E.

Stockholders/Members: Rights, Limitations, Liabilities and Remedies

Sec. 6, Sec. 23, 27-29, RCC

SECTION 6. Classification of Shares. — The classification of shares,

their corresponding rights, privileges, or restrictions, and their stated par value,
if any, must be indicated in the articles of incorporation. Each share shall be
equal in all respects to every other share, except as otherwise provided in the
articles of incorporation and in the certificate of stock.
The shares in stock corporations may be divided into classes or series of
shares, or both. No share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, That there shall always be a class or series of
shares with complete voting rights.
Holders of nonvoting shares shall nevertheless be entitled to vote on the
following matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or
substantially all of the corporate property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with another corporation or
other corporations;
(g) Investment of corporate funds in another corporation or business in
accordance with this Code; and
(h) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote
required under this Code to approve a particular corporate act
shall be deemed to refer only to stocks with voting rights.
The shares or series of shares may or may not have a par
value: Provided, That banks, trust, insurance, and preneed
companies, public utilities, building and loan associations, and
other corporations authorized to obtain or access funds from the
public, whether publicly listed or not, shall not be permitted to issue
no-par value shares of stock.
Preferred shares of stock issued by a corporation may be given
preference in the distribution of dividends and in the distribution of

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 corporate assets in case of liquidation, or such other
preferences: Provided, That preferred shares of stock may be
issued only with a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series
thereof: Provided, further, That such terms and conditions shall be
effective upon filing of a certificate thereof with the Securities and
Exchange Commission, hereinafter referred to as the
"Commission".
Shares of capital stock issued without par value shall be deemed fully
paid and nonassessable and the holder of such shares shall not
be liable to the corporation or to its creditors in respect
thereto: Provided, That no-par value shares must be issued for a
consideration of at least Five pesos (P5.00) per share: Provided,
further, That the entire consideration received by
the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
A corporation may further classify its shares for the purpose of ensuring
compliance with constitutional or legal requirements.

SECTION 23. Election of Directors or Trustees. — Except when the

exclusive right is reserved for holders of founders' shares under Section 7 of
this Code, each stockholder or member shall have the right to nominate any
director or trustee who possesses all of the qualifications and none of the
disqualifications set forth in this Code.
At all elections of directors or trustees, there must be present, either in
person or through a representative authorized to act by written proxy, the
owners of majority of the outstanding capital stock, or if there be no capital
stock, a majority of the members entitled to vote. When so authorized in the
bylaws or by a majority of the board of directors, the stockholders or members
may also vote through remote communication or in absentia: Provided, That
the right to vote through such modes may be exercised in corporations vested
with public interest, notwithstanding the absence of a provision in the bylaws of
such corporations.
A stockholder or member who participates through remote
communication or in absentia, shall be deemed present for purposes of
quorum.

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 The election must be by ballot if requested by any voting stockholder or
member.
In stock corporations, stockholders entitled to vote shall have the right to
vote the number of shares of stock standing in their own names in the stock
books of the corporation at the time fixed in the bylaws or where the bylaws are
silent, at the time of the election. The said stockholder may: (a) vote such
number of shares for as many persons as there are directors to be elected; (b)
cumulate said shares and give one (1) candidate as many votes as the number
of directors to be elected multiplied by the number of the shares owned; or (c)
distribute them on the same principle among as many candidates as may be
seen fit: Provided, That the total number of votes cast shall not exceed the
number of shares owned by the stockholders as shown in the books of
the corporation multiplied by the whole number of directors to be
elected: Provided, however, That no delinquent stock shall be voted. Unless
otherwise provided in the articles of incorporation or in the bylaws, members of
nonstock corporations may cast as many votes as there are trustees to be
elected but may not cast more than one (1) vote for one (1) candidate.
Nominees for directors or trustees receiving the highest number of votes shall
be declared elected.
If no election is held, or the owners of majority of the outstanding capital
stock or majority of the members entitled to vote are not present in person, by
proxy, or through remote communication or not voting in absentia at the
meeting, such meeting may be adjourned and the corporation shall proceed in
accordance with Section 25 of this Code.
The directors or trustees elected shall perform their duties as prescribed
by law, rules of good corporate governance, and bylaws of the corporation.

SECTION 27. Removal of Directors or Trustees. — Any director or

trustee of a corporation may be removed from office by a vote of the
stockholders holding or representing at least two-thirds (2/3) of the outstanding
capital stock, or in a nonstock corporation, by a vote of at least two-thirds (2/3)
of the members entitled to vote: Provided, That such removal shall take place
either at a regular meeting of the corporation or at a special meeting called for
the purpose, and in either case, after previous notice to stockholders or
members of the corporation of the intention to propose such removal at the
meeting. A special meeting of the stockholders or members for the purpose of
removing any director or trustee must be called by the secretary on order of the
president, or upon written demand of the stockholders representing or holding
at least a majority of the outstanding capital stock, or a majority of the members
entitled to vote. If there is no secretary, or if the secretary, despite demand, fails

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or refuses to call the special meeting or to give notice thereof, the stockholder
or member of thecorporation signing the demand may call for the meeting by
directly addressing the stockholders or members. Notice of the time and place
of such meeting, as well as of the intention to propose such removal, must be
given by publication or by written notice prescribed in this Code. Removal may
be with or without cause: Provided, That removal without cause may not be
used to deprive minority stockholders or members of the right of representation
to which they may be entitled under Section 23 of this Code.
The Commission shall, motu proprio or upon verified complaint, and after
due notice and hearing, order the removal of a director or trustee elected
despite the disqualification, or whose disqualification arose or is discovered
subsequent to an election. The removal of a disqualified director shall be
without prejudice to other sanctions that the Commission may impose on the
board of directors or trustees who, with knowledge of the disqualification, failed
to remove such director or trustee.
SECTION 28. Vacancies in the Office of Director or Trustee; Emergency
Board. — Any vacancy occurring in the board of directors or trustees other than
by removal or by expiration of term may be filled by the vote of at least a majority
of the remaining directors or trustees, if still constituting a quorum; otherwise,
said vacancies must be filled by the stockholders or members in a regular or
special meeting called for that purpose.
When the vacancy is due to term expiration, the election shall be held no
later than the day of such expiration at a meeting called for that purpose. When
the vacancy arises as a result of removal by the stockholders or members, the
election may be held on the same day of the meeting authorizing the removal
and this fact must be so stated in the agenda and notice of said meeting. In all
other cases, the election must be held no later than forty-five (45) days from the
time the vacancy arose. A director or trustee elected to fill a vacancy shall be
referred to as replacement director or trustee and shall serve only for the
unexpired term of the predecessor in office.
However, when the vacancy prevents the remaining directors from
constituting a quorum and emergency action is required to prevent grave,
substantial, and irreparable loss or damage to the corporation, the vacancy may
be temporarily filled from among the officers of the corporation by unanimous
vote of the remaining directors or trustees. The action by the designated
director or trustee shall be limited to the emergency action necessary, and the
term shall cease within a reasonable time from the termination of the
emergency or upon election of the replacement director or trustee, whichever
comes earlier. The corporation must notify the Commission within three (3)
days from the creation of the emergency board, stating therein the reason for
its creation.

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 Any directorship or trusteeship to be filled by reason of an increase in the
number of directors or trustees shall be filled only by an election at a regular or
at a special meeting of stockholders or members duly called for the purpose, or
in the same meeting authorizing the increase of directors or trustees if so stated
in the notice of the meeting.
In all elections to fill vacancies under this section, the procedure set forth
in Sections 23 and 25 of this Code shall apply.
SECTION 29. Compensation of Directors or Trustees. — In the
absence of any provision in the bylaws fixing their compensation, the directors
or trustees shall not receive any compensation in their capacity as such, except
for reasonable per diems: Provided, however, That the stockholders
representing at least a majority of the outstanding capital stock or majority of
the members may grant directors or trustees with compensation and approve
the amount thereof at a regular or special meeting.
In no case shall the total yearly compensation of directors exceed ten
percent (10%) of the net income before income tax of the corporation during
the preceding year.
Directors or trustees shall not participate in the determination of their own
per diems or compensation.
Corporations vested with public interest shall submit to their shareholders
and the Commission, an annual report of the total compensation of each of their
directors or trustees.

Sec. 38, RCC Sec. 42, 45, 47, RCC

SECTION 38. Power to Deny Preemptive Right. — All stockholders of

a stock corporation shall enjoy preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles of incorporation or an
amendment thereto: Provided, That such preemptive right shall not extend to
shares issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; or to shares issued in good faith with the
approval of the stockholders representing two-thirds (2/3) of the outstanding
capital stock, in exchange for property needed for corporate purposes or in
payment of a previously contracted debt.

SECTION 42. Power to Declare Dividends. — The board of directors

of a stock corporation may declare dividends out of the unrestricted retained

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earnings which shall be payable in cash, property, or in stock to all stockholders
on the basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the unpaid balance
on the subscription plus costs and expenses, while stock dividends shall be
withheld from the delinquent stockholders until their unpaid subscription is fully
paid:Provided, further, That no stock dividend shall be issued without the
approval of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the
purpose.
Stock corporations are prohibited from retaining surplus profits in excess
of one hundred percent (100%) of their paid-in capital stock, except: (a) when
justified by definite corporate expansion projects or programs approved by the
board of directors; or (b) when the corporation is prohibited under any loan
agreement with financial institutions or creditors, whether local or foreign, from
declaring dividends without their consent, and such consent has not yet been
secured; or (c) when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as when there
is need for special reserve for probable contingencies.

SECTION 45. Adoption of Bylaws. — For the adoption of bylaws by

the corporation, the affirmative vote of the stockholders representing at least a
majority of the outstanding capital stock, or of at least a majority of the members
in case of nonstock corporations, shall be necessary. The bylaws shall be
signed by the stockholders or members voting for them and shall be kept in the
principal office of the corporation, subject to the inspection of the stockholders
or members during office hours. A copy thereof, duly certified by a majority of
the directors or trustees and countersigned by the secretary of the corporation,
shall be filed with the Commission and attached to the original articles of
incorporation.
Notwithstanding the provisions of the preceding paragraph, bylaws may
be adopted and filed prior to incorporation; in such case, such bylaws shall be
approved and signed by all the incorporators and submitted to the Commission,
together with the articles of incorporation.
In all cases, bylaws shall be effective only upon the issuance by the
Commission of a certification that the bylaws are in accordance with this Code.
The Commission shall not accept for filing the bylaws or any amendment
thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution, or other
special corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such bylaws
or amendments are in accordance with law.

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 SECTION 47. Amendment to Bylaws. — A majority of the board of
directors or trustees, and the owners of at least a majority of the outstanding
capital stock, or at least a majority of the members of a nonstock corporation,
at a regular or special meeting duly called for the purpose, may amend or repeal
the bylaws or adopt new bylaws. The owners of two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of the members in a
nonstock corporation may delegate to the board of directors or trustees the
power to amend or repeal the bylaws or adopt new bylaws: Provided, That any
power delegated to the board of directors or trustees to amend or repeal the
bylaws or adopt new bylaws shall be considered as revoked whenever
stockholders owning or representing a majority of the outstanding capital stock
or majority of the members shall so vote at a regular or special meeting.
Whenever the bylaws are amended or new bylaws are adopted,
the corporation shall file with the Commission such amended or new bylaws
and, if applicable, the stockholders' or members' resolution authorizing the
delegation of the power to amend and/or adopt new bylaws, duly certified under
oath by the corporate secretary and a majority of the directors or trustees. SDAaTC

The amended or new bylaws shall only be effective upon the issuance
by the Commission of a certification that the same is in accordance with
this Code and other relevant laws.

Sec. 62, 65-69, 70-71, RCC

SECTION 62. Certificate of Stock and Transfer of Shares. — The

capital stock of 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 bylaws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate or certificates indorsed by
the owner, his attorney-in-fact, or any 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

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certificate or certificates, and the number of shares transferred. The
Commission may require corporations whose securities are traded in trading
markets and which can reasonably demonstrate their capability to do so to
issue their securities or shares of stocks in uncertificated or scripless form in
accordance with the rules of the Commission.
No shares of stock against which the corporation holds any unpaid claim
shall be transferable in the books of the corporation.

SECTION 65. Interest on Unpaid Subscriptions. — Subscribers to

stocks shall be liable to the corporation for interest on all unpaid subscriptions
from the date of subscription, if so required by and at the rate of interest fixed
in the subscription contract. If no rate of interest is fixed in the subscription
contract, the prevailing legal rate shall apply.
SECTION 66. Payment of Balance of Subscription. — Subject to the
provisions of the subscription contract, the board of directors may, at any time,
declare due and payable to thecorporation unpaid subscriptions and may
collect the same or such percentage thereof, in either case, with accrued
interest, if any, as it may deem necessary.
Payment of unpaid subscription or any percentage thereof, together with
any interest accrued, shall be made on the date specified in the subscription
contract or on the date stated in the call made by the board. Failure to pay on
such date shall render the entire balance due and payable and shall make the
stockholder liable for interest at the legal rate on such balance, unless a
different interest rate is provided in the subscription contract. The interest shall
be computed from the date specified, until full payment of the subscription. If
no payment is made within thirty (30) days from the said date, all stocks covered
by the subscription shall thereupon become delinquent and shall be subject to
sale as hereinafter provided, unless the board of directors orders otherwise.
SECTION 67. Delinquency Sale. — The board of directors may, by
resolution, order the sale of delinquent stock and shall specifically state the
amount due on each subscription plus all accrued interest, and the date, time
and place of the sale which shall not be less than thirty (30) days nor more than
sixty (60) days from the date the stocks become delinquent. SDHTEC

Notice of the sale, with a copy of the resolution, shall be sent to every
delinquent stockholder either personally, by registered mail, or through other
means provided in the bylaws. The same shall be published once a week for
two (2) consecutive weeks in a newspaper of general circulation in the province
or city where the principal office of the corporation is located.

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 Unless the delinquent stockholder pays to the corporation, on or before
the date specified for the sale of the delinquent stock, the balance due on the
former's subscription, plus accrued interest, costs of advertisement and
expenses of sale, or unless the board of directors otherwise orders, said
delinquent stock shall be sold at a public auction to such bidder who shall offer
to pay the full amount of the balance on the subscription together with accrued
interest, costs of advertisement and expenses of sale, for the smallest number
of shares or fraction of a share. The stock so purchased shall be transferred to
such purchaser in the books of the corporation and a certificate for such stock
shall be issued in the purchaser's favor. The remaining shares, if any, shall be
credited in favor of the delinquent stockholder who shall likewise be entitled to
the issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to pay the full
amount of the balance on the subscription together with accrued interest, costs
of advertisement, and expenses of sale, for the smallest number of shares or
fraction of a share, the corporation may, subject to the provisions of this Code,
bid for the same, and the total amount due shall be credited as fully paid in the
books of the corporation. Title to all the shares of stock covered by the
subscription shall be vested in the corporation as treasury shares and may be
disposed of by said corporation in accordance with the provisions of this Code.
SECTION 68. When Sale May be Questioned. — No action to recover
delinquent stock sold can be sustained upon the ground of irregularity or defect
in the notice of sale, or in the sale itself of the delinquent stock, unless the party
seeking to maintain such action first pays or tenders to the party holding the
stock the sum for which the same was sold, with interest from the date of sale
at the legal rate. No such action shall be maintained unless a complaint is filed
within six (6) months from the date of sale.
SECTION 69. Court Action to Recover Unpaid Subscription. —
Nothing in this Code shall prevent the corporation from collecting through court
action, the amount due on any unpaid subscription, with accrued interest, costs
and expenses.

SECTION 70. Effect of Delinquency. — No delinquent stock shall be

voted for, be entitled to vote, or be represented at any stockholder's meeting,
nor shall the holder thereof be entitled to any of the rights of a stockholder
except the right to dividends in accordance with the provisions of this Code,
until and unless payment is made by the holder of such delinquent stock for the

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 amount due on the subscription with accrued interest, and the costs and
expenses of advertisement, if any.
SECTION 71. Rights of Unpaid Shares, Nondelinquent. — Holders of
subscribed shares not fully paid which are not delinquent shall have all the
rights of a stockholder.

Sec. 73-74, 80-84, in relation to Sec. 15, 41 RCC

SECTION 73. Books to be Kept; Stock Transfer Agent. —

Every corporation shall keep and carefully preserve at its principal office all
information relating to the corporationincluding, but not limited to:
(a) The articles of incorporation and bylaws of the corporation and all
their amendments;
(b) The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-
group relations, ownership data, and beneficial ownership;
(c) The names and addresses of all the members of the board of directors
or trustees and the executive officers;
(d) A record of all business transactions;
(e) A record of the resolutions of the board of directors or trustees and of
the stockholders or members;
(f) Copies of the latest reportorial requirements submitted to the
Commission; and
(g) The minutes of all meetings of stockholders or members, or of the
board of directors or trustees. Such minutes shall set forth in detail,
among others: the time and place of the meeting held, how it was
authorized, the notice given, the agenda therefor, whether the
meeting was regular or special, its object if special, those present
and absent, and every act done or ordered done at the meeting.
Upon the demand of a director, trustee, stockholder or member,

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 the time when any director, trustee, stockholder or member
entered or left the meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be taken on any motion
or proposition, and a record thereof carefully made. The protest of
a director, trustee, stockholder or member on any action or
proposed action must be recorded in full upon their demand.
Corporate records, regardless of the form in which they are stored,
shall be open to inspection by any director, trustee, stockholder or
member of the corporation in person or by a representative at
reasonable hours on business days, and a demand in writing may
be made by such director, trustee or stockholder at their expense,
for copies of such records or excerpts from said records. The
inspecting or reproducing party shall remain bound by
confidentiality rules under prevailing laws, such as the rules on
trade secrets or processes under Republic Act No. 8293,
otherwise known as the "Intellectual Property Code of the
Philippines," as amended, Republic Act No. 10173, otherwise
known as the "Data Privacy Act of 2012," Republic Act No. 8799,
otherwise known as "The Securities Regulation Code," and
the Rules of Court.
A requesting party who is not a stockholder or member of record, or is
a competitor, director, officer, controlling stockholder or otherwise
represents the interests of a competitor shall have no right to
inspect or demand reproduction of corporate records.
Any stockholder who shall abuse the rights granted under this section
shall be penalized under Section 158 of this Code, without
prejudice to the provisions of Republic Act No. 8293, otherwise
known as the "Intellectual Property Code of the Philippines," as
amended, and Republic Act No. 10173, otherwise known as the
"Data Privacy Act of 2012."
Any officer or agent of the corporation who shall refuse to allow the
inspection and/or reproduction of records in accordance with the
provisions of this Code shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty
of an offense which shall be punishable under Section 161 of
this Code: Provided, That if such refusal is made pursuant to a
resolution or order of the board of directors or trustees, the liability
under this section for such action shall be imposed upon the
directors or trustees who voted for such refusal: Provided, further,
That it shall be a defense to any action under this section that the
person demanding to examine and copy excerpts from

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 the corporation's records and minutes has improperly used any
information secured through any prior examination of the records
or minutes of such corporation or of any other corporation, or was
not acting in good faith or for a legitimate purpose in making the
demand to examine or reproduce corporate records, or is a
competitor, director, officer, controlling stockholder or otherwise
represents the interests of a competitor.
If the corporation denies or does not act on a demand for inspection
and/or reproduction, the aggrieved party may report such denial or
inaction to the Commission. Within five (5) days from receipt of
such report, the Commission shall conduct a summary
investigation and issue an order directing the inspection or
reproduction of the requested records.
Stock corporations must also keep a stock and transfer book, which
shall contain a record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and unpaid on all
stocks 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, by and to whom made;
and such other entries as the bylaws 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.
A stock transfer agent or one engaged principally in the business of
registering transfers of stocks in behalf of a stock corporation shall
be allowed to operate in the Philippines upon securing a license
from the Commission and the payment of a fee to be fixed by the
Commission, which shall be renewable annually: Provided, That a
stock corporation is not precluded from performing or making
transfers of its own stocks, in which case all the rules and
regulations imposed on stock transfer agents, except the payment
of a license fee herein provided, shall be applicable: Provided,
further, That the Commission may require stock corporations
which transfer and/or trade stocks in secondary markets to have
an independent transfer agent.
SECTION 74. Right to Financial Statements. — A corporation shall
furnish a stockholder or member, within ten (10) days from receipt of their
written request, its most recent financial statement, in the form and substance
of the financial reporting required by the Commission.

