-in Intervention.
The PSE further argued that adopting a new interpretation of Section
11, Article XII of the Constitution violates the policy of conclusiveness of
judgment, stare decisis, and the State's obligation to maintain a stable
and predictable legal framework for foreign investors under
international treaties; and adopting a new definition of "capital" will
prove disastrous for the Philippine stock market.
Issues:
whether the SEC gravely abused its discretion in issuing SEC-MC No. 8
in light of the Gamboa Decision and Gamboa Resolution,... whether the
SEC gravely abused its discretion in ruling that PLDT is compliant with
the constitutional limitation on foreign ownership.
Ruling:
in the Gamboa ruling, "capital" refers only to shares entitled to vote in
the election of directors, and excludes those not so entitled;... a. No
actual controversy.
b. No locus standi.
the SEC did not commit grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa
Decision and Resolution.
the term "capital" in Section II, Article XII of the I987 Constitution refers
only to shares of stock entitled to vote in the election of directors,... and
not to the total outstanding capital stock
The dispositive portion of the Court's ruling is addressed not to PLDT
but solely to the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
the sole issue in the Gamboa case was: "whether the term 'capital' in
Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a public utility."
The Court directly answered the Issue and consistently defined the term
"capital" as follows:x x x The term "capital" in Section 11, Article XII of
the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both
common and non voting preferred shares.
In short, the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors.
The Court adopted the foregoing definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution in furtherance of "the
intent and letter of the Constitution that the 'State shall develop a self-
reliant and independent national economy effectively controlled by
Filipinos' [because a] broad definition unjustifiably disregards who owns
the all-important voting stock, which necessarily equates to control of
the public utility."... the evident purpose of the citizenship requirement
is to prevent aliens from assuming control of public utilities, which may
be inimical to the national interest.
it would be apropos to state that since Filipinos own at least 60% of the
outstanding shares of stock entitled to vote directors, which is what the
Constitution precisely requires, then the Filipino stockholders control
the corporation, i.e., they dictate corporate actions and decisions, and
they have all the rights of ownership including, but not limited to,
offering certain preferred shares that may have greater economic
interest to foreign investors - as the need for capital for corporate
pursuits (such as expansion), may be good for the corporation that they
own. Surely, these "true owners" will not allow any dilution of their
ownership and control if such move will not be beneficial to them.
Echoing the FIA-IRR, the Court stated in the Gamboa Decision
that:Mere legal title is insufficient to meet the 60 percent Filipinoowned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine national[s]."
Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is constitutionally required
for the State's grant of authority to operate a public utility.
Was the definition of the term "capital" in Section 11, Article XII of the
1987 Constitution declared for the first time by the Court in the Gamboa
Decision modified in the Gamboa Resolution?The Court is convinced
that it was not.
A domestic corporation is a "Philippine national" only if at least 60% of
its voting stock is owned by Filipino citizens."
The Court also reiterated that, from the deliberations of the
Constitutional Commission, it is evident that the term "capital" refers to
controlling interest of a corporation,[76] and the framers of the
Constitution intended public utilities to be majority Filipino-owned and
controlled.
The full beneficial ownership test.
full ownership up to 60% of a public utility encompasses both control
and economic rights, both of which must stay in Filipino hands.
Filipinos, who own 60% of the controlling interest, must also own 60%
of the economic interest in a public utility.
"[b]eneficial owner or beneficial ownership means any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power
(which includes the power to vote or direct the voting of such security)
and/or investment returns or power (which includes the power to
dispose of, or direct the disposition of such security)... the Filipino
shareholder or member who, together with other Filipino shareholders
or members wielding 60% voting power, elects the Filipino director who,
in turn, together with other Filipino directors comprising a majority of
the board of directors or trustees, appoints and employs the all-Filipino
management team. This is what is envisioned by the Constitution to
assure effective control by Filipinos.
WHEREFORE, premises considered, the Court DENIES the Petition and
Petition-in-Intervention.
Principles:
ANDAYA VS. RURAL BANK OF CABADBARAN, INC
G.R. No. 188769. August 3, 2016
Chico, Nazario, J.
FACTS:
 Andaya bought from Chute 2,200 shares of stock in the Rural
Bank of Cabadbaran for P220,000
 Chute duly endorsed and delivered the certificates of stock to
Andaya and, subsequently, requested the bank to register the
transfer and issue new stock certificates in favor of the latter
 A few days later, the bank’s corporate secretary wrote Chute to
inform her that he could not register the transfer due to a
previous’ stockholder’s Resolution where existing stockholders
were given priority to buy the shares of others in the event that
the latter offered those shares for sale
 He then asked Chute if she, instead, wished to have her shares
offered to existing stockholders
 Meanwhile, the bank’s legal counsel, respondent Gonzalez,
informed Andaya that the latter’s request had been referred to
the bank’s board of directors for evaluation.
 Citing Section 98 of the Corporation Code, Andaya claimed that
the purported restriction on the transfer of shares of stock agreed
upon during the 2001 stockholders’ meeting could not deprive
him of his right as a transferee.
 The bank still refused the transfer arguing that it may refuse to
accept a competitor as one of its stockholders
 Andaya instituted an action for mandamus and damages against
Rural Bank of Cabadbaran which was dismissed by the RTC,
hence this petition for review
ISSUE: Whether Andaya, as a transferee of shares of stock, may
initiate an action for mandamus compelling the Rural Bank of
Cabadbaran to record the transfer of shares in its stock and transfer
book, as well as issue new stock certificates in his name.
RULING: Yes. According to Price vs Martin, A person who has
purchased stock, and who desires to be recognized as a stockholder, for
the purpose of voting, must secure a standing by having the transfer
recorded upon the books. If the transfer is not duly made upon request,
he has, as his remedy, to compel it to be made. The registration of a
transfer of shares of stock is a ministerial duty on the part of the
corporation. It is already settled jurisprudence that the registration of a
transfer of shares of stock is a ministerial duty on the part of the
corporation. Aggrieved parties may then resort to the remedy of
mandamus to compel corporations that wrongfully or unjustifiably
refuse to record the transfer or to issue new certificates of stock.
SERENO, C.J.:
This case concerns the dismissal[1] of an action for
mandamus that sought to compel respondents Rural
Bank of Cabadbaran, Inc., Demosthenes P. Oraiz, and
Ricardo D. Gonzalez to register the transfer of shares of
stock and issue the corresponding stock certificates in
favor of petitioner Joseph Omar O. Andaya. The
Cabadbaran City Regional Trial Court (RTC) ifuled that
petitioner Andaya was not entitled to the remedy of
mandamus, s|ince the transfer of the subject shares of
stock had not yet been recorded in the corporation's
stock and transfer book, and the registered owner,
Conception O. Chute, had not given him a special
power of attorney to makq the transfer. Andaya has
filed a Rule 45 petition directly before this Court,
insisting that he has a cause of action to institute the
suit.
FACTS
Andaya bought from Chute 2,200 shares of stock in the
Rural Bank of Cabadbaran for P220,000.[2] The
transaction was evidenced by a notarized document
denominated as Sale of Shares of Stocks.[3] Chute duly
endorsed and delivered the certificates of stock to
Andaya and, subsequently, requested the bank to
register the transfer and issue new stock certificates in
favor of the latter.[4] Andaya also separately
communicated[5] with the bank's corporate secretary,
respondent Oraiz, reiterating Chute's request for the
issuance of new stock certificates in petitioner's favor.
