Fundamental Rights of a Stockholder: Right to Dividends

Case No. 16

Republic Planters Bank v. Agana

269 SCRA 1 March 3, 1997
Facts:
On September 18, 1961, private respondent Corporation secured a loan from
petitioner. As part of the proceeds of the loan, preferred shares of stocks were issued to
private respondent Corporation, through its officers then, private respondent Adalia F.
Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to
the full amount of the loan, petitioner lent such amount partially in the form of money and
partially in the form of stock certificates. Said stock certificates were in the name of private
respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred
Stock shall have the following rights, preferences, qualifications and limitations, to wit:

1. Of the right to receive a quarterly dividend of One Per Centum

(1%), cumulative and participating.
2. That such preferred shares may be redeemed, by the system of
drawing lots, at any time after two (2) years from the date of
issue at the option of the Corporation.

Private respondents proceeded against petitioner and filed a Complaint anchored on

private respondents' alleged rights to collect dividends under the preferred shares in
question and to have petitioner redeem the same under the terms and conditions of the
stock certificates.

The trial court rendered the herein assailed decision in favor of private respondents.
From a further perusal of the pleadings, it appears that the provision of the stock certificates
in question to the effect that the plaintiffs shall have the right to receive a quarterly dividend
of One Per Centum (1%), cumulative and participating, clearly and unequivocably indicates
that the same are 'interest bearing stocks' which are stocks issued by a corporation under an
agreement to pay a certain rate of interest thereon. As such, private respondent become
entitled to the payment thereof as a matter of right without necessity of a prior declaration
of dividend.
Before the Court, the petitioner argues that it cannot be compelled to redeem the
preferred shares issued to the private respondent.
Issue:
 Should the petitioner be compelled to redeem the preferred shares issued to the
private respondent?
Held:
No. The redemption of said shares cannot be allowed. As pointed out by the
petitioner, the Central Bank made a finding that said petitioner has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive, issued by then Gov.
G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the
petitioner bank prohibiting the latter from redeeming any preferred share, on the ground
that said redemption would reduce the assets of the Bank to the prejudice of its depositors
and creditors. Redemption of preferred shares was prohibited for a just and valid reason.
The directive issued by the Central Bank Governor was obviously meant to preserve the
status quo, and to prevent the financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its depositors and creditors, but also to the
banking industry as a whole. The directive, in limiting the exercise of a right granted by law
to a corporate entity, may thus be considered as an exercise of police power. The
respondent judge insists that the directive constitutes an impairment of the obligation of
contracts. It has, however, been settled that the Constitutional guaranty of non-impairment
of obligations of contract is limited by the exercise of the police power of the state, the
reason being that public welfare is superior to private rights.
Clearly, the respondent judge, in compelling the petitioner to redeem the shares in
question and to pay the corresponding dividends, committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ignoring both the terms and conditions
specified in the stock certificate, as well as the clear mandate of the law.
Derivative Suit: Personal Liability
Case No. 16

Nestor Ching v. Andrew Wellington

G.R No. 174353 September 10, 2014
Facts:

Nestor Ching and Andrew Wellington filed a Complaint on behalf of the members of
Subic Bay Golf and Country Club, Inc. (SBGCCI) against the said country club and its Board of
Directors and officers under the provisions of Presidential Decree No. 902-A in relation to
Section 5.2 of the Securities Regulation Code. The Subic Bay Golfers and Shareholders
Incorporated (SBGSI), a corporation composed of shareholders of the defendant
corporation, was also named as plaintiff. The complaint alleged that the defendant
corporation sold shares to plaintiffs at US$22,000.00 per share, presenting to them the
Articles of Incorporation which contained the following provision:No profit shall inure to the
exclusive benefit of any of its shareholders, hence, no dividends shall be declared in their
favor. Shareholders shall be entitled only to a pro-rata share of the assets of the Club at the
time of its dissolution or liquidation.

However, an amendment to the Articles of Incorporation was approved by the

Securities and Exchange Commission (SEC), wherein the above provision was changed.
Petitioners claimed in the Complaint that defendant corporation did not disclose to them
the above amendment which allegedly makes the shares non-proprietary, as it takes away
the right of the shareholders to participate in the pro-rata distribution of the assets of the
corporation after its dissolution. According to petitioners, this is in fraud of the stockholders
who only discovered the amendment when they filed a case for injunction to restrain the
corporation from suspending their rights to use all the facilities of the club. Furthermore,
petitioners alleged that the Board of Directors and officers of the corporation did not call
any stockholders’ meeting from the time of the incorporation, in violation of Section 50 of
the Corporation Code and the By-Laws of the corporation.

The Complaint furthermore enumerated several instances of fraud in the

management of the corporation allegedly committed by the Board of Directors and officers
of the corporation,

Respondents claimed by way of defense that petitioners failed (a) to show that it
was authorized by SBGSI to file the Complaint on the said corporation’s behalf; (b) to
comply with the requisites for filing a derivative suit and an action for receivership; and (c)
to justify their prayer for injunctive relief since the Complaint may be considered a nuisance
or harassment suit under Section 1(b), Rule1 of the Interim Rules of Procedure for Intra-
Corporate Controversies. RTC issued an Order dismissing the Complaint.
Issue:

Was the complaint filed by the petitioners constitutes a derivative suit?

Held:

No. At the outset, it should be noted that the Complaint in question appears to have
been filed only by the two petitioners, namely Nestor Ching and Andrew Wellington, who
each own one stock in the respondent corporation SBGCCI. While the caption of the
Complaint also names the "Subic Bay Golfers and Shareholders Inc. for and in behalf of all its
members," petitioners did not attach any authorization from said alleged corporation or its
members to file the Complaint. Thus, the Complaint is deemed filed only by petitioners and
not by SBGSI.

Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate

Controversies imposes the following requirements for derivative suits:

(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.

The RTC dismissed the Complaint for failure to comply with the second and fourth
requisites above.

Upon a careful examination of the Complaint, the Court finds that the same should
not have been dismissed on the ground that it is a nuisance or harassment suit. Although the
shareholdings of petitioners are indeed only two out of the 409 alleged outstanding shares
or 0.24%, the Court has held that it is enough that a member or a minority of stockholders
file a derivative suit for and in behalf of a corporation.

With regard, however, to the second requisite, we find that petitioners failed to state with
particularity in the Complaint that they had exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, and laws or rules governing
the corporation to obtain the relief they desire. The Complaint contained no allegation
whatsoever of any effort to avail of intra-corporate remedies. Indeed, even if petitioners
thought it was futile to exhaust intra-corporate remedies, they should have stated the same
in the Complaint and specified the reasons for such opinion. Failure to do so allows the RTC
to dismiss the Complaint, even motu proprio, in accordance with the Interim Rules. The
requirement of this allegation in the Complaint is not a useless formality which may be
disregarded at will.
Voting: Who may exercise?
Case No. 16

Republic v. Sandiganbayan
402 SCRA 84
Facts:

There are two sets of board and officers of Eastern Telecommunications, Philippines,
Inc. (ETPI) were elected, one by the PCGG and the other by the registered ETPI stockholders.
Africa, a stockholder of ETPI, filed a petition for Certiorari before the Sandiganbayan alleging
that the PCGG had been illegally exercising the rights of stockholders of ETPI, especially in
the election of the members of the board of directors.

