CORPORATION CODE- PART 3 |1
v. PAYMENT OF BALANCE OF SUBSCRIPTION
G.R. No. L-16236 June 30, 1965
IRINEO S. BALTAZAR, plaintiff-appellee, vs. LINGAYEN
GULF ELECTRIC POWER, CO.,
FACTS:
Plaintiffs Baltazar and Rose were among the incorporators of
Lingayen Gulf, the corporation. It is alleged that it has always
been the practice and procedure of the Corporation to issue
certificates of stock to its individual subscribers for unpaid
shares of stock. Of the 600 shares of capital stock subscribed
by Baltazar, he had fully paid 535 shares of stock, and the
Corporation issued to him several fully paid up and non-
assessable certificates of stock, corresponding to the 535
shares.
Defendants Ungson, Estrada, Fernandez and Yuzon,
constituted the majority of the holdover seven-member Board of
Directors of the Corporation. Let the first group be called
the Ungson group and the second, the Baltazar group.
Annual stockholders' meeting of the Corporation had been fixed,
principally for the purpose of electing new officers and Board of
Directors for the calendar year 1955. the fight for control of the
management and property of the corporation was close and
keen.
The Ungson group (specially defendant Acena), in order to
continue retaining control management and property of the
corp, in the regular meeting of the Board of Directors, held on
January 30, 1955, passed three (3) resolutions (Exhs. A, B, C).
Resolution No. 2 (Exh. A), declared all watered stocks
issued to Acena, Baltazar, Rose and Jubenville, "of no
value and consequently cancelled from the books of
the Corporation.
Resolution No. 3 (Exh. B) resolved that "... all unpaid
subscriptions should bear interest annually from the
year of subscription..
Resolution No. 4 (Exh. C) resolved that "any and all
shares of stock of the Lingayen Gulf Electric Power
Co., Inc., issued as fully paid-up to stockholders whose
subscription to a number of shares have been declared
are hereby incapacitated to utilize or avail of the voting
power until such delinquency interest is fully paid up.
On the authority of these resolutions, the Ungson group was
threatening and procuring to expel and oust the plaintiffs and
their companion stockholders, for the ultimate purpose of
depriving them of their right to vote in the said annual
stockholders' meeting scheduled for May 1, 1955.
Baltazar and Rose prayed that a writ of preliminary injunction be
issued, which was granted
Defendants set up counterclaims. praying that the resolutions
be declared legal and valid.Plaintiffs filed their answer to
defendants' counterclaims. On August 8, 1955, the lower
dismissed plaintiffs' counterclaims.
The following tentative amicable settlement, dated September
13, 1958, formulated and entered into by some of the parties:
1. As to the so-called water stocks P30,000.00 each of
the holders of said stock, namely, Irineo Baltazar,
Marvin Rose, and Bernardo Acena, will return to the
corporation P3,500 each, thereby retaining P6,500
worth of stocks;
2. With respect to Dr. Bernardo Acena, of the
certificates of stock allegedly representing, his profit,
he will return to the corporation P3,500 of said share of
stock and retain P7,500 worth thereof ;...
On February 20, 1959, the lower court rendered a decision,
approving the agreement and dissolved the writ of preliminary
injunction, with costs. Defendants on March 14, 1959 filed a
motion for reconsideration, asking that the agreement be
amended in the sense that delinquent stocks cannot be voted
until fully paid in accordance with the agreement.
On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212,
filed a petition for immediate execution and for preliminary
injunction and/or mandamus, praying that a writ be issued,
ordering the defendants, as controlling majority of hold-over
board of directors, to hold immediately the long delayed
stockholders' meeting, and to allow the plaintiffs and all the
stockholders, with still unpaid subscriptions, to vote all their
stocks and subscriptions at said stockholders' meeting, as
directed in the decision.
On March 25, 1959, the Court issued an amending decision,
pertinent portions of which are hereunder reproduced —
..Regarding the right to vote, this Court likewise agrees
that the facts considered during the negotiations do not
warrant repeal of the declaration of delinquency and
complete restoration of voting rights until full payment
of the unpaid stock subscriptions and.
On April 4, 1959 , plaintiffs filed a motion for reconsideration
and/or new trial. On July 16, 1959, the trial court reversed its
amending decision in an order, the relevant parts thereof follow:
WHEREFORE, by way of amendment to both the
original and amending decisions of this Court in the
instant case, this Court hereby expressly rules that all
shares of the capital stock of the defendant corporation
covered by fully paid capital stock shares certificates
are entitled to vote in all meetings of the stockholders
of this corporation.
Defendants on August 14, 1959 appealed.
ISSUE: WON a stockholder, in a stock corporation, who
subscribes to a certain number of shares of stock, and he pays
only partially, for which he is issued certificates of stock, is
entitled to vote, notwithstanding the fact that he has not paid the
balance of his subscription, which has been declared delinquent
HELD: Defendants-appellants claim that resolution No. 4 (Exh.
C-2), withdrawing or nullifying the voting power of all the
aforesaid shares of stock is valid, notwithstanding the existence
of partial payments, evidenced by certificates duly issued
therefor. They invoke the ruling laid down by the Court in the Fua
Cun v. Summers case.
The cases at bar do not come under the aegis of the principle
enunciated in the Fua Cun v. Summers case, because it was the
practice and procedure, since the inception of the corporation,
to issue certificates of stock to its individual subscribers for
unpaid shares of stock and gave voting power to shares of stock
fully paid. And even though no agreement existed, the ruling in
said case, does not now reflect the correct view on the matter,
for better than an agreement or practice, there is the law, which
renders the said case of Fua Cun-Summers, obsolescent.
Section 37 of the Corporation Law, as amended by Act No.
3518, approved on March 1, 1929, six (6) years afterthe
promulgation of the Fua-Summers case (decided in 1923),
provides:
SEC. 37. ... . No certificate of stock shall be issued to
a subscriber as fully paid up until the full par value
thereof, or the full subscription in the case of no par
stock, has been paid by him to the corporation.
Subscribed shares not fully paid up may be voted
provided no subscription is unpaid and delinquent.

Stated in another way, the present law requires as a
condition before a share holder can vote his shares, that
his full subscription be paid in the case of no par value
stock; and in case of stock corporation with par value, the
stockholder can vote the shares fully paid by him only,
irrespective of the unpaid delinquent shares. As well-
observed by the trial court, a corporation may now, in the
absence of provisions in their by-laws to the contrary, apply
payment made by , subscribers-stockholders, either as: "(a) full
payment for the corresponding number of shares of stock, the
par value of each of which is covered by such payment; or (b)
as payment pro-rata to each and all the entire number of shares
subscribed for" (amended decision). In the cases at bar, the
defendant-corporation had chosen to apply payments by its
stockholders to definite shares of the capital stock of the
corporation and had fully paid capital stock shares certificates
for said payments; its call for payment of unpaid subscription
and its declaration of delinquency for non-payment of said call
affecting only the remaining number of shares of its capital stock
for which no fully paid capital stock shares certificates have been
issued, "and only these have been legally shorn of their voting
rights by said declaration of delinquency" (amended decision).
It is finally argued by defendants-appellants that the plaintiffs-
appellees waived, under the agreement heretofore quoted, the
right to enforce the voting power they were claiming to exercise,
and upon the principle of estoppel, they are now prohibited from
insisting on the existence of such power, ending with the
exhortation, that "they should lie upon the bed they helped built,
for a lasting peace in the interest of the corporation." It should,
however, be stated as heretofore exposed, that certain clauses
of the agreement are contrary to law and public policy and would
cause injury to plaintiffs-appellees and other stockholders
similarly situated. Estoppel cannot be predicated on acts which
are prohibited by law or are against public policy (Benguet Cons.
Mining Co. v. Pineda, 52 Off. Gaz. 1961, L-7231, March 28,
1956; Eugenio v. Perdido L-7083, May 19, 1955; III Rep. of the
Philippines Digest, p. 269-270).
NATURE OF THE CERTIFICATE OF STOCK
1. G.R. No. 143312. August 12, 2005
RICARDO S. SILVERIO, JR., ESSES DEVELOPMENT
CORPORATION, and TRISTAR FARMS, INC., Petitioners,
vs. FILIPINO BUSINESS CONSULTANTS, INC., Respondent.
FACTS:
The parties are wrangling over possession of a 62 hectare-land
in Calatagan, Batangas after Esses and Tri-Star failed to
redeem the Calatagan Property from FBCI. During the
pendency of the case, FBCI filed with the an Urgent Ex-Parte
Motion to Suspend Enforcement of Writ of Possession. FBCI
pointed out that it is now the new owner of Esses and Tri-Star
having purchased the substantial and controlling shares of
stocks of the two corporations. It claimed that since it is now the
owner of the controlling shares of stocks, the property must be
awarded in its favor.
ISSUE:
Did FBCI become the owner of the subject property by reason
of its purchase of the substantial and controlling shares of stocks
of Esse and Tri-Star?
RULING:
No. FBCIs acquisition of the substantial and controlling shares
of stocks of Esses and Tri-Star does not create a substantial
change in the rights or relations of the parties that would entitle
FBCI to possession of the Calatagan Property, a corporate
property of Esses and Tri-Star. Esses and Tri-Star, just like
FBCI, are corporations. A corporation has a personality distinct
from that of its stockholders.
CORPORATION CODE- PART 3 |2
A corporation is a juridical person distinct from the members
composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. The
corporation has property of its own which consists chiefly of real
estate. A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its proceeds to that
extent when distributed according to law and equity, but its
holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a co-
owner or tenant in common of the corporate property.
Thus, FBCIs alleged controlling shareholdings in Esses and Tri-
Star merely represent a proportionate or aliquot interest in the
properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title to any
of Esses and Tri-Stars corporate properties. As a stockholder,
FBCI has an interest in Esses and Tri-Stars corporate properties
that is only equitable or beneficial in nature. Even assuming that
FBCI is the controlling shareholder of Esses and Tri-Star, it does
not legally make it the owner of the Calatagan Property, which
is legally owned by Esses and Tri-Star as distinct juridical
persons. As such, FBCI is not entitled to the possession of any
definite portion of the Calatagan Property or any of Esses and
Tri-Stars properties or assets. FBCI is not a co-owner or tenant
in common of the Calatagan Property or any of Esses and Tri-
Stars corporate properties.
2. G.R. No. 123553. July 13, 1998
NORA A. BITONG, petitioner, vs. COURT OF APPEALS
(FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A.
APOSTOL, MR. & MS. PUBLISHING CO., LETTY J.
MAGSANOC, AND ADORACION G. NUYDA, respondents.
NORA A. BITONG, petitioner, vs. COURT OF APPEALS
(FIFTH DIVISION) and EDGARDO B.
ESPIRITU, respondents.
FACTS:
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co.
filed a derivative suit before the SEC against respondent
spouses Apostol, who were officers in said corporation, to hold
them liable for fraud and mismanagement in directing its affairs.
Respondent spouses moved to dismiss on the ground that
petitioner had no legal standing to bring the suit as she was
merely a holder-in-trust of shares of JAKA Investments which
continued to be the true stockholder of Mr. & Ms. Petitioner
contends that she was a holder of proper stock certificates and
that the transfer was recorded. She further contends that even
in the absence of the actual certificate, mere recording will
suffice for her to exercise all stockholder rights, including the
right to file a derivative suit in the name of the corporation. The
SEC Hearing Panel dismissed the suit. On appeal, the SEC En
Banc found for petitioner. CA reversed the SEC En Banc
decision.
ISSUE:
Whether or not petitioner is the true holder of stock certificates
to be able institute a derivative suit.
RULING:
NO.
Sec 63 of the Corporation Code envisions a formal certificate of
stock which can be issued only upon compliance with certain
requisites. First, the certificates must be signed by the president
or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation. A mere

typewritten statement advising a stockholder of the extent of his
ownership in a corporation without qualification and/or
authentication cannot be considered as a formal certificate of
stock. Second, delivery of the certificate is an essential element
of its issuance. Hence, there is no issuance of a stock certificate
where it is never detached from the stock books although blanks
therein are properly filled up if the person whose name is
inserted therein has no control over the books of the
company. Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully
paid. Fourth, the original certificate must be surrendered where
the person requesting the issuance of a certificate is a transferee
from a stockholder.
The certificate of stock itself once issued is a continuing
affirmation or representation that the stock described therein is
valid and genuine and is at least prima facie evidence that it was
legally issued in the absence of evidence to the contrary.
However, this presumption may be rebutted. Aside from
petitioner’s own admissions, several corporate documents
disclose that the true party-in-interest is not petitioner but JAKA.
It should be emphasized that JAKA executed, a deed of sale
over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D.
Apostol. On the same day, respondent Apostol signed a
declaration of trust stating that she was the registered owner of
1,000 Mr. & Ms. shares covered by a Certificate of Stock. And,
there is nothing in the records which shows that JAKA had
revoked the trust it reposed on respondent Eugenia D. Apostol.
Neither was there any evidence that the principal had requested
her to assign and transfer the shares of stock to petitioner. In
fine, the records are unclear on how petitioner allegedly
acquired the shares of stock of JAKA.
Thus, for a valid transfer of stocks, the requirements are as
follows: (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. At most, in the instant
case, petitioner has satisfied only the third requirement.
Compliance with the first two requisites has not been clearly and
sufficiently shown.
The basis of a stockholder’s suit is always one in equity.
However, it cannot prosper without first complying with the
legal requisites for its institution. The most important of
these is the bona fide ownership by a stockholder of a stock
in his own right at the time of the transaction complained of
which invests him with standing to institute a derivative
action for the benefit of the corporation.
3. G.R. No. 95696 March 3, 1992
ALFONSO S. TAN, Petitioner, vs. SECURITIES AND
EXCHANGE COMMISSION, VISAYAN EDUCATIONAL
SUPPLY CORP., TAN SU CHING, ALFREDO B. UY, ANGEL
S. TAN and PATRICIA AGUILAR, Respondents
DOCTRINES:
Certificate of stock: 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.
Transfer of shares: “…delivery is not essential where it
appears that the persons sought to be held as stockholders are
officers of the corporation, and have the custody of the stock
book . . .”
FACTS:
CORPORATION CODE- PART 3 |3
Alfonso Tan was the president of Visayan Educational Supply
Corporation when it was incorporated. Initially, 400 shares of
stock was in his name, represented by Stock Certificate
Number 2. But when two other incorporators, Young and Ong
assigned to the corporation their shares, Alfonso sold 50 shares
to his brother Angelo, and another incorporator, Alfredo Uy, sold
50 shares to Teodora S. Tan. The above sale was necessary in
order to complete the membership requirement of the Board of
Directors.
Because of the mentioned transactions, Stock Certificate
Number 2 was cancelled, and the corresponding stock
certificates 6 and 8 were issued, with certificate 6 representing
50 shares sold to Angelo, and certificate 8 representing the 350
shares for the petitioner Alfonso Tan.
A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask
that Alfonso Tan endorse the cancelled Stock Certificate
Number 2. However, Alfonso did not sign Stock Certificate
Number 2 and only returned Stock Certificate Number 8.
Later on, Alfonso Tan withdrew from the corporation because he
was dislodged by respondent Tan Su Ching as president. Part
of the condition of his withdrawal was that he be paid with
stocks-in-trade equivalent to 33% in lieu of stock value of his
shares in the amount of P35,000.00. Due to the withdrawal, the
cancellation of Stock Certificate 2 and 8 was effected and
recorded in the stock and transfer book. Alfonso then filed a
case with Cebu SEC, questioning the cancellation of his
aforesaid Stock Certificates 2 and 8.
Petitioner argues that he was deprived of his shares despite the
non-endorsement or surrender of Stock Certificates 2 and 8
which is contrary to Section 63 of the Corporation Code which
requires:
“…No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded to the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, and the number of the
certificates and the number of shares transferred.”
ISSUE:
Whether or not the cancellation of Stock Certificate 2 and the
subsequent issuance of Stock Certificate Number 8 was null and
void because of the non-endorsement of Stock Certificate
Number 2 by Alfonso Tan.
RULING:
No. The cancellation and the transfers of stock were valid.
There was a delivery of Stock Certificate No. 2 made by Alfonso
Tan to the corporation before it was replaced with Stock
Certificate No. 6 for 50 shares to Angel Tan and Stock Certificate
No. 8 for 350 shares to the Alfonso.
From the facts deduced in the case, there was already delivery
of the unendorsed Stock Certificate No. 2, which made the
issuance of Stock Certificate Nos. 6 and 8 valid. All the acts
required for the transferee to exercise its rights over the acquired
stocks were attendant and even the corporation was protected
from other parties, considering that the said transfer was earlier
recorded or registered in the corporate stock and transfer book.
Furthermore, it is necessary to delineate the function of the stock
itself form the actual delivery or endorsement of the certificate
of stock itself because a certificate of stock is not necessary to
render one a stockholder in a corporation. 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. It expresses the
contract between the corporation and the stockholder, but is not
essential to the existence of a share in stock or the nation of the
relation of the shareholder to the corporation.
The fact of the matter is, the new holder, Angel S. Tan has
already exercised his rights and prerogatives as stockholder and
was even elected as member of the board of directors in the
respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of 50 shares,
Angel S. Tan was clothed with rights and responsibilities in the
board of the respondent corporation when he was elected as
officer thereof.
4. G.R. No. 204089. July 29, 2015.
GRACE BORGOÑA INSIGNE, DIOSDADO BORGOÑA,
OSBOURNE BORGOÑA, IMELDA BORGOÑA RIVERA, AND
ARISTOTLE
BORGOÑA, petitioners, vs.ABRA VALLEY COLLEGES,
INC. AND FRANCIS BORGOÑA, respondents.
FACTS:
Petitioners Grace Borgoña Insigne, Diosdado Borgoña,
Osbourne Borgoña, Imelda Borgoña Rivera, Aristotle Borgoña
are siblings of the full blood. Respondent Francis Borgoña
(Francis) is their older half-blood brother. The petitioners are the
children of the late Pedro Borgoña (Pedro) by his second wife,
Teresita Valeros, while Francis was Pedro's son by his first wife,
Humvelina Avila. 3 In his lifetime, Pedro was the founder,
president and majority stockholder of
respondent Abra ValleyColleges, Inc. (Abra Valley), a stock
corporation. After Pedro's death, Francis succeeded him as the
president of Abra Valley. 4
On March 26, 2002, the petitioners, along with their brother
Romulo Borgoña and Elmer Reyes, filed a complaint (with
application for preliminary injunction) and damages in the RTC
against Abra Valley (docketed as Special Civil Action Case No.
2070), 5 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. 6
RTC- in favor of petitioners in view of Abra’s failure to file
responsive pleading
CA- ordered the RTC to admit Abra Valley's answer despite its
belated filing on May 10, 2002; and remanding the case for
further proceedings.
Thereafter, the petitioners amended their complaint 12 to
substitute Evelyn Borgoña, the wife of Romulo Borgoña, as one
of the plaintiffs due to Romulo's intervening death; 13 to implead
Francis as an additional defendant, both in his personal capacity
and as the president of Abra Valley; and to include the
immediate holding of the annual stockholders' meeting as the
second cause of action. The amended complaint also alleged
that they were bona fide stockholders of Abra Valley, attaching
copies of stock certificates indorsed in their favor on the dorsal
portion by the original holders. 14
The respondents then filed on March 2, 2010 a Motion for
Preliminary Hearing of Special and Affirmative Defenses. 18 At
the hearing set on March 8, 2010, the RTC ordered the
petitioners to present the stock certificates issued
by Abra Valley under their names.
The petitioners likewise filed a Motion for Production/Inspection
of Documents, 21 asking that the RTC direct the respondents to
produce Abra Valley's Stock and Transfer Book (STB); and that
petitioners be allowed to inspect the same.
On June 28, 2010, the RTC issued the assailed order dismissing
the case.
On appeal, the CA affirmed the dismissal.
CORPORATION CODE- PART 3 |4
ISSUE:
Whether the dismissal was proper on the ground of the
petitioners' failure to comply with the order issued by the RTC
on March 8, 2010 to produce stock certificates? NO
Whether or not the petitioners were bona fide stockholders
of Abra Valley? YES
RULING:
First of all, the present issue was the offshoot of the RTC's
resolution of the Motion for Preliminary Hearing of Special and
Affirmative Defenses, wherein the respondents alleged that the
petitioners were not stockholders of Abra Valley; and that they
had no cause of action against the respondents. 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 not stockholders
of Abra Valley.
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. TIADCc
A stock certificate is prima facie evidence that the holder is a
shareholder of the corporation, 28 but the possession of the
certificate is not the sole determining factor of one's stock
ownership. A certificate of stock is merely: —
. . . the paper representative or tangible evidence of the stock
itself and of the various interests therein. 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. It expresses the
contract between the corporation and the stockholder, but it is
not essential to the existence of a share in stock or the creation
of the relation of shareholder to the corporation. 29 (Emphasis
supplied.)
To establish their stock ownership, the 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 application of the doctrine of estoppel, which
is based on public policy, fair dealing, good faith and justice, is
only appropriate because the purpose of the doctrine is to forbid
one from speaking against his own act, representations, or

commitments to the injury of another to whom he directed such
act, representations, or commitments, and who reasonably
relied thereon. The doctrine springs from equitable principles
and the equities in the case, and is designed to aid the law in
the administration of justice where without its aid injustice might
result. The Court has applied the doctrine wherever and
whenever special circumstances of the case so demanded. 31
Under the circumstances, the dismissal of the case was
unwarranted and unreasonable.
5. G.R. No. L-4818. February 28, 1955.
APOLINARIO G. DE LOS SANTOS and ISABELO
ASTRAQUILLO, plaintiffs-appellees, vs. J. HOWARD
MCGRATH ATTORNEY GENERAL OF THE UNITED
STATES, SUCCESSOR TO THE PHILIPPINE ALIEN
PROPERTY ADMINISTRATION OF THE UNITED STATES,
defendant and appellant. REPUBLIC OF THE
PHILIPPINES, intervenor-appellant.
FACTS:
This action involves the title to 1,600,000 shares of stock of the
Lepanto Consolidated Mining Co., Inc. Originally, one-half of
said shares of stock were claimed by plaintiff, Apolinario de los
Santos, and the other half, by his co-plaintiff Isabelo Astraquillo.
During the pendency of this case, the latter has allegedly
conveyed and assigned his interest in and to said half claimed
by him to the former. The shares of stock in question are
covered by several stock certificates issued in favor of Vicente
Madrigal, who is registered in the books of the Lepanto as owner
of said stocks and whose indorsement in blank appears on the
back of said certificates, all of which, except certificates No.
2279 covering 55,000 shares, are in plaintiffs' possession.
Plaintiffs contend that De los Santos bought 500,000 shares
from Juan Campos, in Manila, early in December 1942; that he
bought 300,000 shares from Carl Hess, in the same city, several
days later; and that, before Christmas of 1942, be bought
800,000 shares from Carl Hess, this time for the account and
benefit of Astraquillo. By virtue of vesting order P-12, dated
February 18, 1945, title to the 1,600,000 shares of stock in
dispute was, however, vested in the Alien Property Custodian of
the U. S. (hereinafter referred to as the Property Custodian) as
Japanese property. Hence, plaintiffs filed their respective claims
with the Property Custodian. In due course, the Vested Property
Claims Committee of the Philippine Alien Property
Administration made a "determination," dated March 9, 1948,
allowing said claims, which were considered and heard jointly
as Claim No. 535, but, upon personal review, the Philippine
Alien Property Administrator (hereinafter referred to as
"Administrator"), in an opinion dated November 26, 1948,
reversed the determination made by said Committee and
decreed that "title to the shares in question shall remain in the
name of the Philippine Alien Property Administrator."
Consequently, plaintiffs instituted the present action to establish
title to the aforementioned shares of stock. In their complaint,
they pray that judgment be rendered declaring them lawful
owners of said shares of stock, with such dividends, profits and
rights as may have accrued thereto; requiring the defendant to
render accounts and to transfer said shares of stock to plaintiffs'
names; and sentencing the former to pay the costs.
The defendant, Attorney General of the U. S., successor to the
"Administrator", contends, substantially, that, prior to the
outbreak of war in the Pacific, said shares of stock were bought
by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui
Bussan Kaisha, a corporation organized in accordance with the
laws of Japan, the true owner thereof, with branch office in the
Philippines; that on or before March, 1942, Madrigal delivered
the corresponding stock certificates, with his blank indorsement
thereon, to the Mitsuis, which kept said certificates, in the files
of its office in Manila, until the liberation of the latter by the
American forces early in 1945; that the Mitsuis had never sold,
or otherwise disposed of, said shares of stock; and that the stock
certificates aforementioned must have been stolen or looted,
therefore, during the emergency resulting from said liberation.
CORPORATION CODE- PART 3 |5
CFI- declared plaintiffs as the absolute owners of the shares of
stocks of Lepanto
ISSUE:
WON the plaintiffs had purchased the shares in question? NO
RULING:
In this case, it appears that the only evidence on the alleged sale
of share was the testimony of de los Santos. However, the
alleged vendors (Campos and Hess) have already died. Hence,
they could not take the witness stand.
Even, however, if Juan Campos and Carl Hess had sold the
shares of stock in question, it is not disputed that said shares of
stock were registered, in the records of the Lepanto, in the name
of Vicente Madrigal. Neither is it denied that the latter was, as
regards said shares of stock, a mere trustee for the benefit of
the Mitsuis. The record shows - and there is no evidence to the
contrary — that Madrigal had never disposed of said shares of
stock in any manner whatsoever, except by turning over the
corresponding stock certificates, late in 1941, to the Mitsuis, the
beneficial and true owners thereof. It has, moreover, been
established, by the uncontradicted testimony of Kitajima and
Miwa, the managers of the Mitsuis in the Philippines, from 1941
to 1945, that the Mitsuis had neither sold, conveyed, or alienated
said shares of stock, nor delivered the aforementioned stock
certificates, to anybody during said period. Section 35 of the
Corporation Law reads:
"The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or the vice-
president, countersigned by the secretary or clerk and sealed
with the seal of the corporation, shall be issued in accordance
with the by- laws. Shares of stock so issued are personal
property and may be transferred by delivery of the certificate
indorsed by the owner or his attorney in fact or other person
legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is
entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares
transferred.
"No shares of stock against which the corporation holds any
unpaid claim shall be transferable on the books of the
corporation." (Italics supplied.)
Pursuant to this provision, a share of stock may be transferred
by endorsement of the corresponding stock certificate, coupled
with its delivery. However, the transfer shall "not be valid, except
as between the parties," until it is "entered and noted upon the
books of the corporation." No such entry in the name of the
plaintiffs herein having been made, it follows that the transfer
allegedly effected by Juan Campos and Carl Hess in their favor
is "not valid, except as between" themselves. It does not bind
either Madrigal or the Mitsuis, who are not parties to said alleged
transaction. What is more, the same is "not valid," or, in the
words of the Supreme Court of Wisconsin (Re Murphy, 51 Wisc.
519, 8 N. W. 419) — which were quoted approval in Uson vs.
Diosomito (61 Phil., 535) — "absolutely void" and, hence, as
good as non-existent, insofar as Madrigal and the Mitsuis are
concerned. For this reason, although a stock certificate is
sometimes regarded as quasi-negotiable, in the sense that it
may be transferred by endorsement, coupled with delivery, it is
well settled that the instrument is non-negotiable, because the
holder thereof takes it without prejudice to such rights or
defenses as the registered owner or creditor may have under
the law, except insofar as such rights or defenses are subject to
the limitations imposed by the principles governing estoppel.
Further, in the case at bar, neither Madrigal nor the Mitsuis had
alienated the shares of stock in question. Indeed, the certificates
of stock in question were in the name of Madrigal. Obviously,
therefore, the alleged sellers (Campos and Hess) were not
registered owners of the corresponding shares of stock.

6. NEGOTIABILITY
A. REQUIREMENT FOR VALID TRANSFER OF STOCKS
1. [G.R. No. 184332. February 17, 2016.]
ANNA TENG, petitioner, vs. SECURITIES AND EXCHANGE
COMMISSION (SEC) and TING PING LAY, respondents.
FACTS:
This case has its origin in G.R. No. 129777 4 entitled TCL Sales
Corporation and Anna Teng v. Hon. Court of Appeals and Ting
Ping Lay. Herein respondent Ting Ping purchased 480 shares
of TCL Sales Corporation (TCL) from Peter Chiu (Chiu) on
February 2, 1979; 1,400 shares on September 22, 1985 from his
brother Teng Ching Lay (Teng Ching), who was also the
president and operations manager of TCL; and 1,440 shares
from Ismaelita Maluto (Maluto) on September 2, 1989. 5
Upon Teng Ching's death in 1989, his son Henry Teng (Henry)
took over the management of TCL. To protect his shareholdings
with TCL, Ting Ping on August 31, 1989 requested TCL's
Corporate Secretary, herein petitioner Teng, to enter the
transfer in the Stock and Transfer Book of TCL for the proper
recording of his acquisition. He also demanded the issuance of
new certificates of stock in his favor. TCL and Teng, however,
refused despite repeated demands. Because of their refusal,
Ting Ping filed a petition for mandamus with the SEC against
TCL and Teng, docketed as SEC Case No. 3900. 6
SEC- granted Ting Ping's petition. (affirmed by SEC en banc)
After the finality of the Court's decision, the SEC issued a writ of
execution but was however held in abeyance in view of the
complaint for interpleader filed by Teng seeking to compel Henry
and Ting Ping to interplead and settle the issue of ownership
over the 1,400 shares, which were previously owned by Teng
Ching.
RTC- held that Henry to has a better right to the shares of stock
formerly owned by Teng Ching
Teng and TCL filed their respective motions to quash the alias
writ of execution pointing out that the the annexes in Ting Ping's
opposition did not include the subject certificates of stock,
surmising that they could have been lost or destroyed.
SEC- denied the motions to quash
ISSUE:
Whether the surrender of the certificates of stock is a requisite
before registration of the transfer may be made in the corporate
books and for the issuance of new certificates? NO.
RULING:
A certificate of stock is a written instrument signed by the proper
officer of a corporation stating or acknowledging that the person
named in the document is the owner of a designated number of
shares of its stock. It is prima facie evidence that the holder is a
shareholder of a corporation. 34 A certificate, however, is
merely a tangible evidence of ownership of shares of stock. 35 It
is not a stock in the corporation and merely expresses the
contract between the corporation and the stockholder. 36 The
shares of stock evidenced by said certificates, meanwhile, are
regarded as property and the owner of such shares may, as a
general rule, dispose of them as he sees fit, unless the
corporation has been dissolved, or unless the right to do so is
properly restricted, or the owner's privilege of disposing of his
shares has been hampered by his own action. 37
Section 63 of the Corporation Code prescribes the manner by
which a share of stock may be transferred. Said provision is
essentially the same as Section 35 of the old Corporation Law,
which, as held in Fleisher v. Botica Nolasco Co., 38 defines the
nature, character and transferability of shares of
stock. Fleisher also stated that the provision on the transfer of
shares of stocks contemplates no restriction as to whom they
CORPORATION CODE- PART 3 |6
may be transferred or sold. As owner of personal property, a
shareholder is at liberty to dispose of them in favor of
whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law. 39
Section 63 provides:
Sec. 63. Certificate of stock and transfer of shares. — The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make
the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (Emphasis and underscoring ours)
Under the provision, 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. 40
It is the delivery of the certificate, coupled with the endorsement
by the owner or his duly authorized representative that is the
operative act of transfer of shares from the original owner to the
transferee. 41 The Court even emphatically declared in Fil-
Estate Golf and Development, Inc., et al. v. Vertex Sales and
Trading, Inc. 42 that in "a sale of shares of stock, physical
delivery of a stock certificate is one of the essential requisites
for the transfer of ownership of the stocks purchased."43 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. 44 "[S]hares of stock
may be transferred by delivery to the transferee of the
certificate properly indorsed. Title may be vested in the
transferee by the delivery of the duly indorsed certificate of
stock." 45
It is thus clear that Teng's position — that Ting Ping must first
surrender Chiu's and Maluto's respective certificates of stock
before the transfer to Ting Ping may be registered in the books
of the corporation — does not have legal basis. 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.
Nevertheless, to be valid against third parties and the
corporation, the transfer must be recorded or registered in the
books of corporation. Upon registration of the transfer in the
books of the corporation, the transferee may now then exercise
all the rights of a stockholder, which include the right to have
stocks transferred to his name.
2. G.R. No. 154069. June 6, 2016.
INTERPORT RESOURCES
CORPORATION, petitioner, vs. SECURITIES SPECIALIST,
INC., and R.C. LEE SECURITIES, INC., respondents.

FACTS:
In January 1977, Oceanic Oil & Mineral Resources, Inc.
(Oceanic) entered into a subscription agreement with R.C. Lee,
a domestic corporation engaged in the trading of stocks and
other securities, covering 5,000,000 of its shares with par value
of P0.01 per share, for a total of P50,000.00. Thereupon, R.C.
Lee paid 25% of the subscription, leaving 75% unpaid.
Consequently, Oceanic issued Subscription Agreements Nos.
1805, 1808, 1809, 1810, and 1811 to R.C. Lee. 3
On July 28, 1978, Oceanic merged with Interport, with the latter
as the surviving corporation. Interport was a publicly-listed
domestic corporation whose shares of stocks were traded in the
stock exchange. Under the terms of the merger, each share of
Oceanic was exchanged for a share of Interport. 4
On April 16, 1979 and April 18, 1979, SSI, a domestic
corporation registered as a dealer in securities, received in the
ordinary course of business Oceanic Subscription Agreements
Nos. 1805, 1808 to 1811, all outstanding in the name of R.C.
Lee, and Oceanic official receipts showing that 25% of the
subscriptions had been paid. 5 The Oceanic subscription
agreements were duly delivered to SSI through stock
assignments indorsed in blank by R.C. Lee. 6
Later on, R.C. Lee requested Interport for a list of subscription
agreements and stock certificates issued in the name of R.C.
Lee and other individuals named in the request. Upon finding no
record showing any transfer or assignment of the Oceanic
subscription agreements and stock certificates of Interport as
contained in the list, R.C. Lee paid its unpaid subscriptions and
was accordingly issued stock certificates corresponding
thereto. 8
On February 8, 1989, Interport issued a call or the full payment
of subscription receivables, setting March 15, 1989 as the
deadline. SSI tendered payment prior to the deadline through
two stockbrokers of the Manila Stock Exchange. However, the
stockbrokers reported to SSI that Interport refused to honor the
Oceanic subscriptions. 9
Still on the date of the deadline, SSI directly tendered payment
to Interport for the balance of the 5,000,000 shares covered by
the Oceanic subscription agreements, some of which were in
the name of R.C. Lee and indorsed in blank. Interport originally
rejected the tender of payment for all unpaid subscriptions on
the ground that the Oceanic subscription agreements should
have been previously converted to shares in Interport. 10
On March 31, 1989, or 16 days after its tender of payment, SSI
learned that Interport had issued the 5,000,000 shares to R.C.
Lee, relying on the latter's registration as the owner of the
subscription agreements in the books of the former, and on the
affidavit executed by the President of R.C. Lee stating that no
transfers or encumbrances of the shares had ever been
made. 14
Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the
delivery of the 5,000,000 Interport shares on the basis of a
purported assignment of the subscription agreements covering
the shares made in 1979. R.C. Lee failed to return the subject
shares inasmuch as it had already sold the same to other
parties. SSI thus demanded that R.C. Lee pay not only the
equivalent of the 25% it had paid on the subscription but the
whole 5,000,000 shares at current market value. 15
*Hearing Officer of the SEC's Securities Investigation and
Clearing Department (SICD)- ordered Interport to deliver the five
(5) million shares covered by Oceanic Oil and Mineral
Resources, Inc. subscription agreement Nos. 1805, 1808-1811
to petitioner SSI; and if the same not be possible to deliver the
value thereof, at the market price as of the date of this judgment
SEC En Banc- ordered Interport to deliver the corresponding
shares previously covered by Oceanic Oil Mineral Resources,
Inc. subscription agreements Nos. 1805-1811 to petitioner SSI,
to the extent only of 25% thereof, as duly paid by petitioner SSI;
CORPORATION CODE- PART 3 |7
and if the same will not be possible, to deliver the value thereof
at the market price as of the date of this judgment
CA- affirmed the SEC's decision
ISSUE:
Whether or not Interport was liable to deliver the Oceanic shares
of stock, or the value thereof to SSI?
RULING:
YES.
The assignment of the subscription agreements was a form of
novation by substitution of a new debtor and which required the
consent of or notice to the creditor. Under the Civil Code,
obligations may be modified by: (1) changing their object or
principal conditions; or (2) substituting the person of the debtor;
or (3) subrogating a third person in the rights of the
creditor. 26 Novation, which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. 27 In this case, the change
of debtor took place when R.C. Lee assigned the Oceanic
shares under Subscription Agreement Nos. 1805, and 1808 to
1811 to SSI so that the latter became obliged to settle the 75%
unpaid balance on the subscription.
Also, Interport was duly notified of the assignment when SSI
tendered its payment for the 75% unpaid balance, and that it
could not anymore refuse to recognize the transfer of the
subscription that SSI sufficiently established by documentary
evidence.
Yet, Interport claims that SSI waived its rights over the
5,000,000 shares due to its failure to register the assignment in
the books of Interport; and that SSI was estopped from claiming
the assigned shares, inasmuch as the assignor, R.C. Lee, had
already transferred the same to third parties.
Interport's claim cannot be upheld. It should be stressed that
novation extinguished an obligation between two parties.
Clearly, the effect of the assignment of the subscription
agreements to SSI was to extinguish the obligation of R.C. Lee
to Oceanic, now Interport, to settle the unpaid balance on the
subscription. As a result of the assignment, Interport was no
longer obliged to accept any payment from R.C. Lee because
the latter had ceased to be privy to Subscription Agreements
Nos. 1805, and 1808 to 1811 for having been extinguished
insofar as it was concerned. On the other hand, Interport was
legally bound to accept SSI's tender of payment for the 75%
balance on the subscription price because SSI had become the
new debtor under Subscription Agreements Nos. 1805, and
1808 to 1811. As such, the issuance of the stock certificates in
the name of R.C. Lee had no legal basis in the absence of a
contractual agreement between R.C. Lee and Interport.
Under Section 63 of the Corporation Code, no transfer of shares
of stock shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation so as to show
the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the
number of shares transferred. Hence:
[A] transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the
one hand, and its shareholders and third persons on the other,
the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer
has been recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one of its
stockholders. From this time, the consequent obligation on the
part of the corporation to recognize such rights as it is mandated
by law to recognize arises. 30