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 At the regular meeting of stockholders or members, the board of directors
or trustees shall present to such stockholders or members a financial report of
the operations of thecorporation for the preceding year, which shall include
financial statements, duly signed and certified in accordance with this Code,
and the rules the Commission may prescribe.
However, if the total assets or total liabilities of the corporation are less
than Six hundred thousand pesos (P600,000.00), or such other amount as may
be determined appropriate by the Department of Finance, the financial
statements may be certified under oath by the treasurer and the president.

Appraisal Right
SECTION 80. When the Right of Appraisal May Be Exercised. — Any
stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of the shares in the following instances:
(a) In case an amendment to the articles of incorporation has the effect
of changing or restricting the rights of any stockholder or class of
shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
(b) In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and
assets as provided in this Code;
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for any purpose other than
the primary purpose of the corporation.
SECTION 81. How Right is Exercised. — The dissenting stockholder
who votes against a proposed corporate action may exercise the right of
appraisal by making a written demand on the corporation for the payment of the
fair value of shares held within thirty (30) days from the date on which the vote
was taken: Provided, That failure to make the demand within such period shall
be deemed a waiver of the appraisal right. If the proposed corporate action is
implemented, the corporation shall pay the stockholder, upon surrender of the
certificate or certificates of stock representing the stockholder's shares, the fair
value thereof as of the day before the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action.
If, within sixty (60) days from the approval of the corporate action by the
stockholders, the withdrawing stockholder and the corporation cannot agree on

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the fair value of the shares, it shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the stockholder, another
by the corporation, and the third by the two (2) thus chosen. The findings of the
majority of the appraisers shall be final, and their award shall be paid by
the corporation within thirty (30) days after such award is made: Provided, That
no payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its books to cover such
payment: Provided, further, That upon payment by the corporation of the
agreed or awarded price, the stockholder shall forthwith transfer the shares to
the corporation.
SECTION 82. Effect of Demand and Termination of Right. — From
the time of demand for payment of the fair value of a stockholder's shares until
either the abandonment of the corporate action involved or the purchase of the
said shares by the corporation, all rights accruing to such shares, including
voting and dividend rights, shall be suspended in accordance with the
provisions of this Code, except the right of such stockholder to receive payment
of the fair value thereof: Provided, That if the dissenting stockholder is not paid
the value of the said shares within thirty (30) days after the award, the voting
and dividend rights shall immediately be restored.
SECTION 83. When Right to Payment Ceases. — No demand for
payment under this Title may be withdrawn unless the corporation consents
thereto. If, however, such demand for payment is withdrawn with the consent
of the corporation, or if the proposed corporate action is abandoned or
rescinded by the corporation or disapproved by the Commission where such
approval is necessary, or if the Commission determines that such stockholder
is not entitled to the appraisal right, then the right of the stockholder to be paid
the fair value of the shares shall cease, the status as the stockholder shall be
restored, and all dividend distributions which would have accrued on the shares
shall be paid to the stockholder.
SECTION 84. Who Bears Costs of Appraisal. — The costs and
expenses of appraisal shall be borne by the corporation, unless the fair value
ascertained by the appraisers is approximately the same as the price which
the corporation may have offered to pay the stockholder, in which case they
shall be borne by the latter. In the case of an action to recover such fair value,
all cost and expenses shall be assessed against the corporation, unless the
refusal of the stockholder to receive payment was unjustified.

SECTION 15. Amendment of Articles of Incorporation. — Unless

otherwise prescribed by this Code or by special law, and for legitimate

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 purposes, any provision or matter stated in the articles of incorporation may be
amended by a majority vote of the board of directors or trustees and the vote
or written assent of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this Code. The articles of
incorporation of a nonstock corporation may be amended by the vote or written
assent of majority of the trustees and at least two-thirds (2/3) of the members.
The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Amendments to the
articles shall be indicated by underscoring the change or changes made, and a
copy thereof duly certified under oath by the corporate secretary and a majority
of the directors or trustees, with a statement that the amendments have been
duly approved by the required vote of the stockholders or members, shall be
submitted to the Commission.
The amendments shall take effect upon their approval by the
Commission or from the date of filing with the said Commission if not acted
upon within six (6) months from the date of filing for a cause not attributable to
the corporation.

SECTION 41. Power to Invest Corporate Funds in

Another Corporation or Business or for Any Other Purpose. — Subject to
the provisions of this Code, a private corporation may invest its funds in any
other corporation, business, or for any purpose other than the primary purpose
for which it was organized, when approved by a majority of the board of
directors or trustees and ratified by the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or by at least two-thirds (2/3) of the
members in the case of nonstock corporations, at a meeting duly called for the
purpose. Notice of the proposed investment and the time and place of the
meeting shall be addressed to each stockholder or member at the place of
residence as shown in the books of the corporation and deposited to the
addressee in the post office with postage prepaid, served personally, or sent
electronically in accordance with the rules and regulations of the Commission
on the use of electronic data message, when allowed by the bylaws or done
with the consent of the stockholders: Provided, That any dissenting stockholder
shall have appraisal right as provided in this Code: Provided, however, That
where the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of incorporation, the
approval of the stockholders or members shall not be necessary.

Sec. 88-90, Sec. 139, RCC

15
 Members
SECTION 88. Right to Vote. — The right of the members of any class
or classes to vote may be limited, broadened, or denied to the extent specified
in the articles of incorporation or the bylaws. Unless so limited, broadened, or
denied, each member, regardless of class, shall be entitled to one (1) vote.
Unless otherwise provided in the articles of incorporation or the bylaws,
a member may vote by proxy, in accordance with the provisions of this Code.
The bylaws may likewise authorize voting through remote communication
and/or in absentia.
SECTION 89. Nontransferability of Membership. — Membership in a
nonstock corporation and all rights arising therefrom are personal and
nontransferable, unless the articles of incorporation or the bylaws otherwise
provide.
SECTION 90. Termination of Membership. — Membership shall be
terminated in the manner and for the causes provided in the articles of
incorporation or the bylaws. Termination of membership shall extinguish all
rights of a member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the bylaws.

SECTION 139. Corporate Liquidation. — Except for banks, which shall

be covered by the applicable provisions of Republic Act No. 7653, otherwise
known as "The New Central Bank Act," as amended, and Republic Act No.
3591, otherwise known as the Philippine Deposit
Insurance Corporation Charter, as amended, every corporation whose charter
expires pursuant to its articles of incorporation, is annulled by forfeiture, or
whose corporate existence is terminated in any other manner, shall
nevertheless remain as a body corporate for three (3) years after the effective
date of dissolution, for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, dispose of and convey
its property, and 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, the 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. 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

16
 trustees, and the beneficial interest in the stockholders, members, creditors or
other persons-in-interest.
Except as otherwise provided for in Sections 93 and 94 of this Code,
upon the winding up of corporate affairs, any asset distributable to any creditor
or stockholder or member who is unknown or cannot be found shall be
escheated in favor of the national government.
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.

SEC Memo Circular No. 15, Series of 2019 (Beneficial Ownership Information in 2019 Revised
GIS) – separate page

Interim Rules of Procedure Governing Intra-Corporate Controversies” (A.M. No. 01- 2-04-SC,
01 April 2001) – separate page

Cases:

E. Stockholders/Members: Rights, Limitations, Liabilities and Remedies

1. Tan v. SEC, 206 SCRA 740 (1992)

FACTS:

Alfonso Tan was the president of Visayan Educational Supply Corp. when it was incorporated.
Initially, 400 shares of stock was in his name, represented by Stock Cert. No. 2. But when two
incorporators withdrew and assigned their shares to the corp., Alfonso sold 50 shares to his
brother, Angelo. Alfredo Uy sold 50 shares to Teodora Tan. The sale was necessary in order to
complete the membership requirement of the BOD.

Because of the transactions, Stock Cert. No. 2 was cancelled and the corresponding stock
certificates were issued. Mr. Buzon was requested by Tan Su Ching to ask Alfonso Tan to endorse
the cancelled stock cert. However, Alfonso did not sign Stock Cert. No. 2 and only returned the
new stock certificate.

17
Later on, Alfonso withdrew from the corp because he was dislodged by Tan Su Ching as president.
Part of the condition of his withdrawal was that he be paid with stock-in-trade equivalent to 33%
in lieu of stock value of his shares in the amount of P 35, 000. Due to the withdrawal, the
cancellation of Cert. 2 and 8 was effected and recorder in the stock and transfer book.

Alfonso the filed a case questioning the cancellation of the stock certs. He argues that he was
deprived of his shares despite the non-endorsement or surrender of the stock cert. No. 2 & 8
which is contrary to SEC. 63, Corp. Code (Sec. 63, RCC).

ISSUE: W/N the cancellation was void due to non-endorsement.

RULING: NO.

The meaning of shares of stock 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.

There is no doubt that there was delivery of Stock Certificate No. 2 made by the petitioner to the
Corporation before its replacement with the Stock Certificate No. 6 for fifty (50) shares to Angel
S. Tan and Stock Certificate No. 8 for 350 shares to the petitioner, on March 16, 1981. The
problem arose when petitioner was given back Stock Certificate No. 2 for him to endorse and he
deliberately withheld it for reasons of his own. That the Stock Certificate in question was returned
to him for his purpose was attested to by Mr. Buzon in his Affidavit, the pertinent portion of
which has been earlier quoted.

It is safe to infer from the facts deduced in the instant case that, there was already delivery of
the unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock Certificate Nos.
6 and 8 to Angel and Alfonso. What led to the problem was the return of the cancelled certificate
(No. 2) to Alfonso S. Tan for his endorsement and his deliberate non-endorsement.

For all intents and purposes, however, since this was already cancelled which cancellation was
also reported to the respondent Commission, there was no necessity for the same certificate to
be endorsed by the petitioner. 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 said transfer was earlier recorded or registered in the corporate stock and
transfer book.

Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court
held, that:

But 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 . . . (67 Phi. 36).

Furthermore, there is a necessity to delineate the function of the stock itself from the actual
delivery or endorsement of the certificate of stock itself as is the question in the instant case. A
certificate of stock is not necessary to render one a stockholder in corporation.

18
Nevertheless, a certificate of stock is 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 is not essential to the existence of a share in
stock or the nation of the relation of shareholder to the corporation.

Under the instant case, 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 fifty (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.

Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument.

"Although it is sometimes regarded as quasi-negotiable, in the sense that it may be transferred
by endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the
holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or
transferror's creditor may have under the law, except insofar as such rights or defenses are
subject to the limitations imposed by the principles governing estoppel."

2. Bitong v. Court of Appeals, 292 SCRA 503 (1998)

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 to 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

19
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. Makati Sports Club, Inc. v. Cheng, 621 SCRA 103 (2010)

4. Baltazar v. Lingayen Gulf Elect. Power Co., 14 SCRA 522 (1965)

FACTS:

• The Lingayen Gulf Electric Power Co., Inc. (Lingayen) has an authorized capital stock of
P300,000 divided into 3,000 shares of voting stock at P100 par value per share.

20
• There are two groups competing in this case:

1. Baltazar and Rose – both incorporators (Baltazar group)

o Baltazar subscribed to 600 shares of stock, 535 of which are already fully paid, duly
covered by certificates of stock issued to him.

o Rose subscribed to 400 shares of stock, 375 of which are fully paid, duly covered by
certificates of stock issued to him.

2. Ungson, Estrada, Fernandez, Yuson and Acena (Ungson Group)

o Ungson, Estrada, Fernandez and Yuson were small stockholders of Lingayen, all holding a
total number of fully paid-up shares of stock, of not more than 100 shares. These 4 constituted
the majority of the 7-member Board of Directors of Lingayen.

o Acena, was likewise an incorporator and stockholder, holding 600 shares of stock, duly
covered by certificates of stock issued to him. He was the largest individual stockholder.

• From the by-laws, the date of the annual stockholder’s meeting had been fixed on the 1st
Tuesday of February of every year, but for one reason or another, the meeting was to be held on
May 1, 1955, principally for the purpose of electing new officers and Board of Directors for the
year 1955.

• The Ungson group had been in complete control of the management and property of the
Corporation since January 1, 1955. So in order to continue retaining such control, they passed 3
Resolutions during the regular Board meeting held on Jan. 30, 1955. The plan was to expel and
oust the Baltazar group 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.

1. declaring watered stocks issued to Acena, Baltazar, Rose and Jubenville of no value and
cancelled;

2.a. all unpaid subscriptions to bear interest, and all payments to be credited to interest 1st,
capital debt 2nd,

2.b declared as of no value and cancelled all capital stock shares certificates issued as fully paid
up, upon payments made by stockholders, when interests on unpaid subscription from date of
subscription were not previously and/or then and there paid

3. all stock declared delinquent on the accrued interest are incapacitated to avail of voting power.

• The Baltazar group filed a complaint and prayed that a writ of preliminary injunction be
issued against the the Ungson group. They sought to allow them to vote their fully paid-up shares
and to declare the resolutions invalid. The trial court issued a Preliminary Injunction, as prayed
for.

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• Defense of Ungson group: The Resolutions were merely functional instruments to bolster
the faith in the assets of Lingayen, given that during the years that the Baltazar group and their
allies were in control of Lingayen, no serious effort was attempted to retrieve it from its financial
collapse. Furthermore, there were even attempts to release the Baltazar group from liability of
their unpaid subscriptions.

• A tentative amicable settlement, formulated and entered into by some of the parties was
submitted. Lower Court approved the agreement (Decision 1), and thus dissolved the writ of
preliminary injunction.

o (Par 3 of agreement) With respect to the interest on unpaid balance of subscription, the
subscribers would be given the opportunity to pay in 2 installments:

1st installment to cover ½ of the unpaid balance to be paid in 3mos, and

2nd installment will be for the remaining unpaid half payable in another 3mos,

From the time of the approval of this agreements, those who comply with this arrangement will
not pay interest on the balance of their subscription, from the date of incorporation up to the
grant of franchise on February 24, 1948, which shall be deemed as condoned, and from 1948
they will pay only as interest 3% compounded annually, failure of any subscriber to pay any of
the installment provided will subject the stockholders concerned to the provision of the
corporation law of the payment of 6% interest compounded quarterly.

• Enforcement of Decision 1 was enjoined by the Ungson Group, who asked for
amendment. The Trial Court amended the decision (Decision 2), which now provides that:

o The compromise agreements only modified the Resolutions, and did not repeal them.
Considering that the primary intention of each of said resolutions was to effect an early collection
of unpaid balance of stock subscriptions and interest thereon, and the moving consideration for
a compromise settlement of the instant cases is likewise the early collection of the obligations of
stockholders of the defendant corporation, the extension of time to pay, as granted in par. 3 of
said agreement, was clearly intended to cover not only the accrued interest but also the unpaid
stock subscription of the stockholders, for to hold otherwise would be to defeat the primary
purpose of early collection of said obligations.

o The declaration of delinquency from the Resolutions is not repealed by the extension of
time granted under par. 3 of the compromise agreement. Complete restoration of voting rights
will only take effect upon full payment of the balance of said stock subscriptions and interest
within the period provided therein.

• The Baltazar group opposed Decision 2, thus, the Trial Court reversed it and issued
Decision 3.

o 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

22
corporation, and the 3 Resolutions of the Board are hereby nullified insofar as they are
inconsistent this ruling.

• On appeal:

o Baltazar group claims that once a shareholder has subscribed to a certain number of
shares, although he has made partial payments, but is issued a certificate for the paid-up shares,
he is entitled to vote the whole number of shares subscribed, WON paid, until said unpaid shares
shall have been called for payment or declared delinquent.

o Lingayen/Ungson group counters that under the doctrine in Fua Cun, in the absence of
special agreement to the contrary, a partial payment of a subscription does not entitle the
shareholder to a certificate for the total number of shares subscribed by him, and his right
consists only in equity to a certificate of the total number of shares subscribed for, upon payment
of the remaining portion of the subscription price.

ISSUES/HELD:

WON a shareholder with a balance of unpaid shares subscribed is entitled to vote the paid shares
– YES.

WON previous payments should be applied to the interest first – NO.

WON there was a waiver of right to enforce the voting power, by virtue of the compromise
agreement – NO.

