Halley vs.

Printwell - (Piercing of Veil of Corporate Entity; Trust Fund Doctrine)

Facts:
Pintwell sued BMPI for unpaid orders on credit. It impleaded BMPIs incorporators, including
petitioner, to reach their unpaid subsciption. The latter averred full payment to their
subscription and invoked BMPIs separate personality from them and that she had no
participation in the said transaction and had no hand in persuading BMPI to renege on its
obligation.

Ruling:

Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers, 26 such separate and distinct personality is merely a fiction created by
law for the sake of convenience and to promote the ends of justice. 27 The corporate
personality may be disregarded, and the individuals composing the corporation will be
treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or
illegality; as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for
the sole benefit of the stockholders.

Her personal liability, together with that of her co-defendants, remained because the CA
found her and the other defendant stockholders to be in charge of the operations of BMPI at
the time the unpaid obligation was transacted and incurred. The said goods were delivered
to and received by BMPI but it failed to pay its overdue account to appellee as well as the
interest thereon, at the rate of 20% per annum until fully paid. It was also during this time
that appellants stockholders were in charge of the operation of BMPI despite the fact that
they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said
transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability,
hence appellee in order to protect its right can collect from the appellants stockholders
regarding their unpaid subscriptions. whether or not the petitioner persuaded BMPI to
renege on its obligations to pay, and whether or not she induced Printwell to transact with
BMPI were not good defenses in the suit.

We clarify that the trust fund doctrine is not limited to reaching the stockholder's unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not
only the capital stock, but also other property and assets generally regarded in equity as a
trust fund for the payment of corporate debts. 36 All assets and property belonging to the
corporation held in trust for the benefit of creditors that were distributed or in the
possession of the stockholders, regardless of full payment of their subscriptions, may be
reached by the creditor in satisfaction of its claim.

The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby
steps into the shoes of the corporation for the satisfaction of its debt. 40 To make out a
prima facie case in a suit against stockholders of an insolvent corporation to compel them to
contribute to the payment of its debts by making good unpaid balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith
paid the par value of the stocks of the corporation.

In civil cases, the party who pleads payment has the burden of proving it. Apparently, the
petitioner failed to discharge her burden. Her mere submission of the receipt issued in
exchange of the check, the ITR and statement of assets and liabilities of BMPI did not
satisfactorily establish her allegation. It is notable that petitioner failed to present the stock
and transfer book and certificate of stock which may have been reliable evidence for her
claim.

Teng vs. SEC - (Record of transfer of shares in the STB)

Facts:
Private respondent Ting ping purchased shares of TCL Sales Corporation from its
shareholders. For refusal to record such transfer In the corporations STB, she filed a petition
for mandamus against petitioner as the secretary and the corporation.The latter argued that
the surrender of the original stock certificates is necessary before their registration.

Ruling:
Under Sec. 63 of Corpo Code, 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. 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. If a corporation refuses to make such transfer
without good cause, it may, in fact, even be compelled to do so by mandamus. Respondent
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. Petitioners could
not repudiate these documents. Hence, the transfer of shares to him must be recorded on
the corporation's stock and transfer book.

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. 59 In Ponce v. Alsons Cement Corporation, 60 the Court stated that
"[f]rom the corporation's point of view, the transfer is not effective until it is recorded.
Unless and until such recording is made[,] the demand for the issuance of stock certificates
to the alleged transferee has no legal basis. . . . [T]he stock and transfer book is the basis for
ascertaining the persons entitled to the rights and subject to the liabilities of a stockholder.
Where a transferee is not yet recognized as a stockholder, the corporation is under no
specific legal duty to issue stock certificates in the transferee's name."

The surrender of the original certificate of stock is necessary before the issuance of anew
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.

F & S Velasco Company vs. Dr. Madrid - (Effect of Non-Record in STB of stock transfer)
Facts:
Madrid, as Angelas spouse, executed an affidavit of self-adjudication covering the latters
estate including her 70.82% ownership of FSVCIs share. The latter called and hold a Special
Stockholders Meeting in which the former BODs were ousted and elected a new set. The
CA upheld the validity of said meeting on the basis that Madrid had already complied with
the registration requirement of such transfer in the books of the corporation through the
November 18, 2009 General Information Sheet (GIS) of the corporation duly filed with the
Securities and Exchange Commission (SEC).