This statutory rule cannot be strictly applied herein, however,
because Interport had unduly refused to recognize the
assignment of the shares between R.C. Lee and SSI.
Subscription Agreements Nos. 1805, and 1808 to 1811 were
now binding between Interport and SSI only, and only such
parties were expected to comply with the terms thereof.
3. G.R. No. 137934 August 10, 2001
BATANGAS LAGUNA TAYABAS BUS COMPANY, INC.,
DOLORES A. POTENCIANO, MAX JOSEPH A.
POTENCIANO, MERCEDELIN A. POTENCIANO, and DELFIN
C. YORRO, petitioners,
vs.
BENJAMIN M. BITANGA, RENATO L. LEVERIZA,
LAUREANO A. SIY, JAMES A. OLAYVAR, EDUARDO A.
AZUCENA, MONINA GRACE S. LIM, and GEMMA M.
SANTOS, respondents.
FACTS:
Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin
A. Potenciano, Delfin C. Yorro, and Maya Industries, Inc.,
entered into a Sale and Purchase Agreement,2 whereby they
sold to BMB Property Holdings, Inc., represented by its
President, Benjamin Bitanga, their 21,071,114 shares of stock
in BLTB. The said shares represented 47.98% of the total
outstanding capital stock of BLTB.
Barely a month after the Agreement was executed, on
November 21, 1997, at a meeting of the stockholders of BLTB,
Benjamin Bitanga and Monina Grace Lim were elected as
directors of the corporation, replacing Dolores and Max Joseph
Potenciano. Subsequently, on November 28, 1997, another
stockholders' meeting was held, wherein Laureano A. Siy and
Renato L. Leveriza were elected as directors, replacing Candido
Potenciano and Delfin Yorro who had both resigned as such.
During a meeting of the Board of Directors on April 14, 1998, the
newly elected directors of BLTB scheduled the annual
stockholders' meeting on May 19, 1998, to be held at the
principal office of BLTB in San Pablo, Laguna. Before the
scheduled meeting, on May 16, 1998, Michael Potenciano wrote
Benjamin Bitanga, requesting for a postponement of the
stockholders' meeting due to the absence of a thirty-day
advance notice. However, there was no response from Bitanga
on whether or not the request for postponement was favorably
acted upon.
On the scheduled date of the meeting, May 19, 1998, a notice
of postponement of the stockholders' meeting was published in
the Manila Bulletin. Inasmuch as there was no notice of
postponement prior to that, a total of two hundred eighty six
stockholders, representing 87% of the shares of stock of BLTB,
arrived and attended the meeting. The majority of the
stockholders present rejected the postponement and voted to
proceed with the meeting. The Potenciano group was re-elected
to the Board of Directors,6 and a new set of officers was
thereafter elected.7
However, the Bitanga group refused to relinquish their positions
and continued to act as directors and officers of BLTB.
The Potenciano group filed on May 25, 1998, a Complaint for
Injunction and Damages with Preliminary Injunction and
Temporary Restraining Order with the SEC, docketed as SEC
Case No. 05-98-5978.9 SEC Chairman Perfecto Yasay, Jr.
issued a temporary restraining order enjoining the Bitanga group
from acting as officers and directors of BLTB.
On June 8, 1998, the Bitanga group filed another complaint with
application for a writ of preliminary injunction and prayer for
temporary restraining order, seeking to annul the May 19, 1998
stockholders' meeting. The complaint was docketed as SEC
Case No. 06-98-5994.
CORPORATION CODE- PART 3 |8
A Hearing Panel of the SEC conducted joint hearings of SEC
Cases Nos. 05-98-5973 and 05-98-5978. On June 17, 1998, the
SEC Hearing Panel granted the Bitanga group's application for
a writ of preliminary injunction upon the posting of a bond in the
amount of P20,000,000.00.10 It declared that the May 19, 1998
stockholders' meeting was void on the grounds that, first,
Michael Potenciano had himself asked for its postponement due
to improper notice; and, second, there was no quorum, since
BMB Holdings, Inc., represented by the Bitanga group, which
then owned 50.26% of BLTB's shares having purchased the
same from the Potenciano group, was not present at the said
meeting. The Hearing Panel further held that the Bitanga Board
remains the legitimate Board in a hold-over capacity.
The Potenciano group filed a petition for certiorari11 with the
SEC En Banc on June 29, 1998, seeking a writ of preliminary
injunction to restrain the implementation of the Hearing Panel's
assailed Order.
On July 21, 1998, the SEC En Banc set aside the June 17, 1998
Order of the Hearing Panel and issued the writ of preliminary
injunction prayed for.12
ISSUE: Whether the stockholders' meeting on May 19, 1998
was void since BMB Holdings, Inc., represented by the Bitanga
group was not present at the said meeting.
RULING:
Until registration is accomplished, the transfer, though
valid between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee, the Bitanga
group in this case, cannot vote nor be voted for.
In the July 21, 1998 Order of the SEC En Banc, the validity of
the BLTB stockholders' meeting held on May 19, 1998 was
sustained, in light of the time-honored doctrine in corporation
law that a transfer of shares is not valid unless recorded in
the books of the corporation. The SEC En Banc went on to
rule that —
It is not disputed that the transfer of the shares of the
group of Dolores Potenciano to the Bitanga group has
not yet been recorded in the books of the corporation.
Hence, the group of Dolores Potenciano, in whose
names those shares still stand, were the ones entitled
to attend and vote at the stockholders' meeting of the
BLTB on 19 May 1998. This being the case, the
Hearing Panel committed grave abuse of discretion in
holding otherwise and in concluding that there was no
quorum in said meeting.
Based on the foregoing premises, the SEC En Banc issued a
writ of preliminary injunction against the Bitanga group. In so
ruling, the SEC En Banc merely exercised its wisdom and
competence as a specialized administrative agency specifically
tasked to deal with corporate law issues. We are in full accord
with the SEC En Banc on this matter. Indeed, until registration
is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, the
unrecorded transferee, the Bitanga group in this case, cannot
vote nor be voted for. 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.26 Until challenged in a proper
proceeding, a stockholder of record has a right to participate in
any meeting;27 his vote can be properly counted to determine
whether a stockholders' resolution was approved, despite the
claim of the alleged transferee.28 On the other hand, a person
who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must
secure such a standing by having the transfer recorded on
the corporate books.29 Until the transfer is registered, the
transferee is not a stockholder but an outsider.30
4. G.R. NO. 139802 December 10, 2002

VICENTE C. PONCE, petitioner, vs.
ALSONS CEMENT CORPORATION, and FRANCISCO M.
GIRON, JR., respondents.
FACTS:
On 25 January 1996, Vicente C. Ponce, filed a complaint with
the SEC for mandamus and damages against Alsons Cement
Corporation and its corporate secretary Francisco M. Giron, Jr.
In his complaint, Ponce alleged, among others, that "the late
Fausto G. Gaid was an incorporator of Victory Cement
Corporation (VCC), having subscribed to and fully paid 239,500
shares of said corporation; that on 8 February 1968, Ponce and
Fausto Gaid executed a "Deed of Undertaking" and
"Indorsement" whereby the latter acknowledges that the former
is the owner of said shares and he was therefore
assigning/endorsing the same to Ponce; that on 10 April 1968,
VCC was renamed Floro Cement Corporation (FCC); that on 22
October 1990, FCC was renamed Alsons Cement Corporation
(ACC); that from the time of incorporation of VCC up to the
present, no certificates of stock corresponding to the 239,500
subscribed and fully paid shares of Gaid were issued in the
name of Fausto G. Gaid and/or Ponce; and that despite
repeated demands, ACC and Giron refused and continue to
refuse without any justifiable reason to issue to Ponce the
certificates of stocks corresponding to the 239,500 shares of
Gaid, in violation of Ponce's right to secure the corresponding
certificate of stock in his name.
ACC and Giron moved to dismiss. SEC Hearing Officer Enrique
L. Flores, Jr. granted the motion to dismiss in an Order dated 29
February 1996. Ponce appealed the Order of dismissal.
On 6 January 1997, the Commission En Banc reversed the
appealed Order and directed the Hearing Officer to proceed with
the case. In ruling that a transfer or assignment of stocks need
not be registered first before it can take cognizance of the case
to enforce Ponce's rights as a stockholder, the Commission En
Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz,
149 SCRA 654 (1987).
Their motion for reconsideration having been denied, ACC and
Giron appealed the decision of the SEC En Banc and the
resolution denying their motion for reconsideration to the Court
of Appeals. In its decision, the Court of Appeals held that in the
absence of any allegation that the transfer of the shares
between Gaid and Ponce was registered in the stock and
transfer book of ACC, Ponce failed to state a cause of action.
Thus, said the appellate court, "the complaint for mandamus
should be dismissed for failure to state a cause of action."
Ponce's motion for reconsideration was denied in a resolution
dated 10 August 1999. Ponce filed the petition for review on
certiorari.
ISSUE:
Whether the cert. of stocks of Gaid can be transferred to Ponce.
RULING: NO.
The Corporation Code states that:
SEC. 63. Certificate of stock and transfer of shares.–The capital
stock of stock corporations shall be divided into shares for which
certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the
CORPORATION CODE- PART 3 |9
parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate
or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation.
Pursuant to the foregoing provision, a transfer of shares of
stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is
concerned.22 As between the corporation on the one hand, and
its shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its
shareholders are.23 It is only when the transfer has been
recorded in the stock and transfer book that a corporation may
rightfully regard the transferee as one of its stockholders. From
this time, the consequent obligation on the part of the
corporation to recognize such rights as it is mandated by law to
recognize arises.
ISSUE: Whether Ponce can require the corporate secretary,
Giron, to register Gaid’s shares in his name.
RULING:
In Rivera vs. Florendo, 144 SCRA 643, 657 (1986), we
reiterated that a mere indorsement by the supposed owners of
the stock, in the absence of express instructions from them,
cannot be the basis of an action for mandamus and that the
rights of the parties have to be threshed out in an ordinary
action. That Hager and Rivera involved petitions for mandamus
to compel the registration of the transfer, while this case is one
for issuance of stock, is of no moment. It has been made clear,
thus far, that before a transferee may ask for the issuance of
stock certificates, he must first cause the registration of the
transfer and thereby enjoy the status of a stockholder insofar as
the corporation is concerned. A corporate secretary may not
be compelled to register transfers of shares on the basis
merely of an indorsement of stock certificates. With more
reason, in our view, a corporate secretary may not be
compelled to issue stock certificates without such
registration.
The test of sufficiency of the facts alleged in a petition is whether
or not, admitting the facts alleged, the court could render a valid
judgment thereon in accordance with the prayer of the petition. 33
This test would not be satisfied if, as in this case, not all the
elements of a cause of action are alleged in the complaint.34
Where the corporate secretary is under no clear legal duty
to issue stock certificates because of the petitioner’s failure
to record earlier the transfer of shares, one of the elements
of the cause of action for mandamus is clearly missing.
That petitioner was under no obligation to request for the
registration of the transfer is not in issue. It has no pertinence in
this controversy. One may own shares of corporate stock
without possessing a stock certificate. In Tan vs. SEC, 206
SCRA 740 (1992), we had occasion to declare that a certificate
of stock is not necessary to render one a stockholder in a
corporation. But a certificate of stock is the tangible evidence of
the stock itself and of the various interests therein. The
certificate is the evidence of the holder’s interest and status in
the corporation, his ownership of the share represented thereby.
The certificate is in law, so to speak, an equivalent of such
ownership. It expresses the contract between the corporation
and the stockholder, but it is not essential to the existence of a
share in stock or the creation of the relation of shareholder to
the corporation.35 In fact, it rests on the will of the stockholder
whether he wants to be issued stock certificates, and a
stockholder may opt not to be issued a certificate.
In Won vs. Wack Wack Golf and Country Club, Inc., 104 Phil.
466 (1958), we held that considering that the law does not
prescribe a period within which the registration should be
effected, the action to enforce the right does not accrue until
there has been a demand and a refusal concerning the transfer.
In the present case, petitioner’s complaint for mandamus must

fail, not because of laches or estoppel, but because he had
alleged no cause of action sufficient for the issuance of the writ.
5. G.R. No. 208844, November 10, 2015
F & S VELASCO COMPANY, INC., IRWIN J. SEVA, ROSINA
B. VELASCO-SCRIBNER, MERCEDEZ SUNICO, AND JOSE
SATURNINO O. VELASCO*, Petitioners, v. DR. ROMMEL L.
MADRID, PETER PAUL L. DANAO, MANUEL L. ARIMADO,
AND MAUREEN R. LABALAN, Respondents.
FACTS:
On June 8, 1987, FSVCI was duly organized and registered as
a corporation with Francisco O. Velasco (Francisco), Simona J.
Velasco (Simona), Angela V. Madrid (Angela), herein
respondent Dr. Rommel L. Madrid (Madrid), and petitioner
Saturnino O. Velasco (Saturnino) as its incorporators.
When Simona and Francisco died on June 12, 1998 and June
22, 1999, respectively, their daughter, Angela, inherited their
shares, thereby giving her control of 70.82% of FSVCI's total
shares of stock. As of May 11, 2009, the distribution of FSVCI's
24,000 total shares of stock is as follows: (a) Angela with 16,998
shares; (b) Madrid with 1,000 shares; (c) petitioner Rosina B.
Velasco-Scribner (Scribner) with 6,000 shares; and (d)
petitioners Irwin J. Seva (Seva) and Mercedez Sunico (Sunico)
with one (1) share each.5
On September 20, 2009 and during her tenure as Chairman of
the Board of Directors of FSVCI (the other members of the
Board of Directors being Madrid, Scribner, Seva, and Sunico),
Angela died intestate and without issue. On October 8, 2009,
Madrid, as Angela's spouse, executed an Affidavit of Self-
Adjudication covering the latter's estate which includes her
70.82% ownership of FSVCI's shares of stock. Believing that he
is already the controlling stockholder of FSVCI by virtue of such
self-adjudication, Madrid called for a Special Stockholders' and
Re-Organizational Meeting to be held on November 18, 2009.
On November 10, 2009 and in preparation for said meeting,
Madrid executed separate deeds of assignment transferring one
share each to Vitaliano B. Ricafort and to respondents Peter
Paul L. Danao (Danao), Maureen R. Labalan (Labalan), and
Manuel L. Arimado (Arimado; collectively, Madrid Group).6
Meanwhile, as Madrid was performing the aforesaid acts, Seva,
in his then-capacity as FSVCI corporate secretary, sent a Notice
of an Emergency Meeting to FSVCI's remaining stockholders for
the purpose of electing a new president and vice-president, as
well as the opening of a bank account. Such meeting was held
on November 6, 2009 which was attended by Saturnino, Seva,
and Sunico (November 6, 2009 Meeting), during which,
Saturnino was recognized as a member of the FSVCI Board of
Directors and thereafter, as FSVCI President, while Scribner
was elected FSVCI Vice-President (Saturnino Group).7
Despite the election conducted by the Saturnino Group, the
Madrid Group proceeded with the Special Stockholders' and Re-
Organizational Meeting on November 18, 2009, wherein: (a) the
current members of FSVCI Board of Directors (save for Madrid)
were ousted and replaced by the members of the Madrid Group;
and (b) Madrid, Danao, Arimado, and Labalan were elected
President, Vice-President, Corporate Secretary, and Treaurer,
respectively, of FSVCI (November 18, 2009 Meeting). 8
In view of the November 18, 2009 Meeting, the Saturnino Group
filed a petition for Declaration of Nullity of Corporate Election
with Preliminary Injunction and Temporary Restraining Order9
(TRO) against the Madrid Group before the RTC, which was
acting as a Special Commercial Court.10
After the RTC denied the Saturnino Groups' prayer for TRO, the
Madrid Group filed its Answer (with Compulsory
Counterclaims)11 which prayed for, among others, the
declaration of nullity of the November 6, 2009 Meeting
conducted by the Saturnino Group. The Madrid Group likewise
applied for the Appointment of a Management Committee for
FSVCI, which was denied by the RTC in an Order 12 dated
January 12, 2010.13
C O R P O R A T I O N C O D E - P A R T 3 | 10
ISSUES:
A. Whether November 18, 2009 Meeting organized by
Madrid is legal and valid. NO
B. Whether a Management Committee should be
appointed or constituted to take over the corporate and
business affairs of FSVCI. NO
RULING:
Be that as it may, it must be clarified that 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.
Section 63 of the Corporation Code governs the rule on transfers
of shares of stock. It reads:
SEC. 63. Certificate of stock and transfer of shares. - The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (Emphasis and underscoring supplied)
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 of the same Code as follows:
SEC. 74. Books to be kept; stock transfer agent. - x x x.
x x x x
Stock corporations must also keep a book to be known as the
"stock and transfer book", in which must be kept a record of all
stocks in the names of the stockholders alphabetically arranged;
the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to whom made; and
such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall
be open for inspection by any director or stockholder of the
corporation at reasonable hours on business days.
xxxx
In this regard, the case of Batangas Laguna Tayabas Bus Co.,
Inc. v. Bitanga38 instructs that 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, viz.:
Indeed, until registration is accomplished, the transfer, though
valid between the parties, cannot be effective as against the
corporation. Thus, the unrecorded transferee, the Bitanga group
in this case, cannot vote nor be voted for. 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. Until challenged in a proper
proceeding, a stockholder of record has a right to participate in
any meeting; his vote can be properly counted to determine
whether a stockholders' resolution was approved, despite the
claim of the alleged transferee. On the other hand, a person
who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must

secure such a standing by having the transfer recorded on
the corporate books. Until the transfer is registered, the
transferee is not a stockholder but an outsider.39 (Emphases
and underscoring supplied)
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 FSVCFs 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.
In this relation, it is noteworthy to point out that the submission
of a GIS of a corporation before the SEC is pursuant to the
objective sought by Section 2640 of the Corporation Code which
is to give the public information, under sanction of oath of
responsible officers, of the nature of business, financial
condition, and operational status of the company, as well as its
key officers or managers, so that those dealing and who intend
to do business with it may know or have the means of knowing
facts concerning the corporation's financial resources and
business responsibility.41 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. Jurisprudence in Lao v. Lao42 is instructive
on this matter, to wit:
The mere inclusion as shareholder of petitioners in the
General Information Sheet of PFSC is insufficient proof that
they are shareholders of the company.
Petitioners bank heavily on the General Information Sheet
submitted by PFSC to the SEC in which they were named as
shareholders of PFSC. They claim that respondent is now
estopped from contesting the General Information Sheet.
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.
As correctly ruled by the CA:
We agree with the trial court that mere inclusion in the General
Information Sheets as stockholders and officers does not
make one a stockholder of a corporation, for this may have
come to pass by mistake, expediency or negligence. As
professed by respondent-appellee, this was done merely to
comply with the reportorial requirements with the SEC. This
maybe against the law but "practice, no matter how long
continued, cannot give rise to any vested right."
6. G.R. No. 117604 March 26, 1997
CHINA BANKING CORPORATION, petitioner, vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY
CLUB, INC., respondents.
FACTS:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for
brevity) a stockholder of private respondent Valley Golf &
Country Club, Inc. (VGCCI, for brevity), pledged his Stock
Certificate No. 1219 to petitioner China Banking Corporation
(CBC, for brevity).1
On 16 September 1974, petitioner wrote VGCCI requesting that
the aforementioned pledge agreement be recorded in its
books.2
C O R P O R A T I O N C O D E - P A R T 3 | 11
In a letter dated 27 September 1974, VGCCI replied that the
deed of pledge executed by Calapatia in petitioner's favor was
duly noted in its corporate books.3
On 3 August 1983, Calapatia obtained a loan of P20,000.00
from petitioner, payment of which was secured by the
aforestated pledge agreement still existing between Calapatia
and petitioner.4
Due to Calapatia's failure to pay his obligation, petitioner, on 12
April 1985, filed a petition for extrajudicial foreclosure before
Notary Public Antonio T. de Vera of Manila, requesting the latter
to conduct a public auction sale of the pledged stock.5
On 14 May 1985, petitioner informed VGCCI of the above-
mentioned foreclosure proceedings and requested that the
pledged stock be transferred to its (petitioner's) name and the
same be recorded in the corporate books. However, on 15 July
1985, VGCCI wrote petitioner expressing its inability to accede
to petitioner's request in view of Calapatia's unsettled accounts
with the club.6
Despite the foregoing, Notary Public de Vera held a public
auction on 17 September 1985 and petitioner emerged as the
highest bidder at P20,000.00 for the pledged stock.
Consequently, petitioner was issued the corresponding
certificate of sale.7
On 21 November 1985, VGCCI sent Calapatia a notice
demanding full payment of his overdue account in the amount
of P18,783.24. 8 Said notice was followed by a demand letter
dated 12 December 1985 for the same amount9 and another
notice dated 22 November 1986 for P23,483.24. 10
On 4 December 1986, VGCCI caused to be published in the
newspaper Daily Express a notice of auction sale of a number
of its stock certificates, to be held on 10 December 1986 at 10:00
a.m. Included therein was Calapatia's own share of stock (Stock
Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI informed
Calapatia of the termination of his membership due to the sale
of his share of stock in the 10 December 1986 auction. 11
On 5 May 1989, petitioner advised VGCCI that it is the new
owner of Calapatia's Stock Certificate No. 1219 by virtue of
being the highest bidder in the 17 September 1985 auction and
requested that a new certificate of stock be issued in its name.
12
On 2 March 1990, VGCCI replied that "for reason of
delinquency" Calapatia's stock was sold at the public auction
held on 10 December 1986 for P25,000.00. 13
On 9 March 1990, petitioner protested the sale by VGCCI of the
subject share of stock and thereafter filed a case with the
Regional Trial Court of Makati for the nullification of the 10
December 1986 auction and for the issuance of a new stock
certificate in its name. 14
On 18 June 1990, the Regional Trial Court of Makati dismissed
the complaint for lack of jurisdiction over the subject matter on
the theory that it involves an intra-corporate dispute and on 27
August 1990 denied petitioner's motion for reconsideration.
On 20 September 1990, petitioner filed a complaint with the
Securities and Exchange Commission (SEC) for the nullification
of the sale of Calapatia's stock by VGCCI; the cancellation of
any new stock certificate issued pursuant thereto; for the
issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea
rendered a decision in favor of VGCCI, stating in the main that
"(c)onsidering that the said share is delinquent, (VGCCI) had
valid reason not to transfer the share in the name of the

petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
ISSUE:
Whether the purchase of the subject share or membership
certificate at public auction by petitioner transferred ownership
of the same to the latter and thus entitled petitioner to have the
said share registered in its name as a member of VGCCI.
RULING:
As to the first query, there is no question that the purchase of
the subject share or membership certificate at public
auction by petitioner (and the issuance to it of the
corresponding Certificate of Sale) transferred ownership of
the same to the latter and thus entitled petitioner to have
the said share registered in its name as a member of VGCCI.
It is readily observed that VGCCI did not assail the transfer
directly and has in fact, in its letter of 27 September 1974,
expressly recognized the pledge agreement executed by the
original owner, Calapatia, in favor of petitioner and has even
noted said agreement in its corporate books. 25 In addition,
Calapatia, the original owner of the subject share, has not
contested the said transfer.
By virtue of the afore-mentioned sale, petitioner became a bona
fide stockholder of VGCCI and, therefore, the conflict that arose
between petitioner and VGCCI aptly exemplies an intra-
corporate controversy between a corporation and its stockholder
under Sec. 5(b) of P.D. 902-A.
ISSUE:
Whether China Banking Corp. is bound by VGCCI's by-laws.
RULLING:
An important consideration, moreover, is the nature of the
controversy between petitioner and private respondent
corporation. VGCCI claims a prior right over the subject share
anchored mainly on Sec. 3, Art VIII of its by-laws which provides
that "after a member shall have been posted as delinquent, the
Board may order his/her/its share sold to satisfy the claims of
the Club. . ." 26 It is pursuant to this provision that VGCCI also
sold the subject share at public auction, of which it was the
highest bidder. VGCCI caps its argument by asserting that its
corporate by-laws should prevail. The bone of contention, thus,
is the proper interpretation and application of VGCCI's
aforequoted by-laws, a subject which irrefutably calls for
the special competence of the SEC.
In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the
shareholder was entered into, in this case, at the time the
pledge agreement was executed. VGCCI could have easily
informed petitioner of its by-laws when it sent notice formally
recognizing petitioner as pledgee of one of its shares registered
in Calapatia's name. Petitioner's belated notice of said by-laws
at the time of foreclosure will not suffice.
Similarly, VGCCI's contention that petitioner is duty-bound to
know its by-laws because of Art. 2099 of the Civil Code which
stipulates that the creditor must take care of the thing pledged
with the diligence of a good father of a family, fails to convince.
The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not
applicable:
In applying this provision to the situation
before us it must be borne in mind that the
ordinary pawn ticket is a document by virtue
of which the property in the thing pledged
passes from hand to hand by mere delivery of
the ticket; and the contract of the pledge is,
therefore, absolvable to bearer. It results that
C O R P O R A T I O N C O D E - P A R T 3 | 12
one who takes a pawn ticket in pledge
acquires domination over the pledge; and it is
the holder who must renew the pledge, if it is
to be kept alive.
It is quite obvious from the aforequoted case that a
membership share is quite different in character
from a pawn ticket and to reiterate, petitioner was
never informed of Calapatia's unpaid accounts and the
restrictive provisions in VGCCI's by-laws.
Finally, Sec. 63 of the Corporation Code which provides that "no
shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation"
cannot be utilized by VGCCI. The term "unpaid claim" refers
to "any unpaid claim arising from unpaid subscription, and
not to any indebtedness which a subscriber or stockholder
may owe the corporation arising from any other
transaction." 40 In the case at bar, the subscription for the
share in question has been fully paid as evidenced by the
issuance of Membership Certificate No. 1219. 41 What
Calapatia owed the corporation were merely the monthly dues.
Hence, the aforequoted provision does not apply.
7. Issuance
1. RAZON VS. IAC, 207 SCRA 234
FACTS:
E. Razon, Inc. was organized by Enrique Razon. Some of its
nominal incorporators withdrew, thus Razon distributed their
shares to some of his friends, which included Juan T. Chuidian,
to whom he transferred 1,500 shares of stock. It was agreed
between the two that Chuidian was only given the option to buy
the said shares, but Razon would be the owner. A stock
certificate was issued yb the Corporation in the name of
Chuidian, covering the 1,500 shares of stock. The said transfer
was also recorded in the corporate books of the Corporation.
The said certificate, however, was held by Razon, who delivered
it to the Philippine Bank of Commerce. Chuidian thereafter died,
and his administrator filed an action to recover the certificate of
shares of stock from Razon, representing Chuidian’s
shareholdings in the Corporation. The CFI declared Razon as
the owner of the said shares. The IAC however reversed, and
ruled that Chuidian was the owner of the said shares of stock as
evidence by the certificate, and as recorded in the corporate
books.
ISSUE:
W/N Chuidian is the owner of the contested shares of stock as
evidenced by the certificate and the record in the corporate
books.
RULING:
YES. Razon’s oral testimony alleging the existence of an
agreement between the two parties cannot prevail over what
appear in the certificate of shares of stock and the corporate
books. The law is clear that in order for a transfer of stock
certificates to be effective as between the parties, the certificate
must be properly indorsed and that the title to such certificate of
stock is vested in the transferee by the delivery of the duly
indorsed certificate of stock. Since the certificate of stock
covering the questioned 1,500 shares of stock registered in the
name of the late Chuidian was never indorsed to Razon, the
inevitable conclusion is that the questioned shares of stock
belong to Chuidian. The indorsement of the certificate of shares
of stock is a mandatory requirement of law for an effective
transfer of a certificate of stock.
2. The Rural Bank of Lipa City Inc., etc. vs. Court of
Appeals [GR 124535, 28 September 2001]
FACTS:
Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of
Lipa City, executed a Deed of Assignment, wherein he assigned
his shares, as well as those of 8 other shareholders under his
control with a total of 10,467 shares, in favor of the stockholders

of the Bank represented by its directors Bernardo Bautista,
Jaime Custodio and Octavio Katigbak. Sometime thereafter,
Reynaldo Villanueva, Sr. and his wife, Avelina, executed an
Agreement wherein they acknowledged their indebtedness to
the Bank in the amount of P4,000,000.00, and stipulated that
said debt will be paid out of the proceeds of the sale of their real
property described in the Agreement. At a meeting of the Board
of Directors of the Bank on 15 November 1993, the Villanueva
spouses assured the Board that their debt would be paid on or
before December 31 of that same year; otherwise, the Bank
would be entitled to liquidate their shareholdings, including
those under their control. In such an event, should the proceeds
of the sale of said shares fail to satisfy in full the obligation, the
unpaid balance shall be secured by other collateral sufficient
therefor. When the Villanueva spouses failed to settle their
obligation to the Bank on the due date, the Board sent them a
letter demanding: (1) the surrender of all the stock certificates
issued to them; and (2) the delivery of sufficient collateral to
secure the balance of their debt amounting to P3,346,898.54.
The Villanuevas ignored the bank's demands, whereupon their
shares of stock were converted into Treasury Stocks. Later, the
Villanuevas, through their counsel, questioned the legality of the
conversion of their shares. On 15 January 1994, the
stockholders of the Bank met to elect the new directors and set
of officers for the year 1994. The Villanuevas were not notified
of said meeting. In a letter dated 19 January 1994, Atty. Amado
Ignacio, counsel for the Villanueva spouses, questioned the
legality of the said stockholders' meeting and the validity of all
the proceedings therein. In reply, the new set of officers of the
Bank informed Atty. Ignacio that the Villanuevas were no longer
entitled to notice of the said meeting since they had relinquished
their rights as stockholders in favor of the Bank. Consequently,
the Villanueva spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the stockholders'
meeting and election of directors and officers on 15 January
1994, with damages and prayer for preliminary injunction (SEC
Case 02-94-4683_. Joining them as co-petitioners were
Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso
Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi.
Named respondents were the newly-elected officers and
directors of the Rural Bank, namely: Bernardo Bautista, Jaime
Custodio, Octavio Katigbak, Francisco Custodio and Juanita
Bautista. On 6 April 1994, the Villanuevas' application for the
issuance of a writ of preliminary injunction was denied by the
SEC Hearing Officer on the ground of lack of sufficient basis for
the issuance thereof.
However, a motion for reconsideration was granted on 16
December 1994, upon finding that since the Villanuevas' have
not disposed of their shares, whether voluntarily or involuntarily,
they were still stockholders entitled to notice of the annual
stockholders' meeting was sustained by the SEC. Accordingly,
a writ of preliminary injunction was issued enjoining Bautista, et.
al. from acting as directors and officers of the bank. Thereafter,
Bautista, et al. filed an urgent motion to quash the writ of
preliminary injunction, challenging the propriety of the said writ
considering that they had not yet received a copy of the order
granting the application for the writ of preliminary injunction. With
the impending 1995 annual stockholders' meeting only 9 days
away, the Villanuevas filed an Omnibus Motion praying that the
said meeting and election of officers scheduled on 14 January
1995 be suspended or held in abeyance, and that the 1993
Board of Directors be allowed, in the meantime, to act as such.
1 day before the scheduled stockholders meeting, the SEC
Hearing Officer granted the Omnibus Motion by issuing a
temporary restraining order preventing Bautista, et al. from
holding the stockholders meeting and electing the board of
directors and officers of the Bank. A petition for Certiorari and
Annulment with Damages was filed by the Rural Bank, its
directors and officers before the SEC en banc. On 7 June 1995,
the SEC en banc denied the petition for certiorari. A subsequent
motion for reconsideration was likewise denied by the SEC en
banc in a Resolution dated 29 September 1995. A petition for
review was filed before the Court of Appeals (CA-GR SP 38861),
assailing the Order dated 7 June 1995 and the Resolution dated
29 September 1995 of the SEC en banc in SEC EB 440. The
appellate court upheld the ruling of the SEC. Bautista, et al.'s
motion for reconsideration was likewise denied by the Court of
Appeals in an Order dated 29 March 1996. The bank, Bautista,
et al. filed the instant petition for review.
C O R P O R A T I O N C O D E - P A R T 3 | 13
ISSUE:
Whether there was valid transfer of the shares to the Bank.
RULING:
For a valid transfer of stocks, there must be strict compliance
with the mode of transfer prescribed by law. The requirements
are: (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. As it is, compliance with any of
these requisites has not been clearly and sufficiently shown.
Still, while the assignment may be valid and binding on the bank,
et al. and the Villanuevas, it does not necessarily make the
transfer effective. Consequently, the bank et al., as mere
assignees, cannot enjoy the status of a stockholder, cannot vote
nor be voted for, and will not be entitled to dividends, insofar as
the assigned shares are concerned. Parenthetically, the
Villanuevas cannot, as yet, be deprived of their rights as
stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.
SECTION 63. Certificate of stock and transfer of shares. The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stocks so issued are
personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the
transfer. No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate
or certificates and the number of shares transferred.
VII. STOCK AND TRANSFER BOOK
1. Andaya vs Rural Bank of Cabadbaran, Inc., et. al. G.R.
No. 188769, August 3, 2016
FACTS:
Andaya bought from Chute 2,200 shares of stock in the Rural
Bank of Cabadbaran for Php 220,000.00. Chute duly endorsed
and delivered the certifcates of stock to Andaya and,
subsequently, requested the bank to register the transfer and
issue new stock certifcates in favor of the latter. A few days later,
the bank’s corporate secretary wrote Chute to inform her that he
could not register the transfer due to a previous stockholder’s
Resolution where existing stockholders were given priority to
buy the shares of others in the event that the latter offered those
shares for sale. He then asked Chute if she, instead, wished to
have her shares offered to existing stockholders. Meanwhile, the
bank’s legal counsel, respondent Gonzalez, informed Andaya
that the latter’s request had been referred to the bank’s board of
directors for evaluation. Citing Section 98 of the Corporation
Code, Andaya claimed that the purported restriction on the
transfer of shares of stock agreed upon during the 2001
stockholders’ meeting could not deprive him of his right as a
transferee. The bank still refused the transfer arguing that it may
refuse to accept a competitor as one of its stockholders. Andaya
instituted an action for mandamus and damages against Rural
Bank of Cabadbaran which was dismissed by the RTC, hence
this petition for review.
ISSUE:
W/N Andaya, as a transferee of shares of stock, may initiate an
action for mandamus compelling the Rural Bank of Cabadbaran
to record the transfer of shares in its stock and transfer book, as
well as issue new stock certificates in his name.
RULING:
YES. According to Price vs. Martin, A person who has
purchased stock, and who desires to be recognized as a
stockholder, for the purpose of voting, must secure a standing
by having the transfer recorded upon the books. If the transfer

is not duly made upon request, he has, as his remedy, to compel
it to be made. The registration of a transfer of shares of stock is
a ministerial duty on the part of the corporation. It is already
settled jurisprudence that the registration of a transfer of shares
of stock is a ministerial duty on the part of the corporation.
Aggrieved parties may then resort to the remedy of mandamus
to compel corporations that wrongfully or unjustifiably refuse to
record the transfer or to issue new certificates of stock.
2. Ponce vs Alsons Cement Corporation, 393 SCRA 602
FACTS: On 25 January 1996, Vicente C. Ponce, filed a
complaint with the SEC for mandamus and damages against
Alsons Cement Corporation and its corporate secretary
Francisco M. Giron, Jr. In his complaint, Ponce alleged, among
others, that "the late Fausto G. Gaid was an incorporator of
Victory Cement Corporation (VCC), having subscribed to and
fully paid 239,500 shares of said corporation; that on 8 February
1968, Ponce and Fausto Gaid executed a "Deed of Undertaking"
and "Indorsement" whereby the latter acknowledges that the
former is the owner of said shares and he was therefore
assigning/endorsing the same to Ponce; that on 10 April 1968,
VCC was renamed Floro Cement Corporation (FCC); that on 22
October 1990, FCC was renamed Alsons Cement Corporation
(ACC); that from the time of incorporation of VCC up to the
present, no certificates of stock corresponding to the 239,500
subscribed and fully paid shares of Gaid were issued in the
name of Fausto G. Gaid and/or Ponce; and that despite
repeated demands, ACC and Giron refused and continue to
refuse without any justifiable reason to issue to Ponce the
certificates of stocks corresponding to the 239,500 shares of
Gaid, in violation of Ponce's right to secure the corresponding
certificate of stock in his name. ACC and Giron moved to
dismiss. SEC Hearing Officer Enrique L. Flores, Jr. granted the
motion to dismiss in an Order dated 29 February 1996. Ponce
appealed the Order of dismissal.
On 6 January 1997, the Commission En Banc reversed the
appealed Order and directed the Hearing Officer to proceed with
the case. In ruling that a transfer or assignment of stocks need
not be registered first before it can take cognizance of the case
to enforce Ponce's rights as a stockholder, the Commission En
Banc cited the Supreme Court's ruling in Abejo vs. De la Cruz,
149 SCRA 654 (1987). Their motion for reconsideration having
been denied, ACC and Giron appealed the decision of the SEC
En Banc and the resolution denying their motion for
reconsideration to the Court of Appeals. In its decision, the Court
of Appeals held that in the absence of any allegation that the
transfer of the shares between Gaid and Ponce was registered
in the stock and transfer book of ACC, Ponce failed to state a
cause of action. Thus, said the appellate court, "the complaint
for mandamus should be dismissed for failure to state a cause
of action." Ponce's motion for reconsideration was denied in a
resolution dated 10 August 1999. Ponce filed the petition for
review on certiorari.
ISSUE:
Whether Ponce can require the corporate secretary, Giron, to
register Gaid’s shares in his name.
RULING:
Fausto Gaid was an original subscriber of ACC's 239,500
shares. From the Amended Articles of Incorporation approved
on 9 April 1995, each share had a par value of P1.00 per share.
Ponce had not made a previous request upon the corporate
secretary of ACC, Francisco M. Giron Jr., to record the alleged
transfer of stocks. Pursuant to Section 63 of the Corporation
Code, a transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the
one hand, and its shareholders and third persons on the other,
the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer
has been recorded in the stock and transfer book that a
corporation may rightfully regard the transferee as one of its
stockholders. From this time, the consequent obligation on the
part of the corporation to recognize such rights as it is mandated
by law to recognize arises. Hence, without such recording, the
transferee may not be regarded by the corporation as one
among its stockholders and the corporation may legally refuse
C O R P O R A T I O N C O D E - P A R T 3 | 14
the issuance of stock certificates in the name of the transferee
even when there has been compliance with the requirements of
Section 64 of the Corporation Code.
The 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. A petition for
mandamus fails to state a cause of action where it appears that
the petitioner is not the registered stockholder and there is no
allegation that he holds any power of attorney from the
registered stockholder, from whom he obtained the stocks, to
make the transfer. The deed of undertaking with indorsement
presented by Ponce does not establish, on its face, his right to
demand for the registration of the transfer and the issuance of
certificates of stocks. Under the provisions of our statute
touching the transfer of stock, the mere indorsement of stock
certificates does not in itself give to the indorsee such a right to
have a transfer of the shares of stock on the books of the
company as will entitle him to the writ of mandamus to compel
the company and its officers to make such transfer at his
demand, because, under such circumstances the duty, the legal
obligation, is not so clear and indisputable as to justify the
issuance of the writ.
As a general rule, as between the corporation on the one hand,
and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining
who its shareholders are, so that a mere indorsee of a stock
certificate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the
absence of express instructions of the registered owner to make
such transfer to the indorsee, or a power of attorney authorizing
such transfer. Thus, absent an allegation that the transfer of
shares is recorded in the stock and transfer book of ACC, there
appears no basis for a clear and indisputable duty or clear legal
obligation that can be imposed upon the corporate secretary, so
as to justify the issuance of the writ of mandamus to compel him
to perform the transfer of the shares to Ponce.
3. G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD,
LUZVIMINDA TRIAS and FRANCISCO TRIAS, petitioners, vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE
COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO,
WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO,
JR., and FRANCISCO GUERRERO , SR., respondents.
FACTS:
On June 10, 1979, Clemente G. Guerrero, President of the Rural
Bank of Salinas, Inc., executed a Special Power of Attorney in
favor of his wife, private respondent Melania, giving and granting
the latter full power and authority to sell or otherwise dispose of
and/or mortgage 473 shares of stock of the Bank registered in
his name (represented by the Bank's stock certificates nos. 26,
49 and 65), to execute the proper documents therefor, and to
receive and sign receipts for the dispositions.
On February 27, 1980, and pursuant to said SPA, Melania
executed a Deed of Assignment for 472 shares out of the 473
shares, in favor of private respondents Luz Andico (457 shares),
Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5
shares).
On June 24, 1980 or 2 days before the death of Clemente,
Melania executed a Deed of Assignment for the remaining 1
share of stock in favor of private respondent Francisco Guerrero,
Sr.
Subsequently, Melania presented to Rural Bank of Salinas the
2 Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473 shares
of stock so assigned, the cancellation of stock certificates in the
name of Clemente G. Guerrero, and the issuance of new stock
certificates covering the transferred shares of stocks in the name

of the new owners thereof. However, petitioner Bank denied the
request of respondent Melania.
On December 5, 1980, Melania filed with the SEC an action
for mandamus against petitioners Rural Bank of Salinas, its
President and Corporate Secretary.
Petitioners alleged that the upon the death of Clemente, his 473
shares of stock became the property of his estate, and his
property and that of his widow should first be settled and
liquidated in accordance with law before any distribution can be
effected so that petitioners may not be a party to any scheme to
evade payment of estate or inheritance tax and in order to avoid
liability to any third persons or creditors of the late Clemente G.
Guerrero.
On January 29, 1981, a motion for intervention was filed by
Maripol Guerrero, a legally adopted daughter of the late
Clemente, and Melania, who stated therein that a Petition for the
administration of the estate of the late Clemente had been filed
with the RTC. Maripol further claimed that:
1. the Deeds of Assignment for the subject shares of
stock are fictitious and antedated;
2. that said conveyances are donations since the
considerations therefor are below the book value of the
shares, the assignees/private respondents being close
relatives of private respondent Melania;
3. and that the transfer of the shares in question to
assignees/private respondents, other than private
respondent Melania, would deprive her of her rightful
share in the inheritance.
The SEC hearing officer denied the Motion for Intervention for
lack of merit. On appeal, the SEC En Banc affirmed the decision
of the hearing officer.
Intervenor Guerrero filed a complaint before the then CFI
against private respondents for the annulment of the Deeds of
Assignment. Petitioners, on the other hand, filed a Motion to
Dismiss and/or to Suspend Hearing of SEC Case until after the
question of whether the subject Deeds of Assignment are
fictitious, void or simulated is resolved in the Civil Case. The
SEC Hearing Officer denied said motion.
The SEC Hearing Officer rendered a Decision granting the writ
of Mandamus and directing petitioners to cancel stock
certificates nos. 26, 49 and 65 of the Bank, all in the name of
Clemente, and to issue new certificates in the names of private
respondents, except Melania.
On appeal, the SEC En Banc affirmed the decision of the
Hearing Officer. Petitioner filed a petition for review with the
Court of Appeals but said Court likewise affirmed the decision of
the SEC.
Petitioners maintain that the Petition for Mandamus should have
been denied upon the following grounds:
1. Mandamus cannot be a remedy cognizable by the
Securities and Exchange Commission when the
purpose is to register certificates of stock in the names
of claimants who are not yet stockholders of a
corporation:
2. There exist valid reasons for refusing to register the
transfer of the subject of stock, namely:
A. a pending controversy over the ownership of the
certificates of stock with the Regional Trial Court;
B. claims that the Deeds of Assignment covering the
subject certificates of stock were fictitious and
antedated; and
C. claims on a resultant possible deprivation of
inheritance share in relation with a conflicting
claim over the subject certificates of stock.
ISSUE:
C O R P O R A T I O N C O D E - P A R T 3 | 15
Whether or not the Securities and Exchange Commission was
correct when it compelled by Mandamus the Rural Bank of
Salinas to register in its stock and transfer book the transfer of
473 shares of stock to private respondents.
RULING:
Yes. Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies.
An intracorporate controversy has been defined as one which
arises between a stockholder and the corporation. There is no
distinction, qualification, nor any exception whatsoever. The
case at bar involves shares of stock, their registration,
cancellation and issuances thereof by petitioner Rural Bank of
Salinas. It is therefore within the power of respondent SEC to
adjudicate.
Respondent SEC correctly ruled in favor of the registering of the
shares of stock in question in private respondent's names. Such
ruling finds support under Section 63 of the Corporation Code,
to wit:
Sec. 63. . . . Shares of stock so issued are personal
property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the
Court interpreted Sec. 63 in his wise: Said Section contemplates
no restriction as to whom the stocks may be transferred. It does
not suggest that any discrimination may be created by the
corporation in favor of, or against a certain purchaser. The
owner of shares, as owner of personal property, is at liberty,
under said section to dispose them in favor of whomever he
pleases, without limitation in this respect, than the general
provisions of law. . . .The only limitation imposed by Section 63
of the Corporation Code is when the corporation holds any
unpaid claim against the shares intended to be transferred,
which is absent here.
A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers, because
restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create
such impediment. By-laws are intended merely for the protection
of the corporation, and prescribe regulation, not restriction; they
are always subject to the charter of the corporation. The
corporation, in the absence of such power, cannot ordinarily
inquire into or pass upon the legality of the transactions by which
its stock passes from one person to another, nor can it question
the consideration upon which a sale is based.
The right of a transferee/assignee to have stocks transferred to
his name is an inherent right flowing from his ownership of the
stocks. Thus, whenever a corporation refuses to transfer and
register stock in cases like the present, mandamus will lie to
compel the officers of the corporation to transfer said stock in
the books of the corporation.
The duty of the corporation to transfer is a ministerial one and if
it refuses to make such transaction without good cause, it may
be compelled to do so by mandamus.
For the petitioner Rural Bank of Salinas to refuse registration of
the transferred shares in its stock and transfer book, which duty
is ministerial on its part, is to render nugatory and ineffectual the
spirit and intent of Section 63 of the Corporation Code. At all
events, the registration is without prejudice to the proceedings
in court to determine the validity of the Deeds of Assignment of
the shares of stock in question.
4. G.R. No. 168134, October 05, 2016