RATIO:

WON a shareholder with a balance of unpaid shares subscribed is entitled to vote the paid shares
– YES.

• The present case does not come under the principle in Fua Cun because it was the practice
of the company there since its inception, to issue certificates of stock even for unpaid shares and
gave voting power to stocks 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 Fua Cun, obsolescent.

• Sec. 37 of the Corporation Law, as amended by Act No. 3518, approved 6 yrs after Fua
Cun (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

23
corporation. Subscribed shares not fully paid up may be voted provided no subscription is unpaid
and delinquent.

• The present law requires as a condition before a shareholder 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.

o Since it was the practice of Lingayen to issue stock certificates to not fully paid subscribers,
it may not take away the right to vote granted by the certificate.

o Stock certificates may be issued for less than the number of shares subscribed for
provided that:

The par value of each represented by the certificate has been paid, and

It is not prohibited by the by-laws.

WON previous payments should be applied to the interest first – NO.

• As observed by the trial court, a corporation may now, in the absence of contrary
provisions in their by-laws, 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) payment pro-rata to each and all the entire number of shares subscribed for.

• In this case, Lingayen chose to apply payments by the shareholders to definite shares of
stock and had full paid-up shares certificates for the payments. Its call for payments of unpaid
subscription and its declaration of delinquency only affected the remaining number of shares.

• Lingayen applied the payments made to the full par value of shares subscribed, instead
of the accrued interest. This being the case, the application of payments must be deemed to have
been agreed upon by the Lingayen and the shareholders and cannot now be changed without
the consent of the shareholders concerned. It would therefore result that a corporation may,
upon the request of an interested shareholder, apply payments by them to the full par value of
subscribed capital stock.

o The Corporation Law and the by-laws of Lingayen do not contain any provision,
prohibiting the application of stockholders' payments to the full par value of a corporation's
capital stock, ahead of the payment of accrued interest for unpaid subscriptions.

24
o Although NCC 1253 states that if a debt produces interest, payment of the principal is not
deemed made until the interest has been covered, this applies only when there is no agreement
to the contrary, which is obviously the situation in the case at bar.

WON there was a waiver of right to enforce the voting power, by virtue of the compromise
agreement – NO.

• Certain clauses of the agreement are contrary to law and public policy and would cause
injury to the Baltazar group and other stockholders similarly situated. Estoppel cannot be
predicated on acts which are prohibited by law or are against public policy.

5. De Los Santos V. Republic (1955)

FACTS:

600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., (Lepanto), a corporation
duly organized and existing under the laws of the Philippines

Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by
Isabelo Astraquillo. During the pendency of this case, the Astraquillo has allegedly conveyed and
assigned his interest in and to de los Santos.

Vicente Madrigal 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

contend that De los Santos bought:

55,000 shares from Juan Campos

300,000 shares from Carl Hess

800,000 shares from Carl Hess for the benefit of Astraquillo

delivered to stock broker Leonardo Recio stock certificate No. 2279 55,000 shares to see Mr.
DeWitt, who, probably, would be interested in purchasing the shares

DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned at
Recio's dwelling

By virtue of vesting 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.

Plaintiffs filed their respective claims with the Property Custodian

25
Defendant Attorney General of the U. S., successor to the Administrator contends, substantially,
that, prior to the outbreak of the war in the Pacific, 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

March, 1942: Madrigal delivered 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.

CFI: favored plaintiffs

Defendants Appealed

Hess, during that period, operate as broker, for being American, he was under Japanese
surveillance, and that Hess had made, during the occupation, no transaction involving mining
shares, except when he sold 12,000 shares of the Benguet Consolidated, inherited from his
mother, sometime in 1943.

ISSUE: W/N the plaintiffs are entitled to the shares

HELD: NO. REVERSED

burden of proof is upon the plaintiffs

Section 35 of the Corporation Law reads:

The capital 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 endorsed 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. (Emphasis supplied.)

Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee
under a forged assignment acquires no title which can be asserted against the true owner, unless
his own negligence has been such as to create an estoppel against him (Clarke on Corporations,
Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is stolen from him,
no title is acquired by an innocent purchaser for value

26
Neither the absence of blame on the part of the officers of the company in allowing an
unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail
as an answer to the demand of the true owner

The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer
acquires no title as against the true owner does not apply where the circumstances are such as
to estop the latter from asserting his title. . . .

one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss
must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting
such loss

negligence which will work an estoppel of this kind must be a proximate cause of the purchase
or advancement of money by the holder of the property, and must enter into the transaction
itself

the negligence must be in or immediately connected with the transfer itself

to establish this estoppel it must appear that the true owner had conferred upon the person who
has diverted the security the indicia of ownership, or an apparent title or authority to transfer
the title

So the owner is not guilty of negligence in merely entrusting another with the possession of his
certificate of stock, if he does not, by assignment or otherwise, clothe him with the apparent title.

Nor is he deprived of his title or his remedy against the corporation because he intrusts a third
person with the key of a box in which the certificate are kept, where the latter takes them from
the box and by forging the owner's name to a power of attorney procures their transfer on the
corporate books.

Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of
stock, which is afterwards lost or stolen, such negligence as will estop the owner from asserting
his title as against a bona fide purchaser from the finder or thief, or from holding the corporation
liable for allowing a transfer on its books, where the loss or theft of the certificate was not due
to any negligence on the part of the owner

stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title
thereto as against a bona fide purchaser for value who derives his title from one who stole the
certificate from the pledgee. And this has also been held to be true though the thief was an officer
of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as a
misappropriation by the bank to whose custody the certificate was intrusted by the owner, even
though the bank may be liable to the pledgor

Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis
may claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged
title is not derived either from madrigal or from the Mitsuis, but, also, because it is in derogation,

27
of said rights. madrigal and the Mitsuis are notprivies to the alleged sales by Campos and Hess to
the plaintiffs, contrary to the latter's pretense.

5. Guy v. Guy, 680 SCRA 214 (2012)

6. Forest Hills Golf & Country Club v. Vertex Sales and Trading, Inc., 692 SCRA 706

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock corporation
that operates and maintains a golf and country club facility in Antipolo City. Forest Hills was
created as a result of a joint venture agreement between Kings Properties Corporation (Kings)
and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the
shares of stock of Forest Hills, holding 40% and 60% of the shares, respectively.

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to the full payment of the purchase price,
RSACC transferred its interests over FEGDI's Class "C" common share to respondent Vertex Sales
and Trading, Inc. (Vertex).4 RSACC advised FEGDI of the transfer and FEGDI, in turn, requested
Forest Hills to recognize Vertex as a shareholder. Forest Hills acceded to the request, and Vertex
was able to enjoy membership privileges in the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name
of FEGDI, prompting Vertex to demand for the issuance of a stock certificate in its name.5 As its
demand went unheeded, Vertex filed a complaint6 for rescission with damages against
defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the developer of the Forest Hills
golf course. Vertex averred that the defendants defaulted in their obligation as sellers when they
failed and refused to issue the stock certificate covering the Class "C" common share. It prayed
for the rescission of the sale and the return of the sums it paid; it also claimed payment of actual
damages for the defendants’ unjustified refusal to issue the stock certificate.

Forest Hills denied transacting business with Vertex and claimed that it was not a party to the
sale of the share; FELI claimed the same defense. While admitting that no stock certificate was
issued, FEGDI alleged that Vertex nonetheless was recognized as a stockholder of Forest Hills and,
as such, it exercised rights and privileges of one. FEGDI added that during the pendency of
Vertex's action for rescission, a stock certificate was issued in Vertex's name,7 but Vertex refused
to accept it.

The Court’s Ruling

The assailed CA rulings (a) declared the rescission of the sale of one (1) Class "C" common share
of Forest Hills to Vertex and (b) ordered the return by Forest Hills, FEGDI, and FELI to Vertex of
the amount the latter paid by reason of the sale. While Forest Hills argues that the ruling
rescinding the sale of the share is erroneous, its ultimate prayer was for the reversal and setting
aside of the ruling holding it liable to return the amount paid by Vertex for the sale. 16

The Court finds Forest Hills’ prayer justified.

Ruling on rescission of sale is a

28
settled matter

At the outset, we declare that the question of rescission of the sale of the share is a settled matter
that the Court can no longer review in this petition. While Forest Hills questioned and presented
its arguments against the CA ruling rescinding the sale of the share in its petition, it is not the
proper party to appeal this ruling.

As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject of
the sale was its share of stock. The corporation whose shares of stock are the subject of a transfer
transaction (through sale, assignment, donation, or any other mode of conveyance) need not be
a party to the transaction, as may be inferred from the terms of Section 63 of the Corporation
Code. However, to bind the corporation as well as third parties, it is necessary that the transfer
is recorded in the books of the corporation. In the present case, the parties to the sale of the
share were FEGDI as the seller and Vertex as the buyer (after it succeeded RSACC). As party to
the sale, FEGDI is the one who may appeal the ruling rescinding the sale. The remedy of appeal
is available to a party who has "a present interest in the subject matter of the litigation and is
aggrieved or prejudiced by the judgment. A party, in turn, is deemed aggrieved or prejudiced
when his interest, recognized by law in the subject matter of the lawsuit, is injuriously affected
by the judgment, order or decree."17 The rescission of the sale does not in any way prejudice
Forest Hills in such a manner that its interest in the subject matter – the share of stock – is
injuriously affected. Thus, Forest Hills is in no position to appeal the ruling rescinding the sale of
the share. Since FEGDI, as party to the sale, filed no appeal against its rescission, we consider as
final the CA’s ruling on this matter.

Ruling on return of amounts paid by

reason of the sale modified

The CA’s ruling ordering the "return to [Vertex] the amount it paid by reason of the sale" 18 did
not specify in detail what the amount to be returned consists of and it did not also state the
extent of Forest Hills, FEGDI, and FELI’s liability with regard to the amount to be returned. The
records, however, show that the following amounts were paid by Vertex to Forest Hills, FEGDI,
and FELI by reason of the sale:

Payee Date of Purpose Amount Paid

Payment

FEGDI February 9, Purchase price ₱780,000.0019

1999 for one (1)
Class "C"
common share

29
 FEGDI February 9, Transfer fee P 60,000.0020
1999

Forest Hills February 23, Membership P 150,000.0021

1999 fee

FELI September 25, Documentary P 6,300.0022

2000
Stamps

FEGDI September 25, Notarial fees P 200.0023

2000

A necessary consequence of rescission is restitution: the parties to a rescinded contract must be

brought back to their original situation prior to the inception of the contract; hence, they must
return what they received pursuant to the contract.24 Not being a party to the rescinded
contract, however, Forest Hills is under no obligation to return the amount paid by Vertex by
reason of the sale. Indeed, Vertex failed to present sufficient evidence showing that Forest Hills
received the purchase price for the share or any other fee paid on account of the sale (other than
the membership fee which we will deal with after) to make Forest Hills jointly or solidarily liable
with FEGDI for restitution.

Although Forest Hills received ₱150,000.00 from Vertex as membership fee, it should be allowed
to retain this amount. For three years prior to the rescission of the sale, the nominees of Vertex
enjoyed membership privileges and used the golf course and the amenities of Forest Hills. 25 We
consider the amount paid as sufficient consideration for the privileges enjoyed by Vertex's
nominees as members of Forest Hills.

WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for review on
certiorari. The decision dated February 22, 2012 and the resolution dated May 31, 2012 of the
Court of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED. Petitioner Forest Hills Golf &
Country Club is ABSOLVED from liability for any amount paid by Vertex Sales and Trading, Inc. by
reason of the rescinded sale of one (1) Class "C" common share of Forest Hills Golf & Country
Club

30
7. (2013)
8. Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 362 SCRA 635 (2001)

FACTS: On October 28, 1997, Dolores Potenciano, Max Joseph Potenciano, Mercedelin
Potenciano, Delfin Yorro, and Maya Industries, Inc., entered into a Sale and Purchase Agreement,
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. The purchase price for the shares of stock was P72,076,425.00.
A downpayment was made while the balance was payable on November 26, 1997. The
contracting parties stipulated that the downpayment was conditioned upon receipt by the buyer
of certain documents upon signing of the Agreement, namely, the Secretary's Certificate stating
that the Board of Directors of Maya Industries, Inc. authorized the sale of its shares in BLTB and
the execution of the Agreement, and designating Dolores A. Potenciano as its Attorney-in-Fact;
the Special Power of Attorney executed by each of the sellers in favor of Dolores A. Potenciano
for purposes of the Agreement; the undated written resignation letters of the Directors of BLTB,
except Henry John A. Potenciano, Michael A. Potericiano and Candido A. Potenciano; a revocable
proxy to vote the subject shares made by the sellers in favor of the buyer; a Declaration of Trust
made by the sellers in favor of the buyer acknowledging that the subject shares shall be held in
trust by the sellers for the buyer pending their transfer to the latter's name; and the duly
executed capital gains tax return forms covering the sale, indicating no taxable gain on the same.
Furthermore, the buyer guaranteed that it shall take over the management and operations of
BLTB but shall immediately surrender the same to the sellers in case it fails to pay the balance of
the purchase price on November 26, 1997. 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 Subsequently, on November 28, 1997, another stockholders' meeting was held,
wherein

Laureano A. Siy and Renato L. Leveriza were elected as directors. At the same meeting, the Board
of Directors of BLTB elected James Olayvar, Eduardo Azucena, Evelio Custodia, and Gemma
Santos as officers. 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, Michael Potenciano
wrote Benjamin Bitanga, requesting for a postponement of the stockholders' meeting due to the
absence of a thirty-day advance notice. However, no response from Bitanga on whether or not
the request for postponement was favorably acted upon. On the scheduled date of the meeting,
inasmuch as there was no notice of postponement prior to that, a total of 286 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, and a new set of officers was
thereafter elected. On May 21, 1998, the Bitanga group filed with the SEC a Complaint for
Damages and Injunction. Their prayer for the issuance of a temporary restraining order was,
however, denied at the ex-parte summary hearing conducted by SEC Chairman Perfecto Yasay,
Jr. Likewise, the Potenciano group filed on May 25, 1998, a

31
Complaint for Injunction and Damages with Preliminary Injunction and Temporary Restraining
Order with the SEC. The 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.
A joint hearing was conducted. 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. 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 holdover capacity. The Potenciano group filed a
petition for certiorari 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. The Bitanga group immediately filed a petition for certiorari
with the Court of Appeals on July 22, 1998, followed by a Supplemental Petition on August 10,
1998. Meanwhile, on July 29, 1998, the SEC En Banc issued a writ of preliminary injunction against
the Bitanga group, after the Potencianos posted the required bond of P20,000,000.00. On
November 23, 1998, the CA rendered the now assailed Decision, reversing the assailed Orders of
the SEC En Banc and reinstating the Order of the Hearing Panel ordered dated June 17, 1998. The
CA denied the Motions for Reconsideration in a Resolution dated March 25, 1999. Hence, this
petition for review.

ISSUE: Whether or not 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. The purpose of registration, therefore, is
twofold: 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.

WHEREFORE, in view of all the foregoing, the instant petitions for review are GRANTED. The
Decision of the Court of Appeals dated November 23, 1998 in CA-G.R. SP No. 48374 and its

32
resolution dated March 25, 1999 are SET ASIDE. The Orders of the SEC En Banc dated July 21,
1998 and July 27, 1998 in SEC Case No. EB 611 are ordered REINSTATED.

9. Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002)

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: W/N Gaid’s cert. of stocks be transferred to Ponce.

RULING:

NO. 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.

33
Pursuant to Section 63 Corp. Code (Sec. 63, RCC), 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 the issuance of stock certificates in the name of the transferee even when there has been
compliance with the requirements of Section 64, Corp Code (Sec. 64, RCC).

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.

10. Cojuangco v. Sandiganbayan, 586 SCRA 790 (2009)

IMELDA O. COJUANGCO et al. v. SANDIGANBAYAN et al. 586 SCRA 790 (2009)

While the general rule is that the portion of a decision that becomes the subject of execution is
that ordained or decreed in the dis-positive part thereof, there are recognized exceptions to this

34
rule, one of which is where extensive and explicit discussion and settlement of the issue is found
in the body of the decision. The Republic of the Philippines (Republic) filed before the
Sandiganbayan a “Complaint for Reconveyance, Reversion, Accounting, Restitution and
Damages,” of the alleged ill-gotten wealth of the Marcoses which have been invested in the
Philippine Long Distance Telecommunication Corporation (PLDT). Ramon and Imelda Cojuangco
(Spouses Cojuangco) were subsequently impleaded. The Sandiganbayan dismissed the complaint
with respect to the recovery of the PLDT shares. The Republic appealed to the Supreme Court,
and the same issued a favorable ruling. The Republic thereafter filed with the Sandiganbayan a
Motion for the Issuance of a Writ of Execution, praying for the cancellation of the shares of stock
registered in the name of Prime Holdings and the annotation of the change of ownership on
PTIC‘s Stock and Transfer Book. The Republic further prayed for the issuance of an order for PTIC
to account for all cash and stock dividends declared by PLDT in favor of PTIC from 1986 up to the
present including compounded interests. The Sandiganbayan granted the same, except its prayer
for accounting of dividends. The Republic moved for reconsideration with respect to the denial
of accounting of dividends, which the Sandiganbayan granted. The Cojuangcos protested,
alleging that the SC‘s decision did not include in its dispositive portion the grant of dividends and
interests accruing to the shares adjudicated in favor of the Republic.

ISSUE: Whether or not the Republic is entitled to the dividends and interests accruing to the
shares despite its non-inclusion in the dis-positive portion of the decision

HELD: The Cojuangcos insist on a literal reading of the dis-positive portion of the SC‘s Decision,
excluding the dividends, interests, and earnings accruing to the shares of stock from being
accounted for and remitted. The SC, in directing the re-conveyance to the Republic of the 111,415
shares of PLDT stock owned by PTIC in the name of Prime Holdings, declared the Republic as the
owner of said shares and, necessarily, the dividends and interests accruing thereto. Ownership is
a relation in law by virtue of which a thing pertaining to one person is completely subjected to
his will in everything not prohibited by law or the concurrence with the rights of another. Its
traditional elements or attributes include jus utendi or the right to receive from the thing that it
produces. Contrary to the Cojuangcos‘ contention, while the general rule is that the portion of a
decision that becomes the subject of execution is that ordained or decreed in the dis-positive
part thereof, there are recognized exceptions to this rule, viz: (a) where there is ambiguity or
uncertainty, the body of the opinion may be referred to for purposes of construing the judgment,
because the dis-positive part of a decision must find support from the decision‘s ratio decidendi;
and (b) where extensive and explicit discussion and settlement of the issue is found in the body
of the decision. In the Decision, although the inclusion of the dividends, interests, and earnings
of the 111,415 PTIC shares as belonging to the Republic was not mentioned in the dis-positive
portion of the Court‘s Decision, it is clear from its body that what was being adjudicated in favor
of the Republic was the whole block of shares and the fruits thereof, said shares having been
found to be part of the Marcoses‘ ill- gotten wealth, and therefore, public money.