Ruling:
Madrid's inheritance of Angela's shares of stock does not ipso facto afford him the rights
accorded to such majority ownership of FSVCI's shares of stock. Verily, all transfers of shares
of stock must be registered in the corporate books in order to be binding on the corporation.
Specifically, this refers to the Stock and Transfer Book, which is described in Section 74. As
such, an owner of shares of stock cannot be accorded the rights pertaining to a stockholder
such as the right to call for a meeting and the right to vote, or be voted for if his
ownership of such shares is not recorded in the Stock and Transfer Book.

The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all
the rights of a stockholder, including the right to vote and to be voted for, and to inform
the corporation of any change in share ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a stockholder. In the case at bar,
records reveal that at the time Madrid called for the November 18, 2009 Meeting, as well as
the actual conduct thereof, he was already the owner of 74.98% shares of stock of FSVCI as a
result of his inheritance of Angela's 70.82% ownership thereof. However, records are bereft
of any showing that the transfer of Angela's shares of stock to Madrid had been registered in
FSVCI's Stock and Transfer Book when he made such call and when the November 18, 2009
Meeting was held. Thus, the CA erred in holding that Madrid complied with the required
registration of transfers of shares of stock through mere reliance on FSVCI's GIS dated
November 18, 2009. The contents of the GIS, however, should not be deemed conclusive as
to the identities of the registered stockholders of the corporation, as well as their respective
ownership of shares of stock, as the controlling document should be the corporate books,
specifically the Stock and Transfer Book. While it may be true that petitioners were named
as shareholders in the General Information Sheet submitted to the SEC, that document
alone does not conclusively prove that they are shareholders of PFSC. The information in
the document will still have to be correlated with the corporate books of PFSC. As
between the General Information Sheet and the corporate books, it is the latter that is
controlling.

In light of the foregoing, Madrid could not have made a valid call of the November 18, 2009
Meeting as his stock ownership of FSVCI as registered in the Stock and Transfer Book is only
4.16% in view of the non-registration of Angela's shares of stock in the FSVCI Stock and
Transfer Book in his favor.

Y-I Leisure Phil. Inc. vs. Yu - (Nell Doctrine; Business-Enterprise Transfer)

Facts:
Respondent Yu bought several golf and country club shares from MADCI.
Regrettably, the latter did not develop the supposed project. Yu then demanded the return
of his payment, but MADCI could not return it anymore because all its assets had been
transferred to YICRI. Thus, Yu now claims that the petitioners inherited the obligations of
MADCI. On the other hand, the petitioners counter that they did not assume such liabilities
because the transfer of assets was not committed in fraud of the MADCI's creditors.

Ruling:
The Nell Doctrine: Generally, where one corporation sells or otherwise transfers all of its
assets to another corporation, the latter is not liable for the debts and liabilities of the
transferor, except: 1. Where the purchaser expressly or impliedly agrees to assume such
debts; 2. Where the transaction amounts to a consolidation or merger of the corporations 3.
Where the purchasing corporation is merely a continuation of the selling corporation; and 4.
Where the transaction is entered into fraudulently in order to escape liability for such debts.

The legal basis of the last in the four (4) exceptions to the Nell Doctrine, contemplates the
"business-enterprise transfer." In such transfer, the transferee corporation's interest goes
beyond the assets of the transferor's assets and its desires to acquire the latter's business
enterprise, including its goodwill. the transferee purchases not only the assets of the
transferor, but also its business. As a result of the sale, the transferor is merely left with its
juridical existence, devoid of its industry and earning capacity. Fittingly, the proper provision
of law that is contemplated by this exception would be Section 40 of the Corporation Code.

It must be clarified, however, that not every transfer of the entire corporate assets would
qualify under Section 40. It does not apply (1) if the sale of the entire property and assets is
necessary in the usual and regular course of business of corporation, or (2) if the proceeds of
the sale or other disposition of such property and assets will be appropriated for the
conduct of its remaining business. 41 Thus, the litmus test to determine the applicability of
Section 40 would be the capacity of the corporation to continue its business after the sale of
all or substantially all its assets.

