MOBILIA PRODUCTS, INC., petitioner, vs. HAJIME UMEZAWA, respondent.

GR No. 149357, March 4, 2005

FACTS:
Umezawa, then the President and General Manager of MPI, organized another company
with his wife Kimiko, and his sister, Mitsuyo Yaguchi, to be known as Astem Philippines
Corporation, without knowledge of the Board of Directors of MPI. The said company would be
engaged in the same business as Mobilia. Umezawa stole products from MPI amounting to
P3,219,875.00. MPI and public prosecutor filed criminal complaints against Umezawa. The trial
court asserted that the controversy involving the criminal cases was between Umezawa and the
other stockholders of MPI. It also held that the SEC, not the trial court, had jurisdiction over
intra-corporate controversies. CA affirmed the ruling of the RTC that the dispute between
Umezawa and the other stockholders and officers over the implementation of the MPIs standard
procedure is intra-corporate in nature; hence, within the exclusive jurisdiction of the SEC. The
petitioner MPI filed the instant petition for review on certiorari.

ISSUE:
1. Whether or not the SEC have jurisdiction over the dispute.
2. Whether or not the acts committed by Umezawa are considered intra-corporate disputes.

HELD:
1. No, the RTC has jurisdiction over the case. CA erred in holding that the dispute between
it and the respondent is intra-corporate in nature; hence, within the exclusive jurisdiction
of the SEC. As gleaned from the material allegations of the Information, the RTC had
exclusive jurisdiction over the crimes charged. According to Section 20 of B.P. Blg. 129
Regional Trial Courts shall exercise exclusive original jurisdiction in all criminal cases
not within the exclusive jurisdiction of any court, tribunal or body, except those now
falling under the exclusive and concurrent jurisdiction of the Sandiganbayan which shall
hereafter be exclusively taken cognizance of by the latter. Case law has it that in order to
determine the jurisdiction of the court in criminal cases, the complaint or Information
must be examined for the purpose of ascertaining whether or not the facts set out therein
and the prescribed period provided for by law are within the jurisdiction of the court, and
where the said Information or complaint is filed. It is settled that the jurisdiction of the
court in criminal cases is determined by the allegations of the complaint or Information
and not by the findings based on the evidence of the court after trial. Jurisdiction is
conferred only by the Constitution or by the law in force at the time of the filing of the
 Information or complaint. Once jurisdiction is vested in the court, it is retained up to the
end of the litigation.
2. The acts committed by Umezawa shall not be considered as intra-corporate dispute. For a
dispute to be considered as intra-corporate, Speed Distribution, Inc. vs. Court of Appeals
adopted a two-tier test to determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of the RTC specifically
designated by the Court to try and decide such cases, two elements must concur:
1. The status or relationship of the parties (relationship test); and
2. The nature of the question that is subject of the controversy (nature of the controversy
test).
The first element requires that the controversy must arise out of intra-corporate
partnership relations between any or all of the parties and the corporation, partnership, or
association of which they are stockholders, members, or associates, respectively; and
between such corporation, partnership, or association and the State insofar as it concerns
their individual franchises.
The Second element requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation. If the nature of the controversy involves
matters that are purely civil in character, necessarily, the case does not involve an intra-
corporate controversy. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11,
2008, [Brion, J.])
The second requirement was not met in this case. The acts committed by Umezawa
(creating another corporation with the same line of business with Mobilia Products and
Stealing goods from Mobilia, etc.) clearly are not connected with the regulation of the
corporation.
VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA. DE CARAM,
Respondent.

G.R. No. 158805, April 16, 2009

FACTS:

Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf

course. The members and their guests are entitled to play golf on the said course and avail of the
facilities and privilege. The shareholders are likewise assessed monthly membership dues.
Cong. Fermin Z. Caram, Jr., respondents husband, subscribed and paid in full 1 Golf
Share of the petitioner and was subsequently issued with a stock certificate which indicated a par
value of P9,000.00. It was alleged by the petitioner that Caram stopped paying his monthly dues
and that it has sent 5 letters to Caram concerning his delinquent account. The Golf Share was
subsequently sold at public auction for P25,000.00 after the BOD had authorized the sale and the
Notice of Auction Sale was published in the Philippine Daily Inquirer
Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and the RTC
included the Golf Share as part of Carams estate. The RTC approved a project of partition of
Carams estate and the Golf Share was adjudicated to the wife, who paid the corresponding estate
tax due, including that on the golf Share.
It was only through a letter that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed in a letter that they were entitled to the refund of
P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of the petitioner.
Carams wife filed an action for reconveyance of the Golf Share with damages before the
SEC against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the wife,
ordering Valley Golf to convey ownership of the Golf Share, or in the alternative. to issue one
fully paid share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.
The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation
Code, a share stock could only be deemed delinquent and sold in an extrajudicial sale at public
auction only upon the failure of the stockholder to pay the unpaid subscription or balance for the
share. However, the section could not have applied in Carams case since he had fully paid for
the Golf Share and he had been assessed not for the share itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction sale
had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals affirmed
the hearing officers decision, and so the petitioner appealed before SC.