FERRO CHEMICALS, INC., Petitioner, v. ANTONIO M.
GARCIA, ROLANDO NAVARRO, JAIME Y. GONZALES AND
CHEMICAL INDUSTRIES OF THE PHILIPPINES,
INC., Respondents.
G.R. NO. 168183
JAIME Y. GONZALES, Petitioner, v. HON. COURT OF
APPEALS AND FERRO CHEMICALS, INC., Respondents.
G.R. NO. 168196
ANTONIO M. GARCIA, Petitioner, v. FERRO CHEMICALS,
INC., Respondent.
FACTS: Ferro Chemicals is a domestic corporation duly
authorized by existing law to engage in business in the
Philippines, represented by its President, Ramon M. Garcia.
Chemical Industries is also a domestic corporation where
Antonio Garcia, is the Chairman of the BOD of Chemical
Industries and a brother of Ferro Chemical's President, Ramon
Garcia. Rolando Navarro is the Corporate Secretary of
Chemical Industries while Jaime Gonzales is a close financial
advisor of Antonio Garcia.
The Deed of Absolute Sale and Purchase of Shares of Stock
On 15 July 1988, Antonio Garcia and Ferro Chemicals entered
into a Deed of Absolute Sale and Purchase of Shares of
Stock over 1,717,678 shares of capital stock of Chemical
Industries registered under the name of Antonio Garcia for a
consideration of P79,207,331.28. Included as subjects of the
sale were Antonio Garcia's 371,697 shares of stocks in Vision
Insurance Consultants, Inc., (VIC) and his proprietary
membership in Alabang Country Club and Manila Polo Club.
Under the sale agreement, Antonio Garcia warranted the
following:
(1) That the subject shares are free from the liens and
encumbrances except the ones under the Security Bank and
Trust Company (Security Bank) and the Insular Bank of Asia and
America (Insular Bank);
(2) That the seller undertakes to defend the sale contract and
defray the litigation cost should its validity be assailed, and, to
reimburse Ferro Chemicals the amount of the purchase price
(3) That in the event that the sale is invalidated, the seller will
reimburse the buyer the amount of the purchase price.
The parties also stipulated in the agreement that Ferro
Chemicals will deliver a part of the purchase price to Security
Bank in satisfaction of Antonio Garcia's obligation as judgment
obligor with Security Bank.
Pursuant to the sale contract, Ferro Chemicals remitted the
amount of P35,462,869.92 to Security Bank and Trust Co.
(SBTC) in the form of a check drawn against its account with
Bank of America. On the ground that the amount tendered was
insufficient to satisfy the obligation, the payment was not
accepted by Security Bank, leaving the obligor with no recourse
but to consign the check to the court.
(Security Bank Case) On 19 June 1990, the CA approved the
consignation effected by Antonio Garcia and held that the
amount tendered is sufficient to discharge his liability. The Court
affirmed the final settlement of Antonio Garcia's liability with the
bank. This settled the Security Bank Case with finality.
The Compromise Agreement
On 17 January 1989, Antonio Garcia entered into
a Compromise Agreement with Philippine Investments System
Organization (PISO), Bank of the Philippine Islands (BPI),
Philippine Commercial International Bank (PCIB), Rizal
Commercial Banking Corporation (RCBC) and Land Bank of the
Philippines (LBP) (collectively known as Consortium Banks).
The settlement was entered in connection with the Surety
C O R P O R A T I O N C O D E - P A R T 3 | 16
Agreements previously contracted by Antonio Garcia and
Dynetics Corporation with the onsortium Banks.
The First Consortium Case
The Compromise Agreement sprang from Civil Case No. 8527,
filed by Antonio Garcia and Dynetics, Inc. before the RTC,
seeking to enjoin the Consortium Banks from collecting the
amount of P117,800,000.00, excluding interests, purportedly
representing their liability under surety contracts.
The RTC issued a Notice of Garnishment over the 1,717,678
shares of stocks of Antonio Garcia in Chemical Industries to
secure any contingent claims that may be awarded in favor of
the banks. On the ground that only absolute transfers of shares
are required to be on the corporation's stock and transfer books,
the Corporate Secretary did not annotate the banks' claims on
Chemical Industries' books.
Subsequently, the RTC issued Orders dismissing Civil Case No.
8527. The parties agreed to amicably settle the case, and thus,
the creditors accepted the offer of the debtors to immediately
pay the obligation in exchange for the waiver of interests,
penalties and attorney's fees. The compromise agreement,
which required Antonio Garcia and Dynetics to pay the
Consortium Banks the amount of P145,000,000.00, was
consequently approved by the CA.
The Deed of Right to Repurchase
After the parties forged a Compromise Agreement, Antonio
Garcia and Ferro Chemicals entered into a Deed of Right to
Repurchase. Under the repurchase contract, Ferro Chemicals
stipulated to sell back the subject shares to Antonio Garcia
within 180 days from its execution or until 30 August 1989
subject to the foregoing terms:
(1) That the consideration for the repurchase shall either be
equivalent to the amount actually paid by the buyer for the sale
or the sum of P79,207,331.28, whichever is lesser, plus interest
charges, bank charges, broker's commission, transfer taxes and
documentary stamp tax;
(2) Should the tender of the repurchase price be effected 90
days after 3 March 1989, the seller, shall, in addition to the
payment of the above stated amount, shall pay a surcharge
equivalent to 5% over and above the actual cost of the buyer in
holding the shares.
Antonio Garcia notified Ferro Chemicals of his intention to
exercise his right under the repurchase deed. On the ground that
the taxes and the interests due were not included in the
consideration for repurchase price tendered by Antonio Garcia,
Ferro Chemicals refused to sell back the shares to him. Instead,
Ferro Chemicals opted to cede its rights over the subject shares
to Chemphil Export and Import Corporation (Chemphil
Export) by virtue of an Agreement.
First and Second Repurchase Cases
Antonio Garcia initiated an action for Specific Performance
before the RTC. The case, Civil Case No. 89-4837, sought for
the enforcement of the seller's right under the repurchase
agreement and prayed that the buyer be ordered to reconvey
the subject shares to him. Finding that the issues raised involved
an intra-corporate dispute cognizable by the Securities and
Exchange Commission (SEC), the RTC dismissed the case.
Undeterred, Antonio Garcia filed a Second Repurchase Case
before the SEC (SEC Case No. 04303). In his Complaint, the
seller cited the unjustified refusal of the buyer to comply with the
terms of the agreement.
Enforcement of the First Consortium Case
With Antonio Garcia and Dynetics' failure to comply with the
compromise agreement, the Consortium Banks, filed a Motion
for Execution. Thus, the RTC issued a Writ of Execution to
enforce the court-approved compromise against Antonio Garcia
and Dynetics.

Pursuant to the writ of execution, the sheriff levied the 1,717,678
shares of capital stocks in Chemical Industries that were
previously attached in the First Consortium Case. The
Consortium Banks were declared as the highest bidders.
The RTC issued an order directing the Corporate Secretary of
Chemical Industries to enter the sheriffs certificate of sale in the
company's stock and transfer books. In effect, the corporate
secretary was enjoined to cancel the certificates of shares of
stocks under the name of Antonio Garcia and all those claiming
rights under him and issue new ones in favor of the Consortium
Banks.
The Second Consortium Case
Before the corporate secretary could carry out the foregoing
directive, Chemphil Export filed an Urgent Motion opposing RTC
Order and propounded that it has superior right as against the
Consortium Banks.
For Chemphil Export, the garnishment effected by the Sheriff is
not binding on third persons because it was not recorded on the
stock and transfer book of the corporation.
In the Second Consortium Case, the Court ruled in favor of the
Consortium Banks and declared that the attachment lien they
previously acquired is valid and effective even though it was not
annotated in the corporation's stock and transfer books. The
chief purpose of the remedy of attachment is to secure a
contingent lien on the defendant's property until plaintiff can
obtain a judgment and have such property applied to its
satisfaction. For this reason, the Court adjudged the Consortium
Banks as the rightful owners of the disputed shares.
The Ferro Chemicals Case
After losing the disputed shares to the Consortium Banks,
Chemphil Export proceeded to demand from Ferro Chemicals
the value of the lost shares in the amount of P100,000,000.00.
In payment thereof, Ferro Chemicals ceded its fights over its
chrome plant in Misamis Oriental m favor of the former.
The Consortium Banks also assigned their rights over the
disputed shares to Jaime Gonzales by executing a Deed of
Assignment of Credit Without Recourse.
On the belief that it is aggrieved by the turn of events, Ferro
Chemicals initiated several civil and criminal cases against
Chemical Industries, Antonio Garcia, Rolando Navarro, Jaime
Gonzales and a certain Atty. Virgilio Gesmundo before different
courts and judicial bodies.
Ferro Chemicals filed an action for damages before the RTC,
seeking for the recovery of the amount of the shares that was
lost by Chemphil Export to the Consortium Banks in the Second
Consortium Case.
In its Complaint, Ferro Chemicals claimed that defendants
conspired and abetted to fraudulently induce the buyer to
purchase Antonio Garcia's shares by falsely warranting that
these shares are free from liens and encumbrances. These
representations were made despite their knowledge that the
subject shares were previously garnished by Consortium Banks.
In refuting liability, defendants Chemical Industries and Antonio
Garcia averred that there is no truth to the claim of Ferro
Chemicals that it was not made aware of the prior attachment of
the Consortium Banks.
To expose the frailty of the case, defendants Chemical
Industries and Antonio Garcia punctuated Ferro Chemical's
unjustified refusal to sell back the shares to Antonio Garcia and
the latter's unrelenting efforts to reacquire the shares at the price
stipulated in the Deed of Right to Repurchase
For his part, defendant Jaime Gonzales claimed that he is not a
party to the agreement which was merely between the brothers
Ramon Garcia and Antonio Garcia and their respective
corporations, Ferro Chemicals and Chemical Industries.
C O R P O R A T I O N C O D E - P A R T 3 | 17
Defendant Rolando Navarro also denied liability by pointing out
that he was neither a party nor a privy to the contract in question
and his participation in the transaction was limited to his signing
of the deed as an instrumental witness thereof.
The RTC Decision
The RTC rendered a Decision in favor of Ferro Chemicals and
found Chemical Industries, Antonio Garcia, Jaime Gonzales and
Rolando Navarro solidarily liable for the total amount of
P269,355,537.41, representing the value of the lost shares.
In finding Antonio Garcia liable, the RTC harbored the belief that
no reasonable businessman would assume the risk of buying
the shares for P79,207,331.28 and then end up answering
liabilities to its prior lienholders in the amount of
P145,000,000.00. The court a quo went on to declare that it
would be an unwise business decision for Ferro Chemicals to
purchase shares of stocks that were already attached to answer
for contingent claims.
The Court of Appeals Decision
The CA rendered a Decision affirming with modification the RTC
Decision. Finding no sufficient evidence on record that Rolando
Navarro actively participated in the fraud perpetrated by Antonio
Garcia against Ferro Chemicals, the CA discharged him from
liability.
ISSUES: Whether or not Antonio Garcia perpetrated fraud – No
Whether or not the attachments of shares are considered
"transfers" which are required to be recorded in the corporations'
stock and transfer book. - No
RULING:
On the liability of Antonio Garcia for fraud and
breach of obligation
We are not convinced.
There are two clearly crucial evidentiary matters that were
without warrant overlooked by the lower tribunals: (I) the
execution by Ferro Chemicals and Antonio Garcia of the Deed
of Right to Repurchase on 3 March 1989; and (2) that on two
separate occasions, Antonio Garcia conveyed in writing his
intent to buy back the shares in accordance with the terms of
the repurchase deed. These pieces of evidence, if appreciated
in light of the allegation of fraud, would overthrow the very
foundation upon which the Ferro Chemicals rested its case.
Fraud, in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust
or confidence justly reposed, resulting in the damage to another,
or by which an undue and unconscionable advantage is taken
of another.
Applying the foregoing precepts in this case, we find it hard to
believe that Antonio Garcia could be motivated by his fraudulent
desire to extract money and then ease out Ferro Chemicals from
its ownership of the subject shares.
Though it fashioned itself as the vulnerable party, who was lured
into buying shares of stocks that later turned out to be
overburdened by liens, the fact is that Ramon Garcia is the
President of Ferro Chemicals and the brother of Antonio Garcia
of Chemical Industries which, like Ferro Chemicals, is into
initiated business ventures. The transactions that Ramon and
Antonio Garcia had with each other were between brothers
about their businesses. Ramon Garcia, both in buying the
subject shares from Antonio Garcia, and later on, in refusing to
sell back the shares to Antonio Garcia did so in furtherance of
his interests. It would be rash judgment to say it was not so and
hold that business dealings in multimillions were done without
conducting due diligence on the subject of the contract.
Indeed, the allegation that Antonio Garcia employed fraudulent
machinations to hide the subject lien to facilitate the disposal of
his shares and to lure Ferro Chemicals to part with its money is
diametrically opposed to Antonio Garcia's subsequent offers to

repurchase the shares and tender of the repurchase price. On
the other hand, Ferro Chemicals' explanation that the reason
why it did not agree to the reacquisition was because the
repurchase price tendered did not include the amount of taxes
and interest due, is flimsy and unacceptable under the
circumstances. It must be pointed out that no negotiation in good
faith between the parties as to the correct amount of taxes and
interests should be paid took place since Ferro Chemicals at the
outset flatly refused the offer to buy. As a matter of fact, Antonio
Garcia was constrained to initiate two repurchase cases in his
effort to reacquire the property.
Ferro Chemical's refusal to sell back the shares to Antonio
Garcia was a calculated move by Ramon Garcia who measured
the risk of losing the subject shares to the Consortium Banks
against the visible returns on the shares during the pendency of
the Consortium Bank Case. Between the time of the initial offer
of Antonio Garcia to buy back the shares up to the finality of the
Court's decision in the Second Consortium Case, Ferro
Chemicals thru Chemphil Export, profited from the Chemical
Industries' shares. It was only after it had lost the shares to the
Consortium Banks by the decision of the Court that Ferro
Chemicals went back to Antonio Garcia and his co-defendants
for the enforcement of the sale contract asking for the
reimbursement of the amount of the shares that was lost. The
buying and selling of stocks and the subsequent agreement on
reversed activities were in the exercise of business judgment.
Applying the doctrines to the case at bar, a judgment on fraud
requires allegation and proof of facts and circumstances by
which undue and unconscionable advantage is taken by Antonio
Garcia. Ramon Garcia failed in this regard. In contrast, the
succession of transaction between Antonio and Ramon Garcia
indicated that Ramon Garcia wanted to have a way out of his
failed business decision of holding on to his shares instead of
selling it back to Antonio Garcia when he had the opportunity to
do so. He saw that it was better to hold on to the shares he
bought from Antonio Garcia. The Court cannot save him from
the fall that came from his own choice.
On the liability of Rolando Navarro and Jaime Gonzales for
tortious interference
In imputing liability to Rolando Navarro, Ferro Chemicals harps
on the following acts found by the trial court to be demonstrative
of his malicious intention to interfere with the contract between
Antonio Garcia and Ferro Chemicals:
(1) He facilitated in the execution of the Deed by showing the
Stock and Transfer Book of [Chemical Industries] to [Ferro
Chemicals] thru [Ramon Garcia] to assure the latter that the
disputed shares had no lien other than those in the Stock and
Transfer Book and in order to conceal the [Consortium Bank's]
lien;
(2) He, together with Atty. Virgilio Gesmundo, also drafted in the
boardroom of the [Chemical Industries] the Deed which
embodied the basic terms and conditions of the sale as agreed
upon by the parties;
(3) He also signed as instrumental witness in the Deed;
(4) Upon examination of the Deed and despite knowledge of the
irregularity of the sale, he, acting as corporate secretary of
[Chemical Industries], transferred the disputed shares in the
name of [Ferro Chemicals] and issued the corresponding
certificates of stock;
(5) He drafted the Deed of Right to Repurchase under which
[Antonio Garcia] was given the right to redeem the shares sold
to [Ferro Chemicals] within 180 days from signing of the said
deed and subject to other conditions stated therein;
(6) He, as the corporate secretary of [Chemical Industries],
again made the transfer of the said shares in the Stock and
Transfer Book of [Chemical Industries] this time with respect to
the 4,119,614 shares (which included the disputed shares)
assigned by [Ferro Chemicals] to [Chemphil Export].
In essence, Ferro Chemicals contends that while Rolando
Navaro is not privy to the contract, his individual acts form part
of the bigger scheme to defraud the corporation.
C O R P O R A T I O N C O D E - P A R T 3 | 18
In his Comment, Rolando Navarro denies liability by arguing that
not being a party to the contract, he cannot be held liable for
breach thereof under Article 1311 of the New Civil Code.
We affirm the ruling of the Court of Appeals in favor of
Rolando Navarro.
The basic principle of relativity of contracts is that contracts can
only bind the parties who entered into it, and cannot favor or
prejudice a third person, even if he is aware of such contract and
has acted with knowledge thereof. Where there is no privity of
contract, there is likewise no obligation or liability to speak about.
The Court, in the case of So Ping Bun v. Court of Appeals, et
al. laid down the elements of tortious interference with
contractual relations: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of the
contract and (3) interference on the part of the third person
without legal justification or excuse.
A duty which the law of torts is concerned with is respect for
property of others, and cause of action ex delicto may be
predicated by an unlawful interference by any person of the
enjoyment of the other of his private property. This may pertain
to a situation where a third person induces a person to renege
on or violate his undertaking under a contract.
A perusal of the allegations proffered against Rolando Navarro
would show that none of his conduct prior or even subsequent
to the execution of the subject deed, which was primarily done
in furtherance of his duties as corporate secretary, constitutes
tortious interference. To imply that by preparing a draft of a
contract, signing as instrumental witness of the deed and
recording of transfer of shares on the corporate books, Rolando
Navarro can now be held liable for tortious interference, is
incredulous.
RELATED TO CORPORATION LAW
As the Corporate Secretary of Chemical Industries, Rolando
Navarro is under obligation to record in the stock and transfer
book any and all alienation involving the shares of stocks of the
corporation as mandated by Section 74 of the Corporation Code
which states:
Sec. 74. Books to be kept; stock transfer agent.
Stock corporations must also keep a book to be known as the
"stock and transfer book," in which must be kept a record of all
stocks in the names of the stockholders alphabetically arranged;
the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of
stock made the date thereof, and by and to whom made; and
such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall
be open for inspection by any director or stockholder of the
corporation at reasonable hours on business days.
Clearly, the transfer of the certificates of stocks covering the
subject shares in favor of Ferro Chemicals effected on the
strength of a valid deed of sale cannot be taken as an actionable
tortious conduct, whether such action is viewed in isolation or in
connection with conduct of his co-defendants.
For sure, Rolando Navarro has transgressed no right of Ferro
Chemicals while performing his obligation as an officer of
Chemical Industries. Even if we lend credence to the graver
allegation that Rolando Navarro showed the stock and transfer
books of the corporation to Ramon Garcia which bore no record
of the Consortium Banks' lien, still he could not be faulted in the
absence of showing that he acted in bad faith with the intention
to lure the buyer to believe that the subject shares were lien-
free.
As the Corporate Secretary of Chemical Industries, he is under
no obligation to record the attachment of the Consortium Banks,
not being a transfer of ownership but merely a burden on the title
of the owner. Only absolute transfers of shares of stock are
required to be recorded in the corporation's stock and
transfer book in order to have "force and effect as against
third persons." In Chemphil Export and Import Corporation v.

Court of Appeals, et al., the Court enunciated the rule that
attachments of shares are not considered "transfer" and need
not be recorded in the corporations' stock and transfer book, viz:
"'Are attachments of shares of stock included in the term
"transfer" as provided in Sec. 63 of the Corporation Code?
We rule in the negative. As succinctly declared in the case
of Monserrat v. Ceron, chattel mortgage over shares of stock
need not be registered in the corporation's stock and transfer
book inasmuch as chattel mortgage over shares of stock does
not involve a "transfer of shares," and that only absolute
transfers of shares of stock are required to be recorded in the
corporation's stock and transfer book in order to have "force and
effect as against third persons."
xxxx
"A 'transfer' is the act by which the owner of a thing delivers it to
another with the intent of passing the rights which he has in it to
the latter, and a chattel mortgage is not within the meaning of
such term.
xxxx
Although the Monserrat case refers to a chattel mortgage
over shares of stock, the same may be applied to the
attachment of the disputed shares of stock in the present
controversy since an attachment does not constitute an
absolute conveyance of property but is primarily used as a
means "to seize the debtor's property in order to secure the
debt or claim of the creditor in the event that a judgment is
rendered."
Shares of stock being personal property, may be the subject
matter of pledge and chattel mortgage. Such collateral transfers
are however not covered by the registration requirement of
Section 63, since our Supreme Court has held that such
provision applies only to absolute transfers thus, the registration
in the corporate books of pledges and chattel mortgages of
share cannot have any legal effect.
xxxx
The requirement that the transfer shall be recorded in the
books of the corporation to be valid as against third
persons has reference only to absolute transfers or
absolute conveyance of the ownership or title to a share.”
Veritably, the facts, statutes and jurisprudence do not support
Ferro Chemical's imputation of fraud to Rolando Navarro. The
accusations of fraud directed to him upon which Ferro
Chemicals rests its case are unsubstantiated, no direct evidence
of it exists.
Be that as it may, undisputed is the fact that Rolando Navarro
derived no financial gains from the breach of Antonio Garcias
obligation to Ferro Chemicals watering down the allusion that
his acts were impelled by economic motive.
Even if Jaime ,Gonzales, on other hand, eventually became the
assignee of the subject shares, he cannot, for that reason alone,
be held liable for tortious interference as the elements of this act
are clearly wanting in this case. Jaime Gonzales did nothing
more than act as instrumental witness of the deed of sale and
give Antonio Garcia financial advice on the matter. None of
these acts is actionable tort.
On the liability of Chemical Industries
for the acts of its responsible officers
On the premise that Chemical Industries afforded plenary
powers to its officers to make certain representations to third
persons, Ferro Chemicals faults the ruling of the appellate court
absolving Chemical Industries from liability by arguing that the
corporation is liable for the tortious and wrongful acts of its
corporate officers, Antonio Garcia and Rolando Navarro, under
the principle of agency.
Chemical Industries, however, argues otherwise. It submits that
Ferro Chemical's reliance on the doctrine of apparent authority
is misplaced. Citing the findings of the appellate court, it posits
that the sale of Antonio Garcia's shares was a purely personal
C O R P O R A T I O N C O D E - P A R T 3 | 19
transaction between him and Ferro Chemicals which requires
no "express direction or authority" from Chemical Industries.
Whether Chemical Industries can be held liable supposedly for
the fraud and breach of contract perpetrated by Antonio Garcia.
- No
A corporation, upon coming to existence, is invested by law with
a personality separate and distinct from those of the persons
composing it. Ownership by a single or a small group of
stockholders of nearly all of the capital stock of the corporation
is not, without more, sufficient to disregard the fiction of separate
corporate personality. Thus, obligations incurred by corporate
officers, acting as corporate agents, are not theirs, but direct
accountabilities of the corporation they represent. Solidary
liability on the part of corporate officers may at times attach, but
only under exceptional circumstances, such as when they act
with malice or in bad faith. Also, in appropriate cases, the veil of
corporate fiction shall be disregarded when the separate
juridical personality of a corporation is abused or used to commit
fraud and perpetrate a social injustice, or used as a vehicle to
evade obligations.62
It must be stressed at the onset that the sale contract was
entered by Antonio Garcia in his personal capacity and not as
the President of Chemical Industries.
Considering the nature of the transaction involved, whatever
obligation [Antonio Garcia] incurred, it was incurred in his
personal capacity.
Even if Antonio Garcia was selling his shares of stocks in the
Chemical Industries, the corporation was neither made a party
to the contract nor did the sale redound to its benefit. As a matter
of fact, the subject of the purchase agreement was not limited to
Antonio Garcia's shares in Chemical Industries, but likewise
included his shares in Vision Insurance Consultants, Inc.,
Alabang Country Club, Inc. and Manila Polo Club, Inc. It was a
purely personal act of the seller desirous to dispose
conveniently his shares in the corporation. It bears underscoring
that a corporation has a personality separate and distinct from
that of each stockholder. It has the right ,of continuity or
perpetual succession, that is, its existence is not extinguished
by the transfer of ownership of its shares of capital stock from
one shareholder to another.
Needless to say, the imputation of liability Chemical Industries
for the acts of its corporate officer and the consequent shedding
of corporate shroud cannot rest on flimsy grounds. The
application of the doctrine of piercing the veil of corporate fiction
is frowned upon. It can only be done if it has been clearly
established that the separate and distinct personality of the
corporation is used to justify a wrong, protect fraud, or perpetrate
a deception.
In the case at bar, Ferro Chemicals failed to adduce satisfactory
evidence to prove that Chemical Industries' separate corporate
personality was being used by Antonio Garcia to protect fraud
or perpetrate deception warranting the shedding of its veil and
the consequent imposition of solidary liability upon it.
J. DISSOLUTION AND LIQUIDATION
1. G.R. No. 170770, January 9, 2013
VITALIANO N. AGUIRRES II and FIDEL N. AGUIRRE,
Petitioners, vs. FQB+7, INC., NATHANIEL D. BOCOBO,
PRISCILA BOCOBO and ANTONIO DE VILLA, Respondents.
Pursuant to Section 145 of the Corporation Code, an existing
intra-corporate dispute, which does not constitute a continuation
of corporate business, is not affected by the subsequent
dissolution of the corporation.
FACTS:

On October 5, 2004, Vitaliano filed, in his individual capacity and
on behalf of FQB+7, Inc. (FQB+7), a Complaint4for 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:
Directors Subscribers
1. Francisco Q. Bocobo 1. Francisco Q. Bocobo
2. Fidel N. Aguirre 2. Fidel N. Aguirre
3. Alfredo Torres 3. Alfredo Torres
4. Victoriano Santos 4. Victoriano Santos
5. Victorino Santos5 5. Victorino Santos
6. Vitaliano N. Aguirre II
7. Alberto Galang
8. Rolando B. Bechayda6
To Vitaliano’s knowledge, except for the death of Francisco
Bocobo and Alfredo Torres, there has been no other change in
the above listings.
Sometime in April 2004, Vitaliano discovered a General
Information Sheet (GIS) of FQB+7 which was filed by Francisco
Bocobo’s heirs, Nathaniel and Priscila, as FQB+7’s president
and secretary/treasurer, respectively, with the SEC. It also
stated FQB+7’s directors and subscribers, as follows:
Directors Subscribers
1. Nathaniel D. Bocobo 1. Nathaniel D. Bocobo
2. Priscila D. Bocobo 2. Priscila D. Bocobo
3. Fidel N. Aguirre 3. Fidel N. Aguirre
4. Victoriano Santos 4. Victorino7 Santos
5. Victorino Santos 5. Victorino Santos
6. Consolacion Santos8 6. Consolacion Santos9
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
Aguirre (Fidel). Vitaliano questioned the validity and truthfulness
of the alleged stockholders meeting held on September 3, 2002.
The "real" Board allegedly ignored Vitaliano’s request.
On September 27, 2004, Nathaniel, 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,
including the GIS they had filed with the SEC.
The trial court granted the application based only on Vitaliano’s
testimonial and documentary evidence, consisting of the
C O R P O R A T I O N C O D E - P A R T 3 | 20
corporation’s articles of incorporation, by-laws, the GIS, demand
letter on the "real" Board of Directors, and police blotter of the
incident between Fidel’s and Antonio’s groups.
The respondents sought, in their certiorari petition, the
annulment of all the proceedings and issuances on the ground
that 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 DAR, the 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 Bocobo.
The respondents further alleged that the SEC had already
revoked FQB+7’s Certificate of Registration on September 29,
2003 for its failure to comply with the SEC reportorial
requirements.
The CA determined that the issues of the case are the following:
(1) whether the trial court’s issuance of the writ of preliminary
injunction, in its October 15, 2004 Order, was attended by grave
abuse of discretion amounting to lack of jurisdiction; and (2)
whether the corporation’s dissolution affected the trial court’s
jurisdiction to hear the intra corporate dispute in SEC Case.
On the first issue, the CA determined that the trial court
committed a grave abuse of discretion when it issued the writ of
preliminary injunction to remove the respondents from their
positions in the Board of Directors based only on Vitaliano’s self-
serving assertions. Such assertions cannot outweigh the entries
in the GIS, which are documented facts on record, which state
that respondents are stockholders and were duly elected
corporate directors and officers of FQB+7, Inc.
On the second issue, the CA postulated that Section 122 of the
Corporation Code allows a dissolved corporation to continue as
a body corporate for the limited purpose of liquidating the
corporate assets and distributing them to its creditors,
stockholders, and others in interest. It does not allow the
dissolved corporation to continue its business.
The CA determined that Vitaliano’s Complaint, being geared
towards the continuation of FQB+7, Inc.’s business, should be
dismissed because the corporation has lost its juridical
personality. Moreover, the CA held that the trial court does not
have jurisdiction to entertain an intra-corporate dispute when the
corporation is already dissolved.
After dismissing the Complaint, the CA reminded the parties that
they should proceed with the liquidation of the dissolved
corporation based on the existing GIS.
With SEC’s revocation of its certificate of registration on
September 29, 2004 [sic], FQB+7, Inc. will be obligated to wind
up its affairs. The Corporation will have to be liquidated within
the 3-year period mandated by Sec. 122 of the Corporation
Code.
Regardless of the method it will opt to liquidate itself, the
Corporation will have to reckon with the members of the board
as duly listed in the General Information Sheet last filed with
SEC.
On the second issue, herein petitioners maintained that the CA
erred in characterizing the reliefs they sought as a continuance
of the dissolved corporation’s business, which is prohibited
under Section 122 of the Corporation Code. Instead, they

argued, the relief they seek is only to determine the real Board
of Directors that can represent the dissolved corporation.
ISSUES:
1. Whether the Complaint seeks to continue the
dissolved corporation’s business. No
2. Whether the RTC has jurisdiction over an intra-
corporate dispute involving a dissolved corporation.
Yes
RULING:
Is the Complaint a continuation of business? No
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.
Petitioners concede that a dissolved corporation can no longer
continue its business. They argue, however, that Section 122
allows a dissolved corporation to wind up its affairs within 3
years from its dissolution. Petitioners then maintain that the
Complaint, which seeks only a declaration that respondents are
strangers to the corporation and have no right to sit in the board
or act as officers thereof, and a return of Vitaliano’s
stockholdings, intends only to resolve remaining corporate
issues.
Does the Complaint seek a continuation of business or is it a
settlement of corporate affairs? The answer lies in the prayers
of the Complaint.
PRAYER
WHEREFORE, it is most respectfully prayed of this Honorable
Court that judgment be rendered in favor of the plaintiffs and
against the defendants, in the following wise:
I. ON THE PRAYER OF TRO/STATUS QUO ORDER
AND WRIT OF PRELIMINARY INJUNCTION:
1. Forthwith and pending the resolution of
plaintiffs’ prayer for issuance of writ of
preliminary injunction, in order to maintain the
status quo, a status quo order or temporary
restraining order (TRO) be issued enjoining
the defendants, their officers, employees, and
agents from exercising the powers and
authority as members of the Board of
Directors of plaintiff FQB as well as officers
thereof and from misrepresenting and
conducting themselves as such, and
enjoining defendant Antonio de Villa from
taking over the farm of the plaintiff FQB and
from exercising any power and authority by
reason of his appointment emanating from his
co-defendant Bocobos.
2. After due notice and hearing and during the
pendency of this action, to issue writ of
preliminary injunction prohibiting the
defendants from committing the acts
complained of herein, more particularly those
C O R P O R A T I O N C O D E - P A R T 3 | 21
enumerated in the immediately preceeding
paragraph, and making the injunction
permanent after trial on the merits.
The Court fails to find in the prayers above any intention to
continue the corporate business of FQB+7. The Complaint does
not seek to enter into contracts, issue new stocks, acquire
properties, execute business transactions, etc. Its aim is not to
continue the corporate business, but to determine and vindicate
an alleged stockholder’s right to the return of his stockholdings
and to participate in the election of directors, and a corporation’s
right to remove usurpers and strangers from its affairs. The
Court fails to see how the resolution of these issues can be said
to continue the business of FQB+7.
Neither are these issues mooted by the dissolution of the
corporation. A corporation’s board of directors is not rendered
functus officio by its dissolution. Since Section 122 allows a
corporation to continue its existence for a limited purpose,
necessarily there must be a board that will continue acting for
and on behalf of the dissolved corporation for that purpose. In
fact, Section 122 authorizes the dissolved corporation’s board
of directors to conduct its liquidation within three years from its
dissolution. Jurisprudence has even recognized the board’s
authority to act as trustee for persons in interest beyond the said
three-year period.
The same is true with regard to Vitaliano’s shareholdings in the
dissolved corporation. A party’s stockholdings in a corporation,
whether existing or dissolved, is a property right which he may
vindicate against another party who has deprived him thereof.
The corporation’s dissolution does not extinguish such property
right. Section 145 of the Corporation Code ensures the
protection of this right, thus:
Sec. 145. Amendment or repeal. – No right or remedy in favor
of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any
such corporation, stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the subsequent
dissolution of said corporation or by any subsequent
amendment or repeal of this Code or of any part thereof.
On the dismissal of the Complaint for lack of jurisdiction.
The CA’s ruling is founded on the assumptions that intra-
corporate controversies continue only in existing corporations;
that when the corporation is dissolved, these controversies
cease to be intra-corporate and need no longer be resolved; and
that the status quo in the corporation at the time of its dissolution
must be maintained. The Court finds no basis for the said
assumptions.
Intra-corporate disputes remain even when the corporation is
dissolved.
Jurisdiction over the subject matter is conferred by law. R.A. No.
879945 conferred jurisdiction over intra-corporate controversies
on courts of general jurisdiction or RTCs,46 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:
a) Devices or schemes employed by or any acts, of the
board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholder, partners, members of
associations or organizations registered with the
Commission;
b) 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;
c) Controversies in the election or appointments of
directors, trustees, officers or managers of such
corporations, partnerships or associations.
The Court reproduced the above jurisdiction in Rule 1 of the
Interim Rules of Procedure Governing Intra-corporate
Controversies under R.A. No. 8799.
A review of relevant jurisprudence shows a development in the
Court's approach in classifying what constitutes an intra-
corporate controversy. Initially, the main consideration in
determining whether a dispute constitutes an intra-corporate
controversy was limited to a consideration of the intra-corporate
relationship existing between or among the parties. The types of
relationships embraced under Section 5(b) x x x were as follows:
a) between the corporation, partnership, or association
and the public;
b) between the corporation, partnership, or association
and its stockholders, partners, members, or officers;
c) between the corporation, partnership, or association
and the State as far as its franchise, permit or license
to operate is concerned; and
d) among the stockholders, partners or associates
themselves. xxx
The existence of any of the above intra-corporate relations was
sufficient to confer jurisdiction to the SEC now the RTC,
regardless of the subject matter of the dispute. This came to be
known as the relationship test.
However, in the 1984 case of DMRC Enterprises v. Esta del Sol
Mountain Reserve, Inc., the Court introduced the nature of the
controversy test. It is not the mere existence of an intra-
corporate relationship that gives rise to an intra-corporate
controversy; to rely on the relationship test alone will divest the
regular courts of their jurisdiction for the sole reason that the
dispute involves a corporation, its directors, officers, or
stockholders.
Under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-corporate.
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. If the relationship and its
incidents are merely incidental to the controversy or if there will
still be conflict even if the relationship does not exist, then no
intra-corporate controversy exists.
The Court then combined the two tests and declared that
jurisdiction should be determined by considering not only the
status or relationship of the parties, but also the nature of the
question under controversy. This two-tier test was adopted in
the recent case of Speed Distribution, Inc. v. Court of Appeals:
'To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of
the RTC specifically designated by the Court to try and decide
such cases, two elements must concur: (a) the status or
relationship of the parties, and [b] the nature of the question that
is the subject of their controversy.1âwphi1
The first element requires that the controversy must arise out of
intra-corporate or partnership relations between any or all of the
C O R P O R A T I O N C O D E - P A R T 3 | 22
parties and the corporation, partnership, or association of which
they are 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 the individual
franchises. The second element requires that the dispute among
the parties be intrinsically connected with the regulation of the
corporation. If the nature of the controversy involves matters that
are purely civil in character, necessarily, the case does not
involve an intra-corporate controversy.
Thus, to be considered as an intra-corporate dispute, the case:
(a) must arise out of intra-corporate or partnership relations, and
(b) the nature of the question subject of the controversy must be
such that it is intrinsically connected with the regulation of the
corporation or the enforcement of the parties’ rights and
obligations under the Corporation Code and the internal
regulatory rules of the corporation. So long as these two criteria
are satisfied, the dispute is intra-corporate and the RTC, acting
as a special commercial court, has jurisdiction over it.
Examining the case before us in relation to these two criteria,
the Court finds and so holds that the case is essentially an intra-
corporate dispute. It obviously arose from the intra-corporate
relations between the parties, and the questions involved pertain
to their rights and obligations under the Corporation Code and
matters relating to the regulation of the corporation. We further
hold that the nature of the case as an intra-corporate dispute
was not affected by the subsequent dissolution of the
corporation.
It bears reiterating that Section 145 of the Corporation Code
protects, among others, the rights and remedies of corporate
actors against other corporate actors. The statutory provision
assures an aggrieved party that the corporation’s dissolution will
not impair, much less remove, his/her rights or remedies against
the corporation, its stockholders, directors or officers. It also
states that corporate dissolution will not extinguish any liability
already incurred by the corporation, its stockholders, directors,
or officers. In short, Section 145 preserves a corporate actor’s
cause of action and remedy against another corporate actor. In
so doing, Section 145 also preserves the nature of the
controversy between the parties as an intra-corporate dispute.
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.
2. G.R. No. 200094 June 10, 2013
BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO
CALLESA, LINDA C. CALLO, NILO B. CAMARA, ADELIA T.
CAMARA, ADOLFO G. PINON, JOHN A. FERNANDEZ,
FEDERICO A. CALLO, MAXIMA P. ARELLANO, JULITO B.
COST ALES, SAMSON F. BACHAR, EDWIN P. DAMO, RENA
TO E. FERNANDEZ, GENARO F.CALLO, JIMMY C. ALETA,
and EUGENIO SALINAS, Petitioners, vs. PHILIPPINE
COLLEGE OFCRIMINOLOGY INC. and/or GREGORY ALAN
F. BAUTISTA, Respondents.
FACTS:
PCCr is a non-stock educational institution, while the petitioners
were janitors, janitresses and supervisor in the Maintenance
Department of PCCr under the supervision and control of Atty.
Florante A. Seril (Atty. Seril), PCCr’s Senior Vice President for
Administration. The petitioners, however, were made to
understand that they were under MBMSI, a corporation engaged
in providing janitorial services to clients. Atty. Seril is also the
President and General Manager of MBMSI.