A cursory reading of the exception shows that it does not require the existence of fraud
against the creditors before it takes full force and effect. Indeed, under the Nell Doctrine,
the transferee corporation may inherit the liabilities of the transferor despite the lack of
fraud due to the continuity of the latter's business. The purpose of the business-enterprise
transfer is to protect the creditors of the business by allowing them a remedy against the
new owner of the assets and business enterprise.

Synthesizing Section 40 and the previous rulings of this Court, it is apparent that the
business-enterprise transfer rule applies when two requisites concur: (a) the transferor
corporation sells all or substantially all of its assets to another entity; and (b) the transferee
corporation continues the business of the transferor corporation. Both requisites are
present in this case. Based on these factual findings, the Court is convinced that MADCI
indeed had assets consisting of 120 hectares of landholdings in Magalang, Pampanga, to be
developed into a golf course, pursuant to its primary purpose. Because of its alleged
violation of the MOA, however, MADCI was made to transfer all its assets to the petitioners.
No evidence existed that MADCI subsequently acquired other lands for its development
projects. Thus, MADCI, as a real estate development corporation, was left without any
property to develop eventually rendering it incapable of continuing the business or
accomplishing the purpose for which it was incorporated.

The MOA, which contains a provision that Sangil undertook to redeem MADCI proprietary
shares sold to third persons or settle in full all their claims for refund of payments, should
not prejudice respondent Yu. The CA correctly ruled that such provision constituted novation
under Article 1293 70 of the Civil Code. When there is a substitution of debtors, the creditor
must consent to the same; otherwise, it shall not in any way affect the creditor. In this case,
it was established that Yu's consent was not secured in the execution of the MOA. Thus,
insofar as the respondent was concerned, the debtor remained to be MADCI. And given that
the assets and business of MADCI have been transferred to the petitioners, then the latter
shall be liable.

The petitioners, however, are not left without recourse as they can invoke the free and
harmless clause under the MOA. In business-enterprise transfer, it is possible that the
transferor and the transferee may enter into a contractual stipulation stating that the
transferee shall not be liable for any or all debts arising from the business which were
contracted prior to the time of transfer. Such stipulations are valid, but only as to the
transferor and the transferee. These stipulations, though, are not binding on the creditors of
the business enterprise who can still go after the transferee for the enforcement of the
liabilities. In the present case, the MOA stated that Sangil undertook to redeem MADCI
proprietary shares sold to third persons or settle in full all their claims for refund of
payments. While this free and harmless clause cannot affect respondent as a creditor, the
petitioners may resort to this provision to recover damages in a third-party complaint.
Whether the petitioners would act against Sangil under this provision is their own option.

SEC vs. Baguio Country Club

The one (1) year term rule for members of the board of directors is mandatory, and cannot
be shortened or extended by agreement of the parties or by those interested in the position,
thus BCCC's amended by-laws granting its board of directors a two (2) year term is void,
notwithstanding the SEC's prior approval.

Terelay Investment Corp. vs. Yulo - (Right to inspection; insignificant shareholding)

Facts:
Asserting her right as a stockholder, Yulo wrote a letter, addressed to Terelay requesting
that she be allowed to examine its books and records. The latter denied the request insisting
that her shareholding being a measly .001% interest.

Ruling:
The Corporation Code has granted to all stockholders the right to inspect the corporate
books and records, and in so doing has not required any specific amount of interest for the
exercise of the right to inspect. 15 Ubi lex non distinguit nec nos distinguere debemos. When
the law has made no distinction, we ought not to recognize any distinction. AIDSTE

Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate
books and records on the basis that her inspection would be used for a doubtful or dubious
reason. Under Section 74, third paragraph, of the Corporation Code, the only time when the
demand to examine and copy the corporation's records and minutes could be refused is
when the corporation puts up as a defense to any action that "the person demanding" had
"improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or
for a legitimate purpose in making his demand."

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.

Yujuico vs. Quiambao - (Criminal Liability for denying the right to inspect books)
Facts:
Yujuico as newly elected president and chairman of STRADEC, and Blando - as newly
elected corporate secretary demanded Quiambao and Pilapil (outgoing officers) for the
turnover of the corporate records of the company tock and transfer book of STRADEC, to
which the latter refused. Petitioners theorize that the refusal by the respondentsviolates
their right, as stockholders, directors and officers of the corporation, to inspect such records
and book under Section 74 of the Corporation Code, to which,may be held criminally liable
pursuant to Section 144 of the Corporation Code.