11. Chua Guan v. Samahang Magsasaka, Inc., 62 Phil. 472 (1935)

12. Bachrach Motor Co. v. Lacson Ledesma, 64 Phil. 681 (1937)

35
Lessons Applicable: Quasi-negotiable Character of Certificate of Stock (Corporate Law)

FACTS:

June 30, 1927: CFI favored Bachrach Motor Co., Inc (Bachrach) against Mariano Lacson
Ledesma

Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay Milling Co., Inc
shares

September 29, 1928: PNB brought an action against Ledesma and his wife Concepcion
Diaz for the recovery of a mortgage credit

January 2, 1929: PNB amended its complaint by including the Bachrach Motor Co., Inc.,
as party defendant because they claim to have rights to some of the subject matters of this
complaint

January 30, 1929: Bachrach field a gen. denial

CFI: favored PNB

December 20, 1929: Bachrach brought an action in the CFI against the Talisay-Silay Milling
Co., Inc., to recover P13,850 against the bonus or dividend w/c, by virtue of the resolution of
December 22, 1923, Central Talisay-Silay Milling Co., Inc., had declared in favor of Ledesma as
one of the owners of the hacienda which had been mortgaged to the PNB to secure the obligation
of the Talisay-Silay Milling Co., Inc. in favor of said bank

CFI: favored Bachrach

ISSUE: W/N shares of stock are personal property and therefore can be subject to pledge or
chattel mortgage

HELD: YES. AFIRMED

section 4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage
shall not be valid against any person except the mortgagor, his executors or administrators,
unless the possession of the property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province in which the mortgagor
resides.

36
 pledge of the 6,300 stock dividends is valid against the Bachrach because the certificate
was delivered to the creditor bank, notwithstanding the fact that the contract does not appear
in a public instrument

Certificates of stock or of stock dividends, under the Corporation Law, are quasi
negotiable instruments in the sense that they may be given in pledge or mortgage to secure an
obligation

certificates of stock, while not negotiable in the sense of the law merchant, like bills and
notes, are so framed and dealt with as to be transferable, when property endorsed, by mere
delivery, and as they frequently convey, by estoppel against the corporation or against prior
holders, as good a title to the transferee as if they were negotiable, and inasmuch as a large
commercial use is made of such certificates as collateral security, and it is to the public interest
that such use should be simplify and facilitated by placing them as nearly as possible on the plane
of commercial paper, they are often spoken of and treated as quasi negotiable, that is as having
some of the attributes and partaking of the character of negotiable instruments, in passing from
hand to hand, especially where they are accompanied by an assignment and power of attorney,
executed in blank, to transfer them to anyone who may obtain possession as holders, even
though such assignment and power are under seal.

Bachrach Motor v. Mariano Ledesma; Talisay Milling

(Aug 1937)

Facts:

! Bachrach brought this action to recover the amount of judgments. It appealed form the
judgment declaring the right of PNB to the 6,300stock dividends as a preferred one absolving
PNB and Ledesma form the complaint.

! It prayed that:

O The transfer certificate of stock dividends of Talisay Milling ofthe PNB be declared null and void

O That Talisay Milling be ordered to cancel the entry of the transfer of 6,300 stock dividends
made by it on its books in favor of PNB

O That Talisay Milling be order to pay Php 22K in case the6300 stock dividends could not be sold
or if the proceeds of the sale are insufficient.

37
O That the defendants pay the cost of suit.

Antecedent Facts:

! Bachrach obtained judgment against Ledesma in the sum of 3K.

! The special sheriff, in compliance with the writ of execution attached all right, title to and
interest w/c Ledesma may have in any bonus,dividend, share of stock, money or property w/c
Ledesma is entitled to receive from Talisay Milling.

O This is by virtue of the fact that Ledesma mortgaged his land in favor of PNB to guarantee the
indebtedness of TalisayMilling or w/c defendant is entitled to receive from Talisay on account of
being a stockholder.

O The notice of attachment was served to both Ledesma andTalisay.

! Talisay even received a copy of the notice of attachment.

! On Oct 3, 1927, Bachrach obtained judgment against Ledesma

O Writ of execution caused attachment of Ledesma’s right of redemption over parcels of land.

O On the day of issuance of the execution, real properties were mortgaged to PNB to secure
payment to said bank byLedesma of the sum of P624K

! In the same instrument of mortgage, Ledesmamortgaged in favor of PNB shares owned by him
inTalisay Milling.

! Certificate covering 6,300 stock dividends were delivered as security to Atty. Roman as
representative of bank PNB.

O Talisay Milling granted a bonus or compensation to the owners of the real properties
mortgaged to answer the debts contracted by it with PNB.

! Pursuant to this, Ledesma was allotted P19K.

! PNB brought an action against Ledesma and his wife for the recovery of mortgage credit.

O PNB amended its complaint to include Bachrach Motor as a party because it claims to have
some right to certain properties which PNB was also claiming.

! CFI Bacolod rendered judgment in favor of PNB.

O Bachrach brought an action against Talisay to recover the bonus or dividends declared by the
corporation againstMariano Ledesma as one of the owners of the hacienda w/chad been
mortgaged to PNB to secure obligation of Talisay.

38
Issues :

! WON pledge of stocks was ineffective against Bachrach because evidence of its date was not
made to appear in a public instrument.

! WON pledge could not legally exist because the certificate was not the shares themselves.

O Certificate of stock cannot be the subject matter of the contracts of pledge or chattel mortgage.

Held:

! The pledge of stock dividends is valid against Bachrach Motor because the certificate was
delivered to creditor bank PNB,notwithstanding the fact that the contract DOESN'T appear in a
public instrument.

O Civ. Code provides that: no pledge shall be effective against a 3rd person unless evidence of
its date appears in a public instrument.

! But this provision has been modified by ChattelMortgage Law (Sec 4)

! A chattel mortgage shall not be valid against any person except the mortgagor, his
executor/administrator UNLESS the possession of the property is delivered to and retained by
the mortgagee OR unless the mortgage is recorded in the office of the Register of Deeds of the
province inw/c the mortgagor resides.

! Certificate of stock or of stock dividends under the corporation laware QUASI NEGOTIABLE
instruments in the sense that they may begiven in pledge or mortgage to secure an obligation.

o Petitioner Bachrach contends that pledge couldn't legally exist because the certificate was not
the shares themselves and that the stock certificate cannot be the subject matter of a contract
of pledge or chattel mortgage

13. Nava v. Peers Marketing Corp., 74 SCRA 65 (1976)

FACTS: Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at

P100 PV and paid 25%. No certificate of stock was issued to him or to any incorporator,
subscriber or stockholder.

April 2, 1966: Po sold to Ricardo A. Nava for P2,000 20 of 80 shares

Nava requested to register the sale in the books of the corporation.

denied - Po has not paid fully the amount of his subscription

39
Po was delinquent of the balance due so the corporation claimed on his entire subscription of
which included 20 shares sold to Nava.

December 21, 1966: Nava filed this mandamus to register 20 shares in Nava's name in the
corporation's transfer book.

CFI: court dismissed the petition

Nava appealed on the basis that

Section 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 case of no par stock, has been paid by him to the
corporation"

ISSUE: W/N officers of Peers Marketing Corporation can be compelled by mandamus to enter in
its stock and transfer book the sale made

HELD: NO. dismissal affirmed.

no provision of the by-laws of the corporation covers that situation

SEC. 35. 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 share of stock against which the corporation holds any unpaid claim shall be transferable
on the books of the corporation.

SEC. 36. (re voting trust agreement) ...

The certificates of stock so transferred shall be surrendered and cancelled, and new
certificates therefor issued to such person or persons, or corporation, as such trustee or trustees,
in which new certificates it shall appear that they are issued pursuant to said agreement.

A stock subscription is a subsisting liability from the time the subscription is made. The subscriber
is as much bound to pay his subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable.

no clear legal duty on the part of the officers of the corporation to register the 20 shares in Nava's
name - no cause of action for mandamus.

40
Baltazar case: partial payment = entitled to vote the said shares although he has not paid the
balance of his subscription and a call or demand had been made for the payment of the par value
of the delinquent shares

Without stock certificate, which is the evidence of ownership of corporate stock, the assignment
of corporate shares is effective only between the parties to the transaction delivery of the stock
certificate, which represents the shares to be alienated , is essential for the protection of both
the corporation and its stockholders

14. MR Holdings, Ltd. V. Bajar, 683 SCRA 336 (2012)

MR Holdings, Ltd., vs. Sheriff Carlos P. Bajar, Sheriff Iv, RTC of Manila, Citadel Holdings, Inc.,
Vercingetorix Corporation, Manila Golf & Country Club, Inc. And Marcopper Mining
Corporation,
G.R. No. 153478. October 10, 2012

Facts: Petitioner MR Holdings, Ltd. is a non-resident foreign corporation, organized and existing
under the laws of Cayman Island. It is a subsidiary corporation of Placer Dome, Inc. (Placer Dome),
a foreign corporation which owns 40% of respondent Marcopper Mining Corporation
(Marcopper)
Marcopper and Asian Development Bank (ADB) executed a "Principal Loan Agreement
with an amount of US$40,000,000.00 to finance Marcopper's open-pit copper ore mining project
(San Antonio Mine) at Sta. Cruz, Marinduque.
As security for the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and
Chattel Mortgage"... covering substantially all of its real and personal properties... including
Manila Golf & Country Club (Manila Golf Club) Membership Certificate Nos. 1412 and 1444. The
Deed of Real Estate and Chattel Mortgage and Addendum to Mortgage were registered with the
Register of Deeds.
Sometime in March, 1996, Marcopper had to stop mining operations when tons of mine
waste or tailings leaked from the drainage tunnel, massive damage to the environment.
Department of Environment and Natural Resources immediately issued a Closure Order.
Marcopper defaulted on its loan obligations to ADB.
Petitioner assumed Marcopper's obligation to ADB. ADB then assigned to petitioner all its
rights, interests and obligations under the principal and complementary loan agreements, Deed
of Real Estate and Chattel Mortgage, and Support and Standby Credit Agreement.
Marcopper subsequently executed a “Deed of Assignment” whereby Marcopper assigns,
cedes and conveys to petitioner, its assigns and/or successors-in-interest all of its properties,
mining equipment and facilities. Inability to meet production targets after the mine tailings

41
disaster in its Marinduque project, Marcopper was sued by one of its creditors, Solidbank
Corporation (Solidbank)
A writ of preliminary attachment was issued by said court, levied upon the properties of
Marcopper such as personal properties consisting of club membership shares, including the
subject Manila Golf Club shares.
Petitioner's motion for reconsideration was likewise denied under the Order dated May
10, 2000 stating that the notice of lis pendens provided in Section 76 of Presidential Decree (P.D.)
No. 1529 pertains to real properties and not shares of stock which are considered chattels, and
that granting the motion would constitute an undue restraint on the ownership of Citadel and
Vercingetorix of the Manila Golf membership certificates.
On July 3, 2000, petitioner filed a petition for certiorari in the CA assailing the aforesaid
orders of the Makati City RTC, Branch 62 denying its motion to annotate a notice of lis pendens
on Manila Golf Membership Certificate Nos. 1412 and 1444.

Issue: Whether petitioner’s lien/ title and the pending litigation or transferees pendent lite may
be charged with constructive notice of petitioner’s lien/ title over the subject shares and the
pending litigation involving the same.

Ruling: YES.
Lis pendens, which literally means pending suit, refers to the jurisdiction, power or control
which a court acquires over property involved in a suit, pending the continuance of the action,
and until final judgment. It is evident that a notice of lis pendens is availed of mainly in real
actions.
Petitioner, citing the 1958 case of Diaz v. Hon. Perez, et al.[29] argues that lis pendens
may also be allowed in "other circumstances wherein equity and general convenience would
make [it] appropriate."
We do not agree that the afore-cited case serves as authority for allowing the annotation
of lis pendens in an action involving only personal property.
Clearly then no abuse was made of the court's discretion.

It has been declared in a case decided by the US Supreme Court that the doctrine of lis
pendens has no application to commercial securities. In some other cases the doctrine has been
applied to personal properties such as corporate stock,. non-negotiable bond, and non-
negotiable notes. Statutes may also expressly provide for the filing of a formal notice of lis
pendens even in actions involving only personal property. However, there seems to be no
uniformity of rulings with respect to the application of the doctrine of lis pendens to corporate
stock.
In this case, the notice of lis pendens was sought to be annotated on membership
certificates representing a proprietary interest in the assets of a private non-stock corporation.
Petitioner, as early as July 21, 1997 had formally notified Manila Golf Club's Corporate Secretary
of the assignment of chattel mortgage duly registered covering the subject shares of Marcopper,
and further requested that the same be recorded to put third parties on notice of petitioner's
lien.

42
 After the chattel mortgage was extrajudicially foreclosed on September 15, 1997,
petitioner promptly notified the said officer and furnished him with a copy of the Certificates of
Sale issued by Sheriff Bajar in favor of petitioner as the highest bidder during the public auction
sale of the subject club shares.
Subsequently, however, Manila Golf Club informed petitioner of its inability to comply
with its request in view of the Order of the Manila RTC ordering Manila Golf Club to transfer
Membership Certificate Nos. 1412 and 1444 in the name of respondents Citadel and
Vercingetorix who purchased the same in the execution pending sale authorized by said court.
Manila Golf Club thus declared that it has to comply with the said directive until the same is
revised by the trial court or higher courts.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated May 8,
2002 of the Court of Appeals in CA-G.R. SP No. 59476 is AFFIRMED.

15. Stockholders of F. Guanson and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962)

FACTS:
■ Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate
of liquidation of the assets of the corporation, dissolution and distribution among
themselves in proportion to their shareholdings, as liquidating dividends, corporate
assets, including real properties
■
Register of Deeds of Manila denied the registration of the certificate of liquidation:
1. The number of parcels not certified to in the acknowledgment;
2.
P430.50 Reg. fees need be paid;
3.
P940.45 documentary stamps need be attached to the document;
4.
The judgment of the Court approving the dissolution and directing the disposition
of the assets of the corporation need be presented
■ Commissioner of Land Registration overruled ground No. 7 and sustained
requirements Nos. 3, 5 and 6.

43
 ■
Stockholders appealed
■

■ contend that the certificate of liquidation is not a conveyance or transfer but

merely a distribution of the assets of the corporation which has ceased to
exist for having been dissolved
ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be
considered a transfer or conveyance)

HELD: NO. affirm the resolution appealed from

16. Corporation - juridical person distinct from the members composing it.
17.

a. Properties registered in the name of the corporation are owned by it as

an entity separate and distinct from its members.
b.
While shares of stock constitute personal property they do not represent
property of the corporation.
c.

i. 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 entitled to
possession
ii.
The stockholder is not a co-owner or tenant in common of the
corporate property

18. Tan v. Sycip, 499 SCRA 216 (2006)

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG,STEPHEN CO, JAMES TAN, JUDITH TAN,
ERNESTOTANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES
and GRACE CHRISTIAN HIGH SCHOOL, Petitioners,

- versus -

PAUL SYCIP and MERRITTO LIM, Respondents

44
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation
with fifteen (15) regular members, who also constitute the board of trustees.

During the annual members meeting held on April 6, 1998, there were only eleven (11) living
member-trustees, as four (4) had already died. Out of the eleven, seven (7) attended the meeting
through their respective proxies.

In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted
to replace the four deceased member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right
to vote) and interests in the corporation.

The SEC hearing officer declared the meeting null and void for lack of quorum. He also opined
that Article III (2) of the By-Laws of GCHS, insofar as it prescribed the mode of filling vacancies in
the board of trustees, must be interpreted in conjunction with Section 29 of the Corporation
Code.

The Court of Appeals dismissed the appeal based on defective verification and certification.

Issue: W/N the filling up of vacancies was proper.

Held: No.

The phrase may be filled in Section 29 shows that the filling of vacancies in the board by the
remaining directors or trustees constituting a quorum is merely permissive, not mandatory.
Corporations, therefore, may choose how vacancies in their respective boards may be filled up -
- either by the remaining directors constituting a quorum, or by the stockholders or members in
a regular or special meeting called for the purpose.

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
directors; that is, by a majority vote of the remaining members of the board.

While a majority of the remaining corporate members were present, however, the election of
the four trustees cannot be legally upheld for the obvious reason that it was held in an annual
meeting of the members, not of the board of trustees. Although the members of GCHS
themselves also constitute the trustees, it cannot be ignored that the GCHS bylaw provision
specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In
other words, these remaining member-trustees must sit as a board in order to validly elect the
new ones.

WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals
are hereby REVERSED AND SET ASIDE.The remaining members of the board of trustees of Grace

45
Christian High School (GCHS) may convene and fill up the vacancies in the board, in accordance
with this Decision. No pronouncement as to costs in this instance.

19. Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 SCRA 461 (2011)

FACTS:

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.

Reeling from severe liquidity problems beginning in 1980, RUBY filed onDecember 13, 1983a
petition for suspension of payments with the Securities and Exchange Commission (SEC)
docketed as SEC Case No. 2556.On December 20, 1983, the SEC issued an order declaring RUBY
under suspension of payments and enjoining the disposition of its properties pending hearing of
the petition, except insofar as necessary in its ordinary operations, and making payments outside
of the necessary or legitimate expenses of its business.

On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for
RUBY, composed of representatives from Allied Leasing and Finance Corporation (ALFC),
Philippine Bank of Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas
Shell Petroleum Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang.The
MANCOM was tasked to perform the following functions: (1) undertake the management of
RUBY; (2) take custody and control over all existing assets and liabilities of RUBY; (3) evaluate
RUBYs existing assets and liabilities, earnings and operations; (4) determine the best way to
salvage and protect the interest of its investors and creditors; and (5) study, review and evaluate
the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu Kim Giang, and the Alternative Plan of
the minority stockholders represented by Miguel Lim (Lim).