ISSUE:
Whether or not a non-stock corporation seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation when it is authorized to do
so under the corporate by-laws but not by the Articles of Incorporation?

RULING:

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such as Valley Golf.
Section 91 of the Corporation Code provides:
SEC. 91. Termination of membership.Membership shall be terminated in
the manner and for the causes provided in the articles of incorporation or the by-
laws. Termination of membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise provided in the articles
of incorporation or the by-laws.
A share can only be deemed delinquent and sold at public auction only upon the failure of
the stockholder to pay the unpaid subscription. Delinquency in monthly club dues was merely an
ordinary debt enforceable by judicial action in a civil case. A provision creating a lien upon
shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation,
should be embodied in the Articles of Incorporation, and not merely in the by-laws. Moreover,
the by-laws of petitioner should have provided formal notice and hearing procedure before a
members share may be seized and sold.
The procedure for stock corporations recourse on unpaid subscription is not applicable in
members shares in a non-stock corporation.
SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith
when it sent the final notice to Caram under the pretense they believed him to be still alive, when
in fact they had very well known that he had already died. The Court stated:
Whatever the reason Caram was unable to respond to the earlier notices, the fact remains
that at the time of the final notice, Valley Golf knew that Caram, having died and gone, would
not be able to settle the obligation himself, yet they persisted in sending him notice to provide a
color of regularity to the resulting sale.
 That reason alone, evocative as it is of the absence of substantial justice in the sale of the
Golf Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of
Appeals.
Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the
final notice to Caram on the deliberate pretense that he was still alive could bring into operation
Articles 19, 20 and 21 under the Chapter on Human Relations of the Civil Code. These
provisions enunciate a general obligation under law for every person to act fairly and in good
faith towards one another. Non-stock corporations and its officers are not exempt from that
obligation
ROSITA PEA petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and
CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES,
SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT,
respondents.

G.R. No. 91478 February 7, 1991

FACTS:

PAMPANGA BUS CO., INC. (PAMBUSCO) is the owner of the three lots in dispute.
PAMBUSCO mortgaged the lots to the Development Bank of the Philippines (DBP), which were
later on foreclosed. Rosita Pea was awarded the lots in a foreclosure sale for being the highest
bidder. The certificate of sale was later issued to her and registered in her name.
Subsequently, the Board of Directors of PAMBUSCO, through three out of its five
directors, issued a resolution to assign its right of redemption over the lots in favor of any
interested party. The right of redemption was later on assigned to Marcelino Enriquez, who
redeemed the property.
Enriquez then sold the lots to spouses Rising T. Yap and Catalina Lugue-Yap. Meanwhile,
a case involving the validity of the sale to the spouses Yap was pending, and despite the
protestations of Pea as to validity of the PAMBUSCO's assignment of the right of redemption,
the lots were somehow registered in the name of spouses Yap. Despite the registration of the lots
to spouses Yap, Pea retained possession of the property.
Spouses Yap sought to recover the possession of the lots from Pea. The latter countered
that she is now the legitimate owner of the subject lands for having purchased the same in a
foreclosure proceeding instituted by the DBP against PAMBUSCO and no valid redemption
having been effected within the period provided by law.
The defense was that since the deed of assignment executed by PAMBUSCO in favor of
Enriquez was void ab initio for being an ultra vires act of its board of directors and for being
without any valuable consideration, it could not have had any legal effect. It should be noted that
the by-laws of PAMBUSCO provide that four out of five directors must be present in a special
meeting of the board to constitute a quorum, and that the corporation has already ceased to
operate. CFI ruled in favor of Petitioner Pea, but the same was overturned by the CA.