Ruling:
While Section 74 of the Corporation Code expressly mentions the application of Section 144
only in relation to the act of "refus[ing] to allow any director, trustees, stockholder or
member of the corporation to examine and copy excerpts from [the corporation's] records or
minutes," the same does not mean that the latter section no longer applies to any other
possible violations of the former section. It must be emphasized that Section 144 already
purports to penalize "[v]iolations" of "any provision" of the Corporation Code "not otherwise
specifically penalized therein." Hence, we find inconsequential the fact that that Section 74
expressly mentions the application of Section 144 only to a specific act, but not with respect
to the other possible violations of the former section. Indeed, we find no cogent reason why
Section 144 cannot be made to apply to violations of the right of a stockholder to inspect the
stock and transfer book of a corporation under Section 74 (4) given the already unequivocal
intent of the legislature to penalize violations of a parallel right, i.e., the right of a
stockholder or member to examine the other records and minutes of a corporation under
Section 74 (2). Verily, we find inaccurate the pronouncement of the RTC that the act of
refusing to allow inspection of the stock and transfer book is not a punishable offense under
the Corporation Code. Such refusal, when done in violation of Section 74 (4) of the
Corporation Code, properly falls within the purview of Section 144 of the same code and
thus may be penalized as an offense.

By parity of reasoning, the second and fourth paragraphs of Section 74, including the first
paragraph of the same section, can only be violated by a corporation. It is clear then that a
criminal action based on the violation of the second or fourth paragraphs of Section 74 can
only be maintained against corporate officers or such other persons that are acting on
behalf of the corporation. Violations of the second and fourth paragraphs of Section 74
contemplates a situation wherein a corporation, acting thru one of its officers or agents,
denies the right of any of its stockholders to inspect the records, minutes and the stock
and transfer book of such corporation. The problem with the petitioners' complaint and the
evidence that they submitted during preliminary investigation is that they do not establish
that respondents were acting on behalf of STRADEC. Quite the contrary, the scenario
painted by the complaint is that the respondents are merely outgoing officers of STRADEC
who, for some reason, withheld and refused to turn-over the company records of STRADEC;
that it is the petitioners who are actually acting on behalf of STRADEC; and that STRADEC is
actually merely trying to recover custody of the withheld records. In other words, petitioners
are not actually invoking their right to inspect the records and the stock and transfer book of
STRADEC under the second and fourth paragraphs of Section 74. What they seek to enforce
is the proprietary right of STRADEC to be in possession of such records and book. Such
right, though certainly legally enforceable by other means, cannot be enforced by a criminal
prosecution based on a violation of the second and fourth paragraphs of Section 74. That is
simply not the situation contemplated by the second and fourth paragraphs of Section 74 of
the Corporation Code. For this reason, we affirm the dismissal of Criminal Case No. 89724
for lack of probable cause.

Insigne vs Abra Valley Colleges Inc. - (Stock certificate not conclusive evidence)
Facts:
Petitioners, along with their brother Romulo Borgoa and Elmer Reyes, filed a complaint
(with application for preliminary injunction) and damages in the RTC against Abra Valley
praying, among others, that the RTC direct Abra Valley to allow them to inspect its corporate
books and records, and the minutes of meetings, and to provide them with its financial
statements. On the other hand, the respondents claimed as an affirmative defense that the
petitioners were not Abra Valley's stockholders.

Ruling:
Being the parties who filed the Motion for Preliminary Hearing of Special and Affirmative
Defenses, the respondents bore the burden of proof to establish that the petitioners were
notstockholders of Abra Valley. The respondents' assertion therein, albeit negative, partook
of a good defense that, if established, would result to their "avoidance" of the claim. On that
basis, the CA erroneously laid the burden of proof on the petitioners.