A few days later, the bank's corporate secretary
wrote[6] Chute to inform her that he could not register
the transfer. He explained that under a previous
stockholders' Resolution, existing stockholders were
given priority to buy the shares of others in the event
that the latter offered those shares for sale (i.e., a right
of first refusal). He then asked Chute if she, instead,
wished to have her shares offered to existing
stockholders. He told her that if no other stockholder
would buy them, she could then proceed to sell her
shares to outsiders.
Meanwhile, the bank's legal counsel, respondent
Gonzalez, informed[7] Andaya that the latter's request
had been referred to the bank's board of directors for
evaluation. Gonzalez also furnished him a copy of the
bank's previous reply to Chute concerning a similar
request from her. Andaya responded[8] by reiterating
his earlier request for the registration of the transfer
and the issuance of new certificates of stock in his
favor. Citing Section 98 of the Corporation Code, he
claimed that the purported restriction on the transfer
of shares of stock agreed upon during the 2001
stockholders' meeting could not deprive him of his
right as a transferee. He pointed out that the restriction
did not appear in the bank's articles of incorporation,
bylaws, or certificates of stock.
The bank eventually denied the request of Andaya.[9] It
reasoned that he had a conflict of interest, as he was
then president and chief executive officer of the Green
Bank of Caraga, a competitor bank. Respondent bank
concluded that the purchase of shares was not in good
faith, and that the purchase "could be the beginning of
a hostile bid to take-over control of the [Rural Bank of
Cabadbaran]."[10]Citing Gokongwei v. Securities and
Exchange Commission,[11] respondent insisted that it
may refuse to accept a competitor as one of its
stockholders. It also maintained that Chute should
have first offered her shares to the other stockholders,
as agreed upon during the 2001 stockholders' meeting.
Consequently, Andaya instituted an action for
mandamus and damages[12] against the Rural Bank of
Cabadbaran; its corporate secretary, Oraiz; and its
legal counsel, Gonzalez. Petitioner sought to compel
them to record the transfer in the bank's stock and
transfer book and to issue new certificates of stock in
his name.
The RTC issued a Decision dismissing the complaint.
Citing Porice v. Alsons Cement Corporation[13] the trial
court ruled that Andaya had no standing to compel the
bank to register the transfer and issue stock certificates
in his name.[14] It explained that he had failed "[to
show] that the transfer of subject shares of stock [was]
recorded in the stock and transfer book of [the] bank or
that [he was] authorized by [Chute] to make the
transfer."[15] According to the trial
court, Ponce requires that a person seeking to transfer
shares must appear to have an express instruction and
a specific authority from the registered stockholder,
such as a special power of attorney, to cause the
disposition of stocks registered in the stockholder's
name. It ruled that "[w]ithout the sale first registered
or an authority from the transferor, it [was] therefore
unmistakably clear that [Andaya had] no cause of
action for mandamus against [the] bank."
Consequently, Andaya directly filed with this Court a
Rule 45 petition for review on certiorari assailing the
RTC Decision on pure questions of law.
ISSUES
The Court culls the issues raised by petitioner as
follows:
1. Whether Andaya, as a transferee of shares of
stock, may initiate
an action for mandamus compelling
the Rural Bank of Cabadbaran to record the
transfer of shares in its stock and transfer book,
as well as issue new stock certificates in his name
2. Whether a writ of mandamus should issue in
favor of petitioner
OUR RULING
The petition is partly meritorious.
It is already settled jurisprudence[16] that the
registration of a transfer of shares of stock is a
ministerial duty on the part of the corporation.
Aggrieved parties may then resort to the remedy of
mandamus to compel corporations that wrongfully or
unjustifiably refuse to record the transfer or to issue
new certificates of stock. This remedy is available even
upon the instance of a bona fidetransferee[17] who is
able to establish a clear legal right to the registration of
the transfer.[18] This legal right inherently flows from
the transferee's established ownership of the stocks, a
right that has been recognized by this Court as early as
in Price v. Martin:[19]
A person who has purchased stock, and who desires
to be recognized as a stockholder, for the purpose
of voting, must secure a standing by having the
transfer recorded upon the books. If the transfer is not
duly made upon request, he has, as his remedy, to
compel it to be made.[20] (Emphases supplied)
Thus, in Pacific Basin Securities Co., Inc., v. Oriental
Petroleum and Minerals Corp.,[21]this Court stressed
that the registration of a transfer of shares is
ministerial on the part of the corporation:
Clearly, the right of a transferee/assignee to
have stocks transferred to his name is an
inherent right flowing from his ownership of
the stocks. The Court had ruled in Rural Bank of
Salinas, Inc. v. Court of Appeals that
the corporation's obligation to register
is ministerial, citing Fletcher, to wit:
In transferring stock, the secretary of a corporation
acts in purely ministerial capacity, and does not try to
decide the question of ownership.
The duty of the corporation to transfer is a ministerial
one and if it refuses to make such transaction without
good cause, it may be compelled to do so by
mandamus.
The Court further held in Rural Bank of
Salinas that the only limitation imposed by
Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the
shares intended to be transferred.[22] (Emphasis
supplied; citations omitted)
Consequently, transferees of shares of stock are real
parties in interest having a cause of action for
mandamus to compel the registration of the transfer
and the corresponding issuance of stock certificates.
We also rule that Andaya has been able to establish
that he is a bona fide transferee of the shares of stock
of Chute. In proving this fact, he presented to the RTC
the following documents evidencing the sale: (1) a
notarized Sale of Shares of Stocks[23] showing Chute's
sale of 2,200 shares of stock to petitioner; (2) a
Documentary Stamp Tax Declaration/Return[24] (3)
Capital Gains Tax Return;[25] and (4) stock
certificates[26] covering the subject
shares duly endorsed
by Chute. The existence, genuineness, and due
execution of these documents have been
admitted[27] and remain undisputed. There is no doubt
that Andaya had the standing to initiate an action for
mandamus to compel the Rural Bank of Cabadbaran to
record the transfer of shares in its stock and transfer
book and to issue new stock certificates in his name. As
the transferee of the shares, petitioner stands to be
benefited or injured by the judgment in the instant
petition, a judgment that will either order the bank to
recognize the legitimacy of the transfer and petitioner's
status as stockholder or to deny the legitimacy thereof.
This Court further finds that the reliance of the RTC
on Ponce in finding that petitioner had no cause of
action for mandamus against the defendant bank was
misplaced. In Ponce, the issue resolved by this Court
was whether the petitioner therein had a cause of
action for mandamus to compel the issuance of stock
certificates, not the registration of the transfer. Ruling
in the negative, the Court said in that case that without
any record of the transfer of shares in the stock and
transfer book of the corporation, there would be no
clear basis to compel that corporation to issue a stock
certificate. By the import of Section 63 of the
Corporation Code, the stock and transfer book would
be the main reference book in ascertaining a person's
entitlement to the rights of a stockholder.
Consequently, without the registration of the transfer,
the alleged transferee could not yet be recognized as a
stockholder who is entitled to be given a stock
certificate.
In contrast, at the crux of this petition are the
registration of the transfer and the issuance of the
corresponding stock certificates. Requiring petitioner
to register the transaction before he could institute a
mandamus suit in supposed abidance by the ruling in
Ponce was a palpable error. It led to an absurd,
circuitous situation in which Andaya was prevented
from causing the registration of the transfer, ironically
because the shares had not been registered. With the
logic resorted to by the RTC, transferees of shares of
stock would never be able to compel the registration of
the transfer and the issuance of new stock certificates
in their favor. They would first be required to show the
registration of the transfer in their names — the
ministerial act that is the subject of the mandamus suit
in the first place. The trial court confuses the
application of the dicta in Ponce, which is pertinent
only to the issuance of new stock certificates, and not
to the registration of a transfer of shares. As Ponce
itself provides, these two are entirely different events.