PCCr discovered that the Certificate of Incorporation of MBMSI
had been revoked as of July 2, 2003. PCCr, through its
President, respondent Gregory Alan F. Bautista (Bautista), citing
the revocation, terminated the school’s relationship with MBMSI,
resulting in the dismissal of the employees or maintenance
personnel under MBMSI, except Alfonso Bongot (Bongot) who
was retired.
The dismissed employees, led by their supervisor, Benigno
Vigilla (Vigilla), filed their respective complaints for illegal
dismissal, reinstatement, back wages, separation pay (for
Bongot), underpayment of salaries, overtime pay, holiday pay,
service incentive leave, and 13th month pay against MBMSI,
Atty. Seril, PCCr, and Bautista.
In their complaints, they alleged that it was the school, not
MBMSI, which was their real employer because (a) MBMSI’s
certification had been revoked; (b) PCCr had direct control over
MBMSI’s operations; (c) there was no contract between MBMSI
and PCCr; and (d) the selection and hiring of employees were
undertaken by PCCr.
On the other hand, PCCr and Bautista contended that (a) PCCr
could not have illegally dismissed the complainants because it
was not their direct employer; (b) MBMSI was the one who had
complete and direct control over the complainants; and (c) PCCr
had a contractual agreement with MBMSI, thus, making the
latter their direct employer.
On September 11, 2009, PCCr submitted several documents
before LA Ronaldo Hernandez, including releases, waivers and
quitclaims in favor of MBMSI executed by the complainants to
prove that they were employees of MBMSI and not PCCr. 5 The
said documents appeared to have been notarized by one Atty.
Ramil Gabao. A portion of the releases, waivers and quitclaims
uniformly reads:
For and in consideration of the total amount of
______________, as and by way of separation pay due to the
closure of the Company brought about by serious financial
losses, receipt of the total amount is hereby acknowledged, I
_______________, x x x forever release and discharge x x x
METROPOLITAN BUILDING MAINTENANCE SERVICES,
INC., of and from any and all claims, demands, causes of
actions, damages, costs, expenses, attorney’s fees, and
obligations of any nature whatsoever, known or unknown, in law
or in equity, which the undersigned has, or may hereafter have
against the METROPOLITAN BUILDING MAINTENANCE
SERVICES, INC., whether administrative, civil or criminal, and
whether or not arising out of or in relation to my employment with
the above company or third persons.6
Ruling of the Labor Arbiter
After due proceedings, the LA handed down his decision, finding
that (a) PCCr was the real principal employer of the
complainants ; (b) MBMSI was a mere adjunct or alter ego/labor-
only contractor; (c) the complainants were regular employees of
PCCr; and (d) PCCr/Bautista were in bad faith in dismissing the
complainants.
Ruling of the NLRC
NLRC affirmed the LA’s findings. Nevertheless, the respondents
were excused from their liability by virtue of the releases,
waivers and quitclaims executed by the petitioners.
Ruling of the Court of Appeals
CA affirmed the Resolutions of the NLRC. The CA pointed out
that based on the principle of solidary liability and Article
121711 of the New Civil Code, petitioners’ respective releases,
waivers and quitclaims in favor of MBMSI and Atty. Seril
redounded to the benefit of the respondents. The CA also
upheld the factual findings of the NLRC as to the authenticity
and due execution of the individual releases, waivers and
quitclaims because of the failure of petitioners to substantiate
C O R P O R A T I O N C O D E - P A R T 3 | 23
their claim of forgery and to overcome the presumption of
regularity of a notarized document.
ISSUE:
Whether or not a dissolved corporation can enter into an
agreement such as releases, waivers and quitclaims beyond the
3-year winding up period under Section 122 of the Corporation
Code. - Yes
RULING:
-- The Releases, Waivers and Quitclaims are Valid
Petitioners vehemently deny having executed any release,
waiver or quitclaim in favor of MBMSI. They insist that PCCr
forged the documents just to evade their legal obligations to
them, alleging that the contents of the documents were written
by one person, whom they identified as Reynaldo Chavez, an
employee of PCCr, whose handwriting they were familiar with. 13
To begin with, their posture was just an afterthought. Petitioners
had several opportunities to question the authenticity of the said
documents but did not do so.
We noted that the individual quitclaims, waivers and releases
executed by the complainants showing that they received their
separation pay from MBMSI were duly notarized by a Notary
Public. Such notarization gives prima facie evidence of their due
execution. Further, said releases, waivers, and quitclaims were
not refuted nor disputed by complainants herein, thus, we have
no recourse but to uphold their due execution.
-- On the Revocation of MBMSI’s Certificate of Incorporation
Petitioners further argue that MBMSI had no legal personality to
incur civil liabilities as it did not exist as a corporation on account
of the fact that its Certificate of Incorporation had been revoked
on July 2, 2003. Petitioners ask this Court to exempt MBMSI
from its liabilities because it is no longer existing as a
corporation.
The Court cannot accommodate the prayer of petitioners.
The executed releases, waivers and quitclaims are valid and
binding notwithstanding the revocation of MBMSI’s Certificate of
Incorporation. The revocation does not result in the termination
of its liabilities. Section 12227 of the Corporation Code provides
for a three-year winding up period for a corporation whose
charter is annulled by forfeiture or otherwise to continue as a
body corporate for the purpose, among others, of settling and
closing its affairs.
Even if said documents were executed in 2009, six (6) years
after MBMSI’s dissolution in 2003, the same are still valid and
binding upon the parties and the dissolution will not terminate
the liabilities incurred by the dissolved corporation pursuant to
Sections 122 and 14528 of the Corporation Code. In the case of
Premiere Development Bank v. Flores,29 the Court held that a
corporation is allowed to settle and close its affairs even after
the winding up period of three (3) years. The Court wrote:
As early as 1939, this Court held that, although 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 from the time the period of dissolution
commences, there is no time limit within which the trustees must
complete a liquidation placed in their hands. What is provided in
Section 122 of the Corporation Code is that the conveyance to
the trustees must be made within the three-year period. But it
may be found impossible to complete the work of liquidation
within the three-year period or to reduce disputed claims to
judgment. The trustees to whom the corporate assets have been
conveyed pursuant to the authority of Section 122 may sue and
be sued as such in all matters connected with the liquidation.

Furthermore, Section 145 of the Corporation Code clearly
provides that "no right or remedy in favor of or against any
corporation, its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent dissolution of
said corporation." Even if no trustee is appointed or designated
during the three-year period of the liquidation of the corporation,
the Court has held that the board of directors may be permitted
to complete the corporate liquidation by continuing as "trustees"
by legal implication.
In light of these conclusions, the Court holds that the releases,
waivers and quitclaims executed by petitioners in favor of
MBMSI redounded to the respondents' benefit. The liabilities of
the respondents to petitioners are now deemed extinguished.
The Court cannot allow petitioners to reap the benefits given to
them by MBMSI in exchange for the releases, waivers and
quitclaims and, again, claim the same benefits from PCCr.
3. G.R. No. 157900, July 22, 2013
ZUELLIG FREIGHT AND CARGO
SYSTEMS, Petitioner, v. NATIONAL LABOR RELATIONS
COMMISSION AND RONALDO V. SAN
MIGUEL, Respondents.
DOCTRINE: The mere change in the corporate name is not
considered under the law as the creation of a new corporation;
hence, the renamed corporation remains liable for the illegal
dismissal of its employee separated under that guise.
FACTS:
San Miguel brought a complaint for unfair labor practice, illegal
dismissal, non-payment of salaries and moral damages against
petitioner, formerly known as Zeta Brokerage Corporation
(Zeta).
He alleged that he had been a checker/customs representative
of Zeta since December 16, 1985; that in January 1994, he and
other employees of Zeta were informed that Zeta would cease
operations, and that all affected employees, including him,
would be separated; that by letter dated February 28, 1994, Zeta
informed him of his termination effective March 31, 1994; that
he reluctantly accepted his separation pay subject to the
standing offer to be hired to his former position by petitioner; and
that on April 15, 1994, he was summarily terminated, without
any valid cause and due process.
San Miguel contended that the amendments of the articles of
incorporation of Zeta were for the purpose of changing the
corporate name, broadening the primary functions, and
increasing the capital stock; and that such amendments could
not mean that Zeta had been thereby dissolved.
On its part, petitioner countered that San Miguel’s termination
from Zeta had been for a cause authorized by the Labor Code;
that its non-acceptance of him had not been by any means
irregular or discriminatory; that its predecessor-in-interest had
complied with the requirements for termination due to the
cessation of business operations; that it had no obligation to
employ San Miguel in the exercise of its valid management
prerogative; that all employees had been given sufficient time to
make their decision whether to accept its offer of employment or
not, but he had not responded to its offer within the time set; that
because of his failure to meet the deadline, the offer had
expired; that he had nonetheless been hired on a temporary
basis; and that when it decided to hire another employee instead
of San Miguel, such decision was not arbitrary because of
seniority considerations.
Decision of the Labor Arbiter
C O R P O R A T I O N C O D E - P A R T 3 | 24
On November 15, 1999, Labor Arbiter Francisco A. Robles
rendered a decision holding that San Miguel had been illegally
dismissed.
Decision of the NLRC
Petitioner appealed, but the NLRC issued a resolution on April
4, 2001,8 affirming the decision of the Labor Arbiter.
Decision of the CA
Petitioner then filed a petition for certiorari in the CA, imputing to
the NLRC grave abuse of discretion amounting to lack or excess
of jurisdiction.
On November 6, 2002, the CA promulgated its assailed decision
dismissing the petition for certiorari.
Hence, petitioner appeals.
Petitioner’s Argument: Petitioner Zuellig Freight and Cargo
Systems contended that San Miguel’s termination from Zeta had
been for a cause authorized by the Labor Code. Zeta, its
predecessor-in-interest, had complied with the requirements for
termination due to the cessation of business operations.
ISSUES:
Whether or not the cessation of business by Zeta was a bona
fide closure to be regarded as a valid ground for the termination
of employment of San Miguel within the ambit of Article 283 of
the Labor Code. - NO
RULING:
It is worthy to point out that the Labor Arbiter, the NLRC, and the
CA were united in concluding that the cessation of business by
Zeta was not a bona fide closure to be regarded as a valid
ground for the termination of employment of San Miguel within
the ambit of Article 283 of the Labor Code. The provision
pertinently reads:
Article 283. Closure of establishment and reduction of
personnel. — The employer may also terminate the employment
of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking
unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the
workers and the Department of Labor and Employment at
least one (1) month before the intended date thereof. x x x.
The unanimous conclusions of the CA, the NLRC and the Labor
Arbiter, being in accord with law, were not tainted with any abuse
of discretion, least of all grave, on the part of the NLRC. Verily,
the amendments of the articles of incorporation of Zeta to
change the corporate name to Zuellig Freight and Cargo
Systems, Inc. did not produce the dissolution of the former as a
corporation. For sure, the Corporation Code defined and
delineated the different modes of dissolving a corporation, and
amendment of the articles of incorporation was not one of such
modes. The effect of the change of name was not a change of
the corporate being, for, as well stated in Philippine First
Insurance Co., Inc. v. Hartigan:16 “The changing of the name of
a corporation is no more the creation of a corporation than the
changing of the name of a natural person is begetting of a
natural person. The act, in both cases, would seem to be what
the language which we use to designate it imports – a change
of name, and not a change of being.”
The consequences, legal and otherwise, of the change of name
were similarly dealt with in P.C. Javier & Sons, Inc. v. Court of

Appeals,17 with the Court holding thusly:
From the foregoing documents, it cannot be denied that
petitioner corporation was aware of First Summa Savings and
Mortgage Bank’s change of corporate name to PAIC Savings
and Mortgage Bank, Inc. Knowing fully well of such change,
petitioner corporation has no valid reason not to pay because
the IGLF loans were applied with and obtained from First
Summa Savings and Mortgage Bank. First Summa Savings and
Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are
one and the same bank to which petitioner corporation is
indebted. A change in the corporate name does not make a
new corporation, whether effected by a special act or under
a general law. It has no effect on the identity of the
corporation, or on its property, rights, or liabilities. The
corporation, upon such change in its name, is in no sense
a new corporation, nor the successor of the original
corporation. It is the same corporation with a different
name, and its character is in no respect changed. (Bold
underscoring supplied for emphasis)
In short, Zeta and petitioner remained one and the same
corporation. The change of name did not give petitioner the
license to terminate employees of Zeta like San Miguel without
just or authorized cause. The situation was not similar to that of
an enterprise buying the business of another company where
the purchasing company had no obligation to rehire terminated
employees of the latter.18 Petitioner, despite its new name, was
the mere continuation of Zeta’s corporate being, and still held
the obligation to honor all of Zeta’s obligations, one of which was
to respect San Miguel’s security of tenure. The dismissal of San
Miguel from employment on the pretext that petitioner, being a
different corporation, had no obligation to accept him as its
employee, was illegal and ineffectual.
3. G.R. No. 139370. July 4, 2002
RENE KNECHT and KNECHT, INC., petitioners, vs. UNITED
CIGARETTE CORP., represented by ENCARNACION
GONZALES WONG, and EDUARDO BOLIMA, Sheriff,
Regional Trial Court, Branch 151, Pasig City, respondents.
DOCTRINE: Corporation Law; The trustee (of a dissolved
corporation) may commence a suit which can proceed to
final judgment even beyond the three-year period (of
liquidation).—Petitioners’ basis in filing these multiple petitions
is the expiration of UCC’s corporate existence. There is no doubt
that the judgment in Civil Case No. 9165 became final and
executory on March 23, 1977. That this judgment is still
enforceable was decided with finality by this Court in G.R. No.
109385. In Reburiano vs. Court of Appeals, a case with similar
facts, this Court held: “the trustee (of a dissolved corporation)
may commence a suit which can proceed to final judgment even
beyond the three-year period (of liquidation) x x x, no reason can
be conceived why a suit already commenced by the corporation
itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved
corporation, should not be accorded similar treatment—to
proceed to final judgment and execution thereof.” (Emphasis
ours)
Dissolution of UCC itself, or the expiration of its three-year
liquidation period, should not be a bar to the enforcement
of its rights as a corporation.—The dissolution of UCC itself,
or the expiration of its three-year liquidation period, should not
be a bar to the enforcement of its rights as a corporation. One
of these rights, to be sure, includes the UCC’s right to seek from
the court the execution of a valid and final judgment in Civil Case
No. 9165—through its trustee/liquidator Encarnacion Gonzales
Wong—for the benefit of its stockholders, creditors and any
other person who may have legal claims against it. To hold
C O R P O R A T I O N C O D E - P A R T 3 | 25
otherwise would be to allow petitioners to unjustly enrich
themselves at the expense of UCC. This, in effect, renders
nugatory all the efforts and expenses of UCC in its quest to
secure justice, not to mention the undue delay in disposing of
this case prejudicial to the administration of justice.
FACTS:
Rene Knecht and Knecht Inc., vs. United Cigarette
Rose Packing Company, Inc. owns 3 parcels of land in
Rizal. The largest was covered by a TCT and is mortgaged with
PCIB, while the remaining 2 are unregistered. Rose Packing,
through its President Rene Knecht, sold to the United Cigarette
Corporation, the said parcels of land for P800,000. It made a
warranty that the lots are free from all liens and encumbrances,
except the REM with PCIB. For its part, UCC promised to pay
the purchase price subject to the terms and conditions. To
secure the deal, UCC paid Rose Packing P80,000.00 as earnest
money.
Before the deed of sale could be executed, the parties found that
Rose Packing’s actual obligation with the PCIB far exceeded the
P250,000.00 which UCC assumed to pay under the
agreement. PCIB demanded additional collateral for the
approval of the sale of the mortgaged property. UCC did not
comply. Meanwhile, Rose Packing again offered to sell the
same lots to other buyers without the knowledge of UCC and
without returning to the the earnest money.
Aggrieved, UCC filed a complaint against Rose Packing and
Rene Knecht for specific performance and recovery of
damages.
RTC: Rose Packing was in bad faith when it did not inform UCC
the amount of its actual obligation with the PCIB. UCC cannot
be compelled to assume the excess obligation.
Rose Packing appealed to the Court of Appeals. During the
pendency of this appeal, UCC’s corporate life expired. Alberto
Wong, one of UCC’s major stockholders, was appointed
trustee/liquidator of the dissolved corporation.
CA: Affirmed the Decision
Like UCC, Rose Packing had been dissolved with the expiration
of its corporate charter. Thereupon, Knecht, Inc., undertook the
liquidation of Rose Packing’s assets as well as the winding-up
of its pending affairs.
Subsequently, UCC, through its liquidator Alberto Wong, filed a
complaint-in-intervention. It sought to compel Rose Packing to
comply with the Decision and prayed that a writ of execution be
issued. Knecht Inc opposed the motion claiming that the
Decision can no longer be enforced since more than ten (10)
years had elapsed from its finality. The court issued a writ of
execution in favor of UCC.
Knecht, Inc. and Rene Knecht, claiming that they had just
discovered UCC’s dissolution on April 10, 1973 and that the
three-year period to liquidate its affairs had already expired,
again questioned before the RTC, the validity of the granting the
writ of execution. They averred that upon its dissolution, UCC
may no longer move for execution. All in all, a total of 8
appeals/ motion for reconsiderations were filed by Rene Knecht
questioning the execution of the judgment based on the
expiration of UCC's existence.

ISSUE:
Whether UCC, despite the expiration of its corporate existence,
may still pray for a writ of execution be issued and enforced
against Knecht Inc.
RULING: Petition DENIED.
There is no doubt that the judgment in Civil Case No. 9165
became final and executory on March 23, 1977. That this
judgment is still enforceable was decided with finality.
In Reburiano vs. Court of Appeals, a case with similar facts, this
Court held:
“the trustee (of a dissolved corporation) may commence a suit
which can proceed to final judgment even beyond the three-
year period (of liquidation) x x x, no reason can be
conceived why a suit already commenced by the
corporation itself during its existence, not by a mere trustee
who, by fiction, merely continues the legal personality of the
dissolved corporation, should not be accorded similar
treatment – to proceed to final judgment and execution
thereof.” Indeed, the rights of a corporation (dissolved pending
litigation) are accorded protection by law.
“Section 145. Amendment or repeal. No right or remedy in
favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability
incurred by any such corporation, stockholders, members,
directors, trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said corporation or
by any subsequent amendment or repeal of this Code or of any
part thereof.”
The dissolution of UCC itself, or the expiration of its three-
year liquidation period, should not be a bar to the
enforcement of its rights as a corporation. One of these
rights, to be sure, includes the UCC’s right to seek from the court
the execution of a valid and final judgment. To hold otherwise
would be to allow petitioners to unjustly enrich themselves at the
expense of UCC. This, in effect, renders nugatory all the efforts
and expenses of UCC in its quest to secure justice, not to
mention the undue delay in disposing of this case prejudicial to
the administration of justice.
4. METROPOLITAN BANK & TRUST COMPANY, INC. (as
successor-in-interest of the banking operations of Global
Business Bank, Inc. formerly known as PHILIPPINE
BANKING CORPORATION), Petitioner, - versus - THE
BOARD OF TRUSTEES OF RIVERSIDE MILLS
CORPORATION PROVIDENT AND RETIREMENT FUND,
represented by ERNESTO TANCHI, JR., CESAR
SALIGUMBA, AMELITA SIMON, EVELINA OCAMPO and
CARLITOS Y. LIM, RMC UNPAID EMPLOYEES
ASSOCIATION, INC., and THE INDIVIDUAL BENEFICIARIES
OF THE PROVIDENT AND RETIREMENT FUND OF RMC,
Respondents.
G.R. No. 176959 September 8, 2010
FACTS:
On November 1, 1973, RMC established a Provident and
Retirement Plan (Plan) for its regular employees.
Under the Plan, RMC and its employees shall each contribute
2% of the employees current basic monthly salary, with RMCs
contribution to increase by 1% every five (5) years up to a
maximum of 5%. The contributions shall form part of the
provident fund (the Fund) which shall be held, invested and
distributed by the Commercial Bank and Trust
Company. Paragraph 13 of the Plan likewise provided that the
C O R P O R A T I O N C O D E - P A R T 3 | 26
Plan may be amended or terminated by the Company at any
time on account of business conditions, but no such action shall
operate to permit any part of the assets of the Fund to be used
for, or diverted to purposes other than for the exclusive benefit
of the members of the Plan and their beneficiaries. In no event
shall any part of the assets of the Fund revert to [RMC] before
all liabilities of the Plan have been satisfied.
On October 15, 1979, the Board of Trustees of RMCPRF (the
Board) entered into an Investment Management
Agreement (Agreement) with Philbank (now, petitioner
Metropolitan Bank and Trust Company). Pursuant to the
Agreement, petitioner shall act as an agent of the Board and
shall hold, manage, invest and reinvest the Fund in Trust
Account No. 1797 in its behalf. The Agreement shall be in force
for one (1) year and shall be deemed automatically renewed
unless sooner terminated either by petitioner bank or by the
Board.
In 1984, RMC ceased business operations. Nonetheless,
petitioner continued to render investment services to respondent
Board. In a letter dated September 27, 1995, petitioner informed
respondent Board that Philbanks Board of Directors had
decided to apply the remaining trust assets held by it in the name
of RMCPRF against part of the outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees
Association, Inc. (Association), representing the terminated
employees of RMC, learned of Trust Account No.
1797. Through counsel, they demanded payment of their share
in a letter dated February 4, 1997. When such demand went
unheeded, the Association, along with the individual members
of RMCPRF, filed a complaint for accounting against the Board
and its officers, as well as petitioner bank.
On June 2, 1998, during the trial, the Board passed a Resolution
in court declaring that the Fund belongs exclusively to the
employees of RMC. It authorized petitioner to release the
proceeds of Trust Account No. 1797 through the Board, as the
court may direct. Consequently, plaintiffs amended their
complaint to include the Board as co-plaintiffs.
RTC RULING: The RTC rendered a decision in favor of
respondents.
The trial court declared invalid the reversion and application of
the proceeds of the Fund to the outstanding obligation of RMC
to petitioner bank.
CA RULING: On appeal, the CA affirmed the trial court. It held
that the Fund is distinct from RMCs account in petitioner
bank and may not be used except for the benefit of the
members of RMCPRF.
Hence, this petition.
ISSUE: Whether or the Board of Trustees has the authority to
issue the Resolution of June 2, 1998 recognizing the exclusive
ownership of the Fund by the employees of RMC and
authorizing its release to the beneficiaries as may be ordered by
the trial court. - YES
ARGUMENTS:
Petitioner contends that RMCs closure in 1984 rendered the
RMCPRF Board of Trustees functus officio and devoid of
authority to act on behalf of RMCPRF. It thus belittles the
RMCPRF Board Resolution dated June 2, 1998, authorizing the
release of the Fund to several of its supposed
beneficiaries. Without known claimants of the Fund for eleven
(11) years since RMC closed shop, it was justifiable for petitioner
to consider the Fund to have technically reverted to, and formed

part of RMCs assets. Hence, it could be applied to satisfy RMCs
debts to Philbank.
Respondents for their part, belie the claim that petitioner exerted
earnest efforts to ascertain claims. Respondents cite petitioners
omission to publish a notice in newspapers of general circulation
to locate claims against the Fund. To them, petitioners act of
addressing the letter dated September 27, 1995 to the Board is
a recognition of its authority to act for the beneficiaries. For
these reasons, respondents believe that the reversion of the
Fund to RMC is not only unwarranted but unconscionable.
RULING:
The Supreme Court are not convinced.
Paragraph 13 of the Plan states that [a]lthough it is expected
that the Plan will continue indefinitely, it may be amended or
terminated by the Company at any time on account of business
conditions.
There is no dispute as to the management prerogative on this
matter, considering that the Fund consists primarily of
contributions from the salaries of members-employees and the
Company.
However, it must be stressed that the RMC Provident and
Retirement Plan was primarily established for the benefit of
regular and permanent employees of RMC. As such, the Board
may not unilaterally terminate the Plan without due regard to any
accrued benefits and rightful claims of members-employees.
Besides, the Board is bound by Paragraph 13 prohibiting the
reversion of the Fund to RMC before all the liabilities of the Plan
have been satisfied.
As to the contention that the functions of the Board of
Trustees ceased upon with RMCs closure, the same is
likewise untenable.
Under Section 122 of the Corporation Code, a dissolved
corporation shall nevertheless continue as a body corporate for
three (3) years for the purpose of prosecuting and defending
suits by or against it and enabling it to settle and close its affairs,
to dispose and convey its property and to distribute its assets,
but not for the purpose of continuing the business for which it
was established. Within those three (3) years, the corporation
may appoint a trustee or receiver who shall carry out the said
purposes beyond the three (3)-year winding-up period. Thus, a
trustee of a dissolved corporation may commence a suit which
can proceed to final judgment even beyond the three (3)-year
period of liquidation.
In the same manner, during and beyond the three (3)-year
winding-up period of RMC, the Board of Trustees of RMCPRF
may do no more than settle and close the affairs of the
Fund. The Board retains its authority to act on behalf of its
members, albeit, in a limited capacity. It may commence suits
on behalf of its members but not continue managing the Fund
for purposes of maximizing profits. Here, the Boards act of
issuing the Resolution authorizing petitioner to release the Fund
to its beneficiaries is still part of the liquidation process, that is,
satisfaction of the liabilities of the Plan, and does not amount to
doing business. Hence, it was properly within the Boards power
to promulgate.
6. G.R. No. 104726. February 11, 1999
VICTOR YAM & YEK SUN LENT, doing business under the
name and style of Philippine Printing Works, petitioners,
vs. THE COURT OF APPEALS and MANPHIL INVESTMENT
CORPORATION, respondents.
C O R P O R A T I O N C O D E - P A R T 3 | 27
DOCTRINE:
CORPORATIONS; APPOINTMENT OF RECEIVER
SUSPENDS AUTHORITY OF CORPORATION OVER ITS
PROPERTY AND EFFECTS. -- It is to be noted that the alleged
agreement to condone the amount in question was supposedly
entered into by the parties sometime in July 1986, that is, after
respondent corporation had been placed under receivership on
November 4, 1985. As held in Villanueva vs Court of Appeals
the appointment of a receiver operates to suspend the authority
of a [corporation] and of its directors and officers over its
property and effects, such authority being reposed in the
receiver. Thus, Sobrepeas had no authority to condone the debt.
FACTS:
Petitioners obtained an IGLF loan from private respondent in the
amount of P300,000 with interest, monthly penalty, monthly
service charge and attorneys fees. It was secured by a chattel
mortgage on their printing machineries.
On April 2, 1985, private respondent was placed under
receivership by the Central Bank.
On July 31, 1986, petitioners paid private respondent
P410,854.47 by means of a check corresponding to the principal
amount of P295,469.47 and the interest of P165,385 less the
partial payment of P50,000.00. It was received by the Central
Bank-appointed in-house examiner Cristina Destajo who made
a notation on the voucher: full payment of IGLF loan.
Private respondent filed a collection case against petitioners
when the latter failed to pay the remaining balance of
P266,146.88 plus interests, penalties and service charges on
the loan.
Petitioners, in their answer, claimed that Carlos Sobrepeas,
president of private respondent, after the corporation had been
placed under receivership, agreed to waive or condone the
penalties and service charges provided that they pay the
principal and interest on the loan on or before July 30, 1986 to
which they complied with.
Petitioners added that the fact of full payment was reflected in
the voucher accompanying the check which bore the notation:
full payment of IGLF.
Judgment was rendered by the trial court in favor of private
respondent. The same was affirmed on appeal by the Court of
Appeals. Hence, petitioners resorted to this action.
ISSUE:
Whether or not petitioners are liable for the payment of the
penalties and service charges on their loan—YES
RULING:
The answer is in the affirmative.
Art. 1270, par. 2 of the Civil Code provides that express
condonation must comply with the forms of donation.
Art. 748, par. 3 provides that the donation and acceptance of a
movable, the value of which exceeds P5,000.00, must be made
in writing, otherwise the same shall be void.
In this connection, under Art. 417, par. 1, obligations, actually
referring to credits, are considered movable property. In the
case at bar, it is undisputed that the alleged agreement to
condone P266,146.88 of the second IGLF loan was not reduced
in writing.

Nonetheless, petitioners insist that the voucher covering the
Pilipinas Bank check for P410,854.47, containing the notation
that the amount is in full payment of IGLF loan, constitutes
documentary evidence of such oral agreement. This contention
is without merit. The notation in full payment of IGLF loan merely
states petitioners intention in making the payment, but in no way
does it bind private respondent. It would have been a different
matter if the notation appeared in a receipt issued by respondent
corporation, through its receiver, because then it would be an
admission against interest. Indeed, if private respondent really
condoned the amount in question, petitioners should have
asked for a certificate of full payment from respondent
corporation, as they did in the case of their first IGLF loan of
P500,000.00.[15]
Petitioners, however, contend that the Central Bank examiner
assigned to respondent corporation, Cristina Destajo, signed the
voucher in question. Destajo claimed that, when she signed the
voucher, she failed to notice the statement that the amount of
P410,854.47 was being given in full payment of IGLF Loan. She
said she merely took note of the amount and the check number
indicated therein.[16] In any event, Destajo, by countersigning
the voucher, did no more than acknowledge receipt of the
payment. She cannot be held to have ascented thereby to the
payment in full of petitioners indebtedness to private
respondent. It was obvious she had no authority to condone any
indebtedness, her duties being limited to issuing official receipts,
preparing check vouchers and documentation.[17]
Moreover, it is to be noted that the alleged agreement to
condone the amount in question was supposedly entered into
by the parties sometime in July 1986, that is, after respondent
corporation had been placed under receivership on November
4, 1985. As held in Villanueva v. Court of Appeals[18] the
appointment of a receiver operates to suspend the authority of
a [corporation] and of its directors and officers over its property
and effects, such authority being reposed in the receiver.[19]
Thus, Sobrepeas had no authority to condone the debt.
7. G.R. No. 187456 June 2, 2014
ALABANG DEVELOPMENT CORPORATION, Petitioner, vs.
ALABANG HILLS VILLAGE ASSOCIATION and RAFAEL
TINIO, Respondents.
FACTS:
The case traces its roots to the Complaint for Injunction and
Damages filed [with the Regional Trial Court (RTC) of
Muntinlupa City] on October 19, 2006 by [herein petitioner,
Alabang Development Corporation] ADC against [herein
respondents, Alabang Hills Village Association, Inc.] AHVAI and
Rafael Tinio (Tinio), President of AHVAI. ADC prayed that an
injunction be issued enjoining defendants from constructing the
multi-purpose hall and the swimming pool at the Alabang Hills
Village.
In its Answer With Compulsory Counterclaim, AHVAI denied
ADC's asseverations and 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; that ADC has no cause of action
because by law it is no longer the absolute owner but is merely
holding the property in question in trust for the benefit of AHVAI
as beneficial owner thereof; and that the subject lot is part of the
open space required by law to be provided in the subdivision.
The RTC of Muntinlupa City, Branch 276, rendered judgment
dismissing herein petitioner's complaint.
The CA dismissed both appeals of petitioner and respondent,
and affirmed the decision of the RTC. CA held that "where there
is no claim against the [respondent], because [petitioner] is
already in existent and has no capacity to sue, the counterclaim
is improper and it must be dismissed, more so where the
complaint is dismissed at the instance of the [respondent]."
C O R P O R A T I O N C O D E - P A R T 3 | 28
ISSUE:
Whether the court of appeals gravely erred in finding lack of
capacity of the petitioner in filing the case contrary to the earlier
rulings of this honorable court the honorable court of appeals
gravely erred when it failed to resolve the issue that petitioner is
mandated to cede properties to respondent ahvai.
RULING:
NO. Section 122 of the Corporation Code provides as follows:
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.
At any time during said three (3) years, said corporation is
authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors, and
other persons in interest. From and after any such conveyance
by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all
interest which the corporation had in the property terminates, the
legal interest vests in the trustees, and the beneficial interest in
the stockholders, members, creditors or other persons in
interest.
Upon winding up of the corporate affairs, any asset distributable
to any creditor or stockholder or member who is unknown or
cannot be found shall be escheated to the city or municipality
where such assets are located.
Except by decrease of capital stock and as otherwise allowed
by this Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all
its debts and liabilities.
In the instant case, there is no dispute that petitioner's corporate
registration was revoked on May 26, 2003.1âwphi1 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
Complaint9 that "[p]laintiff is a duly organized and existing
corporation under the laws of the Philippines, with capacity to
sue and be sued. x x x"10
Petitioner, nonetheless, insists that a corporation may still sue,
even after it has been dissolved and the three-year liquidation
period provided under Section 122 of the Corporation Code has
passed.
In 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.
To allow petitioner to initiate the subject complaint and pursue it
until final judgment, on the ground that such complaint was filed
for the sole purpose of liquidating its assets, would be to
circumvent the provisions of Section 122 of the Corporation
Code.
3. METHODS OF LIQUIDATION
G.R. No. 177382
VIVA SHIPPING LINES, INC., Petitioner, vs.
KEPPEL PHILIPPINES MINING, INC., METROPOLITAN
BANK & TRUST COMPANY, PILIPINAS SHELL
PETROLEUM CORPORATION, CITY OF BATANGAS, CITY
OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT,

NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO,
and HARLAN BACALTOS,Respondents.
FACTS:
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping
Lines) filed a Petition for Corporate Rehabilitation before the
Regional Trial Court of Lucena City.2 The Regional Trial Court
initially denied the Petition for failure to comply with the
requirements in Rule 4, Sections 2 and 3 of the Interim Rules of
Procedure on Corporate Rehabilitation.3 On October 17, 2005,
Viva Shipping Lines filed an Amended Petition.4
In the Amended Petition, Viva Shipping Lines claimed to own
and operate 19 maritime vessels5 and Ocean Palace Mall, a
shopping mall in downtown Lucena City.6 Viva Shipping Lines
also declared its total properties’ assessed value at about
₱45,172,790.00.7 However, these allegations were contrary to
the attached documents in the Amended Petition.
One of the attachments, the Property Inventory List, showed that
Viva Shipping Lines owned only two (2) maritime vessels: M/V
Viva Peñafrancia V and M/V Marian Queen.8 The list also stated
that the fair market value of all of Viva Shipping Lines’ assets
amounted to ₱447,860,000.00,9 ₱400 million more than what
was alleged in its Amended Petition. Some of the properties
listed in the Property Inventory List were already marked as
"encumbered" by its creditors;10 hence, only ₱147,630,000.00 of
real property and its vessels were marked as "free assets.
On October 19, 2005, the Regional Trial Court found that Viva
Shipping Lines’ Amended Petition to be "sufficient in form and
substance," and issued a stay order.20 It stayed the enforcement
of all monetary and judicial claims against Viva Shipping Lines,
and prohibited Viva Shipping Lines from selling, encumbering,
transferring, or disposing of any of its properties except in the
ordinary course of business.21 The Regional Trial Court also
appointed Judge Mendoza as rehabilitation receiver.
In the Order dated October 30, 2006,36 the Regional Trial Court
lifted the stay order and dismissed Viva Shipping Lines’
Amended Petition for failure to show the company’s viability and
the feasibility of rehabilitation. The Regional Trial Court
summarized Viva Shipping Lines’ creditors and debts: 37
The Regional Trial Court found that Viva Shipping Lines’ assets
all appeared to be non-performing. Further, it noted that Viva
Shipping Lines failed to show any evidence of consent to sell
real properties belonging to its sister company.41
Aggrieved, Viva Shipping Lines filed a Petition for Review under
Rule 43 of the Rules of Court before the Court of Appeals. 42 It
only impleaded Hon. Adolfo V. Encomienda, the Presiding
Judge of the trial court that rendered the assailed decision. It did
not implead any of its creditors, but served copies of the Petition
on counsels for Metrobank, Keppel Philippines Marine, Inc.,
Pilipinas Shell, City of Batangas, Province of Quezon, and City
of Lucena.43 Viva Shipping Lines neither impleaded nor served
a copy of the Petition on its former employees or their counsels.
The Court of Appeals dismissed Viva Shipping Lines’ Petition for
Review in the Resolution dated January 5, 2007. 44It found that
Viva Shipping Lines failed to comply with procedural
requirements under Rule 43.45 The Court of Appeals ruled that
due to the failure of Viva Shipping Lines to implead its creditors
as respondents, "there are no respondents who may be required
to file a comment on the petition, pursuant to Section 8 of Rule
43."46
ISSUES:
1. Whether the Court of Appeals erred in dismissing
petitioner Viva Shipping Lines’ Petition for Review on
procedural grounds
2. Whether petitioner was denied substantial justice when
the Court of Appeals did not give due course to its
petition.
RULING:
1. NO. Corporate rehabilitation is a remedy for
corporations, partnerships, and associations "who [foresee] the
impossibility of meeting [their] debts when they respectively fall
due."94 A corporation under rehabilitation continues with its
C O R P O R A T I O N C O D E - P A R T 3 | 29
corporate life and activities to achieve solvency, 95 or a position
where the corporation is able to pay its obligations as they fall
due in the ordinary course of business. Solvency is a state
where the businesses’ liabilities are less than its assets.96
Corporate rehabilitation is a type of proceeding available to a
business that is insolvent. In general, insolvency proceedings
provide for predictability that commercial obligations will be met
despite business downturns. Stability in the economy results
when there is assurance to the investing public that obligations
will be reasonably paid. It is considered state policy
to encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and adjust
competing claims and property rights[.] . . . [R]ehabilitation or
liquidation shall be made with a view to ensure or maintain
certainty and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated. When
rehabilitation is not feasible, it is in the interest of the State to
facilitate a speedy and orderly liquidation of these debtors’
assets and the settlement of their obligations.
Clearly then, there are instances when corporate rehabilitation
can no longer be achieved. When rehabilitation will not result in
a better present value recovery for the creditors, 105 the more
appropriate remedy is liquidation.106
It does not make sense to hold, suspend, or continue to devalue
outstanding credits of a business that has no chance of
recovery. In such cases, the optimum economic welfare will be
achieved if the corporation is allowed to wind up its affairs in an
orderly manner. Liquidation allows the corporation to wind up its
affairs and equitably distribute its assets among its creditors. 107
Liquidation is diametrically opposed to rehabilitation. Both
cannot be undertaken at the same time.108 In rehabilitation,
corporations have to maintain their assets to continue business
operations. In liquidation, on the other hand, corporations
preserve their assets in order to sell them. Without these assets,
business operations are effectively discontinued. The proceeds
of the sale are distributed equitably among creditors, and
surplus is divided or losses are re-allocated.109
Proceedings in case of insolvency are not limited to
rehabilitation. Our laws have evolved to provide for different
procedures where a debtor can undergo judicially supervised
reorganization or liquidation of its assets.
Currently, the prevailing law and procedure for corporate
rehabilitation is the Financial Rehabilitation and Insolvency Act
of 2010 (FRIA).116 FRIA provides procedures for the different
types of rehabilitation and liquidation proceedings. The Financial
Rehabilitation Rules of Procedure was issued by this court on
August 27, 2013.117
However, since the Regional Trial Court acted on petitioner’s
Amended Petition before FRIA was enacted, Presidential
Decree No. 902-A and the Interim Rules of Procedure on
Corporate Rehabilitation were applied to this case.
2. YES. Rule 43 prescribes the mode of appeal for corporate
rehabilitation cases:
Sec. 5. How appeal taken. – Appeal shall be taken by filing a
verified petition for review in seven (7) legible copies with the
Court of Appeals, with proof of service of a copy thereof on the
adverse party and on the court or agency a quo. The original
copy of the petition intended for the Court of Appeals shall be
indicated as such by the petitioner.
....
Sec. 6. Contents of the petition. – The petition for review
shall (a) state the full names of the parties to the case, without
impleading the court or agencies either as petitioners or
respondents; (b) contain a concise statement of the facts and
issues involved and the grounds relied upon for the review; (c)
be accompanied by a clearly legible duplicate original or a
certified true copy of the award, judgment, final order or
resolution appealed from, together with certified true copies of
such material portions of the record referred to therein and other