The Sandiganbayan held that only registered owners, their duly authorized
representatives or their proxies may vote their corresponding shares and ordered that an
annual stockholders meeting of the ETPI for 1992 be held on November 27, 1992. The Court
enjoined the Sandiganbayan from holding the stockholders meeting of ETPI. The PCGG filed
a very urgent petition for authority to hold special stockholders meeting for the sole
purpose of increasing ETPI’s authorized capital stock which was referred to the
Sandiganbayan. The Sandiganbayan issued a Resolution granting the PCGG authority to
cause the holding of a special stockholders meeting of ETPI and to vote the sequestered
Class A shares of stock. The PCGG controlled ETPI board of directors and held a meeting to
increase in ETPI’s authorized capital stock was unanimously approved.

Africa filed before the Supreme Court a motion to cite PCGG and its accomplices in
contempt to nullify the stockholders meeting conducted by PCGG contending that only the
Supreme Court, and not the Sandiganbayan, has the power to authorize the PCGG to call a
stockholders meeting and vote the sequestered shares; he was not given notice of the
meeting; and the PCGG had no right to vote the sequestered Class A shares.

Issue:

1) Can the PCGG vote the sequestered ETPI Class A shares in the stockholders meeting
for the election of the board of directors?
2) Will the transfer of the Benedicto shares be first recorded in ETPI’s Stock and Transfer
Book before the PCGG may vote them?

Held:

1..No. The PCGG cannot thus vote sequestered shares, except when there are
demonstrably weighty and defensible grounds or when essential to prevent disappearance
or wastage of corporate property. The principle laid down in Baseco vs. PCGG was further
enhanced in the subsequent cases of Cojuangco v. Calpo and Presidential Commission on
Good Government v. Cojuangco, Jr., where the Court developed a “two-tiered” test in
determining whether the PCGG may vote sequestered shares. The issue of whether PCGG
may vote the sequestered shares in SMC necessitates a determination of at least two factual
matters:
a.) whether there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the state; and
b.) whether there is an immediate danger of dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of “public character.”

In such cases, the government is granted the authority to vote said shares, namely:
(1) Where government shares are taken over by private persons or entities who/ which
registered them in their own names, and (2) Where the capitalization or shares that were
acquired with public funds somehow landed in private hands. In short, when sequestered
shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the
sequestered shares in the name of private individuals or entities are shown, prima facie, to
have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply. The rule in the
jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation
and elect members of the board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose capitalization comes from
public funds, but which landed in private hands as in BASECO. In short, the Sandiganbayan
held that the public character exception does not apply, in which case it should have
proceeded to apply the two-tiered test. This it failed to do. The questions thus remain if
there is prima facie evidence showing that the subject shares are ill- gotten and if there is
imminent danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in
a position to rule on the correctness of the PCGG’s contention. Consequently, the issue must
be remanded to the Sandiganbayan for resolution.

2..Yes. The PCGG is entitled to vote the shares ceded to it by Roberto S. Benedicto
and his controlled corporations under the Compromise Agreement, provided that the shares
are first registered in the name of the PCGG. The PCGG may not register the transfer of the
Malacanang and the Nieto shares in the ETPI Stock and Transfer Book; however, it may vote
the same as conservator provided that the PCGG satisfies the two-tiered test devised by the
Court.

In requiring that the transfer of the Benedicto shares be first recorded in ETPIs Stock
and Transfer Book before the PCGG may vote them, the Sandiganbayan committed no grave
abuse of discretion.
Capital Affairs: Nature of Certificate of Stock
Case No. 16

Makati Sports Club, Inc. v. Cheng

G.R No. 178523 June 16, 2010
Facts:

Makati Sports Club (MSCI) sued Cheng et. Al. for damages in the amount of P1
Million representing the profit they gained from the sale of shares of stock they purchased
from MCSI in the amount of P1,8000,000.00 and sold the same to spouses Hodreal for
P2,8000,000.00.

MSCI insists that Cheng, in collaboration with Mc Foods, committed fraud in

transacting the transfers involving a Stock Certificate. Based on the recorded incidents,
MSCI asserts that Mc Foods never intended to become a legitimate holder of its purchased
Class "A" share but did so only for the purpose of realizing a profit in the amount of
P1,000,000.00 at the expense of the former. MSCI further claims that Cheng confabulated
with Mc Foods by providing it with an insider’s information as to the status of the shares of
stock of MSCI and even, allegedly with unusual interest, facilitated the transfer of ownership
of the subject share of stock from Mc Foods to Hodreal, instead of an original, unissued
share of stock. According to MSCI, Cheng’s fraudulent participation was clearly and
overwhelmingly proven by the following circumstances: (1) sometime in October 1995, Lolita
Hodreal, wife of Hodreal, talked to Cheng about the purchase of one Class "A" share of
stock and the latter assured her that there was already an available share for P2,800,000.00;
(2) the second installment payment of P1,400,000.00 of spouses Hodreal to Mc Foods was
received by Cheng on the latter’s behalf; (3) Marian N. Punzalan (Punzalan), head of MSCI’s
membership sec=on, informed Cheng about Hodreal’s intention to purchase a share of stock
and Cheng asked her if there was a quoted price for it, and for Hodreal’s contact number;
and (4) on January 29, 1996, Cheng claimed Certificate A on behalf of Mc Foods, per letter
of authority dated January 26, 1996, executed by Mc Foods in favor of Cheng.

Issue:

Was the purchase of shares of stock from MSCI to Mc Foods and the latter’s sale of
the same shares to Hodreal valid?

Held:

Yes. The court found that there is nothing illegal that was committed by the
respondents in the said transactions. Evidence shows that the acted within their right. MSCI’
claimed that Mc Foods violated MSCI’s pre-emptive rights as provided by their By-Laws.
However, such claim cannot be appreciated because Mc Foods observed such right. On
December 27, 1995, Mc Foods offered for sale one Class "A" share of stock to MSCI for the
price of P2,800,000.00 for the laQer to exercise its pre-emptive right as required by MSCI’s
Amended By-Laws (It legally had the right to do so since it was already an owner of a Class
"A" share by virtue of its payment on November 28, 1995. The certificate is not a 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 MSCI failed to repurchase Mc Foods’ Class
"A" share within the thirty (30) day pre-emptive period as provided by the Amended By-
Laws. It was only on January 29, 1996, or 32 days after December 28, 1995, when MSCI
received Mc Foods’ letter of offer to sell the share, that Mc Foods and Hodreal executed the
Deed of Absolute Sale over the said share of stock. Neither can MSCI argue that Mc Foods
was not yet a registered owner of the share of stock when the latter offered it for resale, in
order to void the transfer from Mc Foods to Hodreal. The corp oration’s obligation to
register is ministerial upon the buyer’s acquisition of ownership of the share of stock. The
corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers

Moreover, fraud was also not proven in this case. In fact the transfer of shares pass
thru the membership committee. The Membership Committee, charged with ascertaining
the compliance of all the requirements for the purchase of MSCI’s shares of stock, failed to
question the alleged irregularities attending Mc Foods’ purchase of one Class "A" share at
P1,800,000.00.
Transfer of Shares of Stock and Registration
Case No. 16
Cojuangco vs. Sandiganbayan
April 24, 2009
Facts:

In 1987, respondent Republic of the Philippines (Republic) filed before the

Sandiganbayan a Complaint for Reconveyance, Reversion, Accounting, Restitution and
Damages praying for the recovery of alleged ill-gotten wealth from the late President
Marcos and former First Lady Imelda Marcos and their cronies, including some 2.4 million
shares of stock in the Philippine Long Distance Telephone Company (PLDT).