Secondly, the petitioners, assuming that they bore the burden of proving their status as
stockholders of Abra Valley, nonetheless discharged their burden despite their
non-production of the stock certificates. A stock certificate is prima facie evidence that the
holder is a shareholder of the corporation, but the possession of the certificate is not the
sole determining factor of one's stock ownership. The certificate is not stock in the
corporation but is merely evidence of the holder's interest and status in the corporation,
his ownership of the share represented thereby, but is not in law the equivalent of such
ownership. he petitioners actually turned over to the trial court through their Compliance
and Manifestation submitted on April 7, 2010 the various documents showing their
ownership of Abra Valley's shares, 30 specifically: the official receipts of their payments for
their subscriptions of the shares of Abra Valley; and the copies duly certified by the
Securities and Exchange Commission (SEC) stating that Abra Valley had issued shares in favor
of the petitioners, such as the issuance of part of authorized and unissued capital stock; the
letter dated June 17, 1987; the secretary's certificate dated June 17, 1987; and the general
information sheet.

And, thirdly, the petitioners adduced competent proof showing that the respondents had
allowed the petitioners to become members of the Board of Directors. According to the
Minutes of the Annual Meeting of Directors and Stockholders of the Abra Valley College of
January 29, 1989, which was among the documents submitted to the trial court on April 7,
2010 through the Compliance and Manifestation, the petitioners attended the annual
meeting of January 29, 1989 as stockholders of Abra Valley, and participated in the election
of the Board of Directors at which some of them were chosen as members. Considering that
Section 23 of the Corporation Code requires every director to be the holder of at least one
share of capital stock of the corporation of which he is a director, the respondents would not
have then allowed any of the petitioners to be elected to sit in the Board of Directors as
members unless they believed that the petitioners so elected were not disqualified for lack
of stock ownership. Neither did the respondents thereafter assail their acts as Board
Directors. Conformably with the doctrine of estoppel, the respondents could no longer deny
the petitioners' status as stockholders of Abra Valley. the petitioners' production of the
stock certificates was rendered superfluous by their submission of other competent means
of establishing their shareholdings in Abra Valley.

The STB is not the exclusive evidence of the matters and things that ordinarily are or should
be written therein, for parol evidence may be admitted to supply omissions from the records,
or to explain ambiguities, or to contradict such records. A stock and transfer book, like
other corporate books and records, is not in any sense a public record, and thus is not
exclusive evidence of the matters and things which ordinarily are or should be written
therein. In fact, it is generally held that the records and minutes of a corporation are not
conclusive even against the corporation but are prima facie evidence only, and may be
impeached or even contradicted by other competent evidence. Thus, parol evidence may
be admitted to supply omissions in the records or explain ambiguities, or to contradict
such records. Considering that Abra Valley's STB was not in the possession of the petitioners,
or at their disposal, they could not be reasonably expected or justly compelled to prove that
their stock subscriptions and purchases were recorded therein. This, more than any other,
was precisely why they filed their Motion for Production/Inspection of Documents 39 to
compel the respondents to produce the STB. even had the petitioners not filed the Motion
for Production/Inspection of Documents, the respondents would themselves also be
expected to produce the STB in court in order to substantiate their affirmative defense that
the petitioners were not stockholders-of-record of Abra Valley. Verily, that there was no
entry or record in the STB showing the petitioners to be stockholders of Abra Valley was no
valid justification for the respondents not to produce the same. Otherwise, the disputable
presumption under Section 3 (e) of Rule 131 of the Rules of Court that "evidence willfully
suppressed would be adverse if produced" could arise against them.

Bernas vs. Cinco - (Calling of meeting by unauthorized person is an illegal act)

Facts:
Upon request of MSCs stockholder representing atleast 100 shares, the MSC Oversight
Committee called a Special SHs meeting where petitioner and other officers were removed
and replaced by respondents group. Also, petitioners shares were sold in public sale after
the Board resolved to expel him. Both actions were subsequently ratified in a SHs meeting.

Ruling:
Textually, only the President and the Board of Directors are authorized by the by-laws tocall
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.

Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in the
MSC by-laws can it be gathered that the Oversight Committee is authorized to step in
wherever there is breach of fiduciary duty and call a special meeting for the purpose of
removing the existing officers and electing their replacements even if such call was made
upon the request of shareholders. Needless to say, the MSCOC is neither empowered by law
nor the MSC by-laws to call a meeting and the subsequent ratification made by the
stockholders did not cure the substantive infirmity, the defect having set in at the time the
void act was done. The defect goes into the very authority of the persons who made the call
for the meeting. 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. 30 They
cannot serve as basis for a court action, nor acquire validity by performance, ratification or
estoppel. 31 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 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
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 and the
selling of his shares at the public auction, are likewise invalid.