supporting papers; and (d) contain a sworn certification against
forum shopping as provided in the last paragraph of section 2,
Rule 42. The petition shall state the specific material dates
showing that it was filed within the period fixed herein.
(Emphasis supplied)
Petitioner did not comply with some of these requirements. First,
it did not implead its creditors as respondents. Instead, petitioner
only impleaded the Presiding Judge of the Regional Trial Court,
contrary to Section 6(a) of Rule 43. Second, it did not serve a
copy of the Petition on some of its creditors, specifically, its
former employees. Finally, it did not serve a copy of the Petition
on the Regional Trial Court.
Petitioner justified its failure to furnish its former employees with
copies of the Petition by stating that the former employees were
late in filing their opposition before the trial court.126 It also stated
that its failure to furnish the Regional Trial Court with a copy of
the Petition was unintentional.127
The Court of Appeals correctly dismissed petitioner’s Rule 43
Petition as a consequence of non-compliance with procedural
rules. Rule 43, Section 7 of the Rules of Court states:
Sec. 7. Effect of failure to comply with requirements. – The
failure of the petitioner to comply with any of the foregoing
requirements regarding the payment of the docket and other
lawful fees, the deposit of costs, proof of service of the petition,
and the contents of and the documents which should
accompany the petition shall be sufficient ground for the
dismissal thereof.
Petitioner admitted its failure to comply with the rules. It begs the
indulgence of the court to give due course to its Petition based
on their belated compliance with some of these procedural rules
and the policy on the liberal construction of procedural rules.
There are two kinds of "liberality" with respect to the construction
of provisions of law. The first requires ambiguity in the text of the
provision and usually pertains to a situation where there can be
two or more viable meanings given the factual context presented
by a case. Liberality here means a presumption or predilection
to interpret the text in favor of the cause of the party requesting
for "liberality."
Then there is the "liberality" that actually means a request for
the suspension of the operation of a provision of law, whether
substantive or procedural. This liberality requires equity. There
may be some rights that are not recognized in law, and if courts
refuse to recognize these rights, an unfair situation may
arise.128 Specifically, the case may be a situation that was not
contemplated on or was not possible at the time the legal norm
was drafted or promulgated.
The first rule breached by petitioner is the failure to implead all
the indispensable parties. Petitioner did not even interpose
reasons why it should be excused from compliance with the rule
to "state the full names of the parties to the case, without
impleading the court . . . as . . . respondents." Petitioner did
exactly the opposite. It failed to state the full names of its
creditors as respondents. Instead, it impleaded the Presiding
Judge of the originating court.
A corporate rehabilitation case cannot be decided without the
creditors’ participation. The court’s role is to balance the
interests of the corporation, the creditors, and the general public.
Impleading creditors as respondents on appeal will give them
the opportunity to present their legal arguments before the
appellate court. The courts will not be able to balance these
interests if the creditors are not parties to a case. Ruling on
petitioner’s appeal in the absence of its creditors will not result
in judgment that is effective, complete, and equitable.
The failure of petitioner to implead its creditors as respondents
cannot be cured by serving copies of the Petition on its creditors.
Since the creditors were not impleaded as respondents, the
copy of the Petition only serves to inform them that a petition
has been filed before the appellate court. Their participation was
still significantly truncated. Petitioner’s failure to implead them
deprived them of a fair hearing. The appellate court only serves
court orders and processes on parties formally named and
identified by the petitioner. Since the creditors were not named
as respondents, they could not receive court orders prompting
them to file remedies to protect their property rights.
The next procedural rule that petitioner pleaded to suspend is
the rule requiring it to furnish all parties with copies of the Rule
43 Petition. Petitioner admitted its failure to furnish its former
C O R P O R A T I O N C O D E - P A R T 3 | 30
employees with copies of the Petition because they belatedly
filed their claims before the Regional Trial Court.
This argument is specious at best; at worst, it foists a fraud on
this court. The former employees were unable to raise their
claims on time because petitioner did not declare them as
creditors. The Amended Petition did not contain any information
regarding pending litigation between petitioner and its former
employees. The only way the former employees could become
aware of the corporate rehabilitation proceedings was either
through the required publication or through news informally
circulated among their colleagues. Clearly, it was petitioner who
caused the belated filing of its former employees’ claims when it
failed to notify its employees of the corporate rehabilitation
proceedings. Petitioner’s failure was conveniently and
disreputably hidden from this court.
Bank of the Philippine Islands v. Sarabia Manor Hotel
Corp.145 provides the test to help trial courts evaluate the
economic feasibility of a rehabilitation plan:
In order to determine the feasibility of a proposed rehabilitation
plan, it is imperative that a thorough examination and analysis
of the distressed corporation’s financial data must be
conducted. If the results of such examination and analysis show
that there is a real opportunity to rehabilitate the corporation in
view of the assumptions made and financial goals stated in the
proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court
should not hesitate to allow the corporation to operate as an on-
going concern, albeit under the terms and conditions stated in
the approved rehabilitation plan. On the other hand, if the results
of the financial examination and analysis clearly indicate that
there lies no reasonable probability that the distressed
corporation could be revived and that liquidation would, in fact,
better subserve the interests of its stakeholders, then it may be
said that a rehabilitation would not be feasible. In such case, the
rehabilitation court may convert the proceedings into one for
liquidation.
The court enumerated the characteristics of a rehabilitation plan
that is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the
execution of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full
depreciation or fully depreciated.148
In addition to the tests of economic feasibility, Professor
Stephanie V. Gomez also suggests that the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on
rehabilitation that provides for better present value recovery for
its creditors.149
Present value recovery acknowledges that, in order to pave way
for rehabilitation, the creditor will not be paid by the debtor when
the credit falls due. The court may order a suspension of
payments to set a rehabilitation plan in motion; in the meantime,
the creditor remains unpaid. By the time the creditor is paid, the
financial and economic conditions will have been changed.
Money paid in the past has a different value in the future.150 It is
unfair if the creditor merely receives the face value of the debt.
Present value of the credit takes into account the interest that
the amount of money would have earned if the creditor were
paid on time
Petitioner’s rehabilitation plan should have shown that petitioner
has enough serviceable assets to be able to continue its
business. Yet, the plan showed that the source of funding would
be to sell petitioner’s old vessels. Disposing of the assets
constituting petitioner’s main business cannot result in
rehabilitation. A business primarily engaged as a shipping line
cannot operate without its ships. On the other hand, the plan to
purchase new vessels sacrifices the corporation’s cash flow.
This is contrary to the goal of corporate rehabilitation, which is
to allow present value recovery for creditors. The plan to buy
new vessels after selling the two vessels it currently owns is
neither sound nor workable as a business plan.
K. OTHER CORPORATIONS
1. NON-STOCK CORPORATIONS

1. G.R. Nos. 188642 & 189425, October 17, 2016
AGDAO RESIDENTS INC., THE DIRECTORS LANDLESS
LANDLESS ASSOCIATION, BOARD OF OF AGDAO
ASSOCIATION, INC. Petitioners, v. ROLANDO MARAMION,
et al Respondents.
G.R. NOS. 188888-89
ROLANDO MARAMION, et al. Petitioners, v. AGDAO
LANDLESS RESIDENTS ASSOCIATION, INC., THE
DIRECTORS LANDLESS BOARD OF OF AGDAO
RESIDENTS ASSOCIATION, INCRespondents.
FACTS:
Petitioners are Agdao Landless Residents Association, Inc.
(ALRAI), a non-stock, non-profit corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines. Respondents are allegedly ousted members of
ALRAI.
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of
Donation8 in favor of ALRAI covering 46 titled lots (donated
lots).9 One Deed of Donation10 prohibits ALRAI, as donee, from
partitioning or distributing individual certificates of title of the
donated lots to its members, within a period of five years from
execution, unless a written authority is secured from
Dakudao.11 A violation of the prohibition will render the donation
void, and title to and possession of the donated lot will revert to
Dakudao.12 The other five Deeds of Donation do not provide for
the five-year restriction.
In the board of directors and stockholders meetings held on
January 5, 2000 and January 9, 2000, respectively, members of
ALRAI resolved to directly transfer 10 of the donated lots to
individual members and non members of ALRAI.13 Transfer
Certificate of Title (TCT) Nos. T-62124 (now T-322968), T-
297811 (now TCT No. T-322966), T-297813 (now TCT No. T-
322967) and T-62126 (now TCT No. T-322969) were
transferred to Romeo Dela Cruz (Dela Cruz). TCT Nos. T-41374
(now TCT No. T-322963) and T-41361 (now TCT No. T-322962)
were transferred to petitioner Javonillo, the president of ALRAI.
TCT Nos. T-41365 (now TCT No. T-322964) and T-41370 (now
TCT No. T-322964) were transferred to petitioner Armentano,
the secretary of ALRAI. TCT Nos. T-41367 (now TCT No. T-
322971) and T-41366 were transferred to petitioner Alcantara,
the widow of the fanner legal counsel of ALRAI. The donated lot
covered by TCT No. T-41366 (replaced by TCT No. T-322970)
was sold to Lily Loy (Loy) and now covered by TCT No. T-
338403.14chanrobleslaw
Respondents filed a Complaint15 against petitioners.
Respondents alleged that petitioners expelled them as
members of ALRAI, and that petitioners are abusing their
powers as officers.16 Respondents further alleged that
petitioners were engaged in the following anomalous and illegal
acts: (1) requiring ALRAI's members to pay exorbitant arrear
fees when ALRAI's By-Laws only set membership dues at P1.00
per month;17 (2) partially distributing the lands donated by
Dakudao to some officers of ALRAI and to some non-members
in violation of the Deeds of Donation;18 (3) illegally expelling
them as members of ALRAI without due process; 19 and (4)
being unable to show the books of accounts of ALRAI. 20 They
also alleged that Loy (who bought one of the donated lots from
Alcantara) was a buyer in bad faith, having been aware of the
status of the land when she bought it.
In their Answer,23 petitioners alleged that ALRAI transferred lots
to Alcantara as attorney's fees ALRAI owed to her late husband,
who was the legal counsel of ALRAI.24 On the other hand,
Javonillo and Armentano, as president and secretary of ALRAI,
respectively, made a lot of sacrifices for ALRAI, while Dela Cruz
provided financial assistance to ALRAI.25
Petitioners also alleged that respondents who are non-members
of ALRAI have no personality to sue. They also claimed that the
members who were removed were legally ousted due to their
absences in meetings.
ISSUE:
1. Whether respondents should be reinstated as
members of ALRAI; and
2. Whether the transfers of the donated lots are valid.
C O R P O R A T I O N C O D E - P A R T 3 | 31
RULING:
1. YES. The court a quo held that respondents are bona
fide members of ALRAL55 This finding was not disturbed by the
CA because it was not raised as an issue before it and thus, is
binding and conclusive on the parties and upon this Court. 56 In
addition, both the court a quo and the CA found that
respondents were illegally removed as members of ALRAI. Both
courts found that in terminating respondents from ALRAI,
petitioners deprived them of due process.
Section 91of the Corporation Code of the Philippines
(Corporation Code)59 provides that membership in a non-stock,
non-profit corporation (as in petitioner ALRAI in this case) shall
be terminated in the manner and for the cases provided in its
articles of incorporation or the by-laws.
Clearly, members proved to be in arrears in the payment of
monthly dues, contributions, or assessments shall only be
automatically suspended; while members who shall be absent
from any meeting without any justifiable cause shall only be
liable for a fine. Nowhere in the ALRAI Constitution does it say
that the foregoing actions shall cause the automatic termination
of membership. Thus, the CA correctly ruled that "respondents'
expulsion constitutes an infringement of their constitutional right
to due process of law and is not in accord with the principles
established in Article 19 of the Civil Code, x x x."
There being no valid termination of respondents' membership m
ALRAI, respondents remain as its existing members.73 It follows
that as members, respondents are entitled to inspect the records
and books of accounts of ALRAI subject to Section 1, Article
VII74 of ALRAI's Constitution, and they can demand the
accounting of its funds in accordance with Section 6, Article V of
the ALRAI Constitution.75 In addition, Sections 7476 and 7577 of
the Corporation Code also sanction the right of respondents to
inspect the records and books of accounts of ALRAI and
demand the accounting of its funds.
2. NO. One of the primary purposes of ALRAI is the giving
of assistance in uplifting and promoting better living conditions
to all members in particular and the public in general. 102 One of
its objectives includes "to uplift and promote better living
condition, education, health and general welfare of all members
in particular and the public in general by providing its members
humble shelter and decent housing."103Respondents maintain
that it is pursuant to this purpose and objective that the
properties subject of this case were donated to
ALRAI.104chanrobleslaw
Section 36, paragraphs 7 and 11 of the Corporation Code
provide:
Sec. 36. Corporate powers and capacity. - Every corporation
incorporated under this Code has the power and capacity:
x x
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to
the limitations prescribed by law and the Constitution.
x x x
11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the
articles of incorporation.
The Corporation Code therefore tells us that the power of a
corporation to validly grant or convey any of its real or personal
properties is circumscribed by its primary purpose. It is therefore
important to determine whether the grant or conveyance is
pursuant to a legitimate corporate purpose, or is at least
reasonable and necessary to further its purpose.
Based on the records of this case, we find that the transfers of
the corporate properties to Javonillo, Armentano, Dela Cruz,
Alcantara and Loy are bereft of any legitimate corporate

purpose, nor were they shown to be reasonably necessary to
further ALRAI's purposes. This is principally because, as
respondents argue, petitioners "personally benefitted
themselves by allocating among themselves vast track of lands
at the dire expense of the landless general membership of the
Association."106chanrobleslaw
We take first the cases of Dela Cruz, Alcantara and Loy.
We disagree with theCA in ruling that the TCTs issued in the
name of Dela Cruz are valid. The transfer of property to him
does not further the corporate purpose of ALRAI. To justify the
transfer to Dela Cruz, petitioners merely allege that, "[o]n the
other hand, the lots given by ALRAI to Romeo de la Cruz were
compensation for the financial assistance he had been
extending to ALRAI."107 Records of this case do not bear any
evidence to show how much Dela Cruz has extended to ALRAI
as financial assistance. The want of evidence to support this
allegation cannot allow a determination whether the amount of
the financial help that Dela Cruz extended to ALRAI is
commensurate to the amount of the property transferred to him.
The lack of evidence on this point is prejudicial to ALRAI
because ALRAI had parted with its property without any means
by which to determine whether the transfer is fair and
reasonable under the circumstances.
The same is true with the transfer of properties to Alcantara.
Petitioners allege that Alcantara's husband, Atty. Pedro
Alcantara, "handled all the legal work both before the Regional
Trial Court in Davao City (Civil Case No. 16192) and the Court
of Appeals in Manila (CA GR No. 13744). He agreed to render
his services although he was being paid intermittently, with just
small amounts, in the hope that he will be compensated when
ALRAI triumphs in the litigation."108 Petitioners thus claim that
"[b]ecause of the legal services of her husband, who is now
deceased, petitioner Alcantara was given by ALRAI two (2) lots
x x x."109
Petitioners admit that Atty. Pedro Alcantara represented ALRAI
as counsel on part contingency basis.110In their Memorandum
before the court a quo, respondents alleged that, "[i]n fact,
Complainants have duly paid Atty. Alcantara's legal fees as
evidence (sic) by corresponding receipts issued by the receiving
Officer of the Association."111 The aforementioned
receipts112 show that Atty. Pedro Alcantara had already been
paid the total amount of P16,845.00.
Consequently, we also find that Alcantara's subsequent sale to
Loy is not valid. Alcantara cannot sell the property, over which
she did not have the right to own, in the first place. More, based
on the records, the court a quo had already made a finding that
Loy is guilty of bad faith as to render her purchase of the
property from Alcantara void. 124
We likewise find that there is failure to show any legitimate
corporate purpose in the transfer of ALRAI's corporate
properties to Javonillo and Armentano.
The Board Resolution125 confirming the transfer of ALRAI's
corporate properties to Javonillo and Armentano merely read,
"[t]hat the herein irrevocable confirmation is made in recognition
of, and gratitude for the outstanding services rendered by x x x
Mr. Armando Javonillo, our tireless President and Mrs. Acelita
Armentano, our tactful, courageous, and equally tireless
Secretary, without whose efforts and sacrifices to acquire a
portion of the realty of Dacudao & Sons, Inc., would not have
been attained."126 In their Memorandum, petitioners also alleged
that "[t]he most difficult part of their (Javonillo and Armentano)
job was to raise money to meet expenses. x x x It was very
difficult for petitioners Javonillo and Armentano when they
needed to pay P300,000.00 for realty tax on the land donated
by Dakudao and Sons, Inc. to ALRAI. It became more difficult
when the Bureau of Internal Revenue was demanding
P6,874,000.00 as donor's tax on the donated lands. Luckily,
they were able to make representation with the BIR to waive the
tax."
The lack of legitimate corporate purpose is even more
emphasized when Javonillo and Armentano, as a director and
C O R P O R A T I O N C O D E - P A R T 3 | 32
an officer of ALRAI, respectively, violated the fiduciary
nature130 of their positions in the corporation.
Being the corporation's agents and therefore, entrusted with the
management of its affairs, the directors or trustees and other
officers of a corporation occupy a fiduciary relation towards it,
and cannot be allowed to contract with the corporation, directly
or indirectly, or to sell property to it, or purchase property from
it, where they act both for the corporation and for
themselves.131 One situation where a director may gain undue
advantage over his corporation is when he enters into a contract
with the latter.
Here, we note that Javonillo, as a director, signed the Board
Resolutions133 confirming the transfer of the corporate
properties to himself, and to Armentano. Petitioners cannot
argue that the transfer of the corporate properties to them is
valid by virtue of the Resolution134 by the general membership
of ALRAI confirming the transfer for three reasons.
Note:
The court finds that the cause of action and the reliefs sought in
the complaint pertaining to the donated lands (ALRAI's
corporate property) strictly call for the filing of a derivative suit,
and not an individual suit which respondents filed.
A derivative suit, on the other hand, is one which is instituted by
a shareholder or a member of a corporation, for and in behalf of
the corporation for its protection from acts committed by
directors, trustees, corporate officers, and even third
persons.79 The whole purpose of the law authorizing a derivative
suit is to allow the stockholders/members to enforce rights which
are derivative (secondary) in nature, i.e., to enforce a corporate
cause of action.
In this case, the reliefs sought do not entail the premature
distribution of corporate assets. On the contrary, the reliefs seek
to preserve them for the corporate interest of ALRAI. Clearly
then, any benefit that may be recovered is accounted for, not in
favor of respondents, but for the corporation, who is the real
party-in-interest Therefore, the occasion for the strict application
of the rule that a derivative suit should be brought in order to
protect and vindicate the interest of the corporation does not
obtain under the circumstances of this case.
2. G.R. No. 200150, November 07, 2016
CATHERINE CHING, LORENZO CHING, LAURENCE CHING,
AND CHRISTINE CHING, Petitioners, v.QUEZON CITY
SPORTS CLUB, INC.; MEMBERS OF THE BOARD OF
DIRECTORS, NAMELY: ANTONIO T. CHUA, MARGARET
MARY A. RODAS, ALEJANDRO G. YABUT, JR., ROBERT C.
GAW, EDGARDO A. HO, ROMULO D. SALES, BIENVENIDO
ALANO, AUGUSTO E. OROSA, AND THE FINANCE
MANAGER, LOURDES RUTH M. LOPEZ, Respondents.
FACTS:
Respondent Club is a duly registered domestic corporation
providing recreational activities, sports facilities, and exclusive
privileges and services to its members.
Petitioner Catherine became a member and regular patron of
respondent Club in 1989. Per policy of respondent Club,
petitioner Catherine's membership privileges were extended to
immediate family members.
On June 15, 1999, the National Labor Relations Commission
(NLRC) rendered a Decision in NLRC NCR Case No. 00-07-
06219, ordering respondent Club to pay backwages, 13 th and
14th month pay, and allowances to six illegally dismissed
employees. The successive appeals of respondent Club to the
Court of Appeals and this Court were unsuccessful, and the
judgment for illegal dismissal against respondent Club became
final and executory. As a result, an alias writ of execution of said
judgment was served on respondent Club on September 19,
200 1 for the total amount of P4,433,550.00.
Respondent BOD approved Board Resolution No. 7-2001 on
September 20, 2001 imposing the special assessment of
P2,500.00 upon every member of the respondent Club, payable

in five monthly installments of P500.00, to raise the payment for
the monetary judgment against respondent Club in NLRC NCR
Case No. 00-07-06219; (2) petitioner Catherine was charged the
P500.00 monthly installment for the special assessment in her
Statements of Account from September 2001 to January 2002,
but she did not pay any of them; (3) petitioner Catherine was
continually charged the total of P2,500.00 special assessment
in her Statements of Account from February 2002 to May 2003,
which she still did not pay; (4) petitioner Catherine received all
the said Statements of Account; (5) by virtue of Board
Resolution No. 3-2002, passed by respondent BOD on April 18,
2002, and respondent Lopez's Memorandum dated May 22,
2003, the membership privileges of members of respondent
Club who did not pay the special assessment, which included
petitioner Catherine, were suspended; (6) petitioner Catherine
paid the P2,500.00 special assessment only on July 13, 2003,
after her membership privileges were already suspended.
The RTC rendered its Decision on May 23, 2008. The RTC,
based on the "Business Judgment Rule" and Philippine Stock
Exchange, Inc. v. Court of Appeals,27 held that questions of
policy and management are left to the honest decision of the
officers and directors of a corporation; and the courts are without
authority to substitute their judgment for that of the BOD unless
said judgment had been attended with bad faith.
The Court of Appeals ruled in favor of respondents.
ISSUE:
Whether petitioner Ching’s right to due process of law had been
violated as a member of the respondent club.
RULING:
YES. The Court had previously recognized in Forest Hills Golf
and Country Club, Inc. v. Gardpro, Inc.,38 that articles of
incorporation and by-laws of a country club are the fundamental
documents governing the conduct of the corporate affairs of said
club; they establish the norms of procedure for exercising rights,
and reflected the purposes and intentions of the incorporators.
The by-laws are the self-imposed rules resulting from the
agreement between the country club and its members to
conduct the corporate business in a particular way. In that
sense, the by-laws are the private "statutes" by which the
country club is regulated, and will function. Until repealed, the
by-laws are the continuing rules for the government of the
country club and its officers, the proper function being to
regulate the transaction of the incidental business of the country
club. The by-laws constitute a binding contract as between the
country club and its members, and as among the members
themselves. The by-laws are self-imposed private laws binding
on all members, directors, and officers of the country club. The
prevailing rule is that the provisions of the articles of
incorporation and the by-laws must be strictly complied with and
applied to the letter.
At cursory glance, it would seem that the suspension of
petitioner Catherine's privileges was due to the P2,500.00
special assessment charged in her Statements of Account from
September 2001 to January 2002, which remained unpaid for
over three months by the time respondent BOD passed Board
Resolution No. 3-2002 on April 18, 2002; and for one year and
four months by the time respondent Lopez issued her
Memorandum dated May 22, 2003. However, tracing back, the
P2,500.00 special assessment was not an ordinary account or
bill incurred by petitioners in respondent Club, as contemplated
in Section 33(a) of the By-Laws.
Section 33(a) of the By-Laws refers to the regular dues and
ordinary accounts or bills incurred by members as they avail of
the services at respondent Club, and for which the members are
charged in their monthly Statement of Account. The immediate
payment or collection of the amount charged in the member's
monthly Statement of Account is essential so respondent Club
can carry-on its day-to-day operations, which is why Section
33(a) allows for the automatic suspension of a nonpaying
member after a specified period and notification.
The special assessment in the instant case arose from an
extraordinary circumstance, i.e., the necessity of raising
payment for the monetary judgment against respondent Club in
an illegal dismissal case. The special assessment of P2,500.00
was imposed upon the members by respondent BOD through
Board Resolution No. 7-2001 dated September 20, 2001; it only
so happened that said Board Resolution was implemented by
directly charging the special assessment, in P500.00
installments, in the members' Statements of Account for five
C O R P O R A T I O N C O D E - P A R T 3 | 33
months. Thus, petitioner Catherine's nonpayment of the special
assessment was, ultimately, a violation of Board Resolution No.
7-2001, covered by Section 35(a) of the By-Laws. This much
was acknowledged by respondent BOD itself when it mentioned
in Board Resolution No. 3-2002 that "[t]o enforce Board
Resolution No. 7-2001," it was suspending the members who
did not pay the special assessment.
Section 35(a) of the By-Laws requires notice and hearing prior
to a member's suspension. Definitely, in this case, petitioner
Catherine did not receive notice specifically advising her that
she could be suspended for nonpayment of the special
assessment imposed by Board Resolution No. 7-2001 and
affording her a hearing prior to her suspension through Board
Resolution No. 3-2002. Respondents merely relied on the
general notice printed in petitioner Catherine's Statements of
Account from September 2001 to April 2002 warning of
automatic suspension for accounts of over P20,000.00 which
are past due for 60 days, and accounts regardless of amount
which are 75 days in arrears. While said general notice in the
Statements of Account might have been sufficient for purposes
of Section 33(a) of the By-Laws, it fell short of the stricter
requirement under Section 35(a) of the same By-Laws.
Petitioner Catherine's right to due process was clearly violated.
Nevertheless, it is not lost upon this Court that petitioner
Catherine herself admitted violating Board Resolution No. 7-
2001 by not paying the P2,500.00 special assessment.
Petitioner Catherine cannot deny knowledge of the special
assessment because the first installment of P500.00 was
already charged in her Statement of Account for September
2001 and she willfully did not pay said amount. Despite being
aware of the special assessment, petitioner Catherine simply
chose not to pay the same, without taking any other step to let
respondents know of her opposition to said special assessment,
until she complained in her letter dated May 24, 2003 about the
suspension of her membership privileges. Again, the Court is
not called upon to determine the propriety of the imposition of
the special assessment upon the members of the respondent
Club. Whatever reasons petitioner Catherine might have against
the special assessment would not change the fact of her
nonpayment of the same in violation of Board Resolution No. 7-
2001. Consequently, there was ground for respondents to
suspend petitioner Catherine's membership privileges.
3. Valley Golf & Country Club vs Reyes, 774 SCRA 214,
November 10, 2015
FACTS:
Petitioner Valley Golf and Country Club (Valley Golf) is a duly
constituted non-stock, non-profit corporation which operates a
golf course. The members and their guests are entitled to play
golf on the said course and avail themselves of the facilities and
privileges provided by the golf club. The shareholders are
likewise assessed monthly membership dues.
Respondents Edna H. Reyes, Melissa H.R. Gervacio, Norman
David H. Reyes, Elizabeth Victoria H. Reyes, Noelle Simone R.
Schifferer and Victor Alec H. Reyes (Heirs of Reyes) are the
children of the original complainant, Dr. Victor H. Reyes, who is
now deceased.
In 1960, the late Victor Reyes (Reyes) subscribed and
purchased one share in the capital stock of Valley Golf as
evidenced by Stock Certificate No. 368. The purchase entitled
him to an exclusive membership to the golf club including
playing rights in the latter's golf course.[5]
From 1979-1986, Reyes' playing privileges to the club was
successively assigned to Jose Y. Bondoc, James B. Wheelan
and Roberto Povido in accordance with the terms and conditions
of the country club's by-laws. During this period, the designated
assignee each took upon themselves the obligation to pay the
monthly membership fees for and on behalf of Reyes. [6] When
the latest assignment of playing rights ended in 1986, however,
the payment of membership dues was likewise discontinued and
the account of Reyes became delinquent.
Desirous to transfer the ownership of his share in the golf club

to his son, Reyes, in 1994, inquired with the club on the status
of his membership. To his surprise, however, he learned that his
share was already sold by Valley Golf at the public auction
conducted on 10 December 1986 due to delinquency in the
payment of monthly membership fees.[7]
Aggrieved by the turn of events, Reyes initiated an action for
Reinstatement of Playing Rights and Re-issuance of New
Certificate of Share of Stocks against Valley Golf before the
Securities and Exchange Commission (SEC). Claiming that he
was not notified of the delinquency of his account nor the
subsequent public sale of his share, Reyes prayed in his
Complaint docketed as SEC Case No. 01-97-5526 for the
reinstatement of his playing rights, if possible, or the issuance of
a new certificate of shares, in the event that his previous share
was already sold to third person.[8]
In refuting the allegations of the complainant, Valley Golf
insisted that a Notice of Due Account was sent to Reyes on 11
June 1986 which was received by the latter on 18 June 1986 as
shown in Registry Receipt No. 3384. Despite receipt of such
notice, however, Reyes failed or refused to settle his obligation
with the corporation prompting the latter to cause the sale of his
share at the public auction in accordance with the terms and
conditions of the by-laws. It further alleged that prior to the
scheduled date' of public sale, the corporation likewise caused
the publication of the Notice of Auction Sale in the 6 December
1986 issue of Philippine Daily Express as evidenced by the
Publisher's Affidavit. Valley Golf thus argued that Reyes has no
right to claim that he was not duly notified of the delinquency and
the subsequent sale of his share and prayed that his complaint
be dismissed for evident lack of cause of action. [9]
It may be noted in this connection that pursuant to Section 5.2
of R.A. No. 8799 or the Securities Regulation Code,[10] which
took effect on August 8, 2000, the jurisdiction of the SEC to
decide cases involving intra-corporate dispute was transferred
to courts of general jurisdiction "or the appropriate Regional Trial
Court (RTC)" and, in accordance therewith, all cases of this
nature, with the exception only of those submitted for decision,
were transferred to the regular courts concerned. [11]
Accordingly, SEC Case No. 01-97-5526 was transferred to the
RTC of Makati City, Branch 138 and was docketed as Civil Case
No. 01-528.
On 29 July 2003, the RTC issued a Judgment [12] in favor of the
Valley Golf and dismissed the complaint of Reyes after finding
that no infirmity attended the conduct of the complainant's share.
On appeal, the Court of Appeals reversed the findings of the
RTC and held that there is no factual or legal basis for the
conduct of public auction and the corporation is devoid of
authority to sell the share of Reyes. In belying the claim of the
golf club that a notice of delinquency was duly served to Reyes,
the appellate court held that the registry return receipt is not a
sufficient proof that the demand letter was duly sent to the
addressee, moreso, when such receipt is barely readable and
does not bear the name of the recipient.[13] By failing to receive
notice, the appellate court ruled that Reyes was deprived of the
opportunity to make good his obligation before his share was
sold at the public auction.[14]
ISSUE:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
INVALIDATING THE AUCTION SALE OF THE SHARE ON
THE GROUND OF LACK OF NOTICE TO [REYES]
RULING:
No, Membership in a non-stock corporation is a property right
and as such, public policy demands that its termination must be
C O R P O R A T I O N C O D E - P A R T 3 | 34
done in accordance with substantial justice. In Valley Golf and
Country Club v. Vda de Caram,[17] a case involving the same
corporate entity, the Court had the occasion to set the standards
in terminating membership in a non-stock corporation, viz:
"It may be conceded that the actions of Valley Golf were,
technically speaking, in accord with the provisions of its by-laws
on termination of membership, vaguely defined as these
are. Yet especially since the termination of membership in
Valley Golf is inextricably linked to the deprivation of
property rights over the Golf Share, the emergence of such
adverse consequences make legal and equitable standards
come to fore.
xxx
It is unmistakably wise public policy to require that the
termination of membership in a non-stock corporation be
done in accordance with substantial justice. No matter how
one may precisely define such term, it is evident in this case that
the termination of Caram's membership betrayed the dictates of
substantial justice." (Emphasis supplied)
Proceeding from applicable precedent that termination of
membership in a non-stock corporation constitutes an
infringement of property rights which one should not be deprived
of without conforming with the demands of substantial justice,
there is a clear reason to agree with the findings that notice of
delinquency in question was not duly delivered to Reyes.
First, it is beyond question that the registry return card presented
by Valley Golf was unauthenticated and does not bear the
name of the person who received it. There is no dispute that
Valley Golf, in its reliance on registered service of the demand
letter dated 11 June 1986, failed to authenticate the registry
return receipt. Neither the affidavit of the person mailing nor a
certified sworn copy of the notice given by the postmaster to the
addressee was submitted to the court as proof of receipt.
Second, it is erroneous for Valley Golf to postulate that the
requirement that registry return card must be authenticated is
solely confined in criminal cases where the required quantum of
evidence to satisfy conviction is proof beyond reasonable doubt.
Even in civil cases where the quantum of proof to warrant a
favorable judgment is one notch lower that than the exacting
standards set in criminal cases, the required authentication of
the registry return card is not dispensed with. In civil cases,
service made through registered mail is proved by the registry
receipt issued by the mailing office and an affidavit of the
person mailing.[18] Absent one or the other, or worse both,
there is no proof of service.[19] In Petition for Habeas Corpus of
Benjamin Vergara v. Gedorio, Jr.,[20] the Court had the occasion
to rule that registry receipt per se does not constitute proof of
receipt, to wit:
"When service of notice is an issue, the rule is that the person
alleging that the notice was served must prove the fact of
service. The burden of proving notice rests upon the party
asserting its existence. In civil cases, service made through
registered mail is proved by the registry receipt issued by the
mailing office and an affidavit of the person mailing of facts
showing compliance with Section 7 of Rule 13. In the present
case, as proof that petitioners were served with copies of the
omnibus motion submitting an inventory of the estate of
deceased Allers, respondent Bolano presented photocopies of
the motion with a certification by counsel that service was made
by registered mail, together with the registry receipts. While the
affidavit and the registry receipts proved that petitioners were
served with copies of the motion, it does not follow, however,
that petitioners in fact received the motion. Respondent Bolano
failed to present the registry return cards showing that
petitioners actually received the motion. Receipts for
registered letters and return receipts do not prove
themselves, they must be properly authenticated in order
to serve as proof of receipt of the letters. Respondent also
failed to present a certification of the postmaster that notice was
duly issued and delivered to petitioners such that service by
registered mail may be deemed completed." (Emphasis
supplied)
Even in labor cases where the standard of proof required is
substantial evidence or such relevant evidence as a reasonable

mind might accept as adequate to support a conclusion, [21] the
Court never failed to scrupulously scour the records for an
affidavit of service and after failing to find one, the claim of the
employer that a notice of termination was served to the
employee was dismissed thereby holding it liable for the
payment of nominal damages as penalty for denying the
dismissed employee the opportunity to be heard, thus:
"We cannot give credence to respondent's allegation that the
petitioner refused to receive the third letter dated 21 August
2001 which served as the notice of termination. There is nothing
on record that would indicate that respondent even attempted to
serve or tender the notice of termination to petitioner. No
affidavit of service was appended to the said notice attesting to
the reason for failure of service upon its intended recipient.
Neither was there any note to that effect by the server written on
the notice itself.
The law mandates that it is incumbent upon the employer to
prove the validity of the termination of employment. Failure to
discharge this evidentiary burden would necessarily mean that
the dismissal was not justified and, therefore, illegal.
Unsubstantiated claims as to alleged compliance with the
mandatory provisions of law cannot be favored by this Court. In
case of doubt, such cases should be resolved in favor of labor,
pursuant to the social justice policy of our labor laws and
Constitution.
The burden therefore is on respondent to present clear and
unmistakable proof that petitioner was duly served a copy of the
notice of termination but he refused receipt. Bare and vague
allegations as to the manner of service and the
circumstances surrounding the same would not suffice. A
mere copy of the notice of termination allegedly sent by
respondent to petitioner, without proof of receipt, or in the
very least, actual service thereof upon petitioner, does not
constitute substantial evidence. It was unilaterally prepared
by the petitioner and, thus, evidently self-serving and insufficient
to convince even an unreasonable mind." [22] (Emphasis
supplied)
Third, Valley Golf, as the party asserting receipt of notice bears
the burden of proof to prove notice. When the service of notice
is an issue, the rule is that the person alleging that the notice
was served must prove the fact of service.[23] The burden of
proving notice rests upon the party asserting its
existence.[24] Failure to discharge this evidentiary burden would
necessarily mean that the notice of delinquency was not duly
received by the shareholder. While it assiduously claims that
Reyes was served a notice of delinquency, the golf club,
however, miserably failed to meet the standard set by law to
prove receipt of notice. To be sure, the mere presentation of the
registry return card with an unauthenticated signature, without
more, does not satisfy the required proof. The law mandates that
there is a need to present both the registry receipt issued by
the mailing office and the affidavit of the person mailing.[25]
What further tramples upon the Valley Golfs position is the fact
that the registry receipt bears no name of the person who
received it, and the date of receipt stamped on the face thereof
is barely readable. The unverified signature appearing on the
face of the registry receipt could be that of the addressee himself
or his agent or could be that of any person, and, the courts have
no way to ascertain the veracity of the sender's claim since the
mail record that will supposedly serve as proof of receipt was
not duly accomplished upon delivery.
When the property right of a person is at stake and he stands to
lose his share to the corporation due to non-payment of dues,
receipt of notice of delinquency cannot be lightly inferred from
an incomplete, unreadable and unverified copy of the
registry receipt without impinging the rule on non-deprivation
of property rights without the benefit substantial
justice enunciated in Valley Golf and Country Club v. Vda de
Caram.[26] "It may be conceded that that the actions of Valley
golf were, technically speaking, in accord with the provisions of
its by-laws on termination of membership vaguely defined as
C O R P O R A T I O N C O D E - P A R T 3 | 35
these are. Yet, especially since the termination of membership
in Valley Golf is inextricably linked to the deprivation of the
property rights over the Golf Share, the emergence of such
adverse consequences make legal and equitable standards
come to fore."
The public policy which mandates that termination of
membership in a golf club should be subservient to the demands
of substantial justice is rooted into the very essence of due
process. A person's share in a golf club is a property right which
he cannot be deprived of without affording him the benefit of due
process. Hence, a delinquent member should first be afforded
the opportunity to settle his unpaid obligation by notifying him of
the delinquency before the penalty of termination of membership
thru the sale of share in a public auction can be meted out. In
other words, no sale on public auction involving the share of
unduly notified shareholder can be validly conducted.
Unmistakeably, the termination of Reyes' membership effected
by Valley Golf without sufficient proof of notice clearly spoke of
a violation of his property rights without due process of law, and,
must be therefore invalidated.
SPECIAL CORPORATIONS
1. Roman Catholic Apostolic Administrator of Davao, Inc. v.
The Land Registration Commission and the Register of
Deeds of Davao City, G.R. No. L-8451, December 20,1957
FACTS:
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and
resident of the City of Davao, executed a deed of sale of a parcel
of land located in the same city covered by Transfer Certificate
No. 2263, in favor of the Roman Catholic Apostolic Administrator
of Davao Inc.,(RCADI) is corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. Registry of
Deeds Davao (RD) required RCADI to submit affidavit declaring
that 60% of its members were Filipino Citizens. As the RD
entertained some doubts as to the registerability of the deed of
sale, the matter was referred to the Land Registration
Commissioner (LRC) en consulta for resolution. LRC hold that
pursuant to provisions of sections 1 and 5 of Article XII of the
Philippine Constitution, RCADI is not qualified to acquire land in
the Philippines in the absence of proof that at leat 60% of the
capital, properties or assets of the RCADI is actually owned or
controlled by Filipino citizens. LRC also denied the registration
of the Deed of Sale in the absence of proof of compliance with
such requisite. RCADI’s Motion for Reconsideration was denied.
Aggrieved, the latter filed a petition for mandamus.
ISSUE:
Whether or not the Universal Roman Catholic Apostolic Church
in the Philippines, or better still, the corporation sole named the
Roman Catholic Apostolic Administrator of Davao, Inc., is
qualified to acquire private agricultural lands in the Philippines
pursuant to the provisions of Article XIII of the Constitution.
RULING:
YES. Register of Deeds of the City of Davao is ordered to
register the deed of sale
A corporation sole is a special form of corporation usually
associated with the clergy. Conceived and introduced into the
common law by sheer necessity, this legal creation which was
referred to as "that unhappy freak of English law" was designed
to facilitate the exercise of the functions of ownership carried on
by the clerics for and on behalf of the church which was
regarded as the property owner (See I Couvier's Law Dictionary,
p. 682-683).