The complaint, which was later amended to implead herein petitioners Cojuangcos,
alleged that the Marcoses ill-gotten wealth included shares in the PLDT covered by shares of
stock in the Philippine Telecommunications Investment Corporation (PTIC), registered in the
name of Prime Holdings, Inc. (Prime Holdings).

The Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT
shares, hence, the Republic appealed to the Court. In a Court decision, it ruled in favor of the
Republic, declaring it to be the owner of 111,415 PTIC shares registered in the name of Prime
Holdings. Then, the Republic filed a Motion for Execution praying for the cancellation of the
111,415 shares/certificates of stock registered in the name of Prime Holdings and the
annotation of the change of ownership on PTICs Stock and Transfer Book. It also prayed for
the issuance of an order for PTIC to account for all cash and stock dividends declared and/or
issued by PLDT in favor of PTIC from 1986 up to the present including compounded interests
appurtenant thereto.

The Sandiganbayan granted the Motion for the Issuance of a Writ of Execution with
respect to the reconveyance of the shares, but denied the prayer for accounting of
dividends.

The Sandiganbayan, by the first assailed Resolution dated November 7,

2007, directed PTIC to deliver the cash and stock dividends pertaining to the 111,415 shares,
including compounded interests, ratiocinating that the same were covered by this Courts
Decision in G.R. No. 153459, since the Republic was therein adjudged the owner of the
shares and, therefore, entitled to the fruits thereof. The Cojuangcos moved to reconsider
the November 7, 2007 Sandiganbayan Resolution, alleging that this Courts Decision in G.R.
No. 153459 did not include a disposition of the dividends and interests accruing to the shares
adjudicated in favor of the Republic. By the other challenged Resolution dated June 13,
2008, the Sandiganbayan partly granted petitioners Motion for Reconsideration by including
legal interests, but not compounding the same, from the accounting and remittance to the
Republic.

Issue:
 Is the Republic, having transferred the shares to a third party, entitled to the
dividends, interests, and earnings thereof?

Held:
Yes. The term dividend in its technical sense and ordinary acceptation is that part or
portion of the profits of the enterprise which the corporation, by its governing agents, sets
apart for ratable division among the holders of the capital stock. It is a payment to the
stockholders of a corporation as a return upon their investment, and the right thereto is an
incident of ownership of stock.

The Court, in directing the reconveyance to the Republic of the 111,415 shares of PLDT
stock owned by PTIC in the name of Prime Holdings, declared the Republic as the owner of
said shares and, necessarily, the dividends and interests accruing thereto.

In G.R. No. 153459, although the inclusion of the dividends, interests, and earnings of
the 111,415 PTIC shares as belonging to the Republic was not mentioned in the dispositive
portion of the Courts Decision, it is clear from its body that what was being adjudicated in
favor of the Republic was the whole block of shares and the fruits thereof, said shares
having been found to be part of the Marcoses ill-gotten wealth, and therefore, public
money. It would be absurd to award the shares to the Republic as their owner and not
include the dividends and interests accruing thereto.

Respecting petitioners argument that the Republic has yielded its right to the fruits
of the shares when it sold them to Metro Pacific Assets Holdings, Inc., the same does not lie.
Dividends are payable to the stockholders of record as of the date of the declaration of
dividends or holders of record on a certain future date, as the case may be, unless the
parties have agreed otherwise. And a transfer of shares which is not recorded in the books
of the corporation is valid only as between the parties, hence, the transferor has the right to
dividends as against the corporation without notice of transfer but it serves as trustee of the
real owner of the dividends, subject to the contract between the transferor and transferee
as to who is entitled to receive the dividends.

It is thus clear that the Republic is entitled to the dividends accruing from the subject
111,415 shares since 1986 when they were sequestered up to the time they were transferred
to Metro Pacific via the Sale and Purchase Agreement of February 28, 2007.
Lost or Destroyed Certificates
Case No. 16

Philex Mining vs. Reyes

G.R. No. L-57707 November 19, 1982
Facts:
Richard Huenefeld, is a stockholder of petitioner Philex Mining Corporation (Philex,
for short). He originally owned 800,000 shares of stock. On February 6, 1980, First Asian
wrote Huenefeld informing him that the stock certificate had been delivered to him at his
address at Michelle Apartment, 2030 A. Mabini Street, Manila; and that if the certificate
could not be located that Huenefeld execute an Affidavit of Loss, with the notice of loss to
be published once a week for three (3) consecutive weeks in a newspaper of general
circulation in accordance with the procedure prescribed by Republic Act No. 201. Huenefeld,
through counsel, replied that RA 201 is not applicable because the stock certificate was not
lost in the possession of the stockholder; that assuming it was, the expenses of publication
and premiums for the bond should be at Philex's expense; and demanded the issuance of a
replacement stock certificate. Huenefeld also submitted an Affidavit of Loss but did not
comply with the other requirements on publication.

Issue:
Does Court of First Instance have jurisdiction over the present controversy, which
Philex contends is an intra-corporate one?

Held:
Evident from the foregoing is that an intra-corporate controversy is one which arises
between a stockholder and the corporation. There is no distinction, qualification, nor any
exemption whatsoever. The provision is broad and covers all kinds of controversies between
stockholders and corporations. The issue of whether or not a corporation is bound to
replace a stockholder's lost certificate of stock is a matter purely between a stockholder and
the corporation. It is a typical intra-corporate dispute. The question of damages raised is
merely incidental to that main issue.

Section 5 of Presidential Decree No. 902-A provides:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees; it shall have original
and exclusive jurisdiction to hear and decide cases involving: Controversies arising out of
intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them 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
franchise or right to exist as such entity.
Alienation of shares: Sale of a portion of shares not fully paid
Case No. 16

Baltazar vs. Lingayen Gulf

14 SCRA 522; 1965

Facts:
Baltazar, et al. subscribed to a certain number of shares of Lingayen Gulf Electric
Power.They had made only partial payment of the subscription but the corporation issued
them certificates corresponding to shares covered by the partial payments. Corporation
wanted to deny voting rights to all subscribed shares until total subscription is paid.

Issue:
Can corporation nullify the certificates issued?

Held:
The Court held that shares of stock covered by fully paid capital stock shares
certificates are entitled to vote. Corporation may choose to apply payments to subscription
either as: (a) full payment for corresponding number of stock the par value of which is
covered by such payment;or (b) as payment pro-rata to each subscribed share. The
corporation chose the first option, and, having done so, it cannot unilaterally nullify the
certificates issued.

Effects of Merger
Case No. 16

BPI vs. BPI Employees

G.R. No. 164301 October 19, 2011

Facts:
In 2000, Far East Bank and trust Company (FEBTC) merged with Bank of the
Philippine Islands. Petitioner had a Union Shop agreement with respondent BPI Employees
Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union).Pursuant to the
merger, respondent requested BPI to terminate the employment of those new employees
from FEBTC who did not join the union.