The RTC's anomalous reasoning cannot be given legal
imprimatur by this Court.
With regard to the requisite authorization from the
transferor, the Court stresses that the concern in Ponce
was rooted in whether or not the alleged right of the
petitioner therein to compel the issuance of new stock
certificates was clearly established. Reiterating the
ruling in Rivera v. FIorendo[28] and Eager v.
Bryan,[29] the Court therein maintained that a mere
endorsement of stock certificates by the supposed
owners of the stock could not be the basis of an action
for mandamus in the absence of express instructions
from them. According to the Court, the reason behind
this ruling was that the corporation's duty and legal
obligation therein were not so clear and indisputable as
to justify the issuance of the writ. The ambiguity of the
alleged transferee's deed of undertaking with
endorsement led the Court in Ponce to rule that
mandamus would have issued had the registered
owner himself requested the registration of the
transfer, or had the person requesting the registration
secured a special power of attorney from the registered
owner.
In the instant case, however, the submitted documents
did not merely consist of an endorsement. Rather,
petitioner presented several undisputed
documents,[30] among which was respondent Oraiz's
letter to Chute denying her request to transfer the stock
standing in her name in favor of Andaya. This letter
clearly indicated that the registered owner herself had
requested the registration of the transfer of shares of
stock. There was therefore no sensible reason for the
RTC to perfunctorily extract the pronouncement in
Ponce and then disregard it in the face of admitted
facts in addition to the duly endorsed stock certificates.

On whether the writ of mandamus should issue,
Section 3, Rule 65 of the Rules of Court, provides for
the rules governing a petition for mandamus, viz:
SECTION 3. Petition for mandamus. — When
any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which
the law specifically enjoins as a duty resulting
from an office, trust, or station, or unlawfully
excludes another from the use and enjoyment of a right
or office to which such other is entitled, and there is no
other plain, speedy and adequate remedy in the
ordinary course of law, the person aggrieved thereby
may file a verified petition in the proper court, alleging
the facts with certainty and praying that judgment be
rendered commanding the respondent, immediately or
at some other time to be specified by the court, to do
the act required to be done to protect the rights of the
petitioner, and to pay the damages sustained by the
petitioner by reason of the wrongful acts of the
respondent.
The petition shall also contain a sworn certification of
non-forum shopping as provided in the third
paragraph of Section 3, Rule 46. (Emphases supplied)
Accordingly, a writ of mandamus to enforce a
ministerial act may issue only when petitioner is able
to establish the presence of the following: (1) right
clearly founded in law and is not doubtful; (2) a legal
duty to perform the act; (3) unlawful neglect in
performing the duty enjoined by law; (4) the
ministerial nature of the act to be performed; and (5)
the absence of other plain, speedy, and adequate
remedy in the ordinary course of law.[31]
Respondents primarily challenge the mandamus suit
on the grounds that the transfer violated the bank
stockholders' right of first refusal and that petitioner
was a buyer in bad faith. Both parties refer to Section
98 of the Corporation Code to support their arguments,
which reads as follows:
SECTION 98. Validity of restrictions on transfer of
shares. — Restrictions on the right to transfer
shares must appear in the articles of
incorporation and in the by-laws as well as in
the certificate of stock; otherwise, the same
shall not be binding on any purchaser thereof
in good faith. Said restrictions shall not be more
than onerous than granting the existing stockholders
or the corporation the option to purchase the shares of
the transferring stockholder with such reasonable
terms, conditions or period stated therein. If upon the
expiration of said period, the existing stockholders or
the corporation fails to exercise the option
to purchase, the transferring stockholder may sell his
shares to any third person. (Emphases supplied)
It must be noted that Section 98 applies only to close
corporations. Hence, before the Court can allow the
operation of this section in the case at bar, there must
first be a factual determination that respondent Rural
Bank of Cabadbaran is indeed a close corporation.
There needs to be a presentation of evidence on the
relevant restrictions in the articles of incorporation j
and bylaws of the said bank. From the records or the
RTC Decision, there is apparently no such
determination or even allegation that would assist this
Court in ruling on these two major factual matters.
With the foregoing, the validity of the transfer cannot
yet be tested using that provision. These are the factual
matters that the parties must first thresh out before the
RTC.
After finding that petitioner has legal standing to
initiate an action for mandamus, the Court now
reinstates the action he filed and remands the case to
the RTC to resolve the propriety of issuing a writ of
mandamus. The resolution of the case must include the
determination of all relevant factual matters in
connection with the issues at bar. The RTC must also
resolve petitioner's prayer for the payment of
attorney's fees, litigation expenses, moral damages,
and exemplary damages.
WHEREFORE, premises considered, the instant
petition I is GRANTED. The Decision dated 17 April
2009 and the Order dated 15 July 2009 of the Regional
Trial Court, Branch 34, Cabadbaran City, which
dismissed petitioner's action for mandamus, are SET
ASIDE. The action is hereby REINSTATED and the
case REMANDED to the court of origin for further
proceedings. The trial court is further enjoined to
proceed with [the resolution of this case with dispatch.
SO ORDERED.
Leonardo-De Castro, Bersamin, Perlas-
Bernabe and Caguioa, JJ., concur.
Teng v. SEC
RECIT-READY:
This case originated from the case of TCL Sales Corp v. CA.
Respondent Ting Ping purchased shares of TCL Sales Corporation
(TCL) from Chiu, his brother Teng Ching Lay (President and operations
manager of TCL), and Maluto. Teng Ching died. Ting Ping, to protect
his shareholdings with TCL, requested petitioner Teng (TCL's
Corporate Secretary), to enter the transfer in the Stock and Transfer
Book of TCL for the proper recording of his acquisition. He also
demanded the issuance of new certificates of stock in his favor. TCL
and Teng refused despite repeated demands. Ting Ping filed
mandamus with the SEC which was granted. SEC issued a writ of
execution. Teng argued that prior to registration of stocks in the
corporate books, it is mandatory that the stock certificates are first
surrendered because a corporation will be liable to a bona fide holder
of the old certificate if, without demanding the said certificate, it issues
a new one. On the other hand, Ting Ping argued that Section 63 of the
Corporation Code does not require the surrender of the stock certificate
to the corporation, nor make such surrender an indispensable condition
before any transfer of shares can be registered in the books of the
corporation. The only limitation imposed by Section 63 is when the
corporation holds any unpaid claim against the shares intended to be
transferred.
Whether or not the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate books
and for the issuance of new certificates in its stead--NO.
To compel Ting Ping to deliver to the corporation the certificates as a
condition for the registration of the transfer would amount to a restriction
on the right of Ting Ping to have the stocks transferred to his name,
which is not sanctioned by law.
In a sale of shares of stock, physical delivery of a stock certificate is
one of the essential requisites for the transfer of ownership of the stocks
purchased." The delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares by the transferor
to the transferee, that is, from the original stockholder named in the
certificate to the person or entity the stockholder was transferring the
shares to, whether by sale or some other valid form of absolute
conveyance of ownership. "[S]hares of stock may be transferred by
delivery to the transferee of the certificate properly indorsed. Title may
be vested in the transferee by the delivery of the duly indorsed
certificate of stock."