A corporation sole consists of one person only, and his
successors (who will always be one at a time), in some particular
station, who are incorporated by law in order to give them some
legal capacities and advantages, particularly that of perpetuity,
which in their natural persons they could not have had. In this
sense, the king is a sole corporation; so is a bishop, or dens,
distinct from their several chapters (Reid vs. Barry, 93 Fla. 849,
112 So. 846).
That leaves no room for doubt that the bishops or archbishops,
as the case may be, as corporation's sole are
merely administrators of the church properties that come to their
possession, in which they hold in trust for the church. It can also
be said that while it is true that church properties could be
administered by a natural persons, problems regarding
succession to said properties can not be avoided to rise upon
his death. Through this legal fiction, however, church properties
acquired by the incumbent of a corporation sole pass, by
operation of law, upon his death not his personal heirs but to his
successor in office. It could be seen, therefore, that a
corporation sole is created not only to administer the
temporalities of the church or religious society where he belongs
but also to hold and transmit the same to his successor in said
office.
Considering that nowhere can We find any provision conferring
ownership of church properties on the Pope although he
appears to be the supreme administrator or guardian of his flock,
nor on the corporation sole or heads of dioceses as they are
admittedly mere administrators of said properties, ownership of
these temporalities logically fall and develop upon the church,
diocese or congregation acquiring the same. Although this
question of ownership of ecclesiastical properties has off and on
been mentioned in several decisions of the Court yet in no
instance was the subject of citizenship of this religious society
been passed upon.
While it is true and We have to concede that in the profession of
their faith, the Roman Pontiff is the supreme head; that in the
religious matters, in the exercise of their belief, the Catholic
congregation of the faithful throughout the world seeks the
guidance and direction of their Spiritual Father in the Vatican,
yet it cannot be said that there is a merger of personalities
resultant therein. Neither can it be said that the political and civil
rights of the faithful, inherent or acquired under the laws of their
country, are affected by that relationship with the Pope.
The fact that the Roman Catholic Church in almost every country
springs from that society that saw its beginning in Europe and
the fact that the clergy of this faith derive their authorities and
receive orders from the Holy See do not give or bestow the
citizenship of the Pope upon these branches. Citizenship is a
political right which cannot be acquired by a sort of “radiation”.
We have to realize that although there is a fraternity among all
the catholic countries and the dioceses therein all over the
globe, the universality that the word “catholic” implies, merely
characterize their faith, a uniformity in the practice and the
interpretation of their dogma and in the exercise of their belief,
but certainly they are separate and independent from one
another in jurisdiction, governed by different laws under which
they are incorporated, and entirely independent on the others in
the management and ownership of their temporalities.
To allow theory that the Roman Catholic Churches all over the
world follow the citizenship of their Supreme Head, the Pontifical
Father, would lead to the absurdity of finding the citizens of a
country who embrace the Catholic faith and become members
of that religious society, likewise citizens of the Vatican or of
Italy. And this is more so if We consider that the Pope himself
may be an Italian or national of any other country of the world.
The same thing be said with regard to the nationality or
citizenship of the corporation sole created under the laws of the
C O R P O R A T I O N C O D E - P A R T 3 | 36
Philippines, which is not altered by the change of citizenship of
the incumbent bishops or head of said corporation sole.
We must therefore, declare that although a branch of the
Universal Roman Catholic Apostolic Church, every Roman
Catholic Church in different countries, if it exercises its mission
and is lawfully incorporated in accordance with the laws of the
country where it is located, is considered an entity or person with
all the rights and privileges granted to such artificial being under
the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without
prejudice to its religious relations with the latter which are
governed by the Canon Law or their rules and regulations.
It has been shown before that: (1) the corporation sole, unlike
the ordinary corporations which are formed by no less than 5
incorporators, is composed of only one persons, usually the
head or bishop of the diocese, a unit which is not subject to
expansion for the purpose of determining any percentage
whatsoever; (2) the corporation sole is only
the administrator and not the owner of the temporalities located
in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful
residing in the diocese or territory of the corporation sole; and
(4) the latter, as such, has no nationality and the citizenship of
the incumbent Ordinary has nothing to do with the operation,
management or administration of the corporation sole, nor
effects the citizenship of the faithful connected with their
respective dioceses or corporation sole.
In view of these peculiarities of the corporation sole, it would
seem obvious that when the specific provision of the
Constitution invoked by respondent Commissioner (section 1,
Art. XIII), was under consideration, the framers of the same did
not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances
already indicated tend to prove it to be so, then the inescapable
conclusion would be that this requirement of at least 60 per cent
of Filipino capital was never intended to apply to corporations
sole, and the existence or not a vested right becomes
unquestionably immaterial.
2. REGISTER OF DEEDS vs UNG SIU SI TEMPLE
GR. No. L-6776 May 21,1955
FACTS:
A Filipino citizen executed a deed of donation in favor of the Ung
Siu Si Temple, an unregistered religious organization that
operated through three trustees all of Chinese nationality. The
Register of Deeds refused to record the deed of donation
executed in due form arguing that the Consitution provides that
acquisition of land is limited to Filipino citizens, or to corporations
or associations at least 60% of which is owned by such citizens.
ISSUE: Whether a deed of donation of a parcel of land executed
in favor of a religious organization whose founder, trustees and
administrator are Chinese citizens should be registered or not.
RULING: No. Sec. 5, Art. 13 of the Constitution provides that
save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to hold
lands of the public domain in the Philippines. The
Constitution does not make any exception in favor of
religious associations.
The fact that appellant has no capital stock does not exempt it
from the Constitutional inhibition, since its member are of foreign
nationality. The purpose of the 60% requirement is to ensure
that corporations or associations allowed to acquire agricultural
lands or to exploit natural resources shall be controlled by
Filipinos; and the spirit of the Constitution demands that in
the absence of capital stock, controlling membership
should be composed of Filipino citizens.

To permit religious associations controlled by non-Filipinos to
acquire agricultural lands would be to drive the opening wedge
to revive alien religious land holdings in this country. We can not
ignore the historical fact that complaints against land holdings of
that kind were among the factors that sparked the revolution of
1896.
As to the complaint that the disqualification under Art. 13 of the
Constitution violated the freedom of religion, the Court was not
convinced that land tenure is indispensable to the free exercise
and enjoyment of religious profession or worship.
3. Republic v. Villanueva 114 SCRA 729 June 29, 1982
SUMMARY:
The INC bought land, and wanted to have it registered. The CFI
and the SC agreed that it could not own land, as it is a private
corporation.
DOCTRINE:
A corporation sole, a juridical person, is disqualified to acquire
or hold alienable lands of the public domain, in accordance with
the constitutional prohibition in Section 11, Art. XIV of the 1973
Consti that “no private corporation or association ma hold
alienable lands of the public domain except by lease not to
exceed one thousand hectares in area.”
Further a church is not entitled to avail itself of the
benefits of Section 48(b) which only applies to Filipino citizens
or natural persons. A corporation sole, an unhappy freak of
English law, has no nationality.
FACTS:
Lots nos. 568 and 569 in Barrio Dampol, Plaridel Bulacan, with
an area of 313 sqm were acquired by Iglesia ni Cristo in
exchange for a lot with an area of 247 sqm. The said lands are
in an area certified as alienable or disposable by the Bureau of
Forestry, nad have santol, mango, and banana trees planted on
them. The taxes covering them had been paid.
The INC, a corporation sole, thus filed an application
for the registration of the two lots, alleging that it and its
predecessors-in-interest had possessed the land for more than
30 years, citing Sec. 48(b) of the Public Land Law.
The Republic, through the director of lands, opposed
the application, on the grounds that as a private corporation, INC
is disqualified from holding alienable lands of the public domain,
that the land applied for is public land not susceptible of private
appropriation, and that INC and its predecessors had not been
in OCEAN possession since June 12, 1945.
CFI ordered registration of the 2 lots in the name of the
INC, represented by Executive Minister Erano G. Manalo.
Hence this appeal.
ISSUE:
WON the INC is allowed to acquire or hold alienable lands of the
public domain.
RULING: No.
RATIO: A corporation sole, a juridical person, is disqualified to
acquire or hold alienable lands of the public domain, in
accordance with the constitutional prohibition in Section 11, Art.
XIV of the 1973 Consti that “no private corporation or association
ma hold alienable lands of the public domain except by lease
not to exceed one thousand hectares in area.”
C O R P O R A T I O N C O D E - P A R T 3 | 37
Further a church is not entitled to avail itself of the
benefits of Section 48(b) which only applies to Filipino citizens
or natural persons. A corporation sole, an unhappy freak of
English law, has no nationality.
Other matters
1. The lots are not private lands, following the doctrine of
Susi v. Razon. What was considered private land in
that case was a parcel of land possessed by a Filipino
citizen since time immemorial. Here, the lands are still
public lands. A land registration proceeding
presupposes that the land is public.
2. All lands that were not acquired from the government
belong to the public domain, except those in the
possession of an occupant and his predecessors since
time immermorial. (Oh Cho v Director of Lands)
3. the right of an occupant of public agricultural land to
obtain the confirmation of his title is derecho dominical
incoativo and before the issuance of the certificate of
title, the land still belongs to the state.
DISPOSITIVE: Lower Court Judgment reversed and set
aside. Application for registration dismissed.
4. GR No. L-56025, Nov 25, 1982 ]
REPUBLIC v. ARSENIO M. GONONG +
FACTS:
The Iglesia ni Kristo, represented by its Executive Minister Eraño
G. Manalo, a corporation sole (Iglesia, for short), filed with the
Court of First Instance of Ilocos Norte an application, under
Section 48(b) of the Public Land Law, for registration of a parcel
of land with an area of 922 square meters.
The land was acquired by the Iglesia from Gregorio Gamet who
was allegedly in possession for more than thirty (30) years. A
chapel of the Iglesia stands on the land.
The Republic of the Philippines, through the Director of lands,
filed an opposition on the grounds that the Iglesia, as a private
corporation, is disqualified to hold alienable public lands and that
the applicant and its predecessor-in-interest had not been in
open, continuous, exclusive and notorious possession of the
land.
The Land Registration Court granted the Iglesia application.
Petitioner filed a Motion for Reconsideration on the sole ground
that the applicant, as a private corporation, is disqualified to hold
lands of the public domain. On the other hand, the applicant
argues that it does not suffer from any disqualification because
a corporation sole is not the owner but a mere administrator of
the property titled in its name for the benefit of its members.
ISSUE:
Whether the Iglesia can validly own lands of public domain? –
NO
HELD:
Section 11, Article XIV of the 1973 Constitution provides that "no
private corporation or association may hold alienable lands of
the public domain except by lease not to exceed one thousand
hectares in area."
The Iglesia Ni Cristo, as a corporation sole or a juridical person,
is disqualified to acquire or hold alienable lands of the public
domain, like the two lots in question, because of the

constitutional prohibition already mentioned and because the
said church is not entitled to avail itself of the benefits of section
48(b) which applies only to Filipino citizens or natural persons.
FOREIGN CORPORATION
1. COMMUNICATION MATERIALS AND DESIGN, INC et al
vs.CA et al.
G.R. No. 102223
August 22, 1996
FACTS:
Petitioners COMMUNICATION MATERIALS AND DESIGN,
INC., (CMDI) and ASPAC MULTI-TRADE INC., (ASPAC) are
both domestic corporations.. Private Respondents ITEC, INC.
and/or ITEC, INTERNATIONAL, INC. (ITEC) are corporations
duly organized and existing under the laws of the State of
Alabama, USA. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines.
ITEC entered into a contract with ASPAC referred to as
“Representative Agreement”. Pursuant to the contract, ITEC
engaged ASPAC as its “exclusive representative” in the
Philippines for the sale of ITEC’s products, in consideration of
which, ASPAC was paid a stipulated commission. Through a
“License Agreement” entered into by the same parties later on,
ASPAC was able to incorporate and use the name “ITEC” in its
own name. Thus , ASPAC Multi-Trade, Inc. became legally and
publicly known as ASPAC-ITEC (Philippines).
One year into the second term of the parties’ Representative
Agreement, ITEC decided to terminate the same, because
petitioner ASPAC allegedly violated its contractual commitment
as stipulated in their agreements. ITEC charges the petitioners
and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL), the President of which is
likewise petitioner Aguirre, of using knowledge and information
of ITEC’s products specifications to develop their own line of
equipment and product support, which are similar, if not identical
to ITEC’s own, and offering them to ITEC’s former customer.
The complaint was filed with the RTC-Makati by ITEC, INC.
Defendants filed a MTD the complaint on the following grounds:
(1) That plaintiff has no legal capacity to sue as it is a foreign
corporation doing business in the Philippines without the
required BOI authority and SEC license, and (2) that plaintiff is
simply engaged in forum shopping which justifies the application
against it of the principle of “forum non conveniens”. The MTD
was denied.
Petitioners elevated the case to the respondent CA on a Petition
for Certiorari and Prohibition under Rule 65 of the Revised ROC.
It was dismissed as well. MR denied, hence this Petition for
Review on Certiorari under Rule 45.
ISSUE:
Did the Philippine court acquire jurisdiction over the person of
the petitioner corp, despite allegations of lack of capacity to sue
because of non-registration? - YES
HELD:
Petition dismissed.
YES; We are persuaded to conclude that ITEC had been
“engaged in” or “doing business” in the Philippines for some time
now. This is the inevitable result after a scrutiny of the different
contracts and agreements entered into by ITEC with its various
business contacts in the country. Its arrangements, with these
entities indicate convincingly that ITEC is actively engaging in
business in the country.
A foreign corporation doing business in the Philippines may sue
in Philippine Courts although not authorized to do business here
against a Philippine citizen or entity who had contracted with and
benefited by said corporation. To put it in another way, a party
is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with
C O R P O R A T I O N C O D E - P A R T 3 | 38
it. And the doctrine of estoppel to deny corporate existence
applies to a foreign as well as to domestic corporations. One
who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity.
In Antam Consolidated Inc. vs. CA et al. we expressed our
chagrin over this commonly used scheme of defaulting local
companies which are being sued by unlicensed foreign
companies not engaged in business in the Philippines to invoke
the lack of capacity to sue of such foreign companies. Obviously,
the same ploy is resorted to by ASPAC to prevent the injunctive
action filed by ITEC to enjoin petitioner from using knowledge
possibly acquired in violation of fiduciary arrangements between
the parties.
2. Huang Lung Bank Ltd. Vs Hon. Felintriye G. Saulog
FACTS:
Petitioner Huang Lung Bank filed a collection suit in the
Supreme Court of Hongkong against Worlder and Cordova Chin
San for sums of money due the petitioner from the former on
the basis of two (2) continuing guarantee agreements petitioner
entered into with Chin San in Hongkong. The foreign tribunal
ordered the payment to petitioner of the sum of HK$279,325 with
interest and cost. Demand was made in writing to Chin San at
his Philippine address but no response was made thereto.
Hence, petitioner instituted in the RTC of Makati, Metro Manila
Branch CXLII an action for the enforcement of its claims against
Chin San. Chin San filed a motion to dismiss claiming petitioner
had no legal capacity to sue and the venue was improperly laid.
The RTC granted the motion ruling that petitioner does not do
business in the Philippines and is barred from maintaining suit
pursuant to Sec. 14 of the General Banking Act. Its motion for
reconsideration having been denied, petitioner seeks the
reversal of the orders of the RTC in a petition for certiorari.
ISSUE:
Whether or not petitioner has the capacity to file the action
below. - YES
HELD:
Yes. A foreign corporation not licensed to do business in the
Philippines may not be denied the right to file an action in our
courts for an isolated transaction in this country. Petitioner
foreign Banking Corporation may not be denied the privilege of
pursuing its claims against private respondent for a contract
which was entered into and consummated outside the
Philippines. Otherwise, it will hamper the growth and
development of business relations between Filipino citizens and
foreign nationals. Worse, it would be allowing the law to serve
as a protective shield for unscrupulous Filipino citizens who
have business relationships abroad. The complaint appears to
be one of the enforcement of the Hongkong judgment because
it prays for the grant of the affirmative relief given by said foreign
judgment. However, a foreign judgment may not be enforced if
it is not recognized in the jurisdiction where affirmative relief is
being sought. Hence, in the interest of justice, the complaint
should be considered as a petition for the recognition of the
Hongkong judgment under Section 50 (b), Rule 39 of the Rules
of Court in order that the defendant, private respondent herein,
may present evidence of lack of jurisdiction, notice, collusion,
fraud or clear mistake of fact and law, if applicable.
3. AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORP
et al
G.R. No. 154618
April 14, 2004
FACTS:
Petitioner Agilent is a foreign corporation, which, by its own
admission, is not licensed to do business in the
Philippines. Respondent Integrated Silicon is a private domestic
corporation, 100% foreign owned, which is engaged in the

business of manufacturing and assembling electronics
components.
The juridical relation among the various parties in this case can
be traced to a 5-year Value Added Assembly Services
Agreement (VAASA), between Integrated Silicon and HP-
Singapore. Under the terms of the VAASA, Integrated Silicon
was to locally manufacture and assemble fiber optics for export
to HP-Singapore. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon. The VAASA had a five-year term
with a provision for annual renewal by mutual written
consent. Later, with the consent of Integrated Silicon, HP-
Singapore assigned all its rights and obligations in the VAASA
to Agilent.
Later, Integrated Silicon filed a complaint for “Specific
Performance and Damages” against Agilent and its officers. It
alleged that Agilent breached the parties’ oral agreement to
extend the VAASA. Agilent filed a separate complaint against
Integrated Silicon for “Specific Performance, Recovery of
Possession, and Sum of Money with Replevin, Preliminary
Mandatory Injunction, and Damages”.
Respondents filed a MTD in the 2nd case, on the grounds of
lack of Agilent’s legal capacity to sue; litis pendentia; forum
shopping; and failure to state a cause of action.
The trial court denied the MTD and granted petitioner Agilent’s
application for a writ of replevin. Without filing a MR,
respondents filed a petition for certiorari with the CA. The CA
granted respondents’ petition for certiorari, set aside the
assailed Order of the trial court (denying the MTD) and ordered
the dismissal of the 2nd case. Hence, the instant petition.
ISSUE:
Whether an unlicensed foreign corporation not doing business
in the Philippines lacks the legal capacity to file suit. -NO
HELD:
The petition is GRANTED. The Decision of the CA which
dismissed the 2nd case is REVERSED and SET ASIDE. The
Order denying the MTD is REINSTATED. Agilent’s application
for a Writ of Replevin is GRANTED.
A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in Philippine courts.
A license is necessary only if a foreign corporation is
“transacting” or “doing business” in the country. The Corporation
Code provides:
Sec. 133. Doing business without a license. — No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign
corporation “doing business” in the Philippines from accessing
our courts.
[In a number of cases, however, we have held that an
unlicensed foreign corporation doing business in the Philippines
may bring suit in Philippine courts against a Philippine citizen or
entity who had contracted with and benefited from said
corporation. Such a suit is premised on the doctrine of estoppel.
A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering
into a contract with it. This doctrine of estoppel to deny corporate
existence and capacity applies to foreign as well as domestic
corporations. The application of this principle prevents a person
contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes chiefly in
cases where such person has received the benefits of the
contract.]
The principles regarding the right of a foreign corporation to
C O R P O R A T I O N C O D E - P A R T 3 | 39
bring suit in Philippine courts may thus be condensed in four
statements:
if a foreign corporation does business in the Philippines without
a license, it cannot sue before the Philippine courts;
if a foreign corporation is not doing business in the Philippines,
it needs no license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any
business transaction;
if a foreign corporation does business in the Philippines without
a license, a Philippine citizen or entity which has contracted with
said corporation may be estopped from challenging the foreign
corporation’s corporate personality in a suit brought before
Philippine courts; and
if a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any
transaction.
**
The challenge to Agilent’s legal capacity to file suit hinges on
whether or not it is doing business in the Philippines. However,
there is no definitive rule on what constitutes “doing”, “engaging
in”, or “transacting” business in the Philippines. The Corporation
Code itself is silent as to what acts constitute doing or
transacting business in the Philippines.
[Jurisprudence has it, however, that the term “implies a
continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to or
in progressive prosecution of the purpose and subject of its
organization.”
In the Mentholatum case this Court discoursed on the two
general tests to determine whether or not a foreign corporation
can be considered as “doing business” in the Philippines. The
first of these is the substance test, thus:
The true test [for doing business], however, seems to be
whether the foreign corporation is continuing the body of the
business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another.
The second test is the continuity test, expressed thus:
The term [doing business] implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of the
functions normally incident to, and in the progressive
prosecution of, the purpose and object of its organization.]
**
The Foreign Investments Act of 1991 (the “FIA”; Republic Act
No. 7042, as amended), defines “doing business” as follows:
Sec. 3, par. (d). The phrase “doing business” shall include
soliciting orders, service contracts, opening offices, whether
called “liaison” offices or branches; appointing representatives
or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totaling
one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business,
firm, entity, or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions
normally incident to, and in the progressive prosecution of,
commercial gain or of the purpose and object of the business
organization.
An analysis of the relevant case law, in conjunction with Sec 1
of the IRR of the FIA (as amended by RA 8179), would
demonstrate that the acts enumerated in the VAASA
do not constitute “doing business” in the Philippines. The said

provision provides that the following shall not be deemed “doing
business”:
(1) Mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor;
(2) Having a nominee director or officer to represent its interest
in such corporation;
(3) Appointing a representative or distributor domiciled in the
Philippines which transacts business in the representative’s or
distributor’s own name and account;
(4) The publication of a general advertisement through any print
or broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in the
Philippines;
(6) Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract
of sale which are not on a continuing basis, such as installing in
the Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services.
By and large, to constitute “doing business”, the activity to be
undertaken in the Philippines is one that is for profit-making.
By the clear terms of the VAASA, Agilent’s activities in the
Philippines were confined to (1) maintaining a stock of goods in
the Philippines solely for the purpose of having the same
processed by Integrated Silicon; and (2) consignment of
equipment with Integrated Silicon to be used in the processing
of products for export. As such, we hold that, based on the
evidence presented thus far, Agilent cannot be deemed to be
“doing business” in the Philippines. Respondents’ contention
that Agilent lacks the legal capacity to file suit is therefore devoid
of merit. As a foreign corporation not doing business in the
Philippines, it needed no license before it can sue before our
courts.
4. European Resources and Technologies, Inc and Delfin
Wenceslao v Ingeneieuburo Birkhahn + Nolte
(Ynares-Santiago, July 26, 2004)
FACTS:
Respondents were Germany Corporations (referred to as the
German Consortium) that submitted a bid to construct,
operate, and manage the Integrated Waste Management
Center at the Clark Special Economic Zone (CSEZ). The bid
was submitted to the Clark Development Corporation which
awarded the bid to it. They executed a Contract for Services.
The Contract provided:
 German Consortium could enter contract or
agreements for use of the waste management center
by corporations, LGUs, and persons inside and outside
the CSEZ.
 For waste inside CSEZ, they could impose a tipping fee
per ton of waste
 For waste outside the CSEZ, they had to pay CDC
$1.50 per ton of non-hazardous solid waste.
 The CDC guaranteed 10,800 tons of solid waste would
be collected from inside and outside the CSEZ.
 The contract had a term of 25 years.
C O R P O R A T I O N C O D E - P A R T 3 | 40
The German Consortium entered a joint venture with DM
Wenceslao and LBV and Associates. They agreed to jointly form
a local corporation to which the German Consortium would
assign its rights under the contract for services. European
Resources and Technologies was incorporated.
The terms were as follows:
 They would prepare a Shareholders’ Agreement within
1 month from the execution of the Memorandum of
Understanding
 The German Consortium would own 15% of the equity
 DMWAI shall own 70%
 LBV&A would own 15%.
 In the event parties failed to execute such agreement,
the MOU would be considered null and void.
Without the Shareholder’s Agreement being executed, the
German Consortium entered into a MOA where the GC ceded
its rights and obligations in favor of ERTI and assigned unto
ERTI its license from CDC to engage in the business of
providing environmental services needed in the CSEZ.
Four months after, ERTI received a letter from BN Consultants
on behalf of the GC, stating that the GC’s contract with DMWAI,
LBV&A, and ERTI had been terminated on the following
grounds: a) the CDC did not give its approval to the
Consortium’s request for the approval of the assignment or
transfer by the German Consortium in favor of ERTI of its rights
and interests under the Contract for Services; b) the parties
failed to prepare and finalize the Shareholders’ Agreement
pursuant to the provision of the MOU;(c) there was no more
factual or legal basis for the joint venture to continue; and d) with
the termination of the MOU, the MOA was also deemed
terminated or extinguished.
The CDC also wrote that the GC’s assignment of an 85%
majority interest to another party violated its representation to
undertake both the financial and technical aspects of the project.
The GC filed a complaint for injunction against ERTI, claiming it
continuously misrepresented its right to accept solid waste from
third parties for processing, causing irreparable damage to the
Consortium and its exclusive right to operate the waste
management center.
At the trail, petitioners objected on the ground of lack of
jurisdiction because the GC was composed of foreign
corporations doing business in the Philippines without a license.
The MOA also provided the dispute should be referred to
arbitration. The injunction was granted.
ISSUE:
Was the German Consortium doing business without a license?
HELD:
Yes. There is no general rule or governing principle as to what
constitutes doing business. It has been often held that a
corporation does business when it performs acts for which it
was created or exercises some functions for which it was
organized. Participating in a bidding process constitutes doing
business because it shows the foreign corporation’s intention to
engage in business in the Philippines. It is performance and
not volume that determines the necessity of a license.
The GC did business without a license by participating in the
bidding, showing intent to transact business. Even though there
was a local corporation mentioned, it was to merely act as a
conduit or extension of the German Consortium.
Unlicensed foreign non-resident corporations cannot file suits in
the Philippines, as stated in 133 of the Corporation Code. This

rule provides for exceptions such as estoppel. A corporation
doing business in the Philippines may sue a citizen or entity that
had contracted with and benefited from it. However, petitioners
had clearly not received any benefit from the GC, in fact
spending money to implement the MOA. They sought to
implement their agreement with the German Consortium and
were not trying to back out of their obligations.
To rule the GC has capacity to institute an action without breach
on petitioners part would be tantamount to an unlicensed foreign
corporation gaining access to our courts for protection.
CA Reversed for lack of legal capacity of respondents to
institute the action.
5. Eriks Pte., Ltd. vs. Court of Appeals; G.R. No. 118843;
February 6, 1997
DOCTRINE:
By securing a license, a foreign entity would be giving assurance
that it will abide by the decisions of our courts, even if adverse
to it.
FACTS:
Petitioner Eriks Pte., Ltd., a non-resident foreign corporation,
duly organized and existing under the laws of Singapore, is
engaged in manufacturing and sale of elements used in sealing
pumps, valves and pipes for industrial purposes, valves and
control equipment used for industrial fluid control and PVC pipes
and fittings for industrial uses. The petitioner corporation is not
licensed to do business in the Philippines and not engaged and
is suing on an isolated transaction for which it has capacity to
sue. On various dates, Private respondent Delfin Enriquez, Jr.,
doing business under Delrene EB Controls Center and/or EB
Karmine Commercial, ordered and received from petitioner
various materials and such was delivered via airfreight. The
transfers of goods were perfected in Singapore, for private
respondent’s account, F.O.B. Singapore, with a 90day credit
term. Upon demands made by petitioner, private respondents
failed and refused to settle its account. Petitioner then filed a
complaint with RTC for the collection of sum of money plus
interest and damages. Private respondent move to dismiss the
complaint on the grounds that petitioner corporation had no legal
capacity to sue.
The Trial court dismissed the action on the ground that petitioner
is a foreign corporation doing business in the Philippines without
a license. On appeal, the CA affirmed said order as it deemed
the series of transactions between Petitioner Corporation and
private respondent not to be an isolated or casual transaction.
The CA also found petitioner to be without legal capacity to sue.
Hence, petition to the Supreme Court.
ISSUES:
Whether petitioner’s business with private respondent may be
treated as isolated transactions.
Whether Petitioner Corporation may maintain an action in
Philippine courts considering that it has no license to do
business in the country.
HELD/RULING:
1. NO, the Supreme Court agrees to the ruling of the lower
courts that the business made by petitioner was not an isolated
transaction. The court explained that base on the factual
evidence presented, more than the sheer number of
transactions entered into, a clear and unmistakable intention on
the part of petitioner to continue the body of its business in the
Philippines is more than apparent. Further, its grant and
C O R P O R A T I O N C O D E - P A R T 3 | 41
extension of 90-day credit terms to private respondent for every
purchase made, unarguably shows an intention to continue
transacting with private respondent, since in the usual course of
commercial transactions, credit is extended only to customers in
good standing or to those on whom there is an intention to
maintain long-term relationship The court further ruled that
petitioner corporation was indeed doing business in the country.
The court cited the case of The Mentholatum Co., Inc. vs.
Mangalima, The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another. The
Court holds that the series of transactions in question could not
have been isolated or casual transactions. What is
determinative of “doing business” is not really the number or the
quantity of the transactions, but more importantly, the intention
of an entity to continue the body of its business in the country.
The number and quantity are merely evidence of such intention.
2. NO, the court ruled that petitioner is incapacitated to maintain
the action. The legislative never intended to bar court access by
a foreign corporation which is doing an isolated business in the
country. Neither had it intended to shield debtors from their
obligations. However, it cannot allow foreign corporations which
conduct regular business any access to courts without the
fulfilment by such corporations of the necessary requisites to be
subjected to our government’s regulation and authority. By
securing a license, the foreign entity would be giving assurance
that it will abide by the decisions of our courts, even if adverse
to it. Since, it was clear that petitioner is doing regular business
in the country it is necessary to obtain license, without such, it is
not allowed to maintain suit against private respondent.
REMEDY: The foreign corporation can acquire license and may
still file new action against private respondent. The decision of
the court is not res judicata.
6. MR HOLDINGS, LTD., vs. SHERIFF CARLOS P. BAJAR,
SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK
CORPORATION, AND MARCOPPER MINING
CORPORATION
G.R. No. 138104 April 11, 2002
SANDOVAL-GUTIERREZ, J .:
FACTS:
Asian Development Bank (ADB), a multilateral development
finance institution, agreed to extend to respondent Marcopper
Mining Corporation (Marcopper) a loan in the aggregate amount
of US$40,000,000.00 to finance the latter's mining project at Sta.
Cruz, Marinduque. To secure the loan, Marcopper executed in
favor of ADB a "Deed of Real Estate and Chattel Mortgage"
covering substantially all of its (Marcopper's) properties and
assets in Marinduque. When Marcopper defaulted in the
payment of its loan obligation, petitioner MR Holdings, Ltd.,
assumed Marcopper's obligation to ADB in the amount of
US$18,453,450.02. Consequently, in an "Assignment
Agreement", ADB assigned to petitioner all its rights, interests
and obligations under the principal and complementary loan
agreements. Respondent Marcopper likewise executed a "Deed
of Assignment" in favor of petitioner.
In the meantime, respondent Solidbank Corporation obtained a
Partial Judgment against Marcopper from the RTC, Branch 26,
Manila, in Civil Case No. 96-80083 entitled "Solidbank
Corporation vs. Marcopper Mining Corporation, John E. Loney,
Jose E. Reyes and Teodulo C. Gabor, Jr.," Having learned of
the scheduled auction sale, petitioner filed an "Affidavit of Third-
Party Claim" asserting its ownership over all Marcopper's mining
properties, equipment and facilities by virtue of the "Deed of
Assignment." Upon the denial of its "Affidavit of Third-Party

Claim" by the RTC of Manila, petitioner commenced with the
RTC of Boac, Marinduque, a complaint for reivindication of
properties, etc., with prayer for preliminary injunction and
temporary restraining order against respondents Solidbank,
Marcopper, and the sheriffs assigned in implementing the writ of
execution. The trial court denied petitioner's application for a writ
of preliminary injunction on the ground that petitioner has no
legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license.
Unsatisfied, petitioner elevated the matter to the Court of
Appeals on a Petition for Certiorari, Prohibition and Mandamus.
The Court of Appeals affirmed the ruling of the trial court that
petitioner has no legal capacity to sue in the Philippine courts
because it is a foreign corporation doing business here without
license. Hence, the present petition. Petitioner alleged that it is
not "doing business" in the Philippines and characterized its
participation in the assignment contracts (whereby Marcopper's
assets were transferred to it) as mere isolated acts that cannot
foreclose its right to sue in local courts.
ISSUE:
Whether or not petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing
business here without license
HELD:
The Supreme Court ruled in favor of petitioner and granted the
petition. The Court ruled that a foreign corporation, which
becomes the assignee of mining properties, facilities and
equipment, cannot be automatically considered as doing
business, nor presumed to have the intention of engaging in
mining business. According to the Court, petitioner was
engaged only in isolated acts or transactions. Single or isolated
acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical
examples are the making of a single contract, sale, sale with the
taking of a note and mortgage in the state to secure payment
therefor, purchase, or note, or the mere commission of a tort. In
the said instances, there is no purpose to do any other business
within the country. The Court further ruled that the Court of
Appeals' holding that petitioner was determined to be "doing
business" in the Philippines is based mainly on conjectures and
speculation. No effort was exerted by the appellate court to
establish the nexus between petitioner's business and the acts
supposed to constitute "doing business." Thus, whether the
assignment contracts were incidental to petitioner's business or
were continuation thereof is beyond determination.
7. G.R. Nos. 178382-83, September 23, 2015
CONTINENTAL MICRONESIA, INC., Petitioner, v. JOSEPH
BASSO, Respondent.
FACTS:
Petitioner Continental Micronesia is a foreign corporation
organized and existing under the laws of and domiciled in the
United States of America. It is licensed to do business in the
Philippines. Respondent, a US citizen residing in the
Philippines, accepted an offer to be a General Manager position
by Mr. Braden, Managing Director-Asia of Continental Airlines.
On November 7, 1992, CMI took over the Philippine operations
of Continental, with respondent retaining his position as General
Manager. Thereafter, respondent received a letter from Mr.
Schulz, who was then CMI’s Vice President of Marketing and
Sales, informing him that he has agreed to work in CMI as a
consultant on an “as needed basis.” Respondent wrote a
counter-proposal that was rejected by CMI.
C O R P O R A T I O N C O D E - P A R T 3 | 42
Respondent then filed a complaint for illegal dismissal against
the petitioner corporation. Alleging the presence of foreign
elements, CMI filed a Motion to Dismiss on the ground of lack of
jurisdiction over the person of CMI and the subject matter of the
controversy.
The Labor Arbiter agreed with CMI that the employment contract
was executed in the US “since the letter-offer was under the
Texas letterhead and the acceptance of Complainant was
returned there.” Thus, applying the doctrine of lex loci
celebrationis, US laws apply. Also, applying lex loci contractus,
the Labor Arbiter ruled that the parties did not intend to apply
Philippine laws.
The NLRC ruled that the Labor Arbiter acquired jurisdiction over
the case when CMI voluntarily submitted to his office’s
jurisdiction by presenting evidence, advancing arguments in
support of the legality of its acts, and praying for reliefs on the
merits of the case.
The Court of Appeals ruled that the Labor Arbiter and the NLRC
had jurisdiction over the subject matter of the case and over the
parties.
ISSUE:
Whether labor tribunals have jurisdiction over the case.
HELD:
Yes. The Court ruled that the labor tribunals had jurisdiction over
the parties and the subject matter of the case. The employment
contract of Basso was replete with references to US laws, and
that it originated from and was returned to the US, do not
automatically preclude our labor tribunals from exercising
jurisdiction to hear and try this case.
On the other hand, jurisdiction over the person of CMI was
acquired through the coercive process of service of summons.
CMI never denied that it was served with summons. CMI has, in
fact, voluntarily appeared and participated in the proceedings
before the courts. Though a foreign corporation, CMI is licensed
to do business in the Philippines and has a local business
address here. The purpose of the law in requiring that foreign
corporations doing business in the country be licensed to do so,
is to subject the foreign corporations to the jurisdiction of our
courts.
Where the facts establish the existence of foreign elements, the
case presents a conflicts-of-laws issue. Under the doctrine of
forum non conveniens, a Philippine court in a conflict-of-laws
case may assume jurisdiction if it chooses to do so, provided,
that the following requisites are met: (1) that the Philippine Court
is one to which the parties may conveniently resort to; (2) that
the Philippine Court is in a position to make an intelligent
decision as to the law and the facts; and (3) that the Philippine
Court has or is likely to have power to enforce its decision. All
these requisites are present here.
8) G.R. No. 152392. May 26, 2005.
EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF
APPEALS and KOREAN AIRLINES, respondents.
FACTS:
On September 6, 1999, Korean Airlines (KAL) a foreign
corporation duly organized and existing under and by virtue of
the laws of the Republic of Korea and also duly registered and
authorized to do business in the Philippines, through Atty.
Aguinaldo, filed a Complaint against Expertravel and Tours, Inc.
(ETI) with the Regional Trial Court (RTC) of Manila, for the

collection of the principal amount of P260,150.00, plus
attorney’s fees and exemplary damages. The verification and
certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent
and legal counsel of KAL and had caused the preparation of the
complaint.
ETI filed a motion to dismiss the complaint on the ground that
Atty. Aguinaldo was not authorized to execute the verification
and certificate of non-forum shopping as required by Section 5,
Rule 7 of the Rules of Court.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed
that he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a
special meeting held on June 25, 1999. KAL submitted on
March 6, 2000 an Affidavit of even date, executed by its general
manager Suk Kyoo Kim, alleging that the board of directors
conducted a special teleconference on June 25, 1999, which he
and Atty. Aguinaldo attended. It was also averred that in that
same teleconference, the board of directors approved a
resolution authorizing Atty. Aguinaldo to execute the certificate
of non-forum shopping and to file the complaint. Suk Kyoo Kim
also alleged, however, that the corporation had no written copy
of the aforesaid resolution.
The trial court issued an Order denying the motion to dismiss,
giving credence to the claims of Atty. Aguinaldo and Suk Kyoo
Kim that the KAL Board of Directors indeed conducted a
teleconference on June 25, 1999, during which it approved a
resolution as quoted in the submitted affidavit.
ETI filed a motion for the reconsideration of the Order,
contending that it was inappropriate for the court to take judicial
notice of the said teleconference without any prior hearing. The
trial court denied the motion in its Order dated August 8,
2000. ETI then filed a petition for certiorari and mandamus,
assailing the orders of the RTC.
The CA rendered judgment dismissing the petition, ruling that
the verification and certificate of non-forum shopping executed
by Atty. Aguinaldo was sufficient compliance with the Rules of
Court. According to the appellate court, Atty. Aguinaldo had
been duly authorized by the board resolution approved on June
25, 1999, and was the resident agent of KAL. As such, the RTC
could not be faulted for taking judicial notice of the said
teleconference of the KAL Board of Directors.
ETI filed a motion for reconsideration of the said decision, which
the CA denied.Hence, this petition.
ISSUE:
Whether or not the court should take judicial notice as to the use
of teleconference as a means of conducting meetings of board
of directors for purposes of passing a resolution.
HELD:
In this age of modern technology, the courts may take judicial
notice that business transactions may be made by individuals
through teleconferencing. Teleconferencing is interactive group
communication (three or more people in two or more locations)
through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even
though they are separated by hundreds of miles. This type of
group communication may be used in a number of ways, and
have three basic types: (1) video conferencing - television-like
communication augmented with sound; (2) computer
conferencing - printed communication through keyboard
terminals, and (3) audio-conferencing-verbal
communication via the telephone with optional capacity for
telewriting or telecopying.
C O R P O R A T I O N C O D E - P A R T 3 | 43
Teleconferencing can only facilitate the linking of people; it does
not alter the complexity of group communication. Although it
may be easier to communicate via teleconferencing, it may also
be easier to miscommunicate. Teleconferencing cannot satisfy
the individual needs of every type of meeting.
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a reality,
in light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied
with related to such conferences. Thus, the Court agrees with
the RTC that persons in the Philippines may have a
teleconference with a group of persons in South Korea relating
to business transactions or corporate governance.
However, even given the possibility that Atty. Aguinaldo and Suk
Kyoo Kim participated in a teleconference along with the
respondent’s Board of Directors, the Court is not convinced that
one was conducted; even if there had been one, the Court is not
inclined to believe that a board resolution was duly passed
specifically authorizing Atty. Aguinaldo to file the complaint and
execute the required certification against forum shopping.
The Court is, thus, more inclined to believe that the alleged
teleconference on June 25, 1999 never took place, and that the
resolution allegedly approved by the respondent’s Board of
Directors during the said teleconference was a mere concoction
purposefully foisted on the RTC, the CA and this Court, to avert
the dismissal of its complaint against the petitioner.
2. DOCTRINE OF “DOING BUSINESS”
G.R. No. 169507. January 11, 2016.
AIR CANADA, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
FACTS:
Air Canada was granted an authority to operate as an off-line
carrier by the Civil Aeronautics Board (CAB), and then it entered
into a Passenger General Sales Agency (GSA) Agreement with
Aerotel Ltd., Corporation for operation in the Philippines. On
2002, Air Canada filed its administrative claim for refund of
Php5, 185,676.77 with the BIR, contending that the revenue
derived by it from its sales of tickets in the Philippines on its off-
line flights through its local General Sales Agent cannot be
subject to income tax because the same is not sourced within
the Philippines.
Air Canada is a foreign corporation organized and existing under
the laws of Canada.
Air Canada was granted an authority to operate as an off-line
carrier by the Civil Aeronautics Board (CAB) subject to certain
conditions, on April 24, 2000, with said authority to expire on
April 24, 2005.
On July 1, 1999, Air Canada and Aerotel Ltd. Corporation
entered into a Passenger General Sales Agency (GSA)
Agreement for operation the Philippines.
On November 28, 2002, Air Canada filed its administrative claim
for refund with the Bureau of Internal Revenue (BIR) in the total
amount of Php5, 185,676.77.
Air Canada contends that it erroneously paid income taxes from
the Q3 2000 up to the Q2 2002.
With no response received from the BIR, Air Canada elevated
its claim to the CTA on November 29, 2002.