BPI refused to undertake such action and brought the controversy before a voluntary
arbitrator. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position
was rejected by the Court of Appeals which ruled that the Voluntary Arbitrators
interpretation of the Union Shop Clause was at war with the spirit and rationale why the
Labor Code allows the existence of such provision.

This was followed and affirmation by the Supreme Court of the CA decision holding
that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI
pursuant to the two banks merger. The absorbed employees were covered by the Union
Shop Clause in the then existing collective bargaining agreement (CBA)of BPI with
respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the
Union). Petitioners, despite the August 2010 decision moved for a Motion for
reconsideration of the decision.

Issue:

Should the "absorbed" FEBTC employees fall within the definition of "new
employees" under the Union Shop Clause, such that they may be required to join
respondent union or suffer termination upon request by the union?

Held:

The court agreed with Justice Brions view that it is more in keeping with the dictates
of social justice and the State policy of according full protection to labor to deem
employment contracts as automatically assumed by the surviving corporation in a merger,
without break in the continuity of their employment, and even in the absence of an express
stipulation in the articles of merger or the merger plan.
Liquidation after three years
Case No. 16

Republic of the Philippines v. Marsman Development Company

G.R. No. L-18956, April 27, 1972

Facts:
Marsman Development was a timber licensee holding Timber Licensee Agreement
No. 37-A, with concessions in the Municipality of Basud and Mondazo, Camarines Norte.
Sometime before October 15, 1953 an investigation was conducted on the business
operation and activities of the corporation leading to the discovery that certain taxes were
due (from) it on logs produced from its concession. On October 15, 1953, the Deputy
Collector of Internal Revenue demanded the payment of P13,136.00 representing forest
charges due from May 18, 1950 to September 30, 1953, and a surcharge of 25%. On
September 13, 1954, after further investigation another assessment was sent to the
defendant corporation by the Bureau of Internal Revenue demanding from it the total sum
of P45,541.66 representing deTiciency sales tax, forest charges, surcharges and penalties.
On November 8, 1954 another assessment was addressed to the defendant corporation for
the payment of P456.12 as 25% surcharge for discharging lumber without permit. The three
assessments totalling P59,133.78 are the subject matter of the instant case for collection.

Issue:
Does the right of the government to collect the sums has already prescribed?

Held:
No. The stress given by appellants to the extinction of the corporate and juridical
personality as such of appellant corporation by virtue of its extra-judicial dissolution which
admittedly took place on April 23, 1954 is misdirected. At any time during said three years
said corporation is authorized and empowered to convey all of its property to trustees for
the benefit of members, stock-holders, creditors, and others interested. From and after any
such conveyance by the corporation of its property in trust for the benefit of its members,
stockholders, creditors, and others in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustee, and the beneficial interest in the
members, stockholders, creditors, or other persons in interest. Thus, in whatever way the
matter may be viewed, the Government became the creditor of the corporation before the
completion of its dissolution by the liquidation of its assets.
Appellant F.H. Burgess, whom it chose as liquidator, became in law the trustee of all
its assets for the beneTit of all persons enumerated in Section 78, including its creditors,
among whom is the Government, for the taxes herein involved. To assume otherwise would
render the extra-judicial dissolution illegal and void, since, according to Section 62 of the
Corporation Law, such kind of dissolution is permitted only when it "does not affect the
rights of any creditor having a claim against the corporation."
Close Coporations
Case No. 16

San Juan Structural and Steel Fabricators, Inc. vs CA

GR No. 129459 September 29, 1998

Facts:
Plaintiff-appellant San Juan structural and steel fabricators Inc.’s alleged that on
February 14, 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land identified as lot 30, Block
1 of the Acropolis Greens Subdivision located in the district of Murphy, Quezon City, Metro
Manila containing an area of 414 sqm.

Plaintiff-appellant paid the down payment in the sum of P100, 000, the balance to be
paid on or before March 2, 19889; that on March 2, 1989, plaintiff-appellant was ready with
the amount corresponding to the balance, covered by Metrobank cashier’s check no. 004223
payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee were supposed to meet in the plaintiff-appellant’s office but defendant-
appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that defendant-appelle despite
repeated demands and in utter disregard of its commitments had refused to execute the
transfer of rights/deed of assignment which is necessary to transfer the certificate of title;

On April 6, 1989 defendant ACL Development Corporation and Motorich Sales

Corporation entered into a deed of absolute sale whereby the former transferred to the
latter the subject property; that by reason of said transfer; the registry of deeds of Quezon
City issued a new title in the name of Motorich Sales Corporation, represented by defendant-
appellee Nenita Lee Gruenbeg and Reynaldo L. Gruenbeg;

That as a result of defendants-appellees Nenita and Motorich’s bad faith in refusing

to execute a formal transfer of rights/deed of assignment, plaintiff-appellant suffered moral
and nominal damages which may be assessed against defendant-appellees in the sum of
P500,000; that as a result of an unjustified and unwarranted failure to execute the required
transfer or formal deed of sale in favor of plaintiff-appellant, defendant-appellees suffered
damages.

Issue:
Can the corporation’s treasurer act bind the corporation?

Held:
No. Such contract cannot bind Motorich, because it never authorized or ratified such
sale. A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of the
corporation is not the property of its stockholders or members and may not be sold by the
stockholders or members without express authorization from the corporation’s board of
directors.

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise

provided in this code, the corporate powers of all 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 or trustees to be elected from among the stockholders of
stocks, or where there is no stock, from among the members of the corporations, who shall
hold office for 1 year and until their successors are elected and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed their authority, their actions,
cannot bind the corporation, unless it has ratified such acts as is estopped from disclaiming
them.
Religious Societies
Case No. 16

Alfredo Long vs. Lydia Basa

G.R No. 134963-64 September 27, 2001

Facts:
These are consolidated cases involving a religious corporation whose Board of
Directors had expelled certain members thereof on purely spiritual or religious grounds
since they refused to follow its teachings and doctrines. The controversy here centers on the
legality of the expulsion.

In 1973, a religious group known as "The Church In Quezon City (Church Assembly
Hall), Incorporated" was organized as an entity of the brotherhood in Christ. It was
registered in the same year with the SEC as a non-stock, non-profit religious corporation for
the administration of its temporalities or the management of its properties. The Articles of
Incorporation and By-laws of the CHURCH decree that its affairs and operation shall be
managed by a Board of Directors consisting of six (6) members, who shall be members of
the CHURCH.

Zealous in upholding and guarding their Christian faith, the members of the CHURCH
vested upon the Board of Directors the absolute power to admit and expel a member of the
CHURCH. The procedure for the expulsion of an erring or dissident member is prescribed in
Article VII (paragraph 4) of the CHURCH By-laws, which provides that "If it is brought to the
notice of the Board of Directors that any member has failed to observe any regulations and
By-laws of the Institution (CHURCH) or the conduct of any member has been dishonorable
or improper or otherwise injurious to the character and interest of the Institution, the Board
of Directors may by resolution without assigning any reason therefor expel such
member from such Institution and he shall then forfeit his interest, rights and privileges in
the Institution."