Nevertheless, to be valid against third parties and the corporation, the
transfer must be recorded or registered in the books of corporation.
Upon registration of the transfer in the books of the corporation, the
transferee may now then exercise all the rights of a stockholder, which
include the right to have stocks transferred to his name.
COMPREHENSIVE:
FACTS:
● This case originated from the case of TCL Sales Corporation
and Anna Teng v. Hon. Court of Appeals and Ting Ping Lay.
● Respondent Ting Ping purchased 480 shares of TCL Sales
Corporation (TCL) from Chiu; 1,400 shares from his brother
Teng Ching Lay (Teng Ching), who was also the president and
operations manager of TCL; and 1,440 shares from Maluto.
● Upon Teng Ching's death, his son Henry Teng (Henry) took over
the management of TCL.
● Respondent Ting Ping, to protect his shareholdings with TCL,
requested petitioner Teng, TCL's Corporate Secretary, to enter
the transfer in the Stock and Transfer Book of TCL for the proper
recording of his acquisition. He also demanded the issuance of
new certificates of stock in his favor.
● TCL and Teng refused despite repeated demands.
● Ting Ping filed a petition for mandamus with the SEC which was
granted → SEC en banc affirmed → Petition for review with the
CA but was denied → petition for review on certiorari with the
SC under Rule 45 but was denied.
● SEC issued a writ of execution.
● Teng filed a complaint for interpleader with the RTC of Manila
to compel Henry and Ting Ping to interplead and settle the issue
of ownership over the 1,400 shares, which were previously
owned by Teng Ching.
○ RTC found Henry to have a better right to the shares of
stock formerly owned by Teng Ching, except as to those
covered by Stock Certificate No. 011 covering 262.5
shares, among others. (***Note that as a consequence,
the subject of the orders of execution issued by the SEC
pertained only to Chiu's and Maluto's respective
shares.)
● Ting Ping filed an Ex Parte Motion for the Issuance of Alias Writ
of Execution for the partial satisfaction of SEC en banc Order
directing TCL and Teng to record the shares he acquired from
Chiu and Maluto, and for payment of the damages.
● Teng and TCL filed their respective motions to quash, which
was opposed by Ting Ping, who also expressed his willingness
to surrender the original stock certificates of Chiu and Maluto to
facilitate and expedite the transfer of the shares in his favor.
● Teng’s arguments:
○ Prior to registration of stocks in the corporate books, it is
mandatory that the stock certificates are first
surrendered because a corporation will be liable to a
bona fide holder of the old certificate if, without
demanding the said certificate, it issues a new one.
○ The annexes in Ting Ping's opposition did not include
the subject certificates of stock, surmising that they
could have been lost or destroyed.
○ There is a discrepancy between the total shares of
Maluto based on the annexes, which is only 1305
shares, as against the 1440 shares acquired by Ting
Ping based on the SEC Order
● Ting Ping’s arguments:
○ Section 63 of the Corporation Code does not require the
surrender of the stock certificate to the corporation, nor
make such surrender an indispensable condition before
any transfer of shares can be registered in the books of
the corporation. The only limitation imposed by Section
63 is when the corporation holds any unpaid claim
against the shares intended to be transferred.
○ (in response to Teng’s 2nd argument) Claimed that his
counsel Atty. Simon V. Lao already communicated with
TCL's counsel regarding the surrender of the said
certificates of stock.
● SEC denied the motions to quash.
● Teng filed a petition for certiorari and prohibition under Rule 65
with the CA which was denied.
● Hence, the present petition.
ISSUE:
Whether or not the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate books
and for the issuance of new certificates in its stead
HELD: NO. To compel Ting Ping to deliver to the corporation the
certificates as a condition for the registration of the transfer would
amount to a restriction on the right of Ting Ping to have the stocks
transferred to his name, which is not sanctioned by law. The right of a
transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. The only
limitation imposed by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be transferred.
● A certificate of stock is a written instrument signed by the proper
officer of a corporation stating or acknowledging that the person
named in the document is the owner of a designated number of
shares of its stock.
○ It is prima facie evidence that the holder is a shareholder
of a corporation.
○ A certificate, however, is merely a tangible evidence of
ownership of shares of stock. It is not a stock in the
corporation and merely expresses the contract between
the corporation and the stockholder.
○ The shares of stock evidenced by said certificates,
meanwhile, are regarded as property and the owner of
such shares may, as a general rule, dispose of them as
he sees fit, unless the corporation has been dissolved,
or unless the right to do so is properly restricted, or the
owner's privilege of disposing of his shares has been
hampered by his own action.
On the Registration of Transfer
● Section 63 of the Corporation Code prescribes the manner by
which a share of stock may be transferred.
○ Certain minimum requisites must be complied with for
there to be a valid transfer of stocks, to wit: (a) there
must be delivery of the stock certificate; (b) the
certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to
make the transfer; and (c) to be valid against third
parties, the transfer must be recorded in the books of the
corporation.
○ It is the delivery of the certificate, coupled with the
endorsement by the owner or his duly authorized
representative that is the operative act of transfer of
shares from the original owner to the transferee.
○ The delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares by the
transferor to the transferee, that is, from the original
stockholder named in the certificate to the person or
entity the stockholder was transferring the shares to,
whether by sale or some other valid form of absolute
conveyance of ownership.
● The delivery or surrender adverted to by Teng, i.e., from Ting
Ping to TCL, is not a requisite before the conveyance may be
recorded in its books.
● To compel Ting Ping to deliver to the corporation the certificates
as a condition for the registration of the transfer would amount
to a restriction on the right of Ting Ping to have the stocks
transferred to his name, which is not sanctioned by law. The
only limitation imposed by Section 63 is when the corporation
holds any unpaid claim against the shares intended to be
transferred.
● The right of a transferee/assignee to have stocks transferred to
his name is an inherent right flowing from his ownership of the
stocks.
○ A corporation, either by its board, its by-laws, or the act
of its officers, cannot create restrictions in stock
transfers. In transferring stock, the secretary of a
corporation acts in purely ministerial capacity, and does
not try to decide the question of ownership.
○ If a corporation refuses to make such transfer without
good cause, it may, in fact, even be compelled to do so
by mandamus.
● Ting Ping's definite and uncontested titles to the subject shares
were already determined in the case of TCL Sales Corp v. CA
○ Ting Ping Lay was able to establish prima facie
ownership over the shares of stocks in question, through
deeds of transfer of shares of stock of TCL Corporation.
Hence, the transfer of shares to him must be recorded
on the corporation's stock and transfer book.
 ● Moreover, Teng cannot refuse registration of the transfer on the
pretext that the photocopies of Maluto's certificates of stock
submitted by Ting Ping covered only 1,305 shares and not
1,440.
○ As earlier stated, the respective duties of the corporation
and its secretary to transfer stock are purely ministerial
○ The discrepancy was also not attended with fraud but a
mere product of the failure of the corporation to register
with the [SEC] the increase in the subscribed capital
stock by 4000 shares.
● Nevertheless, to be valid against third parties and the
corporation, the transfer must be recorded or registered in the
books of corporation.
● Upon registration of the transfer in the books of the corporation,
the transferee may now then exercise all the rights of a
stockholder, which include the right to have stocks transferred
to his name.
On the Issuance of a New Certificate
● The surrender of the original certificate of stock is necessary
before the issuance of a new one so that the old certificate may
be cancelled.
○ A corporation is not bound and cannot be required to
issue a new certificate unless the original certificate is
produced and surrendered.