ISSUE:
Whether or not Pea is entitled to the lots granted under the by-laws.
HELD:
Yes. The by-laws of a corporation are its own private laws which substantially have the
same effect as the laws of the corporation. They are in effect, written, into the charter. In this
sense they become part of the fundamental law of the corporation with which the corporation and
its directors and officers must comply.
Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened by virtue of a prior notice of a special meeting. There was no quorum to
validly transact business since it is required under its by-laws that at least four (4) members must
be present to constitute a quorum in a special meeting of the board of directors.
Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation
or by-laws of the corporation may fix a greater number than the majority of the number of board
members to constitute the quorum necessary for the valid transaction of business. Any number
less than the number provided in the articles or by-laws therein cannot constitute a quorum and
any act therein would not bind the corporation; all that the attending directors could do is to
adjourn.
Moreover, the records show that respondent PAMBUSCO ceased to operate for about 25
years prior to the board meeting. Being a dormant corporation for several years, it was highly
irregular, for a group of three (3) individuals representing themselves to be the directors of
respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the
corporation in favor of a former corporate officer.
As a matter of fact, the three (3) alleged directors who attended the special meeting on
November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general
information sheet. Similarly, the latest list of stockholders of respondent PAMBUSCO on file
with the SEC does not show that the said alleged directors were among the stockholders of
respondent PAMBUSCO, in contravention of the rule requiring a director to own one (1) share in
their to qualify as director of a corporation.
Further, under the Corporation Law, the sale or disposition of any and/or substantially all
properties of the corporation requires, in addition to a proper board resolution, the affirmative
votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation
in a meeting duly called for that purpose. This was not complied with in the case at bar.
At the time of the passage of the questioned resolution, respondent PAMBUSCO was
insolvent and its only remaining asset was its right of redemption over the subject properties.
Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the
questioned resolution was not approved by the required number of stockholders, the said
resolution, as well as the subsequent assignment and sale, were null and void.
Lastly, for lack of consideration, the assignment should be construed as a donation. Under
Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public
document and the acceptance must be made in the same or in a separate instrument. In the latter
case, the donor shall be notified of the acceptance in an authentic form and such step must be
noted in both instruments. Since assignment to Enriquez shows that there was no acceptance of
the donation in the same and in a separate document, the said deed of assignment is thus void ab
initio.
ALFREDO L. VILLAMOR, JR. v. JOHN S. UMALE, in substitution of
HERNANDO F. BALMORES
G.R. No. 172843, September 24, 2014

FACTS:
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was
part of the area owned by Mid-Pasig Development Corporation (Mid-Pasig). On March 1, 2004,
Pasig Printing Corporation (PPC) obtained an option to lease portions of MidPasigs property,
including the Rockland area. On November 11, 2004, PPCs board of directors issued a
resolution waiving all its rights, interests, and participation in the option to lease contract in favor
of the law firm of Atty. Alfredo Villamor, Jr. (Villamor). PPC received no consideration for this
waiver in favor of Villamors law firm.
On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of
agreement (MOA) with MC Home Depot. Under the MOA, MC Home Depot would continue to
occupy the area as PPCs sublessee for 4 years, renewable for another 4 years, at a monthly
rental of P4,500,000.00 plus goodwill of P18,000,000.00.
In compliance with the MOA, MC Home Depot issued 20 post-dated checks representing
rental payments for one year and the goodwill money. The checks were given to Villamor who
did not turn these or the equivalent amount over to PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to PPCs
directors on April 4, 2005. He informed them that Villamor should be made to deliver to PPC and
account for MC Home Depots checks or their equivalent value.
Due to the alleged inaction of the directors, respondent Balmores filed with the RTC an
intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for
Intra-Corporate Controversies (Interim Rules) against petitioners for their alleged devices or
schemes amounting to fraud or misrepresentation "detrimental to the interest of the corporation
and its stockholders."
Respondent Balmores alleged in his complaint that because of petitioners actions, PPCs
assets were ". . . not only in imminent danger, but have actually been dissipated, lost, wasted and
destroyed." Respondent Balmores prayed that a receiver be appointed from his list of nominees.
He also prayed for petitioners prohibition from "selling, encumbering, transferring or disposing
in any manner any of [PPCs] properties, including the MC Home Depot checks and/or their
proceeds." He prayed for the accounting and remittance to PPC of the MC Home Depot checks
or their proceeds and for the annulment of the boards resolution waiving PPCs rights in favor of
Villamors law firm.
The RTC denied respondent Balmores prayer for the appointment of a receiver or the
creation of a management committee. RTC held PPCs entitlement to the checks was doubtful.
The resolution issued by PPCs board of directors, waiving its rights to the option to lease
contract in favor of Villamors law firm, must be accorded prima facie validity. Also, there was a
pending case filed by one Leonardo Umale against Villamor, involving the same checks. Umale
was also claiming ownership of the checks. This, according to the trial court, weakened
respondent Balmores claim that the checks were properties of PPC.
Balmores filed with the CA a petition for certiorari under Rule 65 of the Rules of Court
and the same was granted. It reversed the trial courts decision, and issued a new order placing
PPC under receivership and creating an interim management committee. As a justification of said
decision, the CA stated that the boards waiver of PPCs rights in favor of Villamors law firm
without any consideration and its inaction on Villamors failure to turn over the proceeds of
rental payments to PPC warrant the creation of a management committee. The circumstances
resulted in the imminent danger of loss, waste, or dissipation of PPCs assets.
According to the CA, the trial court abandoned its duty to the stockholders in a derivative
suit when it refused to appoint a receiver or create a management committee, all during the
pendency of the proceedings.