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. As such they are without colorable authority to
authorize the removal of Bernas and the sale of his shares at the public auction. They cannot
bind the corporation to third persons who acquired the shares of Bernas and such third
persons cannot be deemed as buyer in good faith.

The case would have been different if the petitioning stockholders went directly to the SEC
and sought its assistance to call a special stockholders' meeting citing the previous refusal of
the Corporate Secretary to call a meeting. 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.

Guy vs. Guy - (Vice President acting as President can validly call meeting; qualification)
Facts:
Petitioner, for himself and on behalf of GCI and Grace Guy Cheu (Cheu), filed a Complaint
against respondents Nullification of Stockholders' Meeting which was called by Respondent
Gilbert Guy, GCIs Executive VP. The former averred that he received the notice 15 days after
the said meeting, the notice suffered fatal defects because it was not called by the proper
person.

Ruling:
For a stockholders' special meeting 32 to be valid, certain requirements must be met with
respect to notice, quorum and place. 33 In relation to the above provision of B.P. 68, one of
the requirements is a previous written notice sent to all stockholders at least one (1) week
prior to the scheduled meeting, unless otherwise provided in the by-laws. Under the by-laws
35 of GCI, the notice of meeting shall be mailed not less than five (5) days prior to the date
set for the special meeting. The Corporation Code itself permits the shortening (or
lengthening) of the period within which to send the notice to call a special (or regular)
meeting. Thus, no irregularity exists in the mailing of the notice sent by respondent Gilbert G.
Guy on 2 September 2004 calling for the special stockholders' meeting to be held on 7
September 2004, since it abides by what is stated in GCI's by-laws as quoted above. The
provisions under Section 50 of the Corporation Code and the by-laws of GCI are clear and
unambiguous. The provisions only require the sending/mailing of the notice of a
stockholders' meeting to the stockholders of the corporation. Sending/mailing is different
from filing or service under the Rules of Court. Had the lawmakers intended to include the
stockholder's receipt of the notice, they would have clearly reflected such requirement in
the law. Absent that requirement, the word "send" should be understood in its plain
meaning: to deposit in the mail or deliver for transmission by any other usual means of
communication with postage or cost of transmission provided for and properly addressed.
Therefore, petitioner is considered to have received notice of the special stockholders'
meeting after said notice was properly mailed by respondents.

The applicable provisions of the by-laws of Goodland are Article II, Sec. 2 which provides that
the "special meeting of the stockholders may be called . . . by order of the President and
must be called upon the written request of stockholders registered as the owners of
one-third (1/3) of the total outstanding stock and Article IV, Section 3 which provides that
"the Vice President, if qualified, shall exercise all of the functions and perform all the duties
of the President, in the absence or disability, for any cause, of the latter." Based on the
evidence on record and considering the above quoted provisions of Goodland's By-laws, we
rule in favor of defendants [respondents]. The evidence conclusively show that defendant
Gilbert [respondent Guy] is the owner of more than one-third (1/3) of the outstanding
stock of Goodland. In fact, it is around 79.99%. Thus, pursuant to Art. II, Sec. 2 of the
By-laws of Goodland, defendant Gilbert [respondent Guy] may validly call such special
stockholders' meeting. Under Sec. 25 of the Corpo Code, the requirement imposed on a
president of the corporation is that he should be a member of the Board of Directors and he
should not be at the same time the treasurer or secretary of the corporation. Therefore,
under Section 3, Article IV of the By-laws of Goodland, respondent Gilbert G. Guy as
Vice-President of the corporation is qualified to act as president.

PHILCOMSTAT. vs. Sandiganbayan - (Intra-corporate controversy)

Facts:
Chariman Sabio, as head of PCGG, requested the PSE to suspend the listing of PHC's increase
in capital stock because of still unresolved issues on the election of the POTC's and
PHILCOMSAT's respective boards of directors. PHILCOMSAT filed a complaint 17 before the
Sandiganbayan against PCGG to compel the latter to withdraw its opposition to the listing of
the increase in PHC's capital stock. Sandiganbayan dismissed the case a quo for lack of
jurisdiction on [the] ground that the action allegedly involves an intra-corporate controversy.