The respondents, as members of the Board of Directors, and some responsible

members of the CHURCH, advised the petitioners to correct their but these exhortations
and warnings to the erring members were ignored by the petitioners. Alarmed that
petitioners' conduct will continue to undermine the integrity of the Principles of Faith of the
CHURCH, the Board of Directors, during its August 30, 1993 regular meeting held for the
purpose of reviewing and updating the membership list of the CHURCH, removed from the
said list certain names of members, including the names of herein petitioners.

Petitioners questioned their expulsion It sought mainly the annulment of the August
30, 1993 membership list and the reinstatement of the original list on the ground that the
expulsion was made without prior notice and hearing. After conducting a hearing, SEC
Hearing Officer Manuel Perea denied the same in an order dated February 22, 1994. Perea
ruled inter alia that the expulsion was in accordance with the aforequoted provisions of
paragraph 4, Article VII of the CHURCH By-laws, reasoning that "the notice referred to (in
par. 4) is notice to the Board of Directors of the grounds for expulsion enumerated therein
and not notice to the (erring) members.

Issue:

Was the expulsion of petitioners from the membership of the CHURCH by its Board
of Directors in accordance with law?

Held:

Yes. The Court ruled against the petitioners. It must be emphasized that the issue of
the validity of the expulsion had long been resolved and declared valid by the SEC en banc in
its decision dated July 11, 1994 in SEC EB Case No. 389. The decision affirmed the order dated
February 22, 1994 of SEC Hearing Officer Manuel Perea. The petitioners themselves admitted
in their present petition that they did not appeal anymore from the July 11, 1994 decision of
the SEC en banc, thereby rendering the same final and conclusive. As such, the expulsion
order is now inextricably binding on the parties concerned and can no longer be modified,
much less reversed.

The Court finds baseless petitioners’ claim that their expulsion was executed without prior
notice or due process.In the first place, the By-laws of the CHURCH, which the members
have expressly adhered to, does not require the Board of Directors to give prior notice to
the erring or dissident members in cases of expulsion. This is evident from the procedure for
expulsion prescribed in Article VII (paragraph 4) of the By-laws, which reads:

"4. If it is brought to the notice of the Board of Directors that any member has failed
to observe any regulations and By-laws of the Institution (CHURCH) or the conduct of
any member has been dishonorable or improper or otherwise injurious to the
character and interest of the Institution, the Board of Directors may b(y) resolution
without assigning any reason therefor expel such member from such Institution and
he shall then forfeit his interest, rights and privileges in the Institution." (Emphasis
ours)

From the above-quoted By-law provision, the only requirements before a member can be
expelled or removed from the membership of the CHURCH are: (a) the Board of Directors
has been notified that a member has failed to observe any regulations and By-laws of the
CHURCH, or the conduct of any member has been dishonorable or improper or otherwise
injurious to the character and interest of the CHURCH, and (b) a resolution is passed by the
Board expelling the member concerned, without assigning any reason therefor.

It is thus clear that a member who commits any of the causes for expulsion
enumerated in paragraph 4 of Article VII may be expelled by the Board of Directors, through
a resolution, without giving that erring member any notice prior to his expulsion. The
resolution need not even state the reason for such action.

The CHURCH By-law provision on expulsion, as phrased, may sound unusual and
objectionable to petitioners as there is no requirement of prior notice to be given to an
erring member before he can be expelled. But that is how peculiar the nature of a religious
corporation is vis-à-vis an ordinary corporation organized for profit. It must be stressed that
the basis of the relationship between a religious corporation and its members is the latter’s
absolute adherence to a common religious or spiritual belief. Once this basis ceases,
membership in the religious corporation must also cease. Thus, generally, there is no room
for dissension in a religious corporation. And where, as here, any member of a religious
corporation is expelled from the membership for espousing doctrines and teachings
contrary to that of his church, the established doctrine in this jurisdiction is that such action
from the church authorities is conclusive upon the civil courts
Contract Test
Case No. 16

Gonzales vs. Raquiza

180 SCRA 254

Facts:
Commissioner of Public Highways in behalf of the Republic of the Philippines entered
into two separate contracts with Continental Ore (Phil.), Inc., the latter acting as
representative of Huber Corporation in the first contract and as agent of Allis-Chalmers
International and General Motors Corporation in the second.

In the first contract, the Republic obligated itself to pay the Huber Corporation in the
form of irrevocable, confirmed and divisible letters of credit in favor of Continental Ore
Corporation, or its nominees, for the purchase of road construction equipment and spare
parts. The second contract provided that for and in consideration of US$ 21,077,314.84,
which the Republic obligated itself to pay to Continental Ore Corp. in the form of
irrevocable, confirmed and divisible letters of credit, Allis-Chalmers International and
General Motors Corporation would sell, transfer and convey to the Republic road
construction equipment and spare parts under the same terms and conditions stated in the
first contract.

Both contracts were duly approved by the Secretary of Public Works and
Communications and the Auditor General.

Then, the Secretary of Finance requested the Office of the President for approval of
the guaranty of the letters of credit in favor of Huber Corporation, which request was
favorably acted upon the following day.

As in the first application, the Executive Secretary, by authority of the President,

directed the Secretary of Finance to extend the necessary guaranty for the letters of credit
in favor of General Motors Corporation and Allis-Chalmers International. In 1967, plaintiff
Ramon A. Gonzales, as taxpayer and later as stockholder of the PNB, filed before the CFI
praying for the annulment of the contracts of sale on the ground that these contracts of
sale, accommodation and letters of credit are illegal for being violative of Sections 606, 607
and 608 of the Revised Administrative Code for want of appropriation by law and
certification as to the availability of funds by the Auditor General and for being violative of
the PNB Charter since the accommodation or loan to the Republic is beyond the lending
capacity of the bank.

The lower court dismissed the complaint. Hence, this appeal.

Issue:
 Were the said contracts valid inspite of the fact that the three American corporations
which entered into said contracts are not licensed to do business in the Philippines?

Held:

Yes. The Court re-states the generally accepted rule that one single or isolated
business transaction does not constitute "doing business" within the meaning of the law.
Transactions which are occasional, incidental, and casual-not of a character to indicate a
purpose to engage in business-do not constitute the doing or engaging in business as
contemplated by law. Where the three transactions indicate no intent by the foreign
corporation to engage in a continuity of transactions, they do not constitute doing business
in the Philippines.

Since the third assigned error is premised on the supposed invalidity of the contracts under
consideration, our ruling sustaining their validity, renders a discussion of the third issue
raised unnecessary.

Section 23 of R.A. 337 as approved on July 24, 1948 reads: Sec. 23. Except as the
Monetary Board may otherwise prescribe, the total liabilities of any person, company,
corporation or firm, to a commercial banking corporation for money borrowed with the
exception of money borrowed against obligations of the Central Bank, Philippine
Government, or borrowed with the full guarantee by the Government of payment of
principal and interest, shall at no time exceed fifteen per cent (15%) of the unimpaired capital
and surplus of such bank. (Emphasis supplied.)