Air Canada: The revenue derived by it from its sales of tickets
in the Philippines on its off-line flights through its local General
Sales Agent cannot be subject to income tax because the same
is not sourced within the Philippines.
ISSUES:
WON the revenue derived by an international air carrier from
sales of tickets in the Philippines for air transportation, while
having no landing rights in the country, constitutes income of
said international air carrier from Philippine source, and
accordingly, taxable under Sec. 24(b)(2) of the National
Revenue Code. (YES)
RATIO:
YES. Such revenue constitutes taxable income.
This issue has already been laid to rest in number of cases by
the SC, one of which is the landmark case of
CIR v. British Overseas Airways Corporation
Although Air Canada is not liable to pay the tax as an
international air carrier (2.5% on gross Phil.Billings), it is still
liable to pay income tax as resident foreign corporation. An off-
line international carrier with a General Sales Agent (GSA) in the
Philippines may be considered a resident foreign corporation
taxable at 32% on taxable income derived from Philippine
sources.
The GSA’s functions include, among others, solicitation,
promotion and sale of air passenger services.
Such activities show continuity of commercial dealings and the
exercise of functions in pursuit of commercial gain. Moreover,
Revenue Regulations No. 6-78 has elaborated that the phrase
“doing business in the Philippines” includes “regular sale of
tickets in the Philippines by off-line international airlines, either
by themselves or through their agents.”
On the other hand, income from sale of tickets in the Philippines
is considered Philippine sourced.
The test of taxability is the “source” and the source of an income
is the activity which produced the income.
The sale of tickets in the Philippines is the activity that produces
the income. Further, by appointment of a GSA whose premises
are used as outlet for selling tickets, the off-line carrier may be
deemed to have permanent establishment in the Philippines,
hence taxable on Philippine sourced income.
Doctrine:
A foreign airline company selling tickets in
the Philippines through their local agents shall be considered
as resident
foreign corporationengaged intrade or business in the country.
The absence of flight operations within the Philippine
territory cannot alterthe fact that the income
received was derived from activities within the Philippines. The
test of taxability is the source, and the source is that activity
which produced the income.
L. MERGERS AND CONSOLIDATION
1. G.R. No. 190187. September 28, 2016.
PHILIPPINE GEOTHERMAL, INC. EMPLOYEES
UNION, petitioner, vs. UNOCAL PHILIPPINES, INC. (now
C O R P O R A T I O N C O D E - P A R T 3 | 44
known as CHEVRON GEOTHERMAL PHILIPPINES
HOLDINGS, INC.), respondent.
FACTS:
Unocal Philippines, formerly known as Philippine Geothermal,
Inc., is a wholly owned subsidiary of Union Oil Company of
California (Unocal California), which, in turn, is a wholly owned
subsidiary of Union Oil Corporation (Unocal
Corporation).Unocal Corporation executed an Agreement and
Plan of Merger (Merger Agreement) with Chevron Texaco
Corporation and Blue Merger Sub, Inc. Under
the Merger Agreement, Unocal Corporation merged with
Blue Merger, and Blue Merger became the surviving
corporation. Chevron then became the parent corporation of the
merged corporations. After the merger, Blue Merger, as the
surviving corporation, changed its name to Unocal Corporation.
Unocal Philippines executed a Collective Bargaining Agreement
with the Union. However, the Union wrote Unocal Philippines
asking for the separation benefits provided for under the CBA.
According to the Union, the Merger Agreement of Unocal
Corporation, Blue Merger, and Chevron resulted in the
closure and cessation of operations of Unocal Philippines and
the implied dismissal of its employees. The Union claimed that
Unocal Philippines was guilty of unfair labor practice. The
Secretary of Labor rendered a ruling that the Union’s members
were impliedly terminated from employment as result of the
Merger Agreement. The Secretary of Labor found that the
merger resulted in new contracts and a new employer for the
Union's members. The new contracts allegedly required the
employees' consent; otherwise, there was no employment
contract to speak of. Thus, the Secretary of Labor awarded the
Union separation pay under the Collective Bargaining
Agreement. The Court of Appeals reversed the Decision of the
Secretary of Labor. Hence, this Petition was filed.
ISSUES:
WHETHER the Merger Agreement executed by Unocal
Corporation, Blue Merger, and Chevron result in the termination
of the employment of petitioner's members.
RULING:
No. The merger of a corporation with another does not
operate to dismiss or terminate the employees of the
corporation absorbed by the surviving corporation. The
employment of the absorbed employees subsists.
If respondent is a subsidiary of Unocal California, which, in turn,
is a subsidiary of Unocal Corporation, then the merger of Unocal
Corporation with Blue Merger and Chevron does not affect
respondent or any of its employees. Respondent has a
separate and distinct personality from its parent corporation.
Nonetheless, if respondent is indeed a party to the merger, the
merger still does not result in the dismissal of its employees.
The surviving corporation automatically assumes the
employment contracts of the absorbed corporation. The
absorbed corporation's employees are not impliedly
dismissed, but become part of the manpower complement
of the surviving corporation.
The merger of Unocal Corporation with Blue Merger and
Chevron does not result in an implied termination of the
employment of petitioner's members. Assuming respondent is a
party to the merger, its employment contracts are deemed to
subsist and continue by "the combined operation of the
Corporation Code and the Labor Code under the backdrop
of the labor and social justice provisions of the Constitution

2. G.R. No. 195615. April 21, 2014.
BANK OF COMMERCE, petitioner, vs. RADIO PHILIPPINES
NETWORK, INC., INTERCONTINENTAL BROADCASTING
CORPORATION, and BANAHAW BROADCASTING
CORPORATION, THRU BOARD OF ADMINISTRATOR, and
SHERIFF BIENVENIDO S. REYES, JR., Sheriff, Regional
Trial Court of Quezon City, Branch 98, respondents.
FACTS:
In late 2001 the Traders Royal Bank (TRB) proposed to sell to
petitioner Bank of Commerce for ₱10.4 billion it’s banking
business consisting of specified assets and liabilities.
Bancommerce agreed subject to prior BSP's approval of their
Purchase and Assumption (P & A) Agreement. On November 8,
2001 the BSP approved that agreement subject to the condition
that Bancommerce and TRB would set up an escrow fund of
PSO million with another bank to cover TRB liabilities for
contingent claims that may subsequently be adjudged against it,
which liabilities were excluded from the purchase.
To comply with the BSP mandate, on December 6, 2001 TRB
placed ₱ 50 million in escrow with Metrobank to answer for those
claims and liabilities that were excluded from the P & A
Agreement and remained with TRB. Accordingly, the BSP finally
approved such agreement on July 3, 2002.
On October 10, 2002, acting in G.R. 138510, TRB v. RPN Inc.,
this Court ordered TRB to pay RPN actual damages of ₱10
million plus 12% legal interest and some amounts. Rather than
pursue a levy in execution of the corresponding amounts on
escrow with Metrobank, RPN filed a Supplemental Motion for
Execution where they described TRB as "now Bank of
Commerce" based on the assumption that TRB had been
merged into Bancommerce.
Bancommerce filed its Special Appearance with Opposition to
the same questioning the jurisdiction of the RTC over
Bancommerce and denying that there was a merger between
TRB and Bancommerce. The RTC issued an Order granting
and issuing the writ of execution to cover any and all assets of
TRB, including those subject of the merger/consolidation in the
guise of a Purchase and Sale Agreement with Bank of
Commerce, and/or against the Escrow Fund established by TRB
and Bank of Commerce with the Metrobank.
Bancommerce filed a petition for certiorari with the CA assailing
the RTC’s Order, but was denied. The CA pointed out that the
Decision of the RTC was clear in that Bancommerce was not
being made to answer for the liabilities of TRB, but rather the
assets or properties of TRB under its possession and custody.
In the same Decision, the CA modified the Decision of the RTC
by deleting the phrase that the P & A Agreement is a farce or
"a mere tool to effectuate a merger and/or consolidation
between TRB and BANCOM.”
RPN then filed with the RTC a motion to cause the issuance
of an alias writ of execution against Bancommerce based on
the CA Decision. The RTC granted the motion on February 19,
2010 on the premise that the CA Decision allowed it to execute
on the assets that Bancommerce acquired from TRB under their
P & A Agreement.
Bancommerce sought reconsideration of the RTC Order
considering that the December 2009 CA Decision actually
declared that no merger existed between TRB and
Bancommerce. But, since the RTC had already issued the alias
writ, Bancommerce filed a motion to quash the same, followed
by supplemental Motion.
The RTC then issued the assailed Order denying Bancommerce
pleas and, among others, directing the release to the Sheriff of
C O R P O R A T I O N C O D E - P A R T 3 | 45
Bancommerce’s "garnished monies and shares of stock or their
monetary equivalent.”
Aggrieved, Bancommerce appealed to the CA. However, the
CA dismissed the petition outright for the supposed failure of
bamcommerce to file a motion for reconsideration of the
assailed order.
ISSUE(S):
(1) W/N TRB and Bancommerce were validly merged.
(2) W/N the RTC could regard Bancommerce as
RPN’s judgment debtor/
HELD:
(1) ▪ Merger is a re-organization of two or more corporations that
results in their consolidating into a single corporation, which is
one of the constituent corporations, one disappearing or
dissolving and the other surviving. To put it another way, merger
is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing
corporation continues its existence while the life or lives of the
other corporation(s) is or are terminated.
▪ indubitably, it is clear that no merger took place between
Bancommerce and TRB as the requirements and procedures for
a merger were absent. A merger does not become effective
upon the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in order
for merger to take effect. Section 79 of the Corporation Code
further provides that the merger shall be effective only upon the
issuance by the SEC of a certificate of merger. ▪ Here,
Bancommerce and TRB remained separate corporations with
distinct corporate personalities. What happened is that TRB sold
and Bancommerce purchased identified recorded assets of TRB
in consideration of Bancommerce’s assumption of identified
recorded liabilities of TRB including booked contingent
accounts. There is no law that prohibits this k ind of transaction
especially when it is done openly and with appropriate
government approval. No merger or consolidation took place as
the records do not show any plan or articles of merger or
consolidation. More importantly, the SEC did not issue any
certificate of merger or consolidation.
▪ In his book, Dean Cesar Villanueva explained that under the
Corporation Code, " a de facto merger can be pursued by one
corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation would end up
with the business enterprise of the target corporation; whereas,
the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring
corporation."
▪ No de facto merger took place in the present case simply
because the TRB owners did not get in exchange for the
bank’s assets and liabilities an equivalent value in
Bancommerce shares of stock. Bancommerce and TRB agreed
with BSP approval to exclude from the sale the
TRB’s contingent judicial liabilities, including those owing to
RPN.
(2) ▪ Bancommerce agreed to assume those liabilities of TRB
that are specified in their P & A Agreement. That agreement
specifically excluded TRB’s contingent liabilities that the latter
might have arising from pending litigations in court, including the
claims of respondent RPN, et al.

▪ The evidence in this case fails to show that Bancommerce was
a mere continuation of TRB. TRB retained its separate and
distinct identity after the purchase. Although it subsequently
changed its name to Traders Royal Holding’s, Inc. such change
did not result in its dissolution. "The changing of the name of a
corporation is no more than creation of a corporation than the
changing of the name of a natural person is the begetting of a
natural person. The act, in both cases, would seem to be what
the language which we use to designate it imports —a change
of name and not a change of being."26 As such, Bancommerce
and TRB remained separate corporations.
▪ To protect contingent claims, the BSP directed Bancommerce
and TRB to put up ₱50 million in escrow with another bank. It
was the BSP, not Bancommerce that fixed the amount of the
escrow. Consequently, it cannot be said that the latter bank
acted in bad faith with respect to the excluded liabilities. They
did not enter into the P & A Agreement to enable TRB to escape
from its liability to creditors with pending court cases.
▪ further, even without the escrow, TRB continued to be liable to
its creditors although under its new name. Parenthetically, the P
& A Agreement shows that Bancommerce acquired greater
amount of TRB liabilities than assets. Article II of the P & A
Agreement shows that Bancommerce assumed total liabilities of
₱10,401,436,000.00 while it received total assets of only
₱10,262,154,000.00. This proves the arm’s length quality of the
transaction.
DOCTRINE: Merger is a reorganization of two or more
corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one
disappearing or dissolving and the other surviving. A merger
does not become effective upon the mere agreement of the
constituent corporations; Section 79 of the Corporation Code
further provides that the merger shall be effective only upon the
issuance by the Securities and Exchange Commission (SEC) of
a certificate of merger.
3.COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.
PILIPINAS SHELL PETROLEUM
CORPORATION, Respondent.
G.R. No. 192398 September 29, 2014
FACTS:
On April 27, 1999, respondent PILIPINAS SHELL
PETROLEUM CORPORATION entered into a Plan of Merger
with its affiliate, Shell Philippine Petroleum Corporation (SPPC),
a corporation organized and existing under the laws ofthe
Philippines. In the Plan of Merger, it was provided that the entire
assets and liabilities of SPPC will be transferred to, and
absorbed by, respondent as the surviving entity. The Securities
and Exchange Commission approved the merger on July 1,
1999.
On August 10, 1999, respondent paid to the BIR documentary
stamp taxes amounting to ₱524,316.00 on the original issuance
of shares of stock of respondent issued in exchange for the
surrendered SPPC shares pursuant to Section 175 of the
National Internal Revenue Code of1997 (NIRC or Tax Code).
Confirming the tax-free nature of the merger between
respondent and SPPC, the BIR, in a ruling4 dated October 4,
1999, ruled that pursuant to Section 40 (C)(2) and (6)(b) of the
NIRC, no gain or loss shall be recognized, if, in pursuance to a
plan of merger or consolidation, a shareholder exchanges stock
in a corporation which is a party to the merger or consolidation
solely for the stock of another corporation which is also a party
to the merger or consolidation. The BIR ruled, among others,
that no gain or loss shall be recognized by the stockholders of
SPPC on the exchange of their shares of stock of SPPC solely
for shares of stock of respondent pursuant to the Plan of Merger.
C O R P O R A T I O N C O D E - P A R T 3 | 46
The BIR, however, stated in said Ruling that:
3. The issuance by PSPC of its own shares of stock to the
shareholders of SPPC in exchange for the surrendered
certificates of stock of SPPC shall be subject to the documentary
stamp tax (DST) at the rate of Two Pesos (₱2.00) on each Two
Hundred Pesos (₱200.00), or fractional part thereof, based on
the total par value of the PSPC shares of stock issued pursuant
to Section 175 of the Tax Code of 1997.
xxxx
6. The exchange of land and improvements by SPPC to PSPC
for the latter’s shares of stock shall be subject to documentary
stamp tax imposed under Section 196 of the Tax Code of 1997,
based on the consideration contracted to be paid for such realty
or its fair market value determined in accordance withSection
6(E) of the said Code, whichever is higher. x x x5
On May 10, 2000, respondent paid to the BIR the amount of
₱22,101,407.64 representing documentary stamp tax on the
transfer of real property from SPPC to respondent.
Believing that it erroneously paid documentary stamp tax on its
absorption of real property owned by SPPC, respondent filed
with petitioner, a formal claim for refund or tax credit of the
documentary stamp tax in the amount of ₱22,101,407.64.
There being no action by petitioner, respondent filed a
petition6 for review with the Court of Tax Appeals (CTA) in
order to suspend the running of the two-year prescriptive period.
In its answer petitioner asserted that in tax deferred exchanges,
documentary stamp tax is imposed. Petitioner cited BIR Ruling
No. 2-20018 dated February 2, 2001 which states:
In view of all the foregoing, it is the opinion of this Office, as we
hereby hold, that the tax-deferred exchange of properties of a
corporation, which is a party to a merger or consolidation, solely
for shares of stock in a corporation, which is also a party to the
merger or consolidation, is subject to the documentary stamp
tax under Section 176 if the properties to be transferred are
shares of stock or even certificates of obligations, and also to
the documentary stamp tax under Sec[tion] 196, if the properties
to be transferred are real properties. Finally, it may be worth
mentioning that the original issuance of shares of stock ofthe
surviving corporation in favor of the stockholders of the
absorbed corporation as a result of the merger, is subject to the
documentary stamp tax under Sec[tion] 175 of the Tax Code of
1997. (BIR Ruling No. S-40-220-2000, December 21, 2000).9
The CTA granted respondent’s prayer for tax refund or credit. It
held that it is evident that the transfer of real property from the
absorbed corporation to the surviving or consolidated
corporation pursuant to a merger or consolidation occurs by
operation of law in as much as the real property is deemed
transferred without further act or deed. In the case at bar, the
petitioner’s theory is that DST on the transfer of real property
does not apply to a "statutory merger" where real property of the
absorbed corporation is deemed automatically vested in the
surviving corporation by operation of law, i.e., without any further
act of deed. Since the transfer of real property of SPPC to
petitioner was not effected by or dependent on any voluntary act
or deed of the parties to the merger, DST, therefore, should not
attach to the same. There was a complete absence of any formal
instrument or writing upon which DST may be imposed.
Petitioner filed a petition for review with the CA. The CA
dismissed the petition and affirmed the Decision of the CTA.
Petitioner filed a motion for reconsideration which was denied
by the CA.
Hence, petitioner filed the present petition. Petitioner insists that
the transfer of SPPC’s real properties to respondent in
exchange for the latter’s shares of stock is subject to
documentary stamp tax. Petitioner contends that Section 196 of
the Tax Code covers all transfers of real property for a valuable
consideration and does not only refer to sale of realty since it

speaks of real property being "granted, assigned, transferred or
otherwise conveyed." Petitioner also claims that the subject
transfer was not entirely by operation of law since the merger
agreement between respondent and SPPC involves the
voluntary act of the parties. Petitioner avers that it is wrong to
say that no documentary stamp tax is imposable allegedly
because the transfer to respondent of SPPC’s real properties
was not effected by means of any deed, instrument or writing.
Petitioner contends that Section 196 of the Tax Code does not
require that a particular document be executed for the transfer
of real property in order to be subject to documentary stamp tax.
Petitioner adds that it is enough that a conveyance of real
property has been effected since documentary stamp tax is
imposed not on the document alone but on the transaction.
Petitioner avers that the merger between SPPC and
respondent, while constituting a single transaction, gave rise to
several tax incidents which, for tax purposes, should be treated
individually and apart from the merger as a whole.
ISSUES: WON the transfer of SPPC’s real properties to
respondent pursuant to a merger is subject to documentary
stamp tax under Section 196 of the Tax Code
RULING: NO
SEC. 196 of the Tax Code. Stamp Tax on Deeds of Sale and
Conveyance of Real Property. – On all conveyances, deeds,
instruments, or writings, other than grants, patents, or original
certificates of adjudication issued by the Government, whereby
any land, tenement or other realty sold shall be granted,
assigned, transferred or otherwise conveyed to the purchaser,
or purchasers, or to any other person or persons designated by
such purchaser or purchasers, there shall be collected a
documentary stamp tax,at the rates herein below prescribed
based on the consideration contracted to be paid for such realty
or on its fair market value determined in accordance with Section
6(E) of this Code, whichever is higher: Provided, That when one
of the contracting parties is the Government, the tax herein
imposed shall be based on the actual consideration. (Emphasis
and underscoring ours.)
As can be gleaned from the afore-quoted provision,
documentary stamp tax is imposed on all conveyances, deeds,
instruments or writings whereby land or realty sold shall be
conveyed to the purchaser or purchasers.
Here, we do not find merit in petitioner’s contention that Section
196 covers all transfers and conveyances of real property for a
valuable consideration. A perusal of the subject provision would
clearly show it pertains only to sale transactions where real
property is conveyed to a purchaser for a consideration. The
phrase "granted, assigned, transferred or otherwise conveyed"
is qualified by the word "sold" which means that documentary
stamp tax under Section 196 is imposed on the transfer of realty
by way of sale and does not apply to all conveyances of real
property. Indeed, as correctly noted by the respondent, the fact
that Section 196 refers to words "sold", "purchaser" and
"consideration" undoubtedly leads to the conclusion that only
sales of real property are contemplated therein.
Thus, petitioner obviously erred when it relied on the phrase
"granted, assigned, transferred or otherwise conveyed" in
claiming that all conveyances of real property regardless of the
manner of transfer are subject to documentary stamp tax under
Section 196. It is not proper to construe the meaning of a statute
on the basis of one part.
We quote with approval the following statements of the appellate
court in the assailed decision, Section 196 should be read as a
whole and not phrase by phrase. The phrase granted, assigned,
transferred or otherwise conveyed clearly refers to the phrase
whereby any land, tenement or other realty is sold. This clearly
shows that the legislature intended Section 196 to refer to a
transfer of realty by virtue of sale. This is further bolstered by the
fact that the property is granted, assigned, transferred or
otherwise conveyed to the purchaser, or purchasers, or to any
other person or persons designated by such purchaser or
purchasers. In addition, the basis of the stamp tax is the
consideration agreed upon by the parties or the property’s fair
C O R P O R A T I O N C O D E - P A R T 3 | 47
market value. Taking all of these into consideration, it is beyond
doubt that … Section 196 pertains to a transfer of realty by way
of sale.20
It should be emphasized that in the instant case, the
transfer of SPPC’s real property to respondent was
pursuant to their approved plan of merger. In a merger of
two existing corporations, one of the corporations survives
and continues the business, while the other is dissolved,
and all its rights, properties, and liabilities are acquired by
the surviving corporation.21 Although there is a dissolution
of the absorbed or merged corporations, there is no
winding up of their affairs or liquidation of their assets
because the surviving corporation automatically acquires
all their rights, privileges, and powers, as well as their
liabilities.22 Here, SPPC ceased to have any legal
personality and respondent PSPC stepped into everything
that was SPPC’s, pursuant to the law and the terms of their
Plan of Merger.
Pertinently, a merger of two corporations produces the following
effects, among others:
Sec. 80. Effects of merger or consolidation. – x x x
xxxx
4. The surviving or the consolidated corporation shall thereupon
and thereafter possess all the rights, privileges, immunities and
franchises of each of the constituent corporations; and all
property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due
to each constituent corporations, shall be taken and deemed to
be transferred to and vested in such surviving or consolidated
corporation without further act or deed;…23 (Emphasis
supplied.)
In a merger, the real properties are not deemed "sold" to the
surviving corporation and the latter could not be
considered as "purchaser" of realty since the real
properties subject of the merger were merely absorbed by
the surviving corporation by operation of law and these
properties are deemed automatically transferred to and
vested in the surviving corporation without further act or
deed. Therefore, the transfer of real properties to the
surviving corporation in pursuance of a merger is not
subject to documentary stamp tax. As stated at the outset,
documentary stamp tax is imposed only on all conveyances,
deeds, instruments or writing where realty sold shall be
conveyed to a purchaser or purchasers. The transfer of SPPC’s
real property to respondent was neither a sale nor was it a
conveyance of real property for a consideration contracted to be
paid as contemplated under Section 196 of the Tax Code.
Hence, Section 196 of the Tax Code is inapplicable and
respondent is not liable for documentary stamp tax.
In fact, as properly cited in the CTA Decision, Section 185 of
Revenue Regulations No. 26, otherwise known as the
documentary stamp tax regulations, provides:
Section 185. Conveyances without consideration. –
Conveyances of realty, not in connection with a sale, to trustees
or other persons without consideration are not taxable.
Furthermore, it should be noted that a documentary stamp tax
is in the nature of an excise tax because it is imposed upon the
privilege, opportunity or facility offered at exchanges for the
transaction of the business.24 Documentary stamp tax is a tax
on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, or transfer of an
obligation, right or property incident thereto. 25 Documentary
stamp tax is thus imposed on the exercise of these privileges
through the execution of specific instruments, independently of
the legal status of the transactions giving rise thereto.26
Based on the foregoing, the transfer of real properties from
SPPC to respondent is not subject to documentary stamp tax

considering that the same was not conveyed to or vested in
respondent by means of any specific deed, instrument or writing.
There was no deed of assignment and transfer separately
executed by the parties for the conveyance of the real
properties. The conveyance of real properties not being
embodied in a separate instrument but is incorporated in the
merger plan, thus, respondent is not liable to pay documentary
stamp tax.
Notably, RA 9243, entitled "An Act Rationalizing the Provisions
of the Documentary Stamp Tax of the National Internal Revenue
Code of 1997" was enacted and took effect on April 27, 2004
which exempts the transfer of real property of a corporation,
which is a party to the merger or consolidation, to another
corporation, which is also a party to the merger or consolidation,
from the payment of documentary stamp tax.
The enactment of the said law now removes any doubt and had
made clear that the transfer of real properties as a consequence
of merger or consolidation is not subject to documentary stamp
tax.
4.) COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.
BANK OF COMMERCE, Respondent. G.R. No.
180529 November 13, 2013
FACTS: On November 9, 2001, BANK OF COMMERCE [BOC]
and Traders Royal Bank (TRB) executed a Purchase and Sale
Agreement5whereby it stipulated the TRB’s desire to sell and
the BOC’s desire to purchase identified recorded assets of TRB
in consideration of BOC assuming identified recorded liabilities.
On September 27, 2002, [BOC] received copies of the Formal
Letter of Demand and Assessment Notice No. DST-99-00-
000049 dated September 11, 2002, addressed to "TRADERS
ROYAL BANK (now Bank of Commerce)", issued by the CIR
demanding payment of the amount of ₱41,467,887.51, as
deficiency documentary stamp taxes (DST) on Special Savings
Deposit (SSD) account of TRB for taxable year 1999.
On October 11, 2002, [TRB] filed its protest letter contesting
the Formal Letter of Demand and Assessment Notice No. DST-
99-00-000049 dated September 11, 2002, pursuant to Sec. 228
of the Tax Code.
On March 31, 2004, [BOC] received the Decision dated March
22, 2004 denying the protest filed by [TRB] on October 11,
2002. The last two paragraphs of the Decision stated that:
“Assessment Notice No. DST-99-00-000049 demanding
payment of the amount of ₱41,467,887.51, as deficiency stamp
tax for the taxable year 1999 is hereby MODIFIED AND/OR
REDUCED to ₱41,442,887.51.”
On April 30, 2004, the Bank of Commerce (BOC) filed a Petition
for Review,7 assigned to the CTA 2nd Division, praying that it
be held not liable for the subject Documentary Stamp Taxes
(DST). BOC called the attention of the CTA 2nd Division to the
fact that as stated in Article III of the Purchase and Sale
Agreement, it and Traders Royal Bank (TRB) continued to exist
as separate corporations with distinct corporate personalities.
BOC emphasized that there was no merger between it and
TRB as it only acquired certain assets of TRB in return for its
assumption of some of TRB’s liabilities.9
Ruling of the CTA 2nd Division: Dismissed the petition for lack
of merit. It held that the Special Savings Deposit (SSD) account
in issue is subject to DST because its nature and substance are
akin to that of a certificate of deposit bearing interest, which
under the then Section 180 of the National Internal Revenue
Code (NIRC), is subject to DST. As for BOC’s liability, the CTA
said that since the issue of non-merger between BOC and TRB
was not raised in the administrative level, it could not be raised
for the first time on appeal. The CTA 2nd Division also noted
how BOC "actively participated in the proceedings before the
administrative body without questioning the legitimacy of the
proper party in interest."11
C O R P O R A T I O N C O D E - P A R T 3 | 48
Motion for Reconsideration12 was denied. BOC filed a Petition
for Review14 before the CTA En Banc.
Ruling of the CTA En Banc on BOC’s Petition for Review on
June 27, 2007: Affirmed the CTA 2nd Division’s Decision and
Resolution, ruling that BOC was liable for the DST on TRB’s
SSD accounts. The CTA En Banc also noted that BOC was
inconsistent in its position, for claiming that it was the one that
filed the protest letter with the BIR, in its Petition for Review
before the CTA 2nd Division and Pre-Trial Brief, while stating
that it was TRB that filed the protest letter, in its Joint Stipulation
of Facts and Issues. The CTA En Banc added that it would not
be unfair to hold BOC liable for the subject DST as TRB
constituted an Escrow Fund in the amount of Fifty Million Pesos
(₱50,000,000.00) to answer for all claims against TRB, which
are excluded from the Agreement.
Ruling of the CTA En Banc
on BOC’s Motion for Reconsideration on September 17, 2007:
Reversed itself and ruled that BOC could not be held liable for
the deficiency DST of TRB on its SSD accounts. The CTA En
Banc said that while it did not make a categorical ruling in its
June 27, 2007 Decision on the issue of merger between BOC
and TRB, the CTA 1st Division did in its June 18, 2007
Resolution23in C.T.A. Case No. 6392, entitled Traders Royal
Bank v. Commissioner of Internal Revenue. The Traders Royal
Bank case, just like the case at bar, involved a deficiency DST
assessment against TRB on its SSD accounts, albeit for taxable
years 1996 and 1997. When the CIR attempted to implement a
writ of execution against BOC, which was not a party to the case,
by simply inserting its name beside TRB’s in the motion for
execution, BOC filed a Motion to Quash (By Way of Special
Appearance) with the CTA 1st Division,24 which the CTA 1st
Division granted in a Resolution on June 18, 2007, primarily on
the ground that there was no merger between BOC and TRB.
The CTA En Banc also gave weight to BIR Ruling No. 10-
200626 dated October 6, 2006 wherein the CIR expressly
recognized the fact that the Purchase and Sale Agreement
between BOC and TRB did not result in their merger.
CIR filed a Motion for Reconsideration29praying that BOC be
held liable for the deficiency DST of TRB on its SSD accounts
for taxable year 1999. The CTA En Banc denied the motion for
lack of merit.
Hence, this appeal via Petition for Review. CIR alleged that the
deficiency assessment of traders royal bank (TRB) can be
enforced and collected against respondent bank of commerce
(BOC) because the latter assumed the obligations and liabilities
of TRB pursuant to the purchase and sale agreement executed
between them and the applicable law on merger of corporations
(section 80 of the corporation code).
ISSUE: WON there was merger between [BOC] and [TRB].
RULING: NO MERGER BETWEEN BOC AND TRB.
The CTA 1st Division, relied on the provisions in both the
Purchase and Sale Agreement and the Tax Code and
determined that the agreement did not result in a merger. After
carefully evaluating the records, the [CTA 1st Division] agrees
with [BOC] for the following reasons:
FIRST, a close reading of the Purchase and Sale
Agreement shows the following self-explanatory provisions:
a) Items in litigation, both actual and prospective,
against [TRB] are excluded from the liabilities to be assumed by
the Bank of Commerce (Article II, paragraph 2); and
b) The Bank of Commerce and Traders Royal Bank
shall continue to exist as separate corporations with distinct
corporate personalities (Article III, paragraph 1).
SECOND, aside from the foregoing, the Purchase and
Sale Agreement does not contain any provision that the [BOC]
acquired the identified assets of [TRB] solely in exchange for the
latter’s stocks. Merger is defined under Section 40 (C)(6)(b) of
the Tax Code as follows:
"b) The term "merger" or "consolidation", when used
in this Section, shall be understood to mean: (i) the ordinary
merger or consolidation, or (ii) the acquisition by one corporation
of all or substantially all the properties of another corporation

solely for stock: Provided, [t]hat for a transaction to be regarded
as a merger or consolidation within the purview of this Section,
it must be undertaken for a bona fide business purpose and not
solely for the purpose of escaping the burden of taxation: x x x."
Thus, when the CTA En Banc took into consideration the above
ruling in its Amended Decision, it necessarily affirmed the
findings of the CTA 1st Division and found them to be correct.
This Court likewise finds the foregoing ruling to be correct. The
CTA 1st Division was spot on when it interpreted the Purchase
and Sale Agreement to be just that and not a merger.
The Purchase and Sale Agreement, the document that is
supposed to have tied BOC and TRB together, was replete with
provisions that clearly stated the intent of the parties and the
purpose of its execution, viz:
ARTICLE II CONSIDERATION: ASSUMPTION OF
LIABILITIES
In consideration of the sale of identified recorded assets and
properties covered by this Agreement, [BOC] shall assume
identified recorded TRB’s liabilities including booked
contingent liabilities as listed and referred to in its
Consolidated Statement of Condition as of August 31, 2001,
in the total amount of PESOS: TEN BILLION FOUR
HUNDRED ONE MILLION FOUR HUNDRED THIRTY-SIX
THOUSAND (₱10,401,436,000.00), provided that the
liabilities so assumed shall not include:
xxxx
2. Items in litigation, both actual and prospective, against
TRB which include but are not limited to the following:
xxxx
2.3 Other liabilities not included in said Consolidated
Statement of Condition.42 (Emphases supplied.)
ARTICLE III EFFECTS AND CONSEQUENCES
1. [BOC] and TRB shall continue to exist as separate
corporations with distinct corporate personalities;
2. With the transfer of its branching licenses to [BOC] and
upon surrender of its commercial banking license to BSP,
TRB shall exist as an ordinary corporation placed outside the
supervisory jurisdiction of BSP. To this end, TRB shall cause
the amendment of its articles and by-laws to delete the terms
"bank" and "banking" from its corporate name and purpose.
3. There shall be no employer-employee relationship
between [BOC] and the personnel and officers of
TRB.43(Emphases supplied.)
As to the argument of CIR that BIR Ruling No. 10-2006 cannot
be used as a basis due to BOC’s failure, at the time it requested
for such ruling, to inform the CIR of TRB’s deficiency DST
assessments for taxable years 1996, 1997, and 1999, such
contention is untenable.
A perusal of BIR Ruling No. 10-2006 will show that the CIR ruled
on the issue of merger without any reference to TRB’s subject
tax liabilities. The relevant portions of such ruling are quoted
below:
One distinctive characteristic for a merger to exist under the
second part of [Section 40(C)(b) of the 1997 NIRC] is that, it
is not enough for a corporation to acquire all or substantially
all the properties of another corporation but it is also
necessary that such acquisition is solely for stock of the
absorbing corporation. Stated differently, the acquiring
corporation will issue a block of shares equal to the net asset
value transferred, which stocks are in turn distributed to the
stockholders of the absorbed corporation in proportion to the
respective share.
It was observed that the transaction was purely concerning
acquisition and assumption by [BOC] of the recorded
liabilities of TRB. The [Purchase and Sale] Agreement did
not mention with respect to the issuance of shares of stock
of [BOC] in favor of the stockholders of TRB. Such
transaction is absent of the requisite of a stock transfer and
same belies the existence of a merger. As such, this Office
considers the Agreement between [BOC] and TRB as
C O R P O R A T I O N C O D E - P A R T 3 | 49
one of "a sale of assets with an assumption of liabilities
rather than ‘merger’." x x x x
Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the issue
of merger without taking into consideration TRB’s pending tax
deficiencies. The ruling was based on the Purchase and Sale
Agreement, factual evidence on the status of both companies,
and the Tax Code provision on merger. The CIR’s knowledge
then of TRB’s tax deficiencies would not be material as to affect
the CIR’s ruling. The resolution of the issue on merger
depended on the agreement between TRB and BOC, as
detailed in the Purchase and Sale Agreement, and not
contingent on TRB’s tax liabilities.
It is worthy to note that in the Joint Stipulation of Facts and
Issues submitted by the parties, it was explicitly stated that both
BOC and TRB continued to exist as separate corporations with
distinct corporate personalities, despite the effectivity of the
Purchase and Sale Agreement.47
5.) PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA
ELECTRIC & ENGINEERING COMPANY, respondent. G.R.
No. 142936 April 17, 2002
Doctrine: Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been
used to shield fraud, defend crime, justify a wrong, defeat public
convenience, insulate bad faith or perpetuate injustice. Thus,
the mere fact that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the Pampanga
Sugar Mill (PASUMIL), which had earlier been foreclosed and
purchased at the resulting public auction by the Development
Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL’s contractual debts to respondent.
FACTS:
PASUMIL (Pampanga Sugar Mills) engaged the services of
Andrada Electric for electrical rewinding, repair, the construction
of a power house building, installation of turbines, transformers,
among others. Out of the total obligation of P777,263.80,
PASUMIL had paid only P250,000.00, leaving an unpaid
balance, as of June 27, 1973, amounting to P527,263.80, as
shown in the Certification of the chief accountant of the PNB.
That out of said unpaid balance of P527,263.80, PASUMIL
made a partial payment to the plaintiff of P14,000.00. leaving an
unpaid balance of P513,263.80.
On August 1975, PNB, a semi-government corporation,
acquired the assets of PASUMIL—assets that were earlier
foreclosed by the DBP.
On September 1975, PNB organized NASUDECO (National
Sugar Development Corporation), under LOI No. 311 to take
ownership and possession of the assets and ultimately, to
nationalize and consolidate its interest in other PNB controlled
sugar mills. NASUDECO is a semi-government corporation and
the sugar arm of the PNB.
Andrada Electric alleges that PNB and NASUDECO should be
liable for PASUMIL’s unpaid obligation amounting to 500,
000.00 damages, and attorney’s fees, having owned and
possessed the assets of PASUMIL.
Trial Court rendered judgment in favor of plaintiff and against the
defendant Corporation, Philippine National Bank (PNB)
NATIONAL SUGAR DEVELOPMENT CORPORATION
(NASUDECO) and PAMPANGA SUGAR MILLS (PASUMIL),
ordering the latter to pay jointly and severally the former.
Affirming the trial court, the CA held that it was offensive to the
basic tenets of justice and equity for a corporation to take over
and operate the business of another corporation, while

disavowing or repudiating any responsibility, obligation or
liability arising therefrom.4
Hence, this Petition. Petitioners posit that they should not be
held liable for the corporate debts of PASUMIL, because their
takeover of the latter’s foreclosed assets did not make them
assignees. On the other hand, respondent asserts that
petitioners and PASUMIL should be treated as one entity and,
as such, jointly and severally held liable for PASUMIL’s unpaid
obligation.1âwphi1.nêt
ISSUE:
WON PNB’s takeover of the operations of PASUMIL is
considered a corporate merger or consolidation. NO
RULING:
As a rule, a corporation that purchases the assets of another will
not be liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for
such assets, except when any of the following circumstances is
present: (1) where the purchaser expressly or impliedly agrees
to assume the 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 fraudulently
entered into in order to escape liability for those debts. 11
Basic is the rule that a corporation has a legal personality distinct
and separate from the persons and entities owning it. The
corporate veil may be lifted only if it has been used to shield
fraud, defend crime, justify a wrong, defeat public convenience,
insulate bad faith or perpetuate injustice.
Thus, the mere fact that the Philippine National Bank (PNB)
acquired ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier been
foreclosed and purchased at the resulting public auction by the
Development Bank of the Philippines (DBP), will not make PNB
liable for the PASUMIL's contractual debts to Andrada
Electric & Engineering Company (AEEC).
Piercing the veil of corporate fiction may be allowed only if the
following elements concur: (1) control not mere stock control,
but complete domination² not only of finances, but of policy and
business practice in respect to the transaction attacked, must
have been such that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own; (2)
such control must have been used by the defendant to commit
a fraud or a wrong to perpetuate the violation of a statutory or
other positive legal duty, or a dishonest and an unjust act in
contravention of plaintiff's legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust
loss complained of.
The absence of the foregoing elements in the present case
precludes the piercing of the corporate veil.
First, other than the fact that PNB and NASUDECO acquired the
assets of PASUMIL, there is no showing that their control over
it warrants the disregard of corporate personalities. Second,
there is no evidence that their juridical personality was used to
commit a fraud or to do a wrong; or that the separate corporate
entity was farcically used as a mere alter ego, business conduit
or instrumentality of another entityor person. Third, AEEC was
not defrauded or injured when PNB and NASUDECO acquired
the assets of PASUMIL. Hence, although the assets of
NASUDECO can be easily traced to PASUMIL, the transfer of
the latter's assets to PNB and NASUDECO was not fraudulently
entered into in order to escape liability for its debt to AEEC.
There was NO merger or consolidation with respect to PASUMIL
and PNB.
Respondent further claims that petitioners should be held liable
for the unpaid obligations of PASUMIL by virtue of LOI Nos. 189-
A and 311, which expressly authorized PASUMIL and PNB to
merge or consolidate (allegedly).
C O R P O R A T I O N C O D E - P A R T 3 | 50
On the other hand, petitioners contend that their takeover of the
operations of PASUMIL did not involve any corporate merger or
consolidation, because the latter had never lost its separate
identity as a corporation.
A consolidation is the union of two or more existing entities to
form a new entity called the consolidated corporation. A
merger, on the other hand, is a union whereby one or more
existing corporations are absorbed by another corporation that
survives and continues the combined business.
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. Since a merger or
consolidation involves fundamental changes in the corporation,
as well as in the rights of stockholders and creditors, there must
be an express provision of law authorizing them.
For a valid merger or consolidation, the approval by the SEC of
the articles of merger or consolidation is required. These articles
must likewise be duly approved by a majority of the respective
stockholders of the constituent corporations.
In the case at bar, there is no merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed under
Title IX of the Corporation Code was not followed.
In fact, PASUMIL’s corporate existence, as correctly found by
the CA, had not been legally extinguished or terminated.
Further, prior to PNB’s acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent
for the former’s obligation in the amount of P777,263.80. As of
June 27, 1973, PASUMIL had paid P250,000 to respondent
and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the
debt of PASUMIL to respondent. LOI No. 11 explicitly provides
that PNB shall study and submit recommendations on the claims
of PASUMIL’s creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite respondent’s
insistence to the contrary.
6.) REYNALDO M. LOZANO, petitioner, vs. HON. ELIEZER
R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles
City; and ANTONIO ANDA, respondent
June 19, 1997 PUNO
FACTS:
On December 19, 1995, petitioner Reynaldo M. Lozano filed
Civil Case No. 1214 for damages against respondent Antonio
Anda before the Municipal Circuit Trial Court (MCTC),
Mabalacat and Magalang, Pampanga.
Lozano was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers' Association, Inc. (KAMAJDA) while
respondent Anda was the president of the Samahang Angeles-
Mabalacat Jeepney Operators' and Drivers' Association, Inc.
(SAMAJODA);
August 1995, upon the request of the Sangguniang Bayan of
Mabalacat, Pampanga, petitioner and private
respondent agreed to consolidate their respective associations
and form the Unified Mabalacat-Angeles Jeepney Operators'
and Drivers' Association, Inc. (UMAJODA); petitioner and
private respondent also agreed to elect one set of officers who
shall be given the sole authority to collect the daily dues from
the members of the consolidated association; elections were
held on October 29, 1995 and both petitioner and private
respondent ran for president; Lozano won;
Anda protested and, alleging fraud, refused to recognize the
results of the election; Anda also refused to abide by their
agreement and continued collecting the dues from the members
of his association despite several demands to desist. Lozano
was thus constrained to file the complaint to restrain
private respondent from collecting the dues and to order
him to pay damages in the amount of P25,000.00 and
attorney's fees of P500.00.
MCTC: Anda moved to dismiss the complaint for lack of
jurisdiction, claiming that jurisdiction was lodged with the
Securities and Exchange Commission (SEC). The MCTC
denied the motion and denied reconsideration