ISSUE:
Whether the CA correctly characterized respondent Balmores action as a derivative suit.

HELD:
No. A derivative suit is an action filed by stockholders to enforce a corporate action. It is
an exception to the general rule that the corporations power to sue is exercised only by the board
of directors or trustees. Individual stockholders may be allowed to sue on behalf of the
corporation whenever the directors or officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are in control of the corporation. In
derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere
nominal party.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies
(Interim Rules) provides the 5 requisites for filing derivative suits:
SECTION 1. Derivative action. A stockholder or member may bring an action in
the name of a corporation or association, as the case may be, provided that:
(1) He was a stockholder or member at the time the acts or transactions subject
of the action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the relief
he desires;
 (3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is
implied in the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the
stockholder or member must be "in the name of [the] corporation or association. . . ." This
requirement has already been settled in jurisprudence.
It is important that the corporation be made a party to the case. As explained in Asset
Privatization Trust v. Court of Appeals, to wit: the corporation must be joined as party because
it is its cause of action that is being litigated and because judgment must be a res judicata against
it.
In the same case, this court enumerated the reasons for disallowing a direct individual
suit.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of these are in
the corporation itself for the benefit of the stockholders." In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that the stockholders
may not directly claim those damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of Section 16 of the
Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to
sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by
an individual on the damages recoverable by the corporation for the same act.
Respondent Balmores action in the trial court failed to satisfy all the requisites of a
derivative suit. Respondent failed to exhaust all available remedies to obtain the reliefs he prayed
for. He also failed to allege that appraisal rights were not available for the acts complained of.
This is another requisited as provided under Rule 8, Section 1(3) of the Interim Rules. Neither
did respondent Balmores implead PPC as party in the case nor did he allege that he was filing on
behalf of the corporation.
 The non-derivative character of respondent Balmores action may also be gleaned from
his allegations in the trial court complaint. In the complaint, he described the nature of his action
as an action under Rule 1, Section 1(a)(1) of the Interim Rules, and not an action under Rule 1,
Section 1(a)(4) of the Interim Rules, which refers to derivative suits.
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board, associates, and
officers, amounting to fraud or misrepresentation, which may be detrimental to the interest of the
stockholders. This is different from a derivative suit.
While devices and schemes of the board of directors, business associates, or officers
amounting to fraud under Rule 1, Section 1(a)(1) of the Interim Rules are causes of a derivative
suit, it is not always the case that derivative suits are limited to such causes or that they are
necessarily derivative suits. Hence, they are separately enumerated in Rule 1, Section 1(a) of the
Interim Rules:
SECTION 1. (a) Cases covered. These Rules shall govern the procedure to be
observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public and/or of the stockholders,
partners, or members of any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association
relations, between and among stockholders, members, or associates; and between,
any or all of them and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers,
or managers of corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.
Stockholder/s suits based on fraudulent or wrongful acts of directors, associates, or
officers may also be individual suits or class suits.
Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or to the corporation.
In this case, respondent Balmores filed an individual suit. His intent was very clear from
his manner of describing the nature of his action. He was alleging that the acts of PPCs
directors, specifically the waiver of rights in favor of Villamors law firm and their failure to take
back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a
stockholder.