Both plans were endorsed by the SEC to the MANCOM for evaluation.

OnApril 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the Revised
BENHAR/RUBY Plan and the creation of a new management committee.Instead, they endorsed
the minority stockholders Alternative Plan.At the hearing of the petition for the creation of a new
management committee, three (3) members of the original management committee (Lim, ALFC
and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it would
legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest
creditor of RUBY;(2) it would put RUBYs assets beyond the reach of the unsecured creditors and
the minority stockholders; and (3) it was not approved by RUBY’’s stockholders in a meeting
called for the purpose.

Notwithstanding the objections of 90% of RUBY’s creditors and three members of the MANCOM,
the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY Plan and

46
dissolved the existing management committee. It also created a new management committee
and appointed BENHAR as one of its members. In addition to the powers originally conferred to
the management committee under Presidential Decree (P.D.) No. 902-A, the new management
committee was tasked to oversee the implementation by the Board of Directors of the revised
rehabilitation plan for RUBY.

ISSUE: W/N the minority’s pre-emptive rights were violated

RULING:

YES. Pre-emptive right under Sec. 39, Corp. Code (Sec. 38, RCC) refers to the right of a stockholder
of a stock corporation to subscribe to all issues or disposition of shares of any class, in proportion
to their respective shareholdings.The right may be restricted or denied under the articles of
incorporation, and subject to certain exceptions and limitations.The stockholder must be given a
reasonable time within which to exercise their preemptive rights.Upon the expiration of said
period, any stockholder who has not exercised such right will be deemed to have waived it.

The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders.Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Sec. 39 (Sec. 38) or because it is denied or limited in the
articles of incorporation, an issue of shares may still be objectionable if the directors acted in
breach of trust and their primary purpose is to perpetuate or shift control of the corporation, or
to "freeze out" the minority interest. In this case, the following relevant observations should have
signaled greater circumspection on the part of the SEC -- upon the third and last remand to it
pursuant to our January 20, 1998 decision -- to demand transparency and accountability from
the majority stockholders, in view of the illegal assignments and objectionable features of the
Revised BENHAR/RUBY Plan, as found by the CA and as affirmed by this Court:

“There can be no gainsaying the well-established rule in corporate practice and procedure that
the will of the majority shall govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws not proscribed by law. It is, however, equally true that other
stockholders are afforded the right to intervene especially during critical periods in the life of a
corporation like reorganization, or in this case, suspension of payments, more so,when the
majority seek to impose their will and through fraudulent means, attempt to siphon off Rubys
valuable assets to the great prejudice of Ruby itself, as well as the minority stockholders and the
unsecured creditors.”

Certainly, the minority stockholders and the unsecured creditors are given some measure of
protection by the law from the abuses and impositions of the majority, more so in this case,
considering thegive-away signs of private respondents perfidy strewn all over the factual
landscape.Indeed, equity cannot deprive the minority of a remedy against the abuses of the
majority, and the present action has been instituted precisely for the purpose of protecting the
true and legitimate interests of Ruby against the Majority Stockholders. On this score, the
Supreme Court, has ruled that:

47
"Generally speaking, the voice of the majority of the stockholders is the law of the corporation,
but there are exceptions to this rule.There must necessarily be a limit upon the power of the
majority.Without such a limit the will of the majority will be absolute and irresistible and might
easily degenerate into absolute tyranny.x x x"

Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for the
SEC to order RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9 of the
Rules on Corporate Recovery. Under the circumstances, liquidation was the only hope of the
minority stockholders for effecting an orderly and equitable settlement of RUBY’s obligations,
and compelling the majority stockholders to account for all funds, properties and documents in
their possession, and make full disclosure on the nullified credit assignments.Oblivious to these
pending incidents so crucial to the protection of the interest of the majority of creditors and
minority shareholders, the SEC simply stated that in the interim, RUBY’s corporate term was
validly extended, as if such extension would provide the solution to RUBY’s myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a
stockholders meeting called for the purpose.The actual percentage of shareholdings in RUBY as
of September 3, 1996 -- when the majority stockholders allegedly ratified the board resolution
approving the extension of RUBY's corporate life to another 25 years was seriously disputed by
the minority stockholders,and we find the evidence of compliance with the notice and quorum
requirements submitted by the majority stockholders insufficient and doubtful.Consequently,
the SEC had no basis for its ruling denying the motion of the minority stockholders to declare as
without force and effect the extension of RUBY's corporate existence.”

20. General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007)

General Credit Corporation vs. Alsons Development and Investment Corporation, 513
SCRA 225 , January 29, 2007

Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The first consequence of
the doctrine of legal entity of the separate personality of the corporation is that a corporation
may not be made to answer for acts and liabilities of its stockholders or those of legal entities
to which it may be connected or vice versa.—A corporation is an artificial being vested by law
with a personality distinct and separate from those of the persons composing it as well as
from that of any other entity to which it may be related. The first consequence of the doctrine
of legal entity of the separate personality of the corporation is that a corporation may not be
made to answer for acts and liabilities of its stockholders or those of legal entities to which it
may be connected or vice versa. The notion of separate personality, however, may be
disregarded under the doctrine—“piercing the veil of corporate fiction”—as in fact the court
will often look at the corporation as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding the separate juridical personality of
the corporation unifying the group. Another formulation of this doctrine is that when two (2)
business enterprises are owned, conducted and controlled by the same parties, both law and

48
equity will, when necessary to protect the rights of third parties, disregard the legal fiction
that two corporations are distinct entities and treat them as identical or one and the same.

Same; Same; Whether the separate personality of the corporation should be pierced hinges
on obtaining facts, appropriately pleaded or proved.—Whether the separate personality of
the corporation should be pierced hinges on obtaining facts, appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with caution, albeit the Court will
not hesitate to disregard the corporate veil when it is misused or when necessary in the
interest of justice. After all, the concept of corporate entity was not meant to promote unfair
objectives. Authorities are agreed on at least three (3) basic areas where piercing the veil,
with which the law covers and isolates the corporation from any other legal entity to which
it may be related, is allowed. These are: 1) defeat of public convenience, as when the
corporate fiction is used as vehicle for the evasion of an existing obligation; 2) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.

Same; Same; The Court agrees with the disposition of the appellate court on the application
of the piercing doctrine to the transaction subject of the instant case where, per the Court’s
count, the trial court enumerated no less than 20 documented circumstances and transactions
which, taken as a package, indeed strongly supported the conclusion that a corporation was
but an adjunct, an instrumentality or business conduit of another corporation.—The Court
agrees with the disposition of the appellate court on the application of the piercing doctrine
to the transaction subject of this case. Per the Court’s count, the trial court enumerated no
less than 20 documented circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but an adjunct, an
instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a
justifying ground to pierce petitioner’s corporate existence as to ALSONS’ claim in question.
Foremost of what the trial court referred to as “certain circumstances” are the commonality
of directors, officers and stockholders and even sharing of office between petitioner GCC and
respondent EQUITY; certain financing and management arrangements between the two,
allowing the petitioner to handle the funds of the latter; the virtual domination if not control
wielded by the petitioner over the finances, business policies and practices of respondent
EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB
rules.

Petitioner General Credit Corporation (GCC, for short), then known as Commercial Credit
Corporation (CCC), established CCC franchise companies in different urban centers of the
country.3 In furtherance of its business, GCC had, as early as 1974, applied for and was able

49
to secure license from the then Central Bank (CB) of the Philippines and the Securities and
Exchange Commission (SEC) to engage also in quasi-banking activities.4 On the other hand,
respondent CCC Equity Corporation (EQUITY, for brevity) was organized by GCC for the
purpose of, among other things, taking over the operations and management of the various
franchise companies. At a time material hereto, respondent Alsons Development and
Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha and Ladislawa,
all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, for
convenience), each owned, just like GCC, shares in the aforesaid GCC franchise companies,
e.g., CCC Davao and CCC Cebu.

ALSONS and the Alcantara family, for a consideration of 2Million Pesos, sold their
shareholdings - a total of 101,953 shares, more or less - in the CCC franchise companies to
EQUITY. EQUITY issued ALSONS et al., a "bearer" promissory note for P2Million with a one-
year maturity date, at 18% interest per annum, with provisions for damages and litigation
costs in case of default.

Some four years later, the Alcantara family assigned its rights and interests over the bearer
note to ALSONS which thenceforth became the holder thereof.7 But even before the
execution of the assignment deal aforestated, letters of demand for interest payment were
already sent to EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay
the stipulated interest, EQUITY no longer then having assets or property to settle its
obligation nor being extended financial support by GCC.

ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a
sum of money8 against EQUITY and GCC. As stated in par. 4 of the complaint, GCC is being
impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and,
under the doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been
organized as a tool and mere conduit of GCC.

Answering with a cross-claim against GCC, EQUITY stated that it (EQUITY) was purposely
organized by GCC for the latter to avoid CB Rules and Regulations on DOSRI (Directors,
Officers, Stockholders and Related Interest) limitations, and that it acted merely as
intermediary or bridge for loan transactions and other dealings of GCC to its franchises and
the investing public; is solely dependent upon GCC for its funding requirements, to settle,
among others, equity purchases made by investors on the franchises; hence, GCC is solely
and directly liable to ALSONS, the former having failed to provide 'EQUITY the necessary funds
to meet its obligations to ALSONS.

GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from
EQUITY and alleging, in essence that the business relationships with each other were always
at arm's length. And following the denial of its motion to dismiss ALSONS' complaint, on the
ground of lack of jurisdiction and want of cause of action, GCC filed its Answer thereto and
set up affirmative defenses with counterclaim for exemplary damages and attorney's fees.

50
Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of
GCC and considering the legal consequences and implications of such relationship, came out
with its decision rendering judgment for ALSONS. CA affirmed.

ISSUE: whether there is absolutely no basis for piercing GCC's veil of corporate identity.

HELD:

A corporation is an artificial being vested by law with a personality distinct and separate from
those of the persons composing it as well as from that of any other entity to which it may be
related. The first consequence of the doctrine of legal entity of the separate personality of
the corporation is that a corporation may not be made to answer for acts and liabilities of its
stockholders or those of legal entities to which it may be connected or vice versa.

The notion of separate personality, however, may be disregarded under the doctrine -
"piercing the veil of corporate fiction" - as in fact the court will often look at the corporation
as a mere collection of individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the corporation unifying the group.
Another formulation of this doctrine is that when two (2) business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction that two corporations are distinct
entities and treat them as identical or one and the same.

Authorities are agreed on at least three (3) basic areas where piercing the veil, with which
the law covers and isolates the corporation from any other legal entity to which it may be
related, is allowed. These are: 1) defeat of public convenience, as when the corporate fiction
is used as vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being
justifiable basis for such action. When the appellate court spoke of a justifying factor, the
reference was to what the trial court said in its decision, namely: the existence of "certain
circumstances [which], taken together, gave rise to the ineluctable conclusion that -
[respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC."

The Court agrees with the disposition of the appellate court on the application of the piercing
doctrine to the transaction subject of this case. Per the Court's count, the trial court
enumerated no less than 20 documented circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent EQUITY was but an
adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn,
provides a justifying ground to pierce petitioner's corporate existence as to ALSONS' claim in

51
question. Foremost of what the trial court referred to as "certain circumstances" are the
commonality of directors, officers and stockholders and even sharing of office between
petitioner GCC and respondent EQUITY; certain financing and management arrangements
between the two, allowing the petitioner to handle the funds of the latter; the virtual
domination if not control wielded by the petitioner over the finances, business policies and
practices of respondent EQUITY; and the establishment of respondent EQUITY by the
petitioner to circumvent CB rules. For a perspective, the following are some relevant excerpts
from the trial court's decision setting forth in some detail the tipping circumstances adverted
to therein:

It must be noted that as characterized by their business relationship, [respondent] EQUITY

and [petitioner] GCC had common directors and/or officers as well as stockholders. This is
revealed by the proceedings recorded in SEC Case No. 25-81 where it was established, thru
the testimony of EQUITY's own President - that more than 90% of the stockholders of -
EQUITY were also stockholders of - GCC '.. Disclosed likewise is the fact that when [EQUITY's
President] Labayen sold the shareholdings of EQUITY in said franchise companies, practically
the entire proceeds thereof were surrendered to GCC, and not received by EQUITY.

It was likewise shown by a preponderance of evidence that not only had 'GCC financed -
EQUITY and that the latter was heavily indebted to the former but EQUITY was, in fact, a
wholly owned subsidiary of 'GCC. Thus, as affirmed by EQUITY's President, - the funds
invested by EQUITY in the CCC franchise companies actually came from CCC Phils. or GCC
(Exhibit "Y-5")'. that, as disclosed by the Auditor's report for 1982, past due receivables alone
of GCC exceeded P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. '; that
[CB's] Report of Examination dated July 14, 1977 shows that - EQUITY which has a paid-up
capital of only P500,000.00 was the biggest borrower of GCC with a total loan of P6.70 Million
'.

ALSONS has likewise shown 'that the bonuses of the officers and directors of - EQUITY was
based on its total financial performance together with all its affiliates' both firms were sharing
one and the same office when both were still operational - and that the directors and
executives of - EQUITY never acted independently - but took their orders from - GCC'.

It bears to stress at this point that the facts and the inferences drawn therefrom, upon which
the two (2) courts below applied the piercing doctrine, stand, for the most part, undisputed.
Among these is, to reiterate, the matter of EQUITY having been incorporated to serve, as it
did serve, as an instrumentality or adjunct of GCC. With the view we take of this case, GCC
did not adduce any evidence, let alone rebut the testimonies and documents presented by
ALSONS, to establish the prevailing circumstances adverted to that provided the justifying
occasion to pierce the veil of corporate fiction between GCC and EQUITY. We quote the trial
court:

Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC]
have been that of "parent-subsidiary corporations" the foregoing principles and doctrines
find suitable applicability in the case at bar; and, it having been satisfactorily and indubitably

52
 shown that the said relationships had been used to perform certain functions not
characterized with legitimacy, this Court - feels amply justified to "pierce the veil of corporate
entity" and disregard the separate existence of the percent (sic) and subsidiary the latter
having been so controlled by the parent that its separate identity is hardly discernible thus
becoming a mere instrumentality or alter ego of the former. Consequently, as the parent
corporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of its
subsidiary - [respondent] EQUITY - most especially if the latter (who had anyhow
acknowledged its liability to ALSONS) maybe (sic) without sufficient property with which to
settle its obligations. For, after all, GCC was the entity which initiated and benefited
immensely from the fraudulent scheme perpetrated in violation of the law. (Words in
parenthesis in the original; emphasis and bracketed words added).

Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity,
to assume the legitimate financial obligation of a cash-strapped subsidiary corporation which
it virtually controlled to such a degree that the latter became its instrument or agent. The
facts, as found by the courts a quo, and the applicable law call for this kind of disposition. Or
else, the Court would be allowing the wrong use of the fiction of corporate veil.

21. Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996)

22. Traders Royal Bank v. Court of Appeals, 269 SCRA 15 (1997)

FACTS OF THE CASE

Nature of the Case: Petition for Review on Certiorari. CA affirmed the nullity of the transfer of
Central Bank Certificate of Indebtedness (CBCI) No. D891,2 with a face value of Php 500,000.00
from the Philippine Underwriters Finance Corporation (Phil Finance) to Petitioner Trader's Royal
Bank (TRB) under a Repurchase Agreement and a Detached Assignment. Filriters Guaranty
Assurance Corporation (filters) is the owner of the Central Bank Certificate of Indebtednes (CBCI)
No. D891 worth Php500, 000.00 which was transferred to Philippine Underwriters Finance
Corporation (PhilFinance) through a Deed of Assignment. Subsequently Phil finance transferred
the said instrument (still registered under the name of flirters) to Traders Royal Bank (TRB). It
was made through a Repurchase Agreement. Phil finance defaulted in its obligation to TRB. It
then executed a Deed of Assignment to TRB. TRB then notified the Central Bank (Security
Servicing Department) to cause the transfer and registration of the CBCI No. D891 under its name.
It was however refused to do so in lieu of an adverse claim filed by Filters. The Court of Appeals
held that the CBCI is not a negotiable instrument. It is clearly stated that it was payable to flirters.
The certificate lacked the words of negotiability which serve as an expression of consent that the
instrument may be transferred by negotiation. The assignment of Filters to Phil finance was also
null and void because it was made without consideration. It also did not conform to the Central
Bank Circular No. 769, series of 1980 - Rules and Regulations Governing Central Bank Certificates
of Indebtedness. It provides that any assignment of registered certificates shall not be valid
unless made by the registered owner thereof in person or by his representative duly authorized
in writing. Alfredo O. Banaria (who signed the deed of assignment) did not have the necessary
written authorization from the Board of Directors of flirters. For lack of such authority, the

53
assignment did not bind flirters and violated the Central Bank Circular (No. 769) which has the
force and effect of a law. For such violations, Phil finance acquired no title or rights under CBCI
No. D891 which it could assign or transfer to TRB, and which TRB can register with the Central
Bank. On petition, TRB argued that Phil finance owns 90% of Flirter’s equity and the two
corporations have identical corporate officers, thus demanding the application of piercing the
veil of corporate fiction to give validity to the transfer of the CBCI from filters to TRB.

ISSUE

Was the transfer of the CBCI from Filriters to PhilFinance and subsequently from PhilFinance to
TRB, in accordance with existing law, so as to entitle TRB to have the CBCI registered in its name
with the Central Bank?