○ Surrender and cancellation of the old certificates serve
to protect not only the corporation but the legitimate
shareholder and the public as well, as it ensures that
there is only one document covering a particular share
of stock.
● In the present case, Ting Ping manifested from the start his
intention to surrender the subject certificates of stock to facilitate
the registration of the transfer and for the issuance of new
certificates in his name.
○ It would be sacrificing substantial justice if the Court
were to grant the petition simply because Ting Ping is
yet to surrender the subject certificates for cancellation
instead of ordering in this case such surrender and
cancellation, and the issuance of new ones in his name.
BERNAS v. CINCO
July 1, 2015| Perez, J. | Control and Management of a Corporation
Digester: Alexis Bea
SUMMARY: The Bernas Group are the incumbent Members of the Board of Directors
and Officers of Makati Sports Club whose terms were to expire either in 1998 or 1999.
The Cinco Group, meanwhile, are the members and stockholders of the MSC during the
December 17, 1997 Special Stockholders Meeting.
Because of rumors regarding the corporate funds, the MSC Oversight Committee
(MSCOC), composed of past presidents of the club, demanded from the Bernas Group
to resign from their positions to pave the way for the election of the new set of officers.
Thus, MSCOC called for a Special Stockholders’ Meeting and the Cinco Group were
elected. And in the Annual Stockholders’ Meeting in 1998, the removal of the Barnas
Group and the election of their replacements were ratified.
Due to the filing of several petitions for and against the removal of the Bernas Group
from the Board pending before the SEC resulting in the piling up of legal controversies
involving MSC, the SEC resolved to supervise the holding of the 1999 Annual
Stockholders’ Meeting. During that meeting, it was once again ratified. And ratified again
in the 2000 meeting.
SICD rendered a Decision in the SEC case finding that the December 17, 1997
Stockholders Meeting and the subsequent meetings ratifying it invalid. It likewise nullified
the expulsion of Bernas from the corporation and the sale of his share at the public
auction. This was because the said special meeting was prematurely or invalidly called by
the Cinco Group, thus failing to produce legal effect and did not remove the Bernas
Group as directors of the MSC. SC held that the December 17, 1997 Meeting was invalid
for being improperly called.
DOCTRINE: A distinction should be made between corporate acts or contracts
which are illegal and those which are merely ultra vires. The former contemplates
the doing of an act which are contrary to law, morals or public policy or public duty, and
are, like similar transactions between individuals, void. They cannot serve as basis of a
court action nor acquire validity by performance, ratification or estoppel. Mere ultra
vires acts, on the other hand, or those which are not illegal or void ab initio, but are
not merely within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders. The 17 December
1997 Meeting belongs to the category of the latter, that is, it is void ab initio and cannot
be validated.
FACTS:
 Makati Sports Club (MSC) is a domestic corporation duly organized and existing
under Philippine laws for the primary purpose of establishing, maintaining, and
providing social, cultural, recreational and athletic activities among its members.
 Petitioners in G.R. Nos. 163356-57 (Case 1), Jose A. Bernas (Bernas), Cecile H.
Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T. Macrohon and
Paulino T. Lim (BERNAS GROUP) were among the Members of the Board of
Directors and Officers of the corporation whose terms were to expire either in
1998 or 1999.
 Petitioners in G.R. Nos. 163368-69 (Case 2) Jovencio Cinco, Ricardo Librea and
Alex Y. Pardo (CINCO GROUP) are the members and stockholders of the
corporation who were elected Members of the Board of Directors and Officers of
the club during the 17 December 1997 Special Stockholders Meeting.
 Alarmed with the rumored anomalies in handling the corporate funds, the MSC
Oversight Committee (MSCOC), composed of the past presidents of the club,
demanded from the Bernas Group, who were then incumbent officers of the
corporation, to resign from their respective positions to pave the way for the
election of new set of officers.
o Agreeing with this, were the stockholders of the corporation representing
at least 100 shares who sought the assistance of the MSCOC to call for a
special stockholders meeting for the purpose of removing the sitting
officers and electing new ones. Pursuant to such request, the MSCOC
called a Special Stockholders’ Meeting and sent out notices to all
stockholders and members stating therein the time, place and purpose of
the meeting.
o For failure of the Bernas Group to secure an injunction before the
Securities Commission (SEC), the meeting proceeded wherein Bernas,
Cheng, Africa, Maramara, Frondoso, Macrohon, Jr. and Lim were
removed from office and, in their place and stead, Cinco, Librea, Pardo,
Aguiling, Villarosa, David, Maronilla, de Leon-Herlihy and Altura, were
elected.
 Aggrieved by the turn of events, the BERNAS GROUP sought the nullification of
the 17 December 1997 Special Stockholders Meeting on the ground that it was
improperly called before the Securities Investigation and Clearing Department
(SICD) of the SEC. Citing Section 28 of the Corporation Code.
 BERNAS GROUP: The authority to call a meeting lies with the Corporate
Secretary and not with the MSCOC which functions merely as an oversight body
and is not vested with the power to call corporate meetings.
 For being called by the persons not authorized to do so, the Bernas Group urged
the SEC to declare the 17 December 1997 Special Stockholders’ Meeting, including
the removal of the sitting officers and the election of new ones, be nullified.
 CINCO GROUP: insisted that the 17 December 1997 Special Stockholders’
Meeting is sanctioned by the Corporation Code and the MSC by-laws.
o In justifying the call effected by the MSCOC, they reasoned that Section
25 of the MSC by-laws merely authorized the Corporate Secretary to
issue notices of meetings and nowhere does it state that such authority
solely belongs to him.
o It would be useless to course the request to call a meeting through the
Corporate Secretary because he repeatedly refused to call a special
stockholders’ meeting despite demands and even filed a suit to restrain the
holding of a special meeting.
o The newly elected directors initiated an investigation on the alleged
anomalies in administering the corporate affairs and after finding Bernas
guilty of irregularities, the Board resolved to expel him from the club by
selling his shares at public auction.
 Due to the filing of several petitions for and against the removal of the Bernas
Group from the Board pending before the SEC resulting in the piling up of legal
controversies involving MSC, the SEC En Banc resolved to supervise the holding
of the 1999 Annual Stockholders’ Meeting.
 During the said meeting, the stockholders once again approved, ratified and
confirmed the holding of the 17 December 1997 Special Stockholders’ Meeting.
o The conduct of the 17 December 1997 Special Stockholders’ Meeting was
likewise ratified by the stockholders during the 2000 Annual Stockholders’
Meeting which was held on 17 April 2000.
 SICD rendered a decision finding, among others, that the 17 December 1997
Special Stockholders’ Meeting and the Annual Stockholders’ Meeting conducted on
20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the
expulsion of Bernas from the corporation and the sale of his share at the public
auction.
 CA: declared that 17 December 1997 Special Stockholders’ Meeting invalid for
being improperly called but affirmed the actions taken during the Annual
Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000.
 BERNAS GROUP: Agrees with the disquisition of the appellate court that the
Special Stockholders’ Meeting is invalid for being called by the persons not
authorized to do so, they urge the Court to likewise invalidate the holding of the
subsequent Annual Stockholders’ Meetings invoking the application of the
holdover principle.
 CINCO GROUP: Insists that the holding of 17 December 1997 Special
Stockholders’ Meeting is valid and binding underscoring the overwhelming
ratification made by the stockholders during the subsequent annual stockholders’
meetings and the previous refusal of the Corporate Secretary to call a special
stockholders’ meeting despite demand.