Even assuming that the accommodation given by the PNB was in legal
contemplation, a loan, the fact that the same was fully guaranteed by the Republic of the
Philippines removes said accomodation from the statutory limits set under Section 5(e) of
R.A. 1300 by reason of Section 23 of R.A. 337 above-quoted which is applicable to the PNB as
a commercial bank authorized to exercise the general powers mentioned in the General
Banking Act (Sec. 2(j), R.A. 1300).
Suability of foreign corporations
Case No. 16

Top-weld manufacturing, Inc. vs Eced

138 SCRA 118

Facts:
Top-weld Manufacturing, Inc. (Top-weld) is a Philippine corporation engaged in the
business of manufacturing and selling welding supplies and equipment. It entered into
separate contracts with two different foreign entities. One contract was entered into with
IRTI, S.A., (IRTI), a corporation organized and existing under the laws of Switzerland with
principal office at Fribourg, Switzerland. By virtue of this agreement, the petitioner was
constituted a licensee of IRTI to manufacture welding products. The other contract was a
"DISTRIBUTOR AGREEMENT" entered into with ECED, S.A., (ECED), a company organized
and existing under the laws of Panama. Under this agreement, the petitioner was
designated as ECED's distributor in the Philippines of certain welding products and
equipment. By its terms, the contract was to remain effective until terminated by either
party upon giving six (6) months or 180 days written notice to the other.

Upon learning that the two foreign entities were negotiating with another group to
replace the petitioner as their licensee and distributor, the latter instituted a case against
IRTI, ECED another corporation named EUTECTIC Corporation, organized under the laws of
the State of New York, U.S.A., and an individual named Victor C. Gaerlan, a Filipino citizen
alleged to be the representative and employee of these three corporations.

The petitioner sought to restrain the corporations from negotiating with third
persons or from actually carrying out the transfer of its distributorship and franchising
rights,

The corporations filed their answers setting up as affirmative defenses violations of

the contracts allegedly committed by the petitioner. The respondent corporation further
alleged that Section 4 (9) of R.A. No. 5455 cannot possibly apply to the instant case.

Issue:

Should the respondent corporations be considered as "doing business" in the

Philippines and, therefore, subject to the provisions of R.A. No. 5455?

Held:

Yes. There is no dispute that respondents are foreign corporations not licensed to do
business in the Philippines. More important, however, there is no serious objection
interposed by the respondents as to their amenability to the jurisdiction of our courts.
 There is no general rule or governing principle laid down as to what constitutes
"doing" or engaging in" or "transacting" business in the Philippines. Each case must be
judged in the light of its peculiar circumstances. The acts of these corporations should be
distinguished from a single or isolated business transaction or occasional, incidental and
casual transactions which do not come within the meaning of the law. Where a single act or
transaction, however, is not merely incidental or casual but indicates the foreign
corporation's intention to do other business in the Philippines, said single act or transaction
constitutes "doing" or "engaging in" or "transacting" business in the Philippines.

Respondents' acts enabled them to enter into the mainstream of our economic life in
competition with our local business interests. This necessarily brings them under the
provisions of R.A. No. 5455.

Further, the Court uphold the appellate court's finding that "IRTI AND ECED were
doing business and engaging in economic activity in the Philippines as a prerequisite to
which they should have first secured a written certificate from the Board of Investments.
The respondent court, however, erred in holding that "IRTI and ECED have not secured such
written certificate in consequence of which there is no occasion for the Board of
Investments to impose the requirements prescribed in the aforequoted provisions of Sec. 4,
R.A. No. 5455.To accept this view would open the way for an interpretation that by doing
business in the country without first securing the required written certificate from the Board
of Investments, a foreign corporation may violate or disregard the safeguards which the
law, by its provisions, seeks to establish.

As between the parties themselves, R.A. No. 5455 does not declare as void or invalid
the contracts entered into without first securing a license or certificate to do business in the
Philippines. Neither does it appear to intend to prevent the courts from enforcing contracts
made in contravention of its licensing provisions. There is no denying, though, that an
"illegal situation," as the appellate court has put it, was created when the parties voluntarily
contracted without such license. The parties in this case being equally guilty of violating R.A,
No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is
not entitled to the relief prayed for in this case.
Instances when unlicensed foreign corporation may be allowed to sue
Case No. 16

Universal Rubber vs. CA

G.R. No. L-30266 29 June 1984

Facts:

The two respondent corporations sued petitioner before the CFI for unfair
competition with damages where the former requested the Hon. Navarro to issue a
subpoena duces tecum to ascertain the amount of damages against the treasurer of the
petitioner, which the judge did. Petitioner moved to quash the subpoenas on the ground
that it is unreasonable and oppressive, irrelevant and there was no showing of good cause
but said motion was denied. A motion for reconsideration was also denied hence the appeal
by certiorari with the CA, which in turn denied the certiorari.

Petitioner now comes to this Court arguing amongst others that respondent
Converse is a foreign corporation not licensed to do business in the Philippines and that
Edwardson is merely its licensee hence, the former has no right sue before Philippine Courts.

Issue:
Can Converse Rubber Co., as an unlicensed foreign corporation sue before Philippine
Courts?

Held:

YES.

The disability of a foreign corporation from suing in the Philippines is limited to suits
to enforce any legal or contract rights arising from, or growing out, of any business which it
has transacted in the Philippine Islands. On the other hand, where the purpose of the suit is
to protect its reputation, its corporate name, its goodwill, whenever that reputation,
corporate name or goodwill have, through the natural development of its trade, established
themselves, an unlicensed foreign corporation may sue in the Philippines.

So interpreted by the Supreme Court, it is clear that Section 29 (now 133) of the Corporation
Law does not disqualify plaintiff-appellee Converse Rubber, which does not have a branch
ofTice in any part of the Philippines and is not "doing business" in the Philippines, from Tiling
and prosecuting this action for unfair competition.
Controversies arising out of intra-corporate or partnership relations
Case No. 16

Aguirre vs. FQb7

G.R No. 170770 January 9, 2013

Facts:
On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of FQB+7,
Inc. (FQB+7), a Complaint for intra-corporate dispute, injunction, inspection of corporate
books and records, and damages, against respondents Nathaniel D. Bocobo (Nathaniel),
Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio). The Complaint alleged that
FQB+7 was established in 1985 with the following directors and subscribers, as reflected in
its Articles of Incorporation:

Further, the GIS reported that FQB+7’s stockholders held their annual meeting on
September 3, 2002. The substantive changes found in the GIS, respecting the composition of
directors and subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of
Directors (the directors reflected in the Articles of Incorporation), represented by Fidel N.
Aguirre (Fidel). In this letter dated April 29, 2004, Vitaliano questioned the validity and
truthfulness of the alleged stockholders meeting held on September 3, 2002. He asked the
"real" Board to rectify what he perceived as erroneous entries in the GIS, and to allow him to
inspect the corporate books and records. The "real" Board allegedly ignored Vitaliano’s
request.

On September 27, 2004, Nathaniel, in the exercise of his power as FQB+7’s president,
appointed Antonio as the corporation’s attorney-in-fact, with power of administration over
the corporation’s farm in Quezon Province. Pursuant thereto, Antonio attempted to take
over the farm, but was allegedly prevented by Fidel and his men.

Characterizing Nathaniel’s, Priscila’s, and Antonio’s continuous representation of the

corporation as a usurpation of the management powers and prerogatives of the "real"
Board of Directors, the Complaint asked for an injunction against them and for the
nullification of all their previous actions as purported directors, including the GIS they had
filed with the SEC. The Complaint also sought damages for the plaintiffs and a declaration of
Vitaliano’s right to inspect the corporate records.