RULING

Corporation Law; Piercing the Veil of Corporate Fiction; Piercing the veil of corporate entity
requires the court to see through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.—Petitioner cannot put up
the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and may
be awarded only in cases when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business
conduit of a person. Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily, they could be
subject to, or distinguishes one corporation from a seemingly separate one, were it not for the
existing corporate fiction. But to do this, the court must be sure that the corporate fiction was
misused, to such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to protect by this doctrine. Filriters
and PhilFinance remains separate. Same; Same; Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself a
sufficient reason for disregarding the fiction of separate corporate personalities.—Though it is
true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other corporations may be disregarded, in
the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent corporate status
of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.
TRB was not defrauded at all when it acquired the CBCI from PhilFinance. Same; Same; An entity
which deals with corporate agents within circumstances showing that the agents are acting in
excess of corporate authority may not hold the corporation liable.—Petitioner, being a
commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An

54
entity which deals with corporate agents within circumstances showing that the agents are acting
in excess of corporate authority, may not hold the corporation liable. This is only fair, as everyone
must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith. TRB knew that PhilFinance is not the
registered owner of CBCI No. D891. The fact that a non-owner is disposing of the registered CBCI
owned by another entity was a good reason for the petitioner to verify or inquire as to the title
of Philfinance to dispose of the CBCI. Moreover the said instrument is governed by the rules and
regulations of the Central Bank. Alfredo O. Banaria did not have the necessary authorization from
the Board of Directors of Filriters to bind it. Lastly, Filriters acquired the CBCI to form part of its
legal and capital reserves required by law. Insurance companies are required to put up a legal
reserve equivalent to 40 percent of the premiums receipt. The Insurance Commission requires
this reserve to be invested preferably in government securities or government bonds. Therefore,
the said CBCI cannot be taken out of the said fund, without violating the requirements of the law.
The unauthorized use or distribution of the same by a corporate officer of Filriters, cannot bind
the corporation, not without the approval of its Board of Directors, and the maintenance of the
required reserve fund. Consequently, the title of Filriters over the subject certificate of
indebtedness must be upheld over the claimed interest of TRB.

23. Gochan v. Young, 354 SCRA 207 (2001)

24. Boyer-Roxas v. CA, 211 SCRA 470 (1992)

Rebecca Boyer-Roxas and Guillermo Roxas v. CA And Heirs Of Eugenia V. Roxas, Inc
(G.R. No. 100866 July 14, 1992)

Summary: In two complaints, Respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for
the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort allegedly
owned by the respondent corporation. The questioned properties in this case (buildings inside
the Hidden Valley Springs Resort located at Limao, Calauan, Laguna) belonged to Eugenia V.
Roxas. After her death, the heirs of Eugenia V. Roxas, among them the petitioners herein, decided
to form a corporation — Heirs of Eugenia V. Roxas, Incorporated (private respondent herein)
with the inherited properties as capital of the corporation. In their separate answers, the
petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V.
Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the
property, they have the right to stay within its premises.
The Court ruled that Respondent corporation has a distinct personality separate from its
members. The corporation transacts its business only through its officers or agents. Whatever
authority these officers or agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation. An officer's power as an agent
of the corporation must be sought from the statute, charter, the by-laws or in a delegation of
authority to such officer, from the acts of the board of directors, formally expressed or implied
from a habit or custom of doing business. The petitioners' suggestion that the veil of the

55
corporate fiction should be pierced is untenable. The separate personality of the corporation may
be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to
work injustice, or where necessary to achieve equity or when necessary for the protection of the
creditors." The circumstances in the present cases do not fall under any of the enumerated
categories.

Facts:
The questioned properties in this case (buildings inside the Hidden Valley Springs Resort
located at Limao, Calauan, Laguna) belonged to Eugenia V. Roxas. After her death, the heirs of
Eugenia V. Roxas, among them the petitioners herein, decided to form a corporation — Heirs of
Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited properties as
capital of the corporation. The corporation was incorporated on December 4, 1962 with the
primary purpose of engaging in agriculture to develop the inherited properties. The Articles of
Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the
resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs
Resort where the questioned properties are located.
In two complaints, Respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for
the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort allegedly
owned by the respondent corporation. Respondent corporation alleged that:
(1) Rebecca is in possession of two houses, one of which is still under construction, built at the
expense of the respondent corporation; and that her occupancy on the two houses was only
upon the tolerance of the respondent corporation; and
(2) Guillermo occupies a house which was built at the expense of the former during the time
when Guillermo's father, Eriberto Roxas, was still living and was the general manager of the
respondent corporation; that the house was originally intended as a recreation hall but was
converted for the residential use of Guillermo; and that Guillermo's possession over the house
and lot was only upon the tolerance of the respondent corporation. In both cases, the respondent
corporation alleged that the petitioners never paid rentals for the use of the buildings and the
lots and that they ignored the demand letters for them to vacate the buildings.
RTC ruled in favor of the Respondent. CA affirmed.

Issue: Whether the CA erred when it refused to pierce the veil of corporate fiction over private
respondent and maintain the petitioners in their possession and/or occupancy of the subject
premises considering that petitioners are owners of aliquot part of the properties of private
respondent.

Ruling: NO
Respondent corporation has a distinct personality separate from its members. The
corporation transacts its business only through its officers or agents. Whatever authority these
officers or agents may have is derived from the board of directors or other governing body unless
conferred by the charter of the corporation. An officer's power as an agent of the corporation
must be sought from the statute, charter, the by-laws or in a delegation of authority to such

56
officer, from the acts of the board of directors, formally expressed or implied from a habit or
custom of doing business.

Eufrocino V. Roxas who then controlled the management of the corporation, being the
majority stockholder, consented to the petitioners' stay within the questioned properties.
Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a
residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not
object to the actions of Eufrocino Roxas. The petitioners were allowed to stay within the
questioned properties until August 27, 1983, when the Board of Directors approved a Resolution
ejecting the petitioners. We find nothing irregular in the adoption of the Resolution by the Board
of Directors. The petitioners' stay within the questioned properties was merely by tolerance of
the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his
lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound
the corporation forever. The petitioners have not cited any provision of the corporation by-laws
or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them
to stay within the company premises forever. We rule that in the absence of any existing contract
between the petitioners and the respondent corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest of the respondent corporation.

The petitioners' suggestion that the veil of the corporate fiction should be pierced is
untenable. The separate personality of the corporation may be disregarded only when the
corporation is used "as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or when necessary for the protection of the creditors." The
circumstances in the present cases do not fall under any of the enumerated categories.

Wherefore, the petition is partly granted.

25. Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665 (2014)

acific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, March 24, 2014.

17
FEB
[REYES, J.]

FACTS

A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against
EIB Securities Inc. (E–Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific
Rehouse Corporation, Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum Holdings
Corporation, and East Asia Oil Company, Inc. In its October 18, 2005 Resolution, the RTC

57
rendered judgment on the pleadings, directing the E–Securities to return to the petitioners
32,180,000 DMCI shares, as of judicial demand. On the other hand, petitioners are directed to
reimburse the defendant the amount of [P]10,942,200.00, representing the buy back price of
the 60,790,000 KPP shares of stocks at [P]0.18 per share. The Resolution was ultimately
affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an
alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment obligation
as E–Securities is “a wholly–owned controlled and dominated subsidiary of Export and Industry
Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of the latter. E–Securities
opposed the motion[,] arguing that it has a corporate personality that is separate and distinct
from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of
petitioner, the dominant parent corporation, which justifies piercing of the veil of corporate
fiction, and issued an alias writ of summons directing defendant EIB Securities, Inc., and/or
Export and Industry Bank, Inc., to fully comply therewith. It ratiocinated that being one and the
same entity in the eyes of the law, the service of summons upon EIB Securities, Inc. (E–
Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for
certiorari with prayer for the issuance of a temporary restraining order (TRO) seeking the
nullification of the RTC Order. The Court of Appeals reversed the RTC Order and explained that
the alter ego theory cannot be sustained because ownership of a subsidiary by the parent
company is not enough justification to pierce the veil of corporate fiction. There must be proof,
apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–
Securities. The existence of interlocking incorporators, directors and officers between the two
corporations is not a conclusive indication that they are one and the same. The records also do
not show that Export Bank has complete control over the business policies, affairs and/or
transactions of E–Securities. It was solely E–Securities that contracted the obligation in

58
furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its
limited liability.

ISSUE

Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of
corporate fiction” is proper.

RULING

NO. An alter ego exists where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the other. The control
necessary to invoke the alter ego doctrine is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine
should be operative:

● Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
● Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiff’s legal right; and
● The aforesaid control and breach of duty must [have] proximately caused the injury
or unjust loss complained of.

The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant’s relationship to that
operation. Hence, all three elements should concur for the alter ego doctrine to be applicable.

59
In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by
itself, does not mean that the controlled corporation is a mere instrumentality or a business
conduit of the mother company. Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its corporate fiction. There must be
a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind
the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is
lacking in this case.

While the courts have been granted the colossal authority to wield the sword which pierces
through the veil of corporate fiction, concomitant to the exercise of this power, is the
responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long
encouraged businessmen to enter into economic endeavors fraught with risks and where only
a few dared to venture.

The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is
affirmed.

26. Sps. Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003)

FACTS:

Petitioner spouses Lipat owned Bela’s Export Trading (BET) a single proprietorship engaged in the
manufacture of garments for domestic and foreign consumption. The spouses by virtue of an SPA
appointed and authorized their daughter to obtain loan from respondent Pacific Bank. A loan was
secured and as security therefore a REM was executed over the property of the spouses.
Sometime after, BET was incorporated into a family corporation named Bela’s Export Corporation
(BEC) and the loan was restructured in its name. Subsequent loans were obtained in behalf of
BEC all secured by the previous REM. BEC defaulted in its payments which led to the foreclosure
and sale of the mortgaged property. The spouses moved to annul the sale alleging that BEC is a
distinct and separate personality from them and that the REM was executed only to secure BET’s

60
loan. Both trial court and CA ruled to pierce the corporate veil to hold petitioner spouses liable
for BEC’s obligations.

Issue: Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this
case.

Ruling: YES.

We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention
that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET and were two of the incorporators and majority
stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney
in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and general manager of both
BET and BEC, respectively.

It could not have been coincidental that BET and BEC are so intertwined with each other in terms
of ownership, business purpose, and management. Apparently, BET and BEC are one and the
same and the latter is a conduit of and merely succeeded the former. Petitioners’ attempt to
isolate themselves from and hide behind the corporate personality of BEC so as to evade their
liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate
entity seeks to prevent and remedy.

In our view, BEC is a mere continuation and successor of BET and petitioners cannot evade their
obligations in the mortgage contract secured under the name of BEC on the pretext that it was
signed for the benefit and under the name of BET. We are thus constrained to rule that the Court
of Appeals did not err when it applied the instrumentality doctrine in piercing the corporate veil
of BEC

27. Lambert v. Fox, 26 Phil. 588 (1914)

FACTS:

Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery
business, found itself in such condition financially that its creditors, including the plaintiff and the
defendant, together with many others, agreed to take over the business, incorporate it and
accept stock therein in payment of their respective credits. This was done, the plaintiff and the
defendant becoming the two largest stockholders in the new corporation called John R. Edgar &
Co., Incorporated.

A few days after the incorporation was completed plaintiff and defendant entered into the
following agreement:

Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar
and Co, Inc; and,

61
Whereas it is recognized that the success of said corporation depends, now and for at least one
year next following, in the larger stockholders retaining their respective interests in the business
of said corporation:

Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise
dispose of any part of their present holdings of stock in said John R. Edgar & Co. Inc., till after one
year from the date hereof.

Either party violating this agreement shall pay to the other the sum of one thousand (P1,000)
pesos as liquidated damages, unless previous consent in writing to such sale, transfer, or other
disposition be obtained.

Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said
corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong
competitor of the said John R. Edgar & Co., Inc.

This sale was made by the defendant against the protest of the plaintiff and with the warning
that he would be held liable under the contract hereinabove set forth and in accordance with its
terms. In fact, the defendant Foz offered to sell his shares of stock to the plaintiff for the same
sum that McCullough was paying them less P1,000, the penalty specified in the contract.

ISSUE: W/N the occurrence of the purpose of the contract discharges obligations.

RULING: NO. In the case at bar the parties expressly stipulated that the contract should last one
year. No reason is shown for saying that it shall last only nine months. Whatever the object was
in specifying the year, it was their agreement that the contract should last a year and it was their
judgment and conviction that their purposes would not be subversed in any less time. What
reason can give for refusing to follow the plain words of the men who made the contract? We
see none.

Fox urges that the Lambert cannot recover for the reason that he did not prove damages. In this
jurisdiction penalties provided in contracts of this character are enforced. It is the rule that
parties who are competent to contract may make such agreements within the limitations of the
law and public policy as they desire, and that the courts will enforce them according to their
terms.

It is also urged by the appelle in this case that the stipulation in the contract suspending the
power to sell the stock referred to therein is an illegal stipulation, is in restraint of trade and,
therefore, offends public policy. We do not so regard it. The suspension of the power to sell has
a beneficial purpose, results in the protection of the corporation as well as of the individual
parties to the contract, and is reasonable as to the length of time of the suspension. We do not
here undertake to discuss the limitations to the power to suspend the right of alienation of stock,
limiting ourselves to the statement that the suspension in this particular case is legal and valid.

28. Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925)

62
FACTS: This action was commenced in the CFI against the board of directors of the Botica
Nolasco, Inc., a corporation duly organized and existing under the laws of the Philippine Islands.
The plaintiff prayed that said board of directors be ordered to register in the books of the
corporation five shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him
the sum of P500 for damages sustained by him resulting from the refusal of said body to
register the shares of stock in question.

defendant answered the amended complaint denying generally and specifically each and every
one of the material allegations thereof, and, as a special defense, alleged that the defendant,
pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares
at the par value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that
said offer was refused by the plaintiff.

Trial Court held that, in his opinion, article 12 of the by-laws of the corporation which gives it
preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459
(Corporation Law), especially with section 35 thereof; and rendered a judgment in favor of
plaintiff.
Hence, this appeal.
ISSUE: whether or not article 12 of the by-laws of the corporation is in conflict with the
provisions of the Corporation Law (Act No. 1459).
Questioned article 12 creates in favor of the Botica Nolasco, Inc., a preferential right to buy,
under the same conditions, the share or shares of stock of a retiring shareholder. Has said
corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-law?

HELD: The particular provisions of the Corporation Law referring to transfer of shares of stock
are as follows:
SEC. 13. Every corporation has the power:
xxx xxx xxx
(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the
number of its officers and directors within the limits prescribed by law, and for the transferring
of its stock, the administration of its corporate affairs, etc.
xxx xxx xxx
SEC. 35. The capital stock of stock corporations shall de 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, that date of the transfer, the number of the certificate, and the
number of shares transferred.

No share of stock against which the corporation holds any unpaid claim shall be transferable on
the books of the corporation.

63
The holder of shares, as owner of personal property, is at liberty, under said section (Sec. 35),
to dispose of them in favor of whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into consideration the specific provisions of
section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions.
It should not be inconsistent therewith.

The by-law now in question was adopted under the power conferred upon the corporation by
section 13, paragraph 7, above quoted; but in adopting said by-law the corporation has
transcended the limits fixed by law in the same section, and has not taken into consideration
the provisions of section 35 of Act No. 1459.

As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to
carry into effect the objects of the corporation, and are not contradictory to the general policy
of the laws of the land.

On the other hand, it is equally well settled that by-laws of a corporation must be reasonable
and for a corporate purpose, and always within the charter limits. They must always be strictly
subordinate to the constitution and the general laws of the land. They must not infringe the
policy of the state, nor be hostile to public welfare. They must not disturb vested rights or
impair the obligation of a contract, take away or abridge the substantial rights of stockholder or
member, affect rights of property or create obligations unknown to the law.

The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad
Co. vs. Rhodes, 25 Fla., 40.)
The power to enact by-laws restraining the sale and transfer of stock must be found in the
governing statute or the charter. Restrictions upon the traffic in stock must have their source in
legislative enactment, as the corporation itself cannot create such impediments. By-law are
intended merely for the protection of the corporation, and prescribe regulation and not
restriction; they are always subject to the charter of the corporation. The corporation, in the
absence of such a power, cannot ordinarily inquire into or pass upon the legality of the
transaction by which its stock passes from one person to another, nor can it question the
consideration upon which a sale is based. A by-law cannot take away or abridge the substantial
rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a
corporation can do no more than prescribe a general mode of transfer on the corporate books
and cannot justify an unreasonable restriction upon the right of sale.
xxx
that a corporation has no power to prevent or to restrain transfers of its shares, unless such
power is expressly conferred in its charter or governing statute. This conclusion follows from
the further consideration that by-laws or other regulations restraining such transfers, unless
derived from authority expressly granted by the legislature, would be regarded as impositions
in restraint of trade.
The only restraint imposed by the Corporation Law upon transfer of shares is found in section
35 of Act No. 1459, quoted above, as follows: “No transfer, however, shall be valid, except as

64
between the parties, until the transfer is entered and noted upon the books of the corporation
xxx This restriction is necessary in order that the officers of the corporation may know who are
the stockholders, which is essential in conducting elections of officers, in calling meeting of
stockholders, and for other purposes. But any restriction of the nature of that imposed in the
by-law now in question, is ultra vires, violative of the property rights of shareholders, and in
restraint of trade.
And moreover, the by-laws now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good
faith and for a valuable consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot
operate to defeat his rights as a purchaser.
A by-law of a corporation which provides that transfers of stock shall not be valid unless
approved by the board of directors, while it may be enforced as a reasonable regulation for the
protection of the corporation against worthless stockholders, cannot be made available to
defeat the rights of third persons. (Farmers’ and Merchants’ Bank of Lineville vs. Wasson, 48
Iowa, 336.)

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 upon the
books of the corporation.
Petition denied. Decision of trial court affirmed.

29. Padgett v. Babcock & Templeton, Inc., 59 Phil. 232 (1933)

30. Teng v. SEC, 784 SCRA 216 (2016)

Anna Teng v. SEC (G.R. No. 184332, 17 Feb 2016)

Facts: Ting Ping Lay purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu,
1,400 shares from Teng Ching Lay and 1,440 shares from Ismaelita Maluto. Teng died, hence
his son Henry took over the management of TCL.

To protect his shareholdings in TCL, Ting Ping requested from Anna Teng to enter the transfer
of stock (The one he bought from Teng Ching) in the Stock and Transfer Book of TCL to record
the sale.

This was refused by Teng and TCL causing Ting Ping to file a petition for mandamus before
the SEC to compel such recording. SEC ruled in favor of Ting Ping, a decision which was
affirmed upon appeal to the En Banc.

Petitioners filed a petition for certiorari before the SC which resulted in its denial.

An interpleader was filed by Teng to settle the ownership of the shares between Henry and
Ting.

65
RTC ruled in favor of Henry while Ting Ping sought to have partial satisfaction fo the SEC En
banc decision with respect to the shares from Chiu and Maluto, thereafter issuing an alias
writ of execution.

This was granted, prompting Teng and TCL to file a motion to quash the alias writ of execution
on the basis that the certificates of stock must first be surrendered. This was denied.

Issue: Whether the surrender of a certificate of stock is necessary in order to validly facilitate
a transfer of shares and recorded in the books.

Ruling: NO

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 a prima facie evidence that the holder is a
shareholder of a corporation.

A certificate, however, is merely a tangible evidence of ownership of shares of stock. It is not

a stock in the corporation and merely expresses the contract between the corporation and
the stockholder.

Section 63 of the Corporation Code prescribes the manner by which a share of stock may be
transferred. Fleisher v. Botica Nolasco states that the provision on the transfer of shares of
stocks contemplates no restriction as to home they 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.

Under the provision, certain minimum requirements must be complied with for there to be a
valid transfer of stocks, namely:

1. There must be delivery of the stock certificate;

2. The certificate must be endorsed by the owner of his atty-in-fact or other persons legally
authorized to make the transfer; and

3. To be valid against third parties, the transfer must be recorded in the books of the
corporation.

66
 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. 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.

In this case, 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.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers. In transferring stock, the secretary of a corporation acts in
purely ministerial capacity, and does not try to decide the question of ownership.

Respondent Ting Ping Lay was able to establish prima facie ownership over the shares of
stocks in question, through deeds of transfer of shares of stock of TCL Corporation.

Hence, the transfer of shares to him must be recorded on the corporation’s stock and transfer
book.

The Court Outlined the Procedure for the issuance of new certificates of Stock in the name of
a transferee:

1. The certificates must be signed by the president or VP, countersigned by the sec. or
assistant sec., and sealed with the seal of the corporation;

2. Delivery of the certificate is an essential element of its issuance;

3. The par value, as to par value shares, or the full subscription as to no par value shares,
must first be fully paid;

4. The original certificate must be surrendered where the person requesting the issuance of
a certificate is a transferee from a stockholder.

The surrender of the original certificate of stock is necessary before the issuance of a new
one so that he old certificate may be cancelled.

BALGOS DIGEST

RECIT-READY:

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This case originated from the case of TCL Sales Corp v. CA. Respondent Ting Ping purchased shares
of TCL Sales Corporation (TCL) from Chiu, his brother Teng Ching Lay (President and operations
manager of TCL), and Maluto. Teng Ching died. Ting Ping, to protect his shareholdings with TCL,
requested petitioner Teng (TCL's Corporate Secretary), to enter the transfer in the Stock and
Transfer Book of TCL for the proper recording of his acquisition. He also demanded the issuance
of new certificates of stock in his favor. TCL and Teng refused despite repeated demands. Ting
Ping filed mandamus with the SEC which was granted. SEC issued a writ of execution. Teng argued
that prior to registration of stocks in the corporate books, it is mandatory that the stock
certificates are first surrendered because a corporation will be liable to a bona fide holder of the
old certificate if, without demanding the said certificate, it issues a new one. On the other hand,
Ting Ping argued that Section 63 of the Corporation Code does not require the surrender of the
stock certificate to the corporation, nor make such surrender an indispensable condition before
any transfer of shares can be registered in the books of the corporation. The only limitation
imposed by Section 63 is when the corporation holds any unpaid claim against the shares
intended to be transferred.

Whether or not the surrender of the certificates of stock is a requisite before registration of the
transfer may be made in the corporate books and for the issuance of new certificates in its stead-
-NO.

To compel Ting Ping to deliver to the corporation the certificates as a condition for the
registration of the transfer would amount to a restriction on the right of Ting Ping to have the
stocks transferred to his name, which is not sanctioned by law.

In a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites
for the transfer of ownership of the stocks purchased." The delivery contemplated in Section 63,
however, pertains to the delivery of the certificate of shares by the transferor to the transferee,
that is, from the original stockholder named in the certificate to the person or entity the
stockholder was transferring the shares to, whether by sale or some other valid form of absolute
conveyance of ownership. "[S]hares of stock may be transferred by delivery to the transferee of
the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly
indorsed certificate of stock."

Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded
or registered in the books of corporation. Upon registration of the transfer in the books of the
corporation, the transferee may now then exercise all the rights of a stockholder, which include
the right to have stocks transferred to his name.

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COMPREHENSIVE:

FACTS:

● This case originated from the case of TCL Sales Corporation and Anna Teng v. Hon.
Court of Appeals and Ting Ping Lay.

● Respondent Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Chiu;
1,400 shares from his brother Teng Ching Lay (Teng Ching), who was also the president
and operations manager of TCL; and 1,440 shares from Maluto.

● Upon Teng Ching's death, his son Henry Teng (Henry) took over the management of
TCL.

● Respondent Ting Ping, to protect his shareholdings with TCL, requested petitioner
Teng, TCL's Corporate Secretary, to enter the transfer in the Stock and Transfer Book of
TCL for the proper recording of his acquisition. He also demanded the issuance of new
certificates of stock in his favor.

● TCL and Teng refused despite repeated demands.

● Ting Ping filed a petition for mandamus with the SEC which was granted → SEC en
banc affirmed → Petition for review with the CA but was denied → petition for
review on certiorari with the SC under Rule 45 but was denied.

● SEC issued a writ of execution.

● Teng filed a complaint for interpleader with the RTC of Manila to compel Henry and
Ting Ping to interplead and settle the issue of ownership over the 1,400 shares, which
were previously owned by Teng Ching.

○ RTC found Henry to have a better right to the shares of stock formerly owned
by Teng Ching, except as to those covered by Stock Certificate No. 011 covering
262.5 shares, among others. (***Note that as a consequence, the subject of the
orders of execution issued by the SEC pertained only to Chiu's and Maluto's
respective shares.)

● Ting Ping filed an Ex Parte Motion for the Issuance of Alias Writ of Execution for the
partial satisfaction of SEC en banc Order directing TCL and Teng to record the shares he
acquired from Chiu and Maluto, and for payment of the damages.

69
 ● Teng and TCL filed their respective motions to quash, which was opposed by Ting
Ping, who also expressed his willingness to surrender the original stock certificates of Chiu
and Maluto to facilitate and expedite the transfer of the shares in his favor.

● Teng’s arguments:

○ Prior to registration of stocks in the corporate books, it is mandatory that the

stock certificates are first surrendered because a corporation will be liable to a
bona fide holder of the old certificate if, without demanding the said certificate, it
issues a new one.

○ The annexes in Ting Ping's opposition did not include the subject certificates
of stock, surmising that they could have been lost or destroyed.

○ There is a discrepancy between the total shares of Maluto based on the

annexes, which is only 1305 shares, as against the 1440 shares acquired by Ting
Ping based on the SEC Order

● Ting Ping’s arguments:

○ Section 63 of the Corporation Code does not require the surrender of the stock
certificate to the corporation, nor make such surrender an indispensable condition
before any transfer of shares can be registered in the books of the corporation.
The only limitation imposed by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be transferred.

○ (in response to Teng’s 2nd argument) Claimed that his counsel Atty. Simon V.
Lao already communicated with TCL's counsel regarding the surrender of the said
certificates of stock.

● SEC denied the motions to quash.

● Teng filed a petition for certiorari and prohibition under Rule 65 with the CA which
was denied.

● Hence, the present petition.

ISSUE:

Whether or not the surrender of the certificates of stock is a requisite before registration of the
transfer may be made in the corporate books and for the issuance of new certificates in its stead

70
HELD: NO. To compel Ting Ping to deliver to the corporation the certificates as a condition for
the registration of the transfer would amount to a restriction on the right of Ting Ping to have
the stocks transferred to his name, which is not sanctioned by law. The right of a
transferee/assignee to have stocks transferred to his name is an inherent right flowing from his
ownership of the stocks. The only limitation imposed by Section 63 is when the corporation holds
any unpaid claim against the shares intended to be transferred.

● A certificate of stock is a written instrument signed by the proper officer of a

corporation stating or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock.

○ It is prima facie evidence that the holder is a shareholder of a corporation.

○ A certificate, however, is merely a tangible evidence of ownership of shares

of stock. It is not a stock in the corporation and merely expresses the contract
between the corporation and the stockholder.

○ The shares of stock evidenced by said certificates, meanwhile, are regarded

as property and the owner of such shares may, as a general rule, dispose of them
as he sees fit, unless the corporation has been dissolved, or unless the right to do
so is properly restricted, or the owner's privilege of disposing of his shares has
been hampered by his own action.

On the Registration of Transfer

● Section 63 of the Corporation Code prescribes the manner by which a share of stock
may be transferred.

○ Certain minimum requisites must be complied with for there to be a valid

transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the
certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (c) to be valid against third parties,
the transfer must be recorded in the books of the corporation.

○ It is the delivery of the certificate, coupled with the endorsement by the

owner or his duly authorized representative that is the operative act of transfer
of shares from the original owner to the transferee.

○ The delivery contemplated in Section 63, however, pertains to the delivery of

the certificate of shares by the transferor to the transferee, that is, from the
original stockholder named in the certificate to the person or entity the

71
 stockholder was transferring the shares to, whether by sale or some other valid
form of absolute conveyance of ownership.

● The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a
requisite before the conveyance may be recorded in its books.

● To compel Ting Ping to deliver to the corporation the certificates as a condition for
the registration of the transfer would amount to a restriction on the right of Ting Ping to
have the stocks transferred to his name, which is not sanctioned by law. The only
limitation imposed by Section 63 is when the corporation holds any unpaid claim against
the shares intended to be transferred.

● The right of a transferee/assignee to have stocks transferred to his name is an

inherent right flowing from his ownership of the stocks.

○ A corporation, either by its board, its by-laws, or the act of its officers, cannot
create restrictions in stock transfers. In transferring stock, the secretary of a
corporation acts in purely ministerial capacity, and does not try to decide the
question of ownership.

○ If a corporation refuses to make such transfer without good cause, it may, in

fact, even be compelled to do so by mandamus.

● Ting Ping's definite and uncontested titles to the subject shares were already
determined in the case of TCL Sales Corp v. CA

○ Ting Ping Lay was able to establish prima facie ownership over the shares of
stocks in question, through deeds of transfer of shares of stock of TCL Corporation.
Hence, the transfer of shares to him must be recorded on the corporation's stock
and transfer book.

● Moreover, Teng cannot refuse registration of the transfer on the pretext that the
photocopies of Maluto's certificates of stock submitted by Ting Ping covered only 1,305
shares and not 1,440.

○ As earlier stated, the respective duties of the corporation and its secretary to
transfer stock are purely ministerial

○ The discrepancy was also not attended with fraud but a mere product of the
failure of the corporation to register with the [SEC] the increase in the subscribed
capital stock by 4000 shares.

● Nevertheless, to be valid against third parties and the corporation, the transfer must
be recorded or registered in the books of corporation.

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 ● Upon registration of the transfer in the books of the corporation, the transferee may
now then exercise all the rights of a stockholder, which include the right to have stocks
transferred to his name.

On the Issuance of a New Certificate

● The surrender of the original certificate of stock is necessary before the issuance of a
new one so that the old certificate may be cancelled.

○ A corporation is not bound and cannot be required to issue a new certificate

unless the original certificate is produced and surrendered.

○ Surrender and cancellation of the old certificates serve to protect not only the
corporation but the legitimate shareholder and the public as well, as it ensures
that there is only one document covering a particular share of stock.

● In the present case, Ting Ping manifested from the start his intention to surrender
the subject certificates of stock to facilitate the registration of the transfer and for the
issuance of new certificates in his name.

○ It would be sacrificing substantial justice if the Court were to grant the petition
simply because Ting Ping is yet to surrender the subject certificates for
cancellation instead of ordering in this case such surrender and cancellation, and
the issuance of new ones in his name.

31. Interport Resources Corp. v. SSI, 792 SCRA 155 (2016)

32. Teng Ling Kiat v. Ayala Corp., G.R. No. 192530, 07 March 2018
33. Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)

Facts:

Andaya bought from Concepcion Chute 2,200 shares of stock in the Rural Bank of
Cabadbaran for Php220,000, evidenced by a notarized document denominated as Sale of
Shares of Stocks. Chute endorsed and delivered the certificates of stock to Andaya and
requested the bank to register the transfer in the bank's stock and transfer book and to
issue new stock certificates in favor of the latter.

73
However, the bank's corporate secretary Demosthenese Oraiz denied the request, stating
that under a stockholders' Resolution, existing stockholders have a right of first refusal in
the event shares of other stockholders are offered for sale. Andaya opposed the denial and
claimed that the restriction did not appear in the bank's Articles of Incorporation, by-laws,
or certificates of stock.

The bank eventually denied to register the transfer to Andaya due to conflict of interest. It
claimed that Andaya was then president and CEO of the Green bank of Caraga, a competitor
bank, and that the purchase “could be the beginning of a hostile bid to take-over control”
of the bank. It also maintained that stockholders have a right of first refusal.

Andaya instituted an action for mandamus and damages against the bank, its corporate
secretary, Oraiz and its legal counsel, Ricardo Gonzales to compel them to record the
transfer and to issue new certificates in his name.

The RTC dismissed the complaint on the ground that Andaya had no standing for failing to
show that he was authorized by Chute to make the transfer. Andaya filed a petition for
review to the SC on pure questions of law.

Issue:

Whether or not Andaya, the transferee of shares of stock, may compel the bank to record
the transfer of shares and issue new stock certificates in his name

Ruling:

Yes. A bona fide transferee, who is able to establish a clear legal right to the registration of
the transfer, may 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.

74
 Andaya has been able to establish that he is a bona fide transferee of Chute's shares of
stock. He presented to the RTC tha notarized Sale of Shares of Stocks, a Documentary Stamp
Tax Declaration/Return, a Capital Gains Tax Return and stock certificates covering the
subject shares duly endorsed by Chute. There is no doubt that Andaya had the standing to
initiate an action for manadamus to compel the bank to record the transfer of shares in its
stock and transfer book and to issue new stock certificates in his name.

Moreover, the Section 98 of the Corporation Code, upon which the bank relies, applied only
to close corporations.

SECTION 98. Validity restrictions on transfer of shares. - Restrictions on the right to transfer
shares must appear in the articles of incorporation and in the by-laws as well as in the
certificate of stock;

otherwise, the same shall not be binding on any purchaser thereof in good faith. Said
restrictions shall not be more than onerous than granting the existing stockholders or the
corporation the option to purchase the shares of the transferring stockholder with such
reasonable terms, conditions or period stated therein. If upon the expiration of said period,
the existing stockholders or the corporation fails to exercise the option to purchase, the
transferring stockholder may sell his shares to any third person. (Emphases supplied)

There must first be a factual determination that the bank is indeed a close corporation
before the abovementioned section can be applied in the instant case.

34. Gokongwei, Jr. v. SEC, 89 SCRA 336 (1979)

FACTS:

This is a petition for “declaration of nullity of amended by-laws, cancellation of certificate of

filing of amended by-laws and damages” filed by petitioner John Gokongwei against the majority
of the members of the Board of Directors. He has the ff causes of action:

1. that the Board in amending the by-laws, had no authority to do so because it was based
on the a 1961 authorization and the amendment being contested was in 1976, and the

75
authorization should have been based on votes made according to the 1976 shares, not the 1961
shares,

2. the authority granted in 1961 had already been exercised in 1962 and 1963, after which
the

3. authority of the Board ceased to exist,

4. membership of the Board changed since 1961, there are 6 new directors,

5. that prior to the amendment of the by-laws , he had all the qualifications to be a director
(he was a substantial stockholder) and the amended by-laws disqualified him and deprived him
of a vested right to be voted,

6. that the corporation has no inherent power to disqualify a stockholder from being elected
and

7. therefore it is an ultra vires and void act.

Petitioner also wanted to inspect records and documents of San Miguel Corporation but the
request was denied because the request was said to have been made in bad faith.

Respondents filed their answer to the petition, denying the substantial allegations therein and
stating, by way of affirmative defenses that "the action taken by the Board of Directors on
September 18, 1976 resulting in the . . . amendments is valid and legal because the power to
'amend, modify, repeal or adopt new By-laws' delegated to said Board on March 13, 1961 and
long prior thereto has never been revoked, withdrawn or otherwise nullified by the stockholders
of SMC". Also said that the power of the Board to amend the by-laws are broad, subject only to
existing laws.

August 1972, the Universal Robina Corporation (URC), a corporation engaged in business
competitive to that of respondent corporation, began acquiring shares amounting to 622,987
shares. In October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring
shares in respondent corporation that amounted to P543,959.00. On January 12, 1976,
petitioner, who is president and controlling shareholder of URC and CFC (both closed
corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in
behalf of himself, CFC and URC, "conducted malevolent and malicious publicity campaign against
SMC" to generate support from the stockholder "in his effort to secure for himself and in
representation of URC and CFC interests, a seat in the Board of Directors of SMC". Petitioner was
rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue
that petitioner was engaged in a competitive business and his securing a seat would have
subjected respondent corporation to grave disadvantages.

On May 6, 1977, this Court issued a temporary restraining order restraining private respondents
from disqualifying or preventing petitioner from running or from being voted as director of
respondent corporation and from submitting for ratification or confirmation or from causing the

76
ratification or confirmation of the amendment. SEC held that petitioner should be allowed to run
as a director but that he should not sit as such until SEC has decided on the validity of the by-
laws in dispute.

Respondents reason out that petitioner is engaged in businesses competitive and antagonistic to
that of respondent SMC and that the Board realized the clear and present danger in competitors
being directors because they would have easy and direct access to SMC’s business and trade
secrets.

ISSUE: W/N the amended by-laws of SMC disqualifying a competitor from nomination or election
to the Board of Directors of SMC are valid and reasonable.

HELD/RATIONALE: Amendments are valid.

The validity or reasonableness of a by-law of a corporation is purely a question of law. Petitioner

claims that the

amended by-laws are invalid and unreasonable because they were tailored to suppress the
minority and prevent them from having representation in the Board", at the same time depriving
petitioner of his "vested right" to be voted for and to vote for a person of his choice as director.

Any person "who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law."

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders representing at least two-thirds of
the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts
the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to
object thereto in writing and demand payment for his share." Under section 22 of the same law,
the owners of the majority of the subscribed capital stock may amend or repeal any by-law or
adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected
director, in the face of the fact that the law at the time such right as stockholder was acquired
contained the prescription that the corporate charter and the by-law shall be subject to
amendment, alteration and modification.

Although in the strict and technical sense, directors of a private corporation are not regarded as
trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As agents entrusted with the
management of the corporation, they should act for the collective benefit of the stockholders.

It is a settled state law in the United States that corporations have the power to make by-laws
declaring a person employed in the service of a rival company to be ineligible for the
corporation's Board of Directors. ". . . (A)n amendment which renders ineligible, or if elected,

77
subjects to removal, a director if he be also a director in a corporation whose business is in
competition with or is antagonistic to the other corporation is valid." This is based upon the
principle that where the director is so employed in the service of a rival company, he cannot serve
both, but must betray one or the other. Such an amendment "advances the benefit of the
corporation and is good."

The doctrine of "corporate opportunity" is precisely a recognition that fiduciary standards could
not be upheld where the fiduciary was acting for two entities with competing interests. It is not
denied that a member of the Board of Directors of the San Miguel Corporation has access to
sensitive and highly confidential information.

It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage
of the information which he acquires as director to promote his individual or corporate interests
to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment
of the by-laws was made. Certainly, where two corporations are competitive in a substantial
sense, it would seem improbable, if not impossible, for the director, if he were to discharge
effectively his duty, to satisfy his loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.

In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded
to the corporation in adopting measures to protect legitimate corporate interests. The test must
be whether the business does in fact compete, not whether it is capable of an indirect and highly
unsubstantial duplication of an isolated or non-characteristic activity.

35. Chua v. People, 801 SCRA 436 (2016)

FACTS:

Joselyn was a stockholder of Chua Tee Corporation of Manila. Alfredo was the president and
chairman of the board, while Tomas was the corporate secretary and also a member of the board
of the same corporation. Mercedes was the accountant/bookkeeper tasked with the physical
custody of the corporate records.

On or about August 24, 2000, Joselyn invoked her right as a stockholder pursuant to Sec. 74 Corp.
Code (Sec. 73, RCC) to inspect the records of the books of the business transactions of the
corporation, the minutes of the meetings of the board of directors and stockholders, as well as
the financial statements] of the corporation. She hired a lawyer to send demand letters to each
of the petitioners for her right to inspect to be heeded. However, she was denied of such right to
inspect.

Joselyn likewise hired the services of Mr. Abednego Velayo (Mr. Velayo) from the accounting firm
of Guzman Bocaling and Company to assist her in examining the books of the corporation. Armed
with a letter request[,] together with the list of schedules of audit materials, Mr. Velayo and his
group visited the corporation's premises for the supposed examination of the accounts. However,

78
the books of accounts were not formally presented to them and there was no list of schedules,
which would allow them to pursue their inspection. Mr. Velayo testified that they failed to
complete their objective of inspecting the books of accounts and examine the recorded
documents.

In the Complaint-Affidavit filed before the Quezon City Prosecutors' Office, Joselyn alleged that
despite written demands, the petitioners conspired in refusing without valid cause the exercise
of her right to inspect Chua Tee Corporation of Manila's (CTCM) business transactions records,
financial statements and minutes of the meetings of both the board of directors and stockholders

In their Counter Affidavits, the petitioners denied liability. They argued that the custody of the
records sought to be inspected by Joselyn did not pertain to them. Besides, the physical records
were merely kept inside the cabinets in the corporate office. Further, they did not prevent Joselyn
from inspecting the records. What happened was that Mercedes was severely occupied with
winding up the affairs of CTCM after it ceased operations. Joselyn and her lawyers then failed to
set up an appointment with Mercedes. Joselyn, through counsel, then sent demand letters to
inspect the records. Not long after, Joselyn filed two cases, one of which was civil and the other,
criminal, against the petitioners.

ISSUE: W/N petitioners are guilty.

RULING:

YES. Despite the expiration of CTCM's corporate term in 1999, duties as corporate officers still
pertained to the petitioners when Joselyn's complaint was filed in 2000.

Yu, et al. v. Yukayguan, et al.48 instructs that:

[T]he corporation continues to be a body corporate for three (3) years after its dissolution for
purposes of prosecuting and defending suits by and against it and for enabling it to settle and
close its affairs, culminating in the disposition and distribution of its remaining assets. x x x The
termination of the life of a juridical entity does not by itself cause the extinction or diminution of
the rights and liabilities of such entity x x x nor those of its owners and creditors. x x
x.49chanroblesvirtuallawlibrary

Further, as correctly pointed out by the OSG, Secs. 122 and 145 Corp. Code (Secs. 139 and 184,
RCC) explicitly provide for the continuation of the body corporate for three years after
dissolution. The rights and remedies against, or liabilities of, the officers shall not be removed or
impaired by reason of the dissolution of the corporation. Corollarily then, a stockholder's right to
inspect corporate records subsists during the period of liquidation. Hence, Joselyn, as a
stockholder, had the right to demand for the inspection of records. Lodged upon the corporation
is the corresponding duty to allow the said inspection.

36. Gonzales v. PNB, 122 SCRA 489 (1983)

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FACTS: The petitioner requested from the respondent that he be allowed to examine the records
of the latter. Petitioner claimed that he wanted to determine the veracity of reports that the
respondent has guaranteed the obligation of another corporation in the purchase of a sugar mill
and that the respondent financed the construction of a bridge and a sugar mill. When the
respondent denied his request, the petitioner sought mandamus from the CFI of Manila, adding
that he acquired one share of stock in PNB and was thus entitled to examine the respondent’s
records. The CFI dismissed the petition on the ground that the petitioner had improper motives
and his purpose was not germane to his interest as a stockholder. The petitioner argued that his
right was unconditional.

ISSUE: Whether the Petitioner could examine the records of the respondent. - NO

HELD: Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as
amended, regarding the right of a stockholder to inspect and examine the books and records of
a corporation. The former Corporation Law (Act No. 1459, as amended) has been replaced by
Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines."

The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been
retained, but with some modifications. The second and third paragraphs of Section 74 of Batas
Pambansa Blg. 68 provide the following:

The records of all business transactions of the corporation and the minutes of any
meeting shag be open to inspection by any director, trustee, stockholder or member of
the corporation at reasonable hours on business days and he may demand, in writing, for
a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its records
or minutes, in accordance with the provisions of this Code, shall be liable to such director,
trustee, stockholder or member for damages, and in addition, shall be guilty of an offense
which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or trustees, the liability
under this section for such action shall be imposed upon the directors or trustees who
voted for such refusal; and Provided, further, That it shall be a defense to any action under
this section that the person demanding to examine and copy excerpts from the
corporation's records and minutes has improperly used any information secured through
any prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in making his
demand.

As may be noted from the above-quoted provisions, among the changes introduced in the new
Code with respect to the right of inspection granted to a stockholder are the following the records
must be kept at the principal office of the corporation; the inspection must be made on business
days; the stockholder may demand a copy of the excerpts of the records or minutes; and the
refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil

80
and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly required as a condition for such
examination that the one requesting it must not have been guilty of using improperly any
information through a prior examination, and that the person asking for such examination must
be "acting in good faith and for a legitimate purpose in making his demand."

The unqualified provision on the right of inspection previously contained in Section 51, Act No.
1459, as amended, no longer holds true under the provisions of the present law. The argument
of the petitioner that the right granted to him under Section 51 of the former Corporation Law
should not be dependent on the propriety of his motive or purpose in asking for the inspection
of the books of the respondent bank loses whatever validity it might have had before the
amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that
the right of inspection granted under Section 51 of the old Corporation Law must be dependent
on a showing of proper motive on the part of the stockholder demanding the same, it is now
dissipated by the clear language of the pertinent provision contained in Section 74 of Batas
Pambansa Blg. 68.

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of
the books of the respondent bank, he has not set forth the reasons and the purposes for which
he desires such inspection, except to satisfy himself as to the truth of published reports regarding
certain transactions entered into by the respondent bank and to inquire into their validity. The
circumstances under which he acquired one share of stock in the respondent bank purposely to
exercise the right of inspection do not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into transactions entered into by the
respondent bank even before he became a stockholder. His obvious purpose was to arm himself
with materials which he can use against the respondent bank for acts done by the latter when
the petitioner was a total stranger to the same. He could have been impelled by a laudable sense
of civic consciousness, but it could not be said that his purpose is germane to his interest as a
stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to be
exercised by the petitioner would be violative of the provisions of its charter.

The PNB is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule,
by the Corporation Code of the Philippines.

The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect
to the right of a stockholder to demand an inspection or examination of the books of the
corporation may not be reconciled with the abovequoted provisions of the charter of the
respondent bank. It is not correct to claim, therefore, that the right of inspection under Section
74 of the new Corporation Code may apply in a supplementary capacity to the charter of the
respondent bank.

37. PASAR Corp. v. Lim, 804 SCRA 600 (2016)

38. Ang-Abaya v. Ang, 573 SCRA 129 (2008)

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FACTS

Vibelle Manufacturing Corporation and Genato Investments, Inc. are family-owned corporations,
where petitioners Ma. Belen Flordeliza C. Ang-Abaya , Jason A. Ang, Vincent G. Genato, Hanna
Ang and private respondent Eduardo G. Ang (Eduardo) are shareholders, officers and members
of the board of directors.

Prior to the instant controversy, VMC, Genato, and Oriana Manufacturing Corporation (Oriana)
filed a case for damages with prayer for issuance of a TRO and/or writ of preliminary injunction
against Eduardo for allegedly conniving to fraudulently wrest control/management of the
corporations. Eduardo allegedly borrowed substantial amounts of money from the said
corporations without any intention to repay; that he repeatedly demanded for increases in his
monthly allowance and for more cash advances contrary to existing corporate policies; that he
harassed petitioner Flordeliza to transfer and/or sell certain corporate and personal properties
in order to pay off his personal obligations etc.

Eduardo sought permission to inspect the corporate books of VMC and Genato on account of
petitioners’ alleged failure and/or refusal to update him on the financial and business activities
of these family corporations. Petitioners denied the request claiming that Eduardo would use the
information obtained from said inspection for purposes inimical to the corporations’ interests,
considering that: a) he is harassing the corporation into writing off his advances; b) he is unjustly
demanding that he be given an office/position already occupied and usurping corporate powers
as well as making demands with regard to corporate properties.

Because of petitioners’ refusal to grant his request to inspect the corporate books of VMC and
Genato, Eduardo filed an Affidavit-Complaint against petitioners Flordeliza and Jason, charging
them with violation (two counts) of Section 74, in relation to Section 144, of the Corporation
Code of the Philippines.

The City Prosecutor issued a Resolution recommending that petitioners be charged with two
counts of violation of Section 74 of the Corporation Code, but dismissed the complaint against
Belinda for lack of evidence. Petitioners filed a Petition for Review before the DOJ, which reversed
the recommendation of the City Prosecutor. The DOJ denied Eduardo’s Motion for
Reconsideration. The Court of Appeals reversed the DOJ.

ISSUE

Whether or not the DOJ committed GADALEJ in reversing the resolution of the prosecutor finding
probable cause against petitioners after preliminary investigation for violation of section 74 of
the corporation code of the Philippines

HELD: NO

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RATIO

In order for the penal provision under Section 144 of the Corporation Code to apply in a case of
violation of a stockholder or member’s right to inspect the corporate books/records as provided
for under Section 74 of the Corporation Code, the following elements must be present:

First. A director, trustee, stockholder or member has made a prior demand in writing for a copy
of excerpts from the corporation’s records or minutes;

Second. Any officer or agent of the concerned corporation shall refuse to allow the said
director, trustee, stockholder or member of the corporation to examine and copy said excerpts;

Third. If such refusal is made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be imposed upon the directors or
trustees who voted for such refusal; and,

Fourth. Where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must be shown or proved.

Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of
improper use or motive is in the nature of a justifying circumstance that would exonerate those
who raise and are able to prove the same. Accordingly, where the corporation denies inspection
on the ground of improper motive or purpose, the burden of proof is taken from the shareholder
and placed on the corporation. This being the case, it would be improper for the prosecutor,
during preliminary investigation, to refuse or fail to address the defense of improper use or
motive, given its express statutory recognition.

Thus, contrary to Eduardo’s insistence, the stockholder’s right to inspect corporate books is not
without limitations. It is now expressly required as a condition for such examination that the one
requesting it must not have been guilty of using improperly any information secured through a
prior examination, or that the person asking for such examination must be acting in good faith
and for a legitimate purpose in making his demand.

The serious allegations against Eduardo are supported by official and other documents, such as
board resolutions, treasurer’s affidavits and written communication from the respondent
Eduardo himself, who appears to have withheld his objections to these charges. His silence
virtually amounts to an acquiescence. Taken together, all these serve to justify petitioners’
allegation that Eduardo was not acting in good faith and for a legitimate purpose in making his
demand for inspection of the corporate books. Otherwise stated, there is lack of probable cause
to support the allegation that petitioners violated Section 74 of the Corporation Code in refusing
respondent’s request for examination of the corporation books.

83
39. Chua v. Court of Appeals, 443 SCRA 259 (2004)

Facts: PR Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit against
petitioner for committing acts of falsification by falsifying the Minutes of the Annual Stockholders
meeting of the Board of Directors by causing it to appear in said Minutes that LYDIA HAO CHUA
was present and has participated in said proceedings, when in truth and in fact, as the said
accused fully well knew that said Lydia Hao was never present during the meeting.

Petitioner alleges that respondent Lydia Hao has no the authority to bring a suit in behalf of the
Corporation since there was no Board Resolution authorizing her to file the suit. For her part,
respondent Hao claimed that the suit was brought under the concept of a derivative suit.

Issue: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is Siena Realty
Corporation a proper petitioner in SCA No. 99-94846?

Held: Under Section 36 of the Corporation Code, read in relation to Section 23, where a
corporation is an injured party, its power to sue is lodged with its board of directors or trustees.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The

corporation is a necessary party to the suit. And the relief which is granted is a judgment against
a third person in favor of the corporation. Similarly, if a corporation has a defense to an action
against it and is not asserting it, a stockholder may intervene and defend on behalf of the
corporation.

In the Criminal Case, the complaint was instituted by respondent against petitioner for falsifying
corporate documents whose subject concerns corporate projects of Siena Realty Corporation.
Clearly, SRC is an offended party. Hence, SRC has a cause of action. And the civil case for the
corporate cause of action is deemed instituted in the criminal action.

However, the board of directors of the corporation in this case did not institute the action against
petitioner. Private respondent was the one who instituted the action. Private respondent asserts
that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every
suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is
required that the minority stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on behalf of the corporation and all
other stockholders similarly situated who may wish to join him in the suit. It is a condition sine

84
qua non that the corporation be impleaded as a party because not only is the corporation an
indispensable party, but it is also the present rule that it must be served with process. The
judgment must be made binding upon the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit against the same defendants for the same
cause of action. In other words, the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res adjudicata against it.

In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the
same in behalf and for the benefit of the corporation. Thus, the criminal complaint including the
civil aspect thereof could not be deemed in the nature of a derivative suit.

Ching v. Subic Bay Golf and Country Club, Inc., 734 SCRA 569 (2014)

Ching v. Subic Bay Golf and Country Club, Inc (G.R. No. 174353, 10 Sep 2014)

Facts:

Nestor Ching and Andrew Wellington, on behalf of the Members of Subic Bay Golf and Country
Club, Inc. (SBGCCI), filed a complaint with the RTC of Olongapo City against the SBGCCI and its
Board of Directors and Officers under the provisions of PD no. 902-A in relation to Section 5.2 of
the Securities Regulation Code.

Subic Bay Golfers and Shareholders Incorporated (SBGSI), a corporation composed of

shareholders of the SBGCI, was also named as plaintiff.

An amendment to the AOI was approved by the SEC. Petitioners claimed in the Complaint
that defendant corporation did not disclose to them the amendment which allegedly makes the
shares non-proprietary, as it takes away the right of the shareholders to participate in the pro-
rata distribution of the assets of the corporation after its dissolution.

SBGCI denied the allegations and contends that: Plaintiffs failed to show that it was
authorized by SBGSI to file the complaint on the said corporation’s behalf.

RTC: Dismissed the complaint and helda that the action is a derivative suit. Being a derivative
suit, the stockholders and members may bring an action in the name of the corporation provided
that the minority stockholder exerted all reasonable efforts and alleged the same with
particularly in the complaint that they exhausted all remedies available.

85
CA affirmed.

Issues:

1. Whether petitioner can file a complaint on behalf of SBGSI. NO

2. Whether the complaint is a derivative suit. YES

3. Whether the minority stockholder can override the business judgments of SBGCCI. NO

Ruling:

1. NO. Complaint in question appears to have been filed only by the 2 petitioners, Nestor
Ching and Andrew Wellington, who each own one stock in the respondent corporation SBGCCI

While the caption of the complaint also names the “SBGSI for and in behalf of all its members,”
petitioners did not attach any authorization from said alleged corporation or its members to file
the complaint.

Thus, the complaint is deemed filed only by petitioners and not by SBGSI.

2. YES, it is a derivative suit.

In Cua, Jr. v. Tan, the court held that, Suits by stockholders or members of a corporation based
on wrongful or fraudulent acts of directors may be classified into:

• Individual Suits – wrong is done to him personally and not to the other stockholders or
the corporation

• Class Suits – wrong is done to a group of stockholders, as where preferred stockholders’

rights are violated.

• Derivative Suits – a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member.

- Although in most every case of wrong to the corp, each stockholder is necessarily affected
because the value of his interest therein would be impaired, this fact of itself is not sufficient to
give him an individual cause of action since the corp is a person distinct and separate from him,
and can and should itself sue the wrongdoer.

3. NO.

86
As minority stockholders, petitioners do not have any statutory right to override the business
judgments of SBGCCI’s officers and Board of Directors on the ground of the latter’s alleged lack
of qualification to manage a golf course.

Contrary to the arguments of petitioners, PD No. 902-A, does not grant minority
stockholders a cause of action against waste and diversion by the Board of Directors, but merely
identifies the jurisdiction of the SEC over actions already authorized by law or jurisprudence.

A stockholder’s right to institute a derivative suit is not based on any express provision of
the Corp Code, or even the Securities Regulation Code, but is impliedly recognized when the said
laws make corporate directors or officers liable for damages.

Requirements of derivative