Whether or not the CA erred in ruling that December 17, 1997 Special
Stockholders’ Meeting is invalid—YES. It is invalid.
 The 17 December 1997 Special Stockholders’ Meeting is null and void and
produces no effect; the resolution expelling the Bernas Group from the
corporation and authorizing the sale of Bernas’ shares at the public auction is
likewise null and void.
 The Corporation Code laid down the rules on the removal of the Directors of the
corporation by providing, inter alia, the persons authorized to call the meeting and
the number of votes required for the purpose of removal:
o Sec. 28. Removal of directors or trustees. - Any director or trustee of a
corporation may be removed from office by a vote of the stockholders
holding or representing at least two-thirds (2/3) of the outstanding capital
stock, or if the corporation be a non-stock corporation, by a vote of at
least two-thirds (2/3) of the members entitled to vote: Provided, That
 such removal shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose, and in either
case, after previous notice to stockholders or members of the corporation
of the intention to propose such removal at the meeting. A special
meeting of the stockholders or members of a corporation for the
purpose of removal of directors or trustees, or any of them, must be
called by the secretary on order of the president or on the written
demand of the stockholders representing or holding at least a
majority of the outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of the members entitled
to vote. Should the secretary fail or refuse to call the special meeting upon
such demand or fail or refuse to give the notice, or if there is no secretary,
the call for the meeting may be addressed directly to the stockholders or
members by any stockholder or member of the corporation signing the
demand. Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by
written notice prescribed in this Code. Removal may be with or without
cause: Provided, that removal without cause may not be used to deprive
minority stockholders or members of the right of representation to which
they may be entitled under Section 24 of this Code.
 Textually, only the President and the Board of Directors are authorized by the by-
laws to call a special meeting. In cases where the person authorized to call a
meeting refuses, fails or neglects to call a meeting, then the stockholders
representing at least 100 shares, upon written request, may file a petition to call a
special stockholder’s meeting.
 In the instant case, there is no dispute that the 17 December 1997 Special
Stockholders’ Meeting was called neither by the President nor by the Board of
Directors but by the MSCOC. While the MSCOC, as its name suggests, is created
for the purpose of overseeing the affairs of the corporation, nowhere in the by-laws
does it state that it is authorized to exercise corporate powers, such as the power to
call a special meeting, solely vested by law and the MSC by-laws on the President or
the Board of Directors.
 The board of directors is the directing and controlling body of the corporation. It
is a creation of the stockholders and derives its power to control and direct the
affairs of the corporation from them. The board of directors, in drawing to itself
the power of the corporation, occupies a position of trusteeship in relation to the
stockholders, in the sense that the board should exercise not only care and
diligence, but utmost good faith in the management of the corporate affairs.
 The underlying policy of the Corporation Code is that the business and affairs of a
corporation must be governed by a board of directors whose members have stood
for election, and who have actually been elected b
 the stockholders, on an annual basis. The shareholder vote is critical to the theory
that legitimizes the exercise of power by the directors or officers over the
properties that they do not own.
 SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided
in this Code, the corporate powers of all the corporations formed under this
Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors and trustees
 A corporation’s board of directors is understood to be that body which (1)
exercises all powers provided for under the Corporation Code; (2) conducts all
business of the corporation; and (3) controls and holds all the property of the
corporation. Its members have been characterized as trustees or directors
clothed with fiduciary character.
 It is ineluctably clear that the fiduciary relation is between the stockholders and
the board of directors and who are vested with the power to manage the
affairs of the corporation.
 The ordinary trust relationship of directors of a corporation and stockholders
is not a matter of statutory or technical law.
 It springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of the
stockholders.
 Equity recognizes that stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries thereof. Should the board fail
to perform its fiduciary duty to safeguard the interest of the stockholders or
commit acts prejudicial to their interest, the law and the by-laws provide
mechanisms to remove and replace the erring director.
 It is apt to recall that illegal acts of a corporation which contemplate the doing
of an act which is contrary to law, morals or public order, or contravenes some
rules of public policy or public duty, are, like similar transactions between
individuals, void. The same principle can apply in the present case. The void
election of 17 December 1997 cannot be ratified by the subsequent Annual
Stockholders’ Meeting.
 A distinction should be made between corporate acts or contracts which are
illegal and those which are merely ultra vires. The former contemplates
the doing of an act which are contrary to law, morals or public policy or public
duty, and are, like similar transactions between individuals, void. They cannot
serve as basis of a court action nor acquire validity by performance, ratification
or estoppel. Mere ultra vires acts, on the other hand, or those which are
not illegal or void ab initio, but are not merely within the scope of the articles
of incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders. The 17 December 1997
Meeting belongs to the category of the latter, that is, it is void ab initio and
cannot be validated.
 Consequently, such Special Stockholders’ Meeting called by the Oversight
Committee cannot have any legal effect. The Cinco Group cannot invoke the
application of de facto officership doctrine to justify the actions taken after the
invalid election since the operation of the principle is limited to third persons
who were originally not part of the corporation but became such by reason of
voting of government- sequestered shares.
 Where there is an officer authorized to call a meeting and that officer refuses,
fails, or neglects to call a meeting, the SEC can assume jurisdiction and issue
an order to the petitioning stockholder to call a meeting pursuant to its
 regulatory and administrative powers to implement the Corporation Code. SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF
This is clearly provided for by Section 50 of the Corporation Code1 DIRECTORS OF MAKATI SPORTS CLUB, Petitioners, v.
Whether or not the Court of Appeals erred in failing to nullify the holding of the
annual stockholders’ meeting on 20 April 1998, 19 April 1999 and 17 April 2000— JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G.
NO LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA
 The subsequent Annual Stockholders’ Meeting held on 20 April 1998, 19 April CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA.
1999 and 17 April 2000 are valid and binding except the ratification of the removal CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON,
of the Bernas Group and the sale of Bernas’ shares at the public auction effected by
CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L.
the body during the said meetings. The expulsion of the Bernas Group and the
subsequent auction of Bernas’ shares are void from the very beginning and GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA,
therefore the ratifications effected during the subsequent meetings cannot be MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG,
sustained. A void act cannot be the subject of ratification. REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR.,
 The 19 April 1999 Annual Stockholders Meeting is likewise valid because in ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND
addition to the fact that it was conducted in accordance to Section 8 of the MSC
JOHN DOES, Respondents.
bylaws, such meeting was supervised by the SEC in the exercise of its regulatory
and administrative powers to implement the Corporation Code. G.R. Nos. 163356-57: July 01, 2015
 Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y.
rise to the presumption that the corporate officers who won the election were duly PARDO, Petitioners, v. JOSE A. BERNAS, CECILE H. CHENG
elected to their positions and therefore can be rightfully considered as de AND IGNACIO A. MACROHON, Respondents.
jure officers. As de jure officials, they can lawfully exercise functions and legally G.R. NOS. 163368-69: July 01, 2015
perform such acts that are within the scope of the business of the corporation
except ratification of actions that are deemed void from the beginning.
Ponente: PEREZ, J.:
 Considering that a new set of officers were already duly elected in 1998 and 1999 Digest by: Emi Rose S. Remoroza-Parcon
Annual Stockholders Meetings, the Bernas Group cannot be permitted to use the FACTS:
holdover principle as a shield to perpetuate in office. Members of the group had Makati Sports Club (MSC) is a domestic corporation duly
no right to continue as directors of the corporation unless reelected by the organized and existing under Philippine laws for the primary
stockholders in a meeting called for that purpose every year. They had no right to
hold-over brought about by the failure to perform the duty incumbent upon them.
purpose of establishing, maintaining, and providing social,
cultural, recreational and athletic activities among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas
(Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose
T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas
Group) were among the Members of the Board of Directors and
Officers of the corporation whose terms were to expire either in
BERNAS v. CINCO 1998 or 1999.