The respondents sought, in their certiorari petition, the annulment of all the
proceedings and issuances in SEC Case No. 04-111077 on the ground that Branch 24 of the
Manila RTC has no jurisdiction over the subject matter, which they defined as being an
agrarian dispute. They theorized that Vitaliano’s real goal in filing the Complaint was to
maintain custody of the corporate farm in Quezon Province. Since this land is agricultural in
nature, they claimed that jurisdiction belongs to the Department of Agrarian Reform (DAR),
not to the Manila RTC. They also raised the grounds of improper venue (alleging that the real
corporate address is different from that stated in the Articles of Incorporation) and forum-
shopping (there being a pending case between the parties before the DAR regarding the
inclusion of the corporate property in the agrarian reform program). Respondents also
raised their defenses to Vitaliano’s suit, particularly the alleged disloyalty and fraud
committed by the "real" Board of Directors, and respondents’ "preferential right to possess
the corporate property" as the heirs of the majority stockholder Francisco Q. Bocobo.

Issues:
1. Is the Complaint a continuation of business?
2. Does the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
corporation?

Held:
1. Section 122 of the Corporation Code prohibits a dissolved corporation from
continuing its business, but allows it to continue with a limited personality in order to settle
and close its affairs, including its complete liquidation, thus:

Sec. 122. Corporate liquidation. – Every corporation whose charter expires by its own
limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be continued as a body
corporate for three (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property and to distribute its assets, but not for
the purpose of continuing the business for which it was established.

Upon learning of the corporation’s dissolution by revocation of its corporate

franchise, the CA held that the intra-corporate Complaint, which aims to continue the
corporation’s business, must now be dismissed under Section 122.

2.. Yes. Intra-corporate disputes remain even when the corporation is dissolved.
Jurisdiction over the subject matter is conferred by law. R.A. No. 8799 conferred jurisdiction
over intra-corporate controversies on courts of general jurisdiction or RTCs, to be
designated by the Supreme Court. Thus, as long as the nature of the controversy is intra-
corporate, the designated RTCs have the authority to exercise jurisdiction over such cases.
So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of Presidential
Decree (P.D.) No. 902-A (or The SEC Reorganization Act) for a description of such
controversies:

The dissolution of the corporation simply prohibits it from continuing its business.
However, despite such dissolution, the parties involved in the litigation are still corporate
actors. The dissolution does not automatically convert the parties into total strangers or
change their intra-corporate relationships. Neither does it change or terminate existing
causes of action, which arose because of the corporate ties between the parties. Thus, a
cause of action involving an intra-corporate controversy remains and must be filed as an
intra-corporate dispute despite the subsequent dissolution of the corporation.
Controversies in the election or appointment/ Dismissal of Corporate Officers
Case No. 16

De Rossi vs. National Labor Relations Commission

G.R. No. 108710 September 14, 1999

Facts:
An Italian citizen, petitioner was the Executive Vice-President and General Manager
of private respondent, Matling Industrial and Commercial Corporation (MICC). He started
work on July 1, 1985. On August 10, 1988, MICC terminated his employment. Aggrieved,
petitioner filed with the NLRC, National Capital Region on September 21, 1989, a complaint
for illegal dismissal with corresponding damages. MICC based petitioner's dismissal on the
ground that the petitioner failed to secure his employment permit, grossly mismanaged the
business affairs of the company, and misused corporate funds. However, petitioner argued
that it was the duty of the company to secure his work permit during the term of his office,
and that his termination was illegal for lack of just cause. On November 27 1991, Labor
Arbiter Asuncion rendered a decision in favor of petitioner where a writ of execution was
issued to collect the back wages of petitioner and giving MICC the option to reinstate
petitioner physically or constructively through payroll reinstatement. Upon appeal, the NLRC
dismissed the case for lack of jurisdiction.

Issue:
Does the NLRC has jurisdiction over the dismissal case?

Held:
The SEC, and not the NLRC, has original and exclusive jurisdiction over cases involving
the removal of corporate officers. Section 5, paragraph (c) of P.D. 902-A unequivocally
provides that SEC has jurisdiction over intra-corporate affairs regarding the election or
appointment of officers of a corporation, to wit: Sec. 5. In addition to the regulatory and
adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving: (c) Controversies in the election or appointments of directors, trustees,
officersor managers of such corporation, partnership or association.

An "office" is created by the charter of the corporation under which a corporation is

organized, and the officer is elected by the directors or stockholders. In the present case,
private respondents aver that the officers and their terms of office are prescribed by the
corporation's by-laws.The by-laws being in force, clearly petitioner is considered an officer of
MICC, elected and/or designated by its board of directors. Following Section 5(c) of P.D. No.
902-A, the SEC exercises exclusive jurisdiction over controversies regarding the election
and/or designation of directors, trustees, officers or managers of a corporation, partnership
or association. This provision is indubitably applicable to the petitioner's case. Jurisdiction
here is not with the Labor Arbiter nor the NLRC, but with the SEC. A corporate officer's
removal from his office is a corporate act. If such removal occasions an intra-corporate
controversy, its nature is not altered by the reason or wisdom, or lack thereof, with which
the Board of Directors might have in taking such action. Whenpetitioner, as Executive Vice-
President allegedly diverted company funds for his personal use resulting in heavy financial
losses to the company, this matter would amount to fraud. Such fraud would be detrimental
to the interest not only of the corporation but also of its members. This type of fraud
encompasses controversies in a relationship within the corporation covered by SEC
jurisdiction. Perforce, the matter would come within the area of corporate affairs and
management, and such a corporate controversy would call for the adjudicative expertise of
the SEC, not the Labor Arbiter or the NLRC.
Petitions for Declaration in the state of suspension of payments
Case No. 16

Uniwide Holdings, Inc. v. Jandecs Transportation Co., Inc.

G.R. No. 168522, December 19, 2007

Facts:
In January 1997, petitioner and respondent Jandecs Transportation Co., Inc. entered
into a contract of Assignment of Leasehold Rights under which the latter was to operate
food and snack stalls at petitioner's Uniwide Coastal Mall in Paraaque City. The contract was
for a period of 18 years, commencing October 1, 1997 up to September 30, 2015, for a
consideration of P2,460,630.15. The parties also agreed that respondent's stalls would be
located near the movie houses and would be the only stalls to sell food and beverages in
that area.

On February 7, 1997, respondent paid the contract price in full. Petitioner, however,
failed to turn over the stall units on October 1, 1997 as agreed upon. Respondent sought the
rescission of the contract and the refund of its payment. Petitioner refused both.

Respondent Tiled a complaint for breach of contract, rescission of contract, damages

and issuance of a writ of preliminary attachment before the RTC. RTC ruled in favor of the
respondent. In its motion to suspend the proceedings, petitioner prays that the action in the
Court be held in abeyance in view of the SEC's order of suspension of payments and
approval of its rehabilitation plan.

Issue:
Will the proceedings be suspended?