RTC: Anda filed a petition for certiorari before the Regional Trial
Court, Branch 58, Angeles City. The trial court found the
dispute to be intracorporate, hence, subject to the jurisdiction
of the SEC, and ordered the MCTC to dismiss Civil Case No.
1214 accordingly. Hence this petition.
ISSUES: 1.) WHO has jurisdiction regular courts or SEC?
Regular courts. There is no intracorporate nor partnership
relation between petitioner and private respondent. There
is no intracorporate dispute. Therefore SEC has no jurisdiction.
2.) WON there was a consolidation. There was no
consolidation since the proposal to consolidate was not
approved by the SEC.
RULING:
The jurisdiction of the Securities and Exchange
Commission (SEC) is set forth in Section 5 of Presidential
Decree No. 902-A. Section 5 reads as follows:
"Section 5. x x x [T]he Securities and Exchange Commission
[has] original and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any acts of the board
of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or
organizations registered with the Commission.
(b) Controversies arising out of intracorporate or partnership
relations, between and among stockholders, members or
associates; between any 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.
(c) Controversies in the election or appointment of directors,
trustees, officers or managers of such corporations,
partnerships or associations.
(d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where
the corporation, partnership or association possesses sufficient
property to cover all its debts but foresees the impossibility of
meeting them when they respect very fall due or in cases where
the corporation, partnership or association has no sufficient
assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created
pursuant to this Decree."
The grant of jurisdiction to the SEC must be viewed in the light
of its nature and function under the law. This jurisdiction is
determined by a concurrence of two elements: (1) the status or
relationship of the parties; and (2) the nature of the question that
is the subject of their controversy.
The first element requires that the controversy must arise
out of intracorporate 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 in so far as it concerns their individual
franchises.[10] The second element requires that the dispute
among the parties be intrinsically connected with the regulation
of the corporation, partnership or association or deal with the
internal affairs of the corporation, partnership or
association.[11] After all, the principal function of the SEC is the
supervision and control of corporations, partnerships and
associations with the end in view that investments in these
entities may be encouraged and protected, and their activities
pursued for the promotion of economic development. [12]
There is no intracorporate nor partnership relation
between petitioner and private respondent. There is no
intracorporate dispute. Therefore SEC has no jurisdiction. The
controversy between them arose out of their plan to consolidate
their respective jeepney drivers' and operators' associations into
a single common association. This unified association was,
however, still a proposal. It had not been approved by the SEC,
neither had its officers and members submitted their articles of
C O R P O R A T I O N C O D E - P A R T 3 | 51
consolidation in accordance with Sections 78 and 79 of the
Corporation Code. Consolidation becomes effective not upon
mere agreement of the members but only upon issuance of the
certificate of consolidation by the SEC.[13] When the SEC, upon
processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes
the reorganization official.[14] The new consolidated corporation
comes into existence and the constituent corporations dissolve
and cease to exist.[15]
On Corporation by estoppel
The doctrine of corporation by estoppel [16] advanced by
private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject to
the agreement of the parties.[17] It cannot be acquired through or
waived, enlarged or diminished by, any act or omission of the
parties, neither can it be conferred by the acquiescence of the
court.[18]
Corporation by estoppel is founded on principles of
equity and is designed to prevent injustice and unfairness. [19] It
applies when persons assume to form a corporation and
exercise corporate functions and enter into business relations
with third persons. Where there is no third person involved and
the conflict arises only among those assuming the form of a
corporation, who therefore know that it has not been registered,
there is no corporation by estoppel.[20]
7. [G.R. No. 143866. August 22, 2005]
POLIAND INDUSTRIAL LIMITED, petitioner, vs. NATIONAL
DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE
PHILIPPINES, and THE HONORABLE COURT OF APPEALS
(Fourteenth Division) respondents.
[G.R. No. 143877. August 22, 2005]
NATIONAL DEVELOPMENT COMPANY, petitioner, vs.
POLIAND INDUSTRIAL LIMITED, respondent.
FACTS:
Between October 1979 and March 1981, Asian Hardwood
Limited (Asian Hardwood), a Hong Kong corporation, extended
credit accommodations in favor of GALLEON totaling
US$3,317,747.32.[2] At that time, GALLEON, a domestic
corporation organized in 1977 and headed by its president,
Roberto Cuenca, was engaged in the maritime transport of
goods. The advances were utilized to augment GALLEONs
working capital depleted as a result of the purchase of five new
vessels and two second-hand vessels in 1979 and
competitiveness of the shipping industry. GALLEON had
incurred an obligation in the total amount of US$3,391,084.91 in
favor of Asian Hardwood.
To finance the acquisition of the vessels, GALLEON obtained
loans from Japanese lenders, namely, Taiyo Kobe Bank, Ltd.,
Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979,
GALLEON, through Cuenca, and DBP executed a Deed of
Undertaking[3] whereby DBP guaranteed the prompt and
punctual payment of GALLEONs borrowings from the Japanese
lenders. To secure DBPs guarantee under the Deed of
Undertaking, GALLEON promised, among others, to secure a
first mortgage on the five new vessels and on the second-hand
vessels. Thus, GALLEON executed on January 25, 1982 a
mortgage contract over five of its vessels namely, M/V Galleon
Honor, M/V Galleon Integrity, M/V Galleon Dignity, M/V Galleon
Pride, and M/V Galleon Trust in favor of DBP.[4]
Meanwhile, on January 21, 1981, President Ferdinand Marcos
issued Letter of Instruction (LOI) No. 1155, directing NDC to
acquire the entire shareholdings of GALLEON for the amount
originally contributed by its shareholders payable in five (5)
years without interest cost to the government. In the same LOI,
DBP was to advance to GALLEON within three years from its

effectivity the principal amount and the interest thereon of
GALLEONs maturing obligations.
On August 10, 1981, GALLEON, represented by its president,
Cuenca, and NDC, represented by Minister of Trade Roberto
Ongpin, forged a Memorandum of Agreement,[5] whereby NDC
and GALLEON agreed to execute a share purchase agreement
within sixty days for the transfer of GALLEONs shareholdings.
Thereafter, NDC assumed the management and operations of
GALLEON although Cuenca remained president until May 9,
1982.[6] Using its own funds, NDC paid Asian Hardwood on
January 15, 1982 the amount of US$1,000,000.00 as partial
settlement of GALLEONs obligations.[7]
On February 10, 1982, LOI No. 1195 was issued directing the
foreclosure of the mortgage on the five vessels. For failure of
GALLEON to pay its debt despite repeated demands from DBP,
the vessels were extrajudicially foreclosed on various dates and
acquired by DBP for the total amount of P539,000,000.00. DBP
subsequently sold the vessels to NDC for the same amount.[8]
On April 22, 1982, the Board of Directors of GALLEON amended
the Articles of Incorporation changing the corporate name from
Galleon Shipping Corporation to National Galleon Shipping
Corporation and increasing the number of directors from seven
to nine.[9]
Asian Hardwood assigned its rights over the outstanding
obligation of GALLEON of US$2,315,747.32 to World Universal
Trading and Investment Company, S.A. (World Universal),
embodied in a Deed of Assignment executed on April 29,
1989.[10] World Universal, in turn, assigned the credit to
petitioner POLIAND sometime in July 1989.[11]
On March 24, 1988, then President Aquino issued
Administrative Order No. 64, directing NDC and Philippine
Export and Foreign Loan Guarantee Corporation (now Trade
and Investment Development Corporation of the Philippines) to
transfer some of their assets to the National Government,
through the Asset Privatization Trust (APT) for disposition.
Among those transferred to the APT were the five GALLEON
vessels sold at the foreclosure proceedings.
On September 24, 1991, POLIAND made written demands on
GALLEON, NDC, and DBP for the satisfaction of the
outstanding balance in the amount of US$2,315,747.32.[12] For
failure to heed the demand, POLIAND instituted a collection suit
against NDC, DBP and GALLEON filed on October 10, 1991
with the Regional Trial Court, Branch 61, Makati City. POLIAND
claimed that under LOI No. 1155 and the Memorandum of
Agreement between GALLEON and NDC, defendants
GALLEON, NDC, and DBP were solidarily liable to POLIAND as
assignee of the rights of the credit advances/loan
accommodations to GALLEON. POLIAND also claimed that it
had a preferred maritime lien over the proceeds of the
extrajudicial foreclosure sale of GALLEONs vessels mortgaged
by NDC to DBP. The complaint prayed for judgment ordering
NDC, DBP, and GALLEON to pay POLIAND jointly and
severally the balance of the credit advances/loan
accommodations in the amount of US$2,315,747.32 and
attorneys fees of P100,000.00 plus 20% of the amount
recovered. By way of an alternative cause of action, POLIAND
sought reimbursement from NDC and DBP for the preferred
maritime lien of US$1,193,298.56.[13]
In its Answer with Compulsory Counterclaim and Cross-claim,
DBP denied being a party to any of the alleged loan
transactions. Accordingly, DBP argued that POLIANDs
complaint stated no cause of action against DBP or was barred
by the Statute of Frauds because DBP did not sign any
memorandum to act as guarantor for the alleged credit
advances/loan accommodations in favor of POLIAND. DBP also
denied any liability under LOI No. 1155, which it described as
immoral and unconstitutional, since it was rescinded by LOI No.
C O R P O R A T I O N C O D E - P A R T 3 | 52
1195. By way of its Affirmative Allegations and Defenses, DBP
countered that it was unaware of the maritime lien on the five
vessels mortgaged in its favor and that as far as GALLEONs
foreign borrowings are concerned, DBP agreed to act as
guarantor thereof only under the conditions laid down under
the Deed of Undertaking. DBP prayed for the award of actual,
moral and exemplary damages and attorneys fees against
POLIAND as compulsory counterclaim. In the event that it be
adjudged liable for the payment of the loan accommodations
and the maritime liens, DBP prayed that its co-defendant
GALLEON be ordered to indemnify DBP for the full amount. [14]
For its part, NDC denied any participation in the execution of the
loan accommodations/credit advances and acquisition of
ownership of GALLEON, asserting that it acted only as manager
of GALLEON. NDC specifically denied having agreed to the
assumption of GALLEONs liabilities because no purchase and
sale agreement was executed and the delivery of the required
shares of stock of GALLEON did not take place.[15]
Upon motion by POLIAND, the trial court dropped GALLEON as
a defendant, despite vigorous oppositions from NDC and DBP.
At the pre-trial conference on April 29, 1993, the trial court
issued an Order limiting the issues to the following: (1) whether
or not GALLEON has an outstanding obligation in the amount of
US$2,315,747.32; (2) whether or not NDC and DBP may be held
solidarily liable therefor; and (3) whether or not there exists a
preferred maritime lien of P1,000,000.00 in favor of
POLIAND.[16]
After trial on the merits, the court a quo rendered a decision on
August 9, 1996 in favor of POLIAND. Finding that GALLEONs
loan advances/credit accommodations were duly established by
the evidence on record, the trial court concluded that under LOI
No. 1155, DBP and NDC are liable for those obligations. The
trial court also found NDC liable for GALLEONs obligations
based on the Memorandum of Agreement dated August 1981
executed between GALLEON and NDC, where it was provided
that NDC shall prioritize repayments of GALLEONs valid and
subsisting liabilities subject of a meritorious lawsuit or which
have been arranged and guaranteed by Cuenca. The trial court
was of the opinion that despite the subsequent issuance of LOI
No. 1195, NDC and DBPs obligation under LOI No. 1155
subsisted because vested rights of the parties have arisen
therefrom. Accordingly, the trial court interpreted LOI No. 1195s
directive to limit and protect to mean that DBP and NDC should
not assume or incur additional exposure with respect to
GALLEON.[17]
The trial court dismissed NDCs argument that the Memorandum
of Agreement was merely a preliminary agreement, noting that
under paragraph nine thereof, the only condition for the payment
of GALLEONs subsisting loans by NDC was the determination
by the latter that those obligations were incurred in the ordinary
course of GALLEONs business. The trial court did not regard
the non-execution of the stock purchase agreement as fatal to
POLIANDs cause since its non-happening was solely
attributable to NDC. The trial court also ruled that POLIAND had
preference to the maritime lien over the proceeds of the
extrajudicial foreclosure sale of GALLEONs vessels since the
loan advances/credit accommodations utilized for the payment
of expenses on the vessels were obtained prior to the
constitution of the mortgage in favor of DBP.
ISSUE:
WON there is a valid merger in this case
RULING:
NONE.

The Court cannot accept POLIANDs theory that with the
effectivity of LOI No. 1155, NDC ipso facto acquired the
interests in GALLEON without disregarding applicable statutory
requirements governing the acquisition of a corporation.
Ordinarily, in the merger of two or more existing corporations,
one of the combining corporations survives and continues the
combined business, while the rest are dissolved and all their
rights, properties and liabilities are acquired by the surviving
corporation. The merger, however, does not become effective
upon the mere agreement of the constituent corporations.
As specifically provided under Section 79 of said Code, the
merger shall only be effective upon the issuance of a certificate
of merger by the Securities and Exchange Commission (SEC),
subject to its prior determination that the merger is not
inconsistent with the Code or existing laws. Where a party to the
merger is a special corporation governed by its own charter, the
Code particularly mandates that a favorable recommendation of
the appropriate government agency should first be obtained.
The issuance of the certificate of merger is crucial because not
only does it bear out SECs approval but also marks the moment
whereupon the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights, and properties as well
as liabilities shall be taken and deemed transferred to and
vested in the surviving corporation.
The records do not show SEC approval of the merger. POLIAND
cannot assert that no conditions were required prior to the
assumption by NDC of ownership of GALLEON and its
subsisting loans. Compliance with the statutory requirements is
a condition precedent to the effective transfer of the
shareholdings in GALLEON to NDC. In directing NDC to acquire
the shareholdings in GALLEON, the President could not have
intended that the parties disregard the requirements of law. In
the absence of SEC approval, there was no effective transfer of
the shareholdings in GALLEON to NDC. Hence, NDC did not
acquire the rights or interests of GALLEON, including its
liabilities.
8. G.R. No. 195615 April 21, 2014
BANK OF COMMERCE, Petitioner, vs. RADIO PHILIPPINES
NETWORK, INC., INTERCONTINENTAL BROADCASTING
CORPORATION, and BANAHA W BROADCASTING
CORPORATION, THRU BOARD OF ADMINISTRATOR, and
SHERIFF BIENVENIDO S. REYES, JR., Sheriff, Regional
Trial Court of Quezon City, Branch 98, Respondents
FACTS:
In late 2001 the Traders Royal Bank (TRB) proposed to sell to
petitioner Bank of Commerce for ₱10.4 billion its banking
business consisting of specified assets and liabilities. Bank of
Commerce agreed subject to prior BSP's approval of their
Purchase and Assumption (P & A) Agreement. On November 8,
2001 the BSP approved that agreement subject to the condition
that Bank of Commerce and TRB would set up an escrow fund
of PSO million with another bank to cover TRB liabilities for
contingent claims that may subsequently be adjudged against it,
which liabilities were excluded from the purchase.
To comply with the BSP mandate, on December 6, 2001 TRB
placed ₱50 million in escrow with Metrobank to answer for those
claims and liabilities that were excluded from the P & A
Agreement and remained with TRB. Accordingly, the BSP finally
approved such agreement on July 3, 2002.
On October 10, 2002, acting in G.R. 138510, TRB v. RPN Inc.,
this Court ordered TRB to pay RPN actual damages of ₱10
million plus 12% legal interest and some amounts. Rather than
pursue a levy in execution of the corresponding amounts on
escrow with Metrobank, RPN filed a Supplemental Motion for
C O R P O R A T I O N C O D E - P A R T 3 | 53
Execution where they described TRB as "now Bank of
Commerce" based on the assumption that TRB had been
merged into Bancommerce.
Bancommerce filed its Special Appearance with Opposition to
the same questioning the jurisdiction of the RTC over
Bancommerce and denying that there was a merger between
TRB and Bancommerce. The RTC issued an Order granting
and issuing the writ of execution to cover any and all assets of
TRB, including those subject of the merger/consolidation in the
guise of a Purchase and Sale Agreement with Bank of
Commerce, and/or against the Escrow Fund established by TRB
and Bank of Commerce with the Metrobank.
Bancommerce filed a petition for certiorari with the CA assailing
the RTC’s Order, but was denied. The CA pointed out that the
Decision of the RTC was clear in that Bancommerce was not
being made to answer for the liabilities of TRB, but rather the
assets or properties of TRB under its possession and custody.
In the same Decision, the CA modified the Decision of the RTC
by deleting the phrase that the P & A Agreement is a farce or
"a mere tool to effectuate a merger and/or consolidation
between TRB and BANCOM.”
RPN then filed with the RTC a motion to cause the issuance
of an alias writ of execution against Bancommerce based on
the CA Decision. The RTC granted the motion on February 19,
2010 on the premise that the CA Decision allowed it to execute
on the assets that Bancommerce acquired from TRB under their
P & A Agreement.
Bancommerce sought reconsideration of the RTC Order
considering that the December 2009 CA Decision actually
declared that no merger existed between TRB and
Bancommerce. But, since the RTC had already issued the alias
writ, Bancommerce filed a motion to quash the same, followed
by supplemental Motion.
The RTC then issued the assailed Order denying Bancommerce
pleas and, among others, directing the release to the Sheriff of
Bancommerce’s "garnished monies and shares of stock or their
monetary equivalent.” Aggrieved, Bancommerce appealed to
the CA. However, the CA dismissed the petition outright for the
supposed failure of Bancommerce to file a motion for
reconsideration of the assailed order.
ISSUE:
W/N TRB and Bancommerce were validly merged.
RULING: NO
(1) Merger is a re-organization of two or more corporations that
results in their consolidating into a single corporation, which is
one of the constituent corporations, one disappearing or
dissolving and the other surviving. To put it another way, merger
is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing
corporation continues its existence while the life or lives of the
other corporation(s) is or are terminated.
Indubitably, it is clear that no merger took place between
Bancommerce and TRB as the requirements and procedures for
a merger were absent. A merger does not become effective
upon the mere agreement of the constituent corporations. All the
requirements specified in the law must be complied with in order
for merger to take effect. Section 79 of the Corporation Code
further provides that the merger shall be effective only upon the

issuance by the SEC of a certificate of merger.
Here, Bancommerce and TRB remained separate corporations
with distinct corporate personalities. What happened is that TRB
sold and Bancommerce purchased identified recorded assets of
TRB in consideration of Bancommerce’s assumption of
identified recorded liabilities of TRB including booked contingent
accounts. There is no law that prohibits this kind of transaction
especially when it is done openly and with appropriate
government approval. No merger or consolidation took place as
the records do not show any plan or articles of merger or
consolidation. More importantly, the SEC did not issue any
certificate of merger or consolidation.
In his book, Dean Cesar Villanueva explained that under the
Corporation Code, "a de facto merger can be pursued by one
corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation would end up
with the business enterprise of the target corporation; whereas,
the target corporation would end up with basically its only
remaining assets being the shares of stock of the acquiring
corporation."
No de facto merger took place in the present case simply
because the TRB owners did not get in exchange for the bank’s
assets and liabilities an equivalent value in Bancommerce
shares of stock. Bancommerce and TRB agreed with BSP
approval to exclude from the sale the TRB’s contingent judicial
liabilities, including those owing to RPN.
9. G.R. No. 99398. January 26, 2001
CHESTER BABST, petitioner, vs. COURT OF APPEALS,
BANK OF THE PHILIPPINE ISLANDS, ELIZALDE STEEL
CONSOLIDATED, INC., and PACIFIC MULTI-COMMERCIAL
CORPORATION, respondents.
[G.R. No. 104625. January 26, 2001]
ELIZALDE STEEL CONSOLIDATED, INC., petitioner, vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS,
PACIFIC MULTI-COMMERCIAL CORPORATION and
CHESTER BABST, respondents.
On 8 June 1973, ELISCON obtained from Commercial Bank and
Trust Company (CBTC) a loan in the amount of P8,015,900.84,
with interest at the rate of 14% per annum, evidenced by a
promissory note. Elizalde Steel Consolidated, Inc. (ELISCON)
defaulted in its payments, leaving an outstanding indebtedness
in the amount of P2,795,240.67 as of 31 October 1982.
The letters of credit, on the other hand, were opened for
ELISCON by CBTC using the credit facilities of Pacific Multi-
Commercial Corporation (MULTI) with the said bank, pursuant
to the Resolution of the Board of Directors of MULTI adopted on
31 August 1977.
Subsequently, on 26 September 1978, Antonio Roxas Chua and
Chester G. Babst executed a Continuing Suretyship, whereby
they bound themselves jointly and severally liable to pay any
existing indebtedness of MULTI to CBTC to the extent of
P8,000,000.00 each. Sometime in October 1978, CBTC opened
for ELISCON in favor of National Steel Corporation (NSC) 3
domestic letters of credit in the amounts of P1,946,805.73,
P1,702,869.32 and P200,307.72, respectively, which ELISCON
used to purchase tin black plates from NSC. ELISCON defaulted
in its obligation to pay the amounts of the letters of credit, leaving
C O R P O R A T I O N C O D E - P A R T 3 | 54
an outstanding account, as of 31 October 1982, in the total
amount of P3,963,372.08.
On 22 December 1980, the Bank of the Philippine Islands (BPI)
and CBTC entered into a merger, wherein BPI, as the surviving
corporation, acquired all the assets and assumed all the
liabilities of CBTC. Meanwhile, ELISCON encountered financial
difficulties and became heavily indebted to the Development
Bank of the Philippines (DBP). In order to settle its obligations,
ELISCON proposed to convey to DBP by way of dacion en pago
all its fixed assets mortgaged with DBP, as payment for its total
indebtedness in the amount of P201,181,833.16.
On 28 December 1978, ELISCON and DBP executed a Deed of
Cession of Property in Payment of Debt. In June 1981,
ELISCON called its creditors to a meeting to announce the take-
over by DBP of its assets. In October 1981, DBP formally took
over the assets of ELISCON, including its indebtedness to BPI.
Thereafter, DBP proposed formulas for the settlement of all of
ELISCON's obligations to its creditors, but BPI expressly
rejected the formula submitted to it for not being acceptable.
Consequently, on 17 January 1983, BPI, as successor-in-
interest of CBTC, instituted with the Regional Trial Court of
Makati, Branch 147, a complaint for sum of money against
ELISCON, MULTI and Babst (Civil Case 49226). On 20
February 1987, the trial court rendered its Decision in favor of
BPI.
In due time, ELISCON, MULTI and Babst filed their respective
notices of appeal. On 29 April 1991, the Court of Appeals
rendered a Decision modifying the judgment of the trial court.
ELISCON filed a Motion for Reconsideration of the Decision of
the Court of Appeals which was, however, denied in a
Resolution dated 9 March 1992. Subsequently, ELISCON filed
a petition for review on certiorari (GR. 104625). Meanwhile,
Babst also filed a petition for review with the Court (GR 99398).
Issue [1]:
Whether the BPI can institute the present case.
Held [1]:
There was a valid merger between BPI and CBTC. It is settled
that in the merger of two existing corporations, one of the
corporations survives and continues the business, while the
other is dissolved and all its rights, properties and liabilities are
acquired by the surviving corporation. Hence, BPI has a right to
institute the present case.
Issue [2]:
Whether BPI, the surviving corporation in a merger with
CBTC, consented to the assumption by DBP of the
obligations of ELISCON.
Held [2]:
Due to the failure of BPI to register its objection to the take-over
by DBP of ELISCON's assets, at the creditors' meeting held in
June 1981 and thereafter, it is deemed to have consented to the
substitution of DBP for ELISCON as debtor. The authority
granted by BPI to its account officer to attend the creditors'
meeting was an authority to represent the bank, such that when
he failed to object to the substitution of debtors, he did so on
behalf of and for the bank. Even granting arguendo that the said
account officer was not so empowered, BPI could have
subsequently registered its objection to the substitution,
especially after it had already learned that DBP had taken over
the assets and assumed the liabilities of ELISCON. Its failure to
do so can only mean an acquiescence in the assumption by
DBP of ELISCON's obligations. As repeatedly pointed out by

ELISCON and MULTI, BPI's objection was to the proposed
payment formula, not to the substitution itself. BPI gives no
cogent reason in withholding its consent to the substitution,
other than its desire to preserve its causes of action and legal
recourse against the sureties of ELISCON. It must be
remembered, however, that while a surety is solidarily liable with
the principal debtor, his obligation to pay only arises upon the
principal debtor's failure or refusal to pay. There was no
indication that the principal debtor will default in payment. In fact,
DBP, which had stepped into the shoes of ELISCON, was
capable of payment. Its authorized capital stock was increased
by the government. More importantly, the National Development
Company took over the business of ELISCON and undertook to
pay ELISCON's creditors, and earmarked for that purpose the
amount of P4,015,534.54 for payment to BPI. Notwithstanding
the fact that a reliable institution backed by government funds
was offering to pay ELISCON's debts, not as mere surety but as
substitute principal debtor, BPI, for reasons known only to itself,
insisted in going after the sureties. BPI's conduct evinced a clear
and unmistakable consent to the substitution of DBP for
ELISCON as debtor. Hence, there was a valid novation which
resulted in the release of ELISCON from its obligation to BPI,
whose cause of action should be directed against DBP as the
new debtor.
10. G.R. No. 192398 September 29, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.
PILIPINAS SHELL PETROLEUM CORPORATION,
Respondent.
FACTS:
Pilipinas Shell Petroleum Corporation (PSPC) is a corporation
organized and existing under the laws of the Philippines and was
incorporated to construct, operate and maintain petroleum
refineries, works, plant machinery, equipment dock and harbor
facilities and auxiliary works and other facilities of all kinds and
used in or in connection with the manufacture of products of all
kinds which are wholly or partly derived from crude oil.
On April 27, 1999, respondent entered into a Plan of Merger with
its affiliate, Shell Philippine Petroleum Corporation (SPPC), a
corporation organized and existing under the laws ofthe
Philippines. In the Plan of Merger, it was provided that the entire
assets and liabilities of SPPC will be transferred to, and
absorbed by, respondent as the surviving entity. The Securities
and Exchange Commission approved the merger on July 1,
1999.
On August 10, 1999, respondent paidto the BIR documentary
stamp taxes amounting to ₱524,316.00 on the original issuance
of shares of stock of respondent issued in exchange for the
surrendered SPPC shares pursuant to Section 175 of the
National InternalRevenue Code of1997 (NIRC or Tax Code).
Confirming the tax-free nature of the merger between
respondent and SPPC, the BIR, in a ruling4 dated October 4,
1999, ruled that pursuant to Section 40 (C)(2) and (6)(b) of the
NIRC, no gain or loss shall be recognized, if, in pursuance to a
planof merger or consolidation, a shareholder exchanges stock
in a corporation which is a party to the merger or consolidation
solely for the stock ofanother corporation which is also a party
to the merger or consolidation. The BIR ruled, among others,
that no gain or loss shall be recognized by the stockholders of
SPPC on the exchange of their shares of stock of SPPC solely
for shares of stock of respondent pursuant to the Plan of Merger.
On May 10, 2000, respondent paid to the BIR the amount of
₱22,101,407.64 representing documentary stamp tax on the
transfer of real property from SPPC to respondent.
C O R P O R A T I O N C O D E - P A R T 3 | 55
Believing that it erroneously paid documentary stamp tax on its
absorption of real property owned by SPPC, respondent filed
with petitioner on September 18, 2000, a formal claim for refund
or tax credit of the documentary stamp tax in the amount of
₱22,101,407.64.
There being no action by petitioner, respondent filed on May 8,
2002, a petition6 for review with the Court of Tax Appeals (CTA)
in order to suspend the running of the two-year prescriptive
period.
In its Decision10 promulgated on April 30,2003, the CTA granted
respondent’s prayer for tax refund or credit.
The CTA held that
Based on the foregoing, it is evident that the transfer of real
property from the absorbed corporation to the surviving or
consolidated corporation pursuant to a merger or consolidation
occurs by operation of lawinasmuch as the real property is
deemed transferred without further act or deed. In the case at
bar, the petitioner’s theory is that DST on the transfer of real
property does not apply to a "statutorymerger" where real
property of the absorbed corporation is deemed automatically
vested in the surviving corporation by operation of law, i.e.,
without any further act of deed.
xxxx
To reiterate, since the transfer of real property of SPPC to
petitioner was not effected by or dependent on any voluntary act
or deed of the parties to the merger, DST, therefore, should not
attach to the same.
On June 4, 2003, petitioner filed a petition for review with the
CA. In the herein assailed Decision dated September 10, 2009,
the CA dismissed the petition and affirmed the Decision of
the CTA. The appellate court held that the transfer of the
properties of SPPC to respondent was not in exchange for
the latter’s shares of stock but is a legal consequence of
the merger.
ISSUE
(1) whether the transfer of SPPC’s real properties to respondent
is subject to documentary stamp tax under Section 196 of the
Tax Code
RULING
NO.
It should be emphasized that in the instant case, the transfer of
SPPC’s real property to respondent was pursuant to their
approved plan of merger. In a merger of two existing
corporations, one of the corporations survives and continues the
business, while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the surviving
corporation.21 Although there is a dissolution of the absorbed or
merged corporations, there is no winding up of their affairs or
liquidation of their assets because the surviving corporation
automatically acquires all their rights,privileges, and powers, as
well as their liabilities.22 Here, SPPC ceasedto have any legal
personality and respondent PSPC stepped into everything that
was SPPC’s, pursuant to the law and the terms of their Plan of
Merger.
Pertinently, a merger of two corporations produces the following
effects, among others:
Sec. 80. Effects of merger or consolidation. – x x x
xxxx
4. The surviving or the consolidated corporation shall thereupon
and thereafter possess all the rights, privileges, immunities and

franchises of each of the constituent corporations; and all
property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due
to each constituent corporations, shall be taken and deemed to
be transferred to and vested in such surviving or consolidated
corporation without further act or deed;…23 (Emphasis
supplied.)
In a merger, the real properties are not deemed "sold" to the
surviving corporation and the latter could not be considered as
"purchaser" of realty since the real properties subject of the
merger were merely absorbed by the surviving corporation by
operation of law and these properties are deemed automatically
transferred to and vestedin the surviving corporation without
further act or deed. Therefore, the transfer of real properties to
the surviving corporation in pursuance of a merger is not subject
to documentary stamp tax. As stated at the outset, documentary
stamp tax is imposed only on all conveyances, deeds,
instruments or writing where realty sold shall be conveyed to a
purchaser or purchasers. The transfer of SPPC’s real property
to respondent was neither a sale nor was it a conveyance of real
property for a consideration contracted to be paidas
contemplated under Section 196 of the Tax Code. Hence,
Section 196 ofthe Tax Code is inapplicable and respondent is
not liable for documentary stamp tax.
11. Bank of the Philippine Islands v. BPI Employees Union
Davao Chapter – Federation of Unions in BPI Unibank, G.R.
No. 164301, August 10, 2010.
FACTS:
Bangko Sentral ng Pilipinas approved the Articles of Merger
executed by and between BPI, herein petitioner, and Far East
Bank and Trust Company (FEBTC) and was approved by the
Securities and Exchange Commission. The Articles of Merger
and Plan of Merger did not contain any specific stipulation with
respect to the employment contracts of existing personnel of the
non-surviving entity which is FEBTC. Pursuant to the said Article
and Plan of Merger, all the assets and liabilities of FEBTC were
transferred to and absorbed by BPI as the surviving
corporation. FEBTC employees, including those in its different
branches across the country, were hired by petitioner as its own
employees, with their status and tenure recognized and salaries
and benefits maintained.
ISSUE:
Whether or not employees are ipso jure absorbed in a merger
of the two corporations.
RULING:
NO. [H]uman beings are never embraced in the term “assets
and liabilities.”Moreover, BPI’s absorption of former FEBTC
employees was neither by operation of law nor by legal
consequence of contract. There was no government regulation
or law that compelled the merger of the two banks or the
absorption of the employees of the dissolved corporation by the
surviving corporation. Had there been such law or regulation,
the absorption of employees of the non-surviving entities of the
merger would have been mandatory on the surviving
corporation. In the present case, the merger was voluntarily
entered into by both banks presumably for some mutually
acceptable consideration. In fact, the Corporation Code does
not also mandate the absorption of the employees of the
non-surviving corporation by the surviving corporation in
the case of a merger.
[The] Court cannot uphold the reasoning that the general
stipulation regarding transfer of FEBTC assets and liabilities to
BPI as set forth in the Articles of Merger necessarily includes the
C O R P O R A T I O N C O D E - P A R T 3 | 56
transfer of all FEBTC employees into the employ of BPI and
neither BPI nor the FEBTC employees allegedly could do
anything about it. Even if it is so, it does not follow that the
absorbed employees should not be subject to the terms and
conditions of employment obtaining in the surviving
corporation.
Furthermore, [the] Court believes that it is contrary to public
policy to declare the former FEBTC employees as forming part
of the assets or liabilities of FEBTC that were transferred and
absorbed by BPI in the Articles of Merger. Assets and liabilities,
in this instance, should be deemed to refer only to property rights
and obligations of FEBTC and do not include the employment
contracts of its personnel. A corporation cannot unilaterally
transfer its employees to another employer like
chattel. Certainly, if BPI as an employer had the right to choose
who to retain among FEBTC’s employees, FEBTC employees
had the concomitant right to choose not to be absorbed by
BPI. Even though FEBTC employees had no choice or control
over the merger of their employer with BPI, they had a choice
whether or not they would allow themselves to be absorbed by
BPI. Certainly nothing prevented the FEBTC’s employees from
resigning or retiring and seeking employment elsewhere instead
of going along with the proposed absorption.
Employment is a personal consensual contract and absorption
by BPI of a former FEBTC employee without the consent of the
employee is in violation of an individual’s freedom to contract. It
would have been a different matter if there was an express
provision in the articles of merger that as a condition for the
merger, BPI was being required to assume all the employment
contracts of all existing FEBTC employees with the conformity
of the employees. In the absence of such a provision in the
articles of merger, then BPI clearly had the business
management decision as to whether or not employ FEBTC’s
employees. FEBTC employees likewise retained the prerogative
to allow themselves to be absorbed or not; otherwise, that would
be tantamount to involuntary servitude.
[Note: The decision as to absorption of employees upon
merger is reversed in the Resolution of MR dated October
19, 2011]
Bank of the Philippine Islands v. BPI Employees Union
Davao Chapter – Federation of Unions in BPI Unibank, G.R.
No. 164301, October 19, 2011.
FACTS:
In the present incident, petitioner Bank of the Philippine Islands
(BPI) moves for reconsideration of our Decision dated August
10, 2010, holding that former employees of the Far East Bank
and Trust Company (FEBTC) “absorbed” by BPI pursuant to the
two banks’ merger 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).
ISSUE:
Whether or not employees are absorbed in a merger of the two
corporations.
RULING: YES.
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, even in the absence of an
express stipulation in the articles of merger or the merger plan.
In his dissenting opinion, Justice Brion reasoned that:
 C O R P O R A T I O N C O D E - P A R T 3 | 57

To my mind, due consideration of Section 80 of the Corporation

Code, the constitutionally declared policies on work, labor and
employment, and the specific FEBTC-BPI situation — i.e., a
merger with complete “body and soul” transfer of all that FEBTC
embodied and possessed and where both participating banks
were willing (albeit by deed, not by their written agreement) to
provide for the affected human resources by recognizing
continuity of employment — should point this Court to a
declaration that in a complete merger situation where there is
total takeover by one corporation over another and there is
silence in the merger agreement on what the fate of the human
resource complement shall be, the latter should not be left in
legal limbo and should be properly provided for, by compelling
the surviving entity to absorb these employees. This is what
Section 80 of the Corporation Code commands, as the surviving
corporation has the legal obligation to assume all the obligations
and liabilities of the merged constituent corporation.

Not to be forgotten is that the affected employees managed,

operated and worked on the transferred assets and properties
as their means of livelihood; they constituted a basic component
of their corporation during its existence. In a merger and
consolidation situation, they cannot be treated without
consideration of the applicable constitutional declarations and
directives, or, worse, be simply disregarded. If they are so
treated, it is up to this Court to read and interpret the law so that
they are treated in accordance with the legal requirements of
mergers and consolidation, read in light of the social justice,
economic and social provisions of our Constitution. Hence, there
is a need for the surviving corporation to take responsibility for
the affected employees and to absorb them into its workforce
where no appropriate provision for the merged corporation’s
human resources component is made in the Merger Plan.

By upholding the automatic assumption of the non-surviving

corporation’s existing employment contracts by the surviving
corporation in a merger, the Court strengthens judicial protection
of the right to security of tenure of employees affected by a
merger and avoids confusion regarding the status of their
various benefits which were among the chief objections of our
dissenting colleagues. However, nothing in this Resolution shall
impair the right of an employer to terminate the employment of
the absorbed employees for a lawful or authorized cause or the
right of such an employee to resign, retire or otherwise sever his
employment, whether before or after the merger, subject to
existing contractual obligations. In this manner, Justice Brion’s
theory of automatic assumption may be reconciled with the
majority’s concerns with the successor employer’s prerogative
to choose its employees and the prohibition against involuntary
servitude.

Notwithstanding this concession, the Court finds no reason to

reverse our previous pronouncement that the absorbed FEBTC
employees are covered by the Union Shop Clause.