Ruling:
To determine if a case involves an intra-corporate controversy, the courts have applied two
tests: the relationship test and the nature of the controversy test.Under the relationship test,
the existence of any of the following relationships makes the conflict intra-corporate: (1)
between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as its franchise, permit or
license to operate is concerned; (3) between the corporation, partnership or association and
its stockholders, partners, members or officers; and (4) among the stockholders, partners or
associates themselves. On the other hand, the nature of the controversy test dictates that
"the controversy must not only be rooted in the existence of an intra-corporate relationship,
but must as well pertain to the enforcement of the parties' correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation." A combined application of the relationship test and the nature of the
controversy test has become the norm in determining whether a case is an intra-corporate
controversy, 39 to be "heard and decided by the [b]ranches of the RTC specifically
designated by the Court to try and decide such cases."

As to relationship test, due to the Compromise Agreement validly entered into by the
Republic through the PCGG, the Republic of the Philippines now owns 4,727 shares of POTC.
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which wholly owns
PHILCOMSAT, which in turn owns 81% of PHC. 45 The Republic, then, has an interest in the
proper operations of the PHC, however indirect this interest may seem to be.

The act of Chairman Sabio in asking the SEC to suspend the listing of PHC's shares was done
in pursuit of protecting the interest of the Republic of the Philippines, a legitimate
stockholder in PHC's controlling parent company, POTC. The character of the shares held by
the PCGG/Republic, on whose behalf the PCGG Chairman is presumed to be acting, is
irrelevant to Chairman Sabio's actions. Any shareholder, harboring any apprehensions or
concerns, could have done the same or posed the same objection. It was an act that had no
relation to any proceeding or question of ill-gotten wealth or sequestration. The PCGG was
merely protecting the rights and interest of the Republic of the Philippines.
AIDSTE
From the foregoing, it is clear that the dispute in the present case is an intra-corporate
controversy. As such, it is clear that the jurisdiction lies with the regular courts and not with
the Sandiganbayan.

ADC vs. AHVA - (3-year period for liquidation)

Facts:
ADC thus prayed that an injunction be issued enjoining defendants from constructing the
multi-purpose hall and the swimming pool at on one of the parcels of land still owned by
ADC without the latter's consent and approval. In its Answer , AHVA claimed that the latter
has no legal capacity to sue since its existence as a registered corporate entity was revoked
by the Securities and Exchange Commission (SEC) on May 26, 2003.

Ruling:
[l]ack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights,
or does not have the necessary qualification to appear in the case, or does not have the
character or representation he claims[;] 'lack of capacity to sue' refers to a plaintiff's general
disability to sue, such as on account of minority, insanity, incompetence, lack of juridical
personality or any other general disqualifications of a party. . . ." 6 In the instant case,
petitioner lacks capacity to sue because it no longer possesses juridical personality by reason
of its dissolution and lapse of the three-year grace period provided under Section 122 of the
Corporation Code.

Under Sec. 122 of Corpo Code, the time during which the corporation, through its own
officers, may conduct the liquidation of its assets and sue and be sued as a corporation is
limited to three years. In the instant case, there is no dispute that petitioner's corporate
registration was revoked on May 26, 2003. Based on the above-quoted provision of law, it
had three years, or until May 26, 2006, to prosecute or defend any suit by or against it. The
subject complaint, however, was filed only on October 19, 2006, more than three years after
such revocation. It is likewise not disputed that the subject complaint was filed by petitioner
corporation and not by its directors or trustees. In fact, it is even averred, albeit wrongly, in
the first paragraph of the Complaint 9 that "[p]laintiff is a duly organized and existing
corporation under the laws of the Philippines, with capacity to sue and be sued.