Topic: Ultra Vires Petitioners in G.R. Nos. 163368-69 Jovencio Cinco,
JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, Ricardo Librea and Alex Y. Pardo (Cinco Group) are the
JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. members and stockholders of the corporation who were elected
MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR Members of the Board of Directors and Officers of the club
CAPACITY AS INDIVIDUAL DIRECTORS OF MAKATI during the 17 December 1997 Special Stockholders Meeting.

1 Sec. 50. Regular and special meetings of stockholders or members. – x x x directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning
stockholder or member shall preside thereat until at least majority of the stockholders or members present have chosen one of their
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange Commission, upon petition of a member[s] as presiding officer
stockholder or member, and on a showing of good cause therefore, may issue an order to the petitioning stockholder or member
 Alarmed with the rumored anomalies in handling the
corporate funds, the MSC Oversight Committee (MSCOC),
composed of the past presidents of the club, demanded from
the Bernas Group, who were then incumbent officers of the
corporation, to resign from their respective positions to pave the
way for the election of new set of officers. Resonating this
clamor were the stockholders of the corporation representing at
least 100 shares who sought the assistance of the MSCOC to
call for a special stockholders meeting for the purpose of
removing the sitting officers and electing new ones. Pursuant to
such request, the MSCOC called a Special Stockholders’
Meeting and sent out notices to all stockholders and members
stating therein the time, place and purpose of the meeting. For
failure of the Bernas Group to secure an injunction before the
Securities Commission (SEC), the meeting (7 December 1997
Special Stockholders Meeting) proceeded wherein the members
of the Bernas group were removed from office and, in their place
and stead members of the Cinco group were elected.
An Annual Stockholders’ Meeting was held on 20 April
1998 pursuant to Section 8 of the MSC bylaws. During the said
meeting, which was attended by 1,017 stockholders
representing 2/3 of the outstanding shares, the majority resolved
to approve, confirm and ratify, among others, the calling and
holding of 17 December 1997 Special Stockholders’ Meeting,
the acts and resolutions adopted therein including the removal
of Bernas Group from the Board and the election of their
replacements.
Due to the filing of several petitions for and against the
removal of the Bernas Group from the Board pending before the
SEC resulting in the piling up of legal controversies involving
MSC, the SEC En Banc, resolved to supervise the holding of the
1999 Annual Stockholders’ Meeting. During the said meeting,
the stockholders once again approved, ratified and confirmed
the holding of the 17 December 1997 Special Stockholders’
Meeting.
The conduct of the 17 December 1997 Special Stockholders’
Meeting was likewise ratified by the stockholders during the
2000 Annual Stockholders’ Meeting which was held on 17 April
2000.
On 9 May 2000, the SICD rendered a Decision in SEC Case No.
12-97-5840 finding, among others, that the 17 December 1997
Special Stockholders’ Meeting and the Annual Stockholders’
Meeting conducted on 20 April 1998 and 19 April 1999 are
invalid. The SICD likewise nullified the expulsion of Bernas from
the corporation and the sale of his share at the public auction.
The supposed Special Stockholders’ Meeting of December 17,
1997 was prematurely or invalidly called by the the Cinco
Group. It therefore failed to produce any legal effects and did
not effectively remove the Bernas Group as directors of the
Makati Sports Club, Inc.
The April 20, 1998 meeting was not attended by a sufficient
number of valid proxies. No quorum could have been present at
the said meeting. No corporate business could have been
validly completed and/or transacted during the said meeting.
Further, it was not called by the validly elected Corporate
Secretary Victor Africa nor presided over by the validly elected
president Jose A. Bernas. Even if the April 20, 1998 meeting
was valid, it could not ratify the December 17, 1997 meeting
because being a void meeting, the December 17, 1997 meeting
may not be ratified.
(3) The April 1998 meeting was null and void and therefore
produced no legal effect.
(4) The April 1999 meeting has not been raised as a defense in
the Answer nor assailed in a supplemental complaint. However,
it has been raised by [the Cinco Group] in a manifestation dated
April 21, 1999 and in their position paper dated April 8, 2000. Its
legal effects must be the subject of this Decision in order to put
an end to the controversy at hand. In the first place, by [the
Cinco Group’s] own admission, the alleged attendance at the
April 1999 meeting amounted to less than 2/3 of the
stockholders entitled to vote, the minimum number required to
effect a removal. No removal or ratification of a removal may be
effected by less than 2/3 vote of the stockholders. Further, it
cannot ratify the December 1997 meeting for failure to adhere to
the requirement of the By-laws on notice as explained in
paragraph (2) above, even if it was accompanied by valid
proxies, which it was not.
(5) The [the Cinco Group], their agents, representatives and all
persons acting for and conspiring on their behalf, are hereby
permanently enjoined from carrying into effect the resolutions
and actions adopted during the 17 December 1997 and April 20,
1998 meetings and of the Board of Directors and/or other
stockholders’ meetings resulting therefrom, and from performing
acts of control and management of the club.
(6) The expulsion of complainant Jose A. Bernas as well as the
public auction of his share is hereby declared void and without
legal effect, as prayed for. While it is true that [the Cinco Group]
were not restrained from acting as directors during the
pendency of this case, their tenure as directors prior to this
Decision is in the nature of de facto directors of a de facto
Board. Only the ordinary acts of administration which [the Cinco
Group] carried out de facto in good faith are valid. Other acts,
such as political acts and the expulsion or other disciplinary acts
imposed on the [the Bernas Group] may not be appropriately
taken by de facto officers because the legality of their tenure as
directors is not complete and subject to the outcome of this
case.
(7) No awards for damages and attorney’s fees.18
On appeal, the SEC En Banc, in its 12 December 2000
Decision19 reversed the findings of the SICD and validated the
holding of the 17 December 1997 Special Stockholders’ Meeting
as well as the Annual Stockholders’ Meeting held on 20 April
1998 and 19 April 1999.
On 28 April 2003, the Court of Appeals rendered a Decision
declaring the 17 December 1997 Special Stockholders’ Meeting
invalid for being improperly called but affirmed the actions taken
during the Annual Stockholders’ Meeting held on 20 April 1998,
19 April 1999 and 17 April 2000.
In a Resolution21 dated 27 April 2004, the appellate court
refused to reconsider its earlier decision.
Aggrieved by the disquisition of the Court of Appeals, both
parties elevated the case before this Court by filing their
respective Petitions for Review on Certiorari. While the Bernas
Group agrees with the disquisition of the appellate court that the
Special Stockholders’ Meeting is invalid for being called by the
persons not authorized to do so, they urge the Court to likewise
invalidate the holding of the subsequent Annual Stockholders’
Meetings invoking the application of the holdover principle. The
Cinco Group, for its part, insists that the holding of 17 December
1997 Special Stockholders’ Meeting is valid and binding
underscoring the overwhelming ratification made by the
stockholders during the subsequent annual stockholders’
meetings and the previous refusal of the Corporate Secretary to
call a special stockholders’ meeting despite demand. For the
resolution of the Court are the following issues:
ISSUES:
Whether or not these meetings are valid:
1. the 17 December 1997 special stockholders’ meeting;
2. the Annual stockholders’ meeting on
a. 20 April 1998,
b. 19 April 1999, and
c. 17 April 2000.