Held:
No. In the case of BF Homes, Inc. v. CA, the Court explained that the reason for
suspending actions for claims against the corporation should not be difficult to discover. It is
not really to enable the management committee or the rehabilitation receiver to substitute
the [corporation] in any pending action against it before any court, tribunal, board or body.
Obviously, the real justification is to enable the management committee or the rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the debtor [corporation]. To
allow such other action to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its restructuring
and rehabilitation.

Further, Article 1191 of the Civil Code provides that “the power to rescind obligations
is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he had chosen fulfillment, if the latter should become impossible.”

Certainly, petitioner's failure to deliver the units on the commencement date of the
lease on October 1, 1997 gave respondent the right to rescind the contract after the latter
had already paid the contract price in full. Furthermore, respondent's right to rescind the
contract cannot be prevented by the fact that petitioner had the option to substitute the
stalls. Even if petitioner had that option, it did not, however, mean that it could insist on the
continuance of the contract by forcing respondent to accept the substitution. Neither did it
mean that its previous default had been obliterated completely by the exercise of that
option.
Investment Contract
Case No. 16

SEC vs. Prosperity.Com, Inc

GR 164197, January 25, 2012

Facts:
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites. To make a
profit, PCI devised a scheme in which for the price of US$234.00, a buyer would acquire from
it an internet website of a 15-mega byte (MB) capacity. At the same time, by referring to PCI
his own down-line buyers, a first-time buyer could earn commission, interest in real estate,
and insurance coverage. To benefit from this scheme, a PCI buyer must enlist and sponsor at
least two other buyers as his own downlines. These second tier of buyers could in turn build
up their own downlines. For each pair of downlines, the buyer-sponsor receives at US$92.00
commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to the buyer-sponsor. SEC ruled that
PCI's scheme constitutes an investment contract and, following the Securities Regulation
Code, it should have first registered such contract or securities with the SEC.

Issue:
Does the PCI's scheme constitutes an investment contract?

Held:
No. An investment contract is a contract, transaction, or scheme where a person
invests his money in a common enterprise and is led to expect profits primarily from the
efforts of others. The United States Supreme Court held in Securities and Exchange
Commission v. W.J. Howey Co. that, for an investment contract to exist, the following
elements, referred to as the Howey test must concur: (a) a contract, transaction, or scheme;
(b) an investment of money; (c) investment is made in a common enterprise; (d) expectation
of profits; and (e) profits arising primarily from the efforts of others.

In this case, PCI's clients do not make such investments. They buy a product of some
value to them: an internet website of a 15-MB capacity. The client can use this website to
enable people to have internet access to what he has to offer to them. The buyers of the
website do not invest money in PCI that it could use for running some business that would
generate profits for the investors. The price of US$234 is what the buyer pays for the use of
the website, a tangible asset that PCI creates, using the computer facilities and technical
skills.

The commission, interest in real estate, and insurance coverage are incentives to
downline sellers to bring in other customers. These can hardly be regarded as profits from
investment of money under the Howey test.
Tender Offers
Case No. 16

Osmena III vs. SSS of the Philippines

533 SCRA 313

Facts:
SSS took steps to liquefy its long-term investments and diversify them into higher-
yielding and less volatile investment products. Among its assets determined as needing to
be liquefied were its shareholdings in EPCIB. Albeit there were other interested parties, only
BDO and its investment subsidiary, respondent BDO Capital, appeared in earnest to acquire
the shares in question. Following talks between them, BDO and SSS signed a Letter-
Agreement for the sale and purchase of some EPCIB common shares. At about this time, the
Shares were trading at an average of P34.50 @ share.

After some negotiations, the parties mutually agreed to the purchase by the BDO
Capital and the sale by SSS of all the latter’s EPCIB shares at the closing date at the specified
price of P43.50 per share. Then, SSC approved the sale of the EPCIB shares through the Swiss
Challenge method.

SSS advertised an Invitation to Bid for the block purchase of the Shares. The Invitation
to Bid expressly provided that the result of the bidding is subject to the right of BDO Capital to
match the highest bid. The records do not show whether or not any interested group/s
submitted bids. In other words, even before the bid envelopes, if any, could be opened, the
herein petitioners commenced action setting their sights primarily on the legality of
the Swiss Challenge angle and a provision in the Instruction to Bidders under which the SSS
undertakes to offer the Shares to BDO should no bidder or prospective bidder qualifies.

Petitioners assert, in gist, that a public bidding with a Swiss Challengecomponent is

contrary to COA Circular No. 89-296 and public policy which requires adherence to
competitive public bidding in a government-contract award to assure the best price possible
for government assets. Accordingly, the petitioners urge that the planned disposition of the
Shares through a Swiss Challenge method be scrapped. Against the petitioners stance, public
respondents inter alia submit that the sale of subject Shares is exempt from the tedious
public bidding requirement of COA.

Pending consideration of the petition, supervening events and corporate movements

transpired which are detailed in the petitioners separate Manifestation. That on August 31,
2006, SM Investments Corporation, an affiliate of BDO and BDO Capital commenced,
through the facilities of the PSE and pursuant to R.A. No. 8799, a mandatory tender offer
(Tender Offer) covering the purchase of the entire outstanding capital stock of
EPCIB at P92.00 per share. Pursuant to the terms of the Tender Offer, which was to start
on August 31, 2006 and end on September 28, 2006 the Tender Offer Period all shares validly
tendered under it by EPCIB shareholders of record shall be deemed accepted for payment
on closing date subject to certain conditions. Among those who accepted the Tender Offer
of the SM Group was EBC Investments, Inc., a subsidiary of EPCIB.

Issue:
Was the SM-BDO Group Tender Offer at the price stated had rendered the case moot
and academic?

Held:
Yes.
For perspective, a tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a public company, i.e.,
one listed on an exchange, among others. The term is also defined as an offer by the
acquiring person to stockholders of a public company for them to tender their shares
therein on the terms specified in the offer.

As may be noted, the Letter-Agreement, the SPA, the SSC resolutions assailed in this
recourse, and the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be overemphasized,
however, that the Shares, as a necessary consequence of the BDO-EPCIB merger which saw
EPCIB being absorbed by the surviving BDO, have been transferred to
BDO and converted into BDO common shares under the exchange ratio set forth in the BDO-
EPCIB Plan of Merger. As thus converted, the subject Shares are no longer equity security
issuances of the now defunct EPCIB, but those of BDO-EPCI, whichis a totally separate and
distinct entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million EPCIB
common shares are now lost or inexistent. And in this regard, the Court takes judicial notice
of the disappearance of EPCIB stocks from the local bourse listing. Instead, BDO-EPCI Stocks
are presently listed and being traded in the PSE.

Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the issuer of

what were once the subject Shares. Consequently, should SSS opt to exit from BDO and
BDO Capital, or BDO Capital, in turn, opt to pursue SSSs shareholdings in EPCIB, as thus
converted into BDO shares, the sale-purchase ought to be via an Issuer Tender Offer -- a
phrase which means a publicly announced intention by an issuer to acquire any of its own
class of equity securities or by an affiliate of such issuer to acquire such securities. In that
eventuality, BDO or BDO Capital cannot possibly exercise the right to match under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding. The
offeror or buyer in an issue tender offer transaction proposes to buy or acquire, at the
stated price and given terms, its own shares of stocks held by its own stockholder who in
turn simply have to accept the tender to effect the sale. No bidding is involved in the
process.