The import of the SC decided cases, is that the trustee of a corporation may continue to
prosecute a case commenced by the corporation within three years from its dissolution until
rendition of the final judgment, even if such judgment is rendered beyond the three-year
period allowed by Section 122 of the Corporation Code. However, there is nothing in the
said cases which allows an already defunct corporation to initiate a suit after the lapse of the
said three-year period. On the contrary, the factual circumstances in the abovecited cases
would show that the corporations involved therein did not initiate any complaint after the
lapse of the three-year period. n the present case, petitioner filed its complaint not only
after its corporate existence was terminated but also beyond the three-year period allowed
by Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing of the
subject complaint petitioner lacks the capacity to sue as a corporation.

Turner vs. Lorenzo Shipping - (TFD backstops the URE requirement in AR)
Facts:
The respondent decided to amend its articles of incorporation to remove the stockholders'
pre-emptive rights to newly issued shares of stock. Feeling that the corporate move would
be prejudicial to their interest as stockholders, the petitioners voted against the amendment
and demanded payment of their shares. Respondent refused petitioners demand on the
ground that it had no unrestricted retained earnings to cover the fair value of the shares.

Ruling:
The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund
the payment of the shares of stocks of the withdrawing stockholders. Under the doctrine,
the capital stock, property, and other assets of a corporation are regarded as equity in trust
for the payment of corporate creditors, who are preferred in the distribution of corporate
assets. 24 The creditors of a corporation have the right to assume that the board of directors
will not use the assets of the corporation to purchase its own stock for as long as the
corporation has outstanding debts and liabilities. 25 There can be no distribution of assets
among the stockholders without first paying corporate debts. Thus, any disposition of
corporate funds and assets to the prejudice of creditors is null and void.

That the respondent had indisputably no unrestricted retained earnings in its books at the
time the petitioners commenced Civil Case No. 01-086 on January 22, 2001 proved that the
respondent's legal obligation to pay the value of the petitioners' shares did not yet arise. In
order to give rise to any obligation to pay on the part of the respondent, the petitioners
should first make a valid demand that the respondent refused to pay despite having
unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of
any actionable omission that could sustain their action to collect.

Neither did the subsequent existence of unrestricted retained earnings after the filing of the
complaint cure the lack of cause of action in Civil Case No. 01-086. The petitioners' right of
action could only spring from an existing cause of action. Thus, a complaint whose cause of
action has not yet accrued cannot be cured by an amended or supplemental pleading
alleging the existence or accrual of a cause of action during the pendency of the action. 30
For, only when there is an invasion of primary rights, not before, does the adjective or
remedial law become operative. 31 Verily, a premature invocation of the court's
intervention renders the complaint without a cause of action and dismissible on such
ground.

IEMELIF vs. Bishop Lazaro - (Corporate Sole to Corporate Aggregate by mere

amendment of AOI)
Facts:
The general membership of IEMELIF approved its conversion from corporate sole to
corporate aggregate, prompting the IEMELIF to file amended articles of incorporation with
the SEC. Petitioners filed a civil case for the declaration of nullity of the amended articles
insisting that, since the Corporation Code does not have any provision that allows a
corporation sole to convert into a corporation aggregate by mere amendment of its articles
of incorporation, the conversion can take place only by first dissolving IEMELIF, the
corporation sole, and afterwards by creating a new corporation in its place.

Ruling:
True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the
Corporation Code allows the application to religious corporations of the general provisions
governing non-stock corporations. For non-stock corporations, the power to amend its
articles of incorporation lies in its members. The code requires two-thirds of their votes for
the approval of such an amendment.

Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through
the action of its board of trustees. The amendment needs the concurrence of at least
two-thirds of its membership. If such approval mechanism is made to operate in a
corporation sole, its one member in whom all the powers of the corporation technically
belongs, needs to get the concurrence of two-thirds of its membership. The one member,
here the General Superintendent, is but a trustee, according to Section 110 of the
Corporation Code, of its membership.

There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it. The increase in the number of its corporate
membership does not change the complexion of its corporate responsibility to third parties.
The one member, with the concurrence of two-thirds of the membership of the organization
for whom he acts as trustee, can self-will the amendment. He can, with membership
concurrence, increase the technical number of the members of the corporation from "sole"
or one to the greater number authorized by its amended articles.

The amendment of the articles of incorporation, as correctly put by the CA, requires merely
that a) the amendment is not contrary to any provision or requirement under the
Corporation Code, and that b) it is for a legitimate purpose. These impediments do not
appear in the case of IEMELIF.