RULING:
1. No, the 1997 special stockholders meeting was invalid for
being improperly called.
Both the Corporation Code (on the provisions on Removal of
Directors and Meetings) and the MSC by-laws which govern the
manner of calling and sending of notices of the annual
stockholders’ meeting and the special stockholders’ meeting
were not followed.
Textually, only the President and the Board of Directors are 2. Yes, the three Annual Stockholders Meetings (1998,
authorized by the by-laws to call a special meeting. The 1999, 2000) were valid because it was sanctioned by
MSCOC is not authorized to exercise corporate powers, such as Section 845 of the MSC bylaws. Unlike in Special
the power to call a special meeting. Stockholders Meeting, wherein the bylaws mandated that
The subsequent ratification made by the stockholders did not such meeting shall be called by specific persons only, no
cure the substantive infirmity, the defect having set in at the time such specific requirement can be obtained under Section
the void act was done. The defect goes into the very authority
8. The 1999 Annual Stockholders Meeting is likewise
of the persons who made the call for the meeting. It is apt to
valid because in addition to the fact that it was conducted
recall that illegal acts of a corporation which contemplate the
doing of an act which is contrary to law, morals or public order, in accordance to Section 8 of the MSC bylaws, such
or contravenes some rules of public policy or public duty, are, meeting was supervised by the SEC in the exercise of its
like similar transactions between individuals, void. They cannot regulatory and administrative powers to implement the
serve as basis for a court action, nor acquire validity by Corporation Code.
performance, ratification or estoppel. The same principle can
Needless to say, the conduct of SEC supervised Annual
apply in the present case. The void election of 17 December
Stockholders Meeting gave rise to the presumption that the
1997 cannot be ratified by the subsequent Annual Stockholders’
corporate officers who won the election were duly elected to
Meeting.
their positions and therefore can be rightfully considered as de
A distinction should be made between corporate acts or
jure officers. As de jure officials, they can lawfully exercise
contracts which are illegal and those which are merely ultra
functions and legally perform such acts that are within the scope
vires. The former contemplates the doing of an act which are
of the business of the corporation except ratification of actions
contrary to law, morals or public policy or public duty, and are,
that are deemed void from the beginning.
like similar transactions between individuals, void. They cannot
Considering that a new set of officers were already duly elected
serve as basis of a court action nor acquire validity by
in 1998 and 1999 Annual Stockholders Meetings, the Bernas
performance, ratification or estoppel. Mere ultra vires acts, on
Group cannot be permitted to use the holdover principle as a
the other hand, or those which are not illegal or void ab initio,
shield to perpetuate in office. Members of the group had no
but are not merely within the scope of the articles of
right to continue as directors of the corporation unless reelected
incorporation, are merely voidable and may become binding and
by the stockholders in a meeting called for that purpose every
enforceable when ratified by the stockholders. The 17
year. They had no right to hold-over brought about by the failure
December 1997 Meeting belongs to the category of the latter,
to perform the duty incumbent upon them. If they were sure to
that is, it is void ab initio and cannot be validated.
be reelected, why did they fail, neglect, or refuse to call the
Consequently, such Special Stockholders’ Meeting called by the
meeting to elect the members of the board.
Oversight Committee cannot have any legal effect. The removal
of the Bernas Group, as well as the election of the Cinco Group,
effected by the assembly in that improperly called meeting is
void, and since the Cinco Group has no legal right to sit in the
board, their subsequent acts of expelling Bernas from the club PHILIPPINE ASSOCIATED SMELTING v. PABLITO O. LIM, GR No.
and the selling of his shares at the public auction, are likewise 172948, 2016-10-05
invalid. Facts:
PASAR
) is a corporation... engaged in copper smelting and refining.
collectively referred to as petitioners) were former senior officers and
presently shareholders of PASAR holding 500 shares each
Injunction... was filed by PASAR... seeking to restrain petitioners from
demanding inspection of its confidential and inexistent records.
RTC issued an Order granting PASAR's prayer for a writ of preliminary
injunction
Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of Appeals a
Petition for Certiorari
Court of Appeals held that there was no basis to issue an injunctive
writ,... Hence... this Petition
Respondents wrote another letter dated January 30, 2004 demanding
again that they be allowed to inspect, among others, the confidential
records.[46] On March 31, 2006, respondents wrote another letter
threatening to file criminal charges if they were not allowed to inspect
the confidential records. They stated that they wanted to ensure that
petitioner complied with environmental laws in the operations of its
plant in Leyte.
respondents Lim and Padilla wrote to demand that they be allowed to
inspect the audited financial statements for 2004 and 2005; the interim
statements for the end of May 2006; and more detailed records on
finance, production, marketing, and purchasing.
Issues:
whether injunction properly lies to prevent respondents from invoking
their right to inspect
We deny the Petition.
Ruling:
We deny the Petition.
Respondents wrote another letter dated January 30, 2004 demanding
again that they be allowed to inspect, among others, the confidential
records.[46] On March 31, 2006, respondents wrote another letter
threatening to file criminal charges if they were not allowed to inspect
the confidential records. They stated that they wanted to ensure that
petitioner complied with environmental laws in the operations of its
plant in Leyte.
For an action for injunction to prosper, the applicant must show the
existence of a right, as well as the actual or threatened violation of this
right
Thus, an injunction must fail where there is no clear showing of both an
actual right to be protected and its threatened violation, which calls for
the issuance of an injunction.
The Corporation Code provides that a stockholder has the right to
inspect the records of all business transactions of the corporation and
the minutes of any meeting at reasonable hours on business days.
The stockholder may demand in writing for a copy of excerpts from
these records or minutes, at his or her expense:
The right to inspect under Section 74 of the Corporation Code is subject
to certain limitations. However, these limitations are expressly provided
as defenses in actions filed under Section 74. Thus, this Court has held
that a corporation's objections to the right to inspect must be raised as a
defense
Terelay Investment and Development Corp. v. Yulo[58] has held that
although the corporation may deny a stockholder's request to inspect
corporate records, the corporation must show that the purpose of the
shareholder is improper by way of defense:
The right of the shareholder to inspect the books and records of the
petitioner should not be made subject to the condition of a showing of
any particular dispute or of proving any mismanagement or other
occasion rendering an examination proper, but if the right is to be
denied, the burden of proof is upon the corporation to show that the
purpose of the shareholder is improper, by way of defense.
The clear provision in Section 74 of the Corporation Code is sufficient
authority to conclude that an action for injunction and, consequently, a
writ of preliminary injunction filed by a corporation is generally
unavailable to prevent stockholders from exercising their right to
inspection. Specifically, stockholders cannot be prevented from gaining
access to the (a) records of all business transactions of the corporation;
and (b) minutes of any meeting of stockholders or the board of
directors, including their various committees and subcommittees.
Specifically, corporations may raise their objections to the right of
inspection through affirmative defense in an ordinary civil action for
specific performance or damages, or through a comment (if one is
required) in a petition for mandamus.[64] The corporation or defendant
or respondent still carries the burden of proving (a) that the stockholder
has improperly used information before; (b) lack of good faith; or (c) lack
of legitimate purpose.[65]
WHEREFORE, the Petition is DENIED.
Principles:
An action for injunction filed by a corporation generally does not lie to
prevent the enforcement by a stockholder of his or her right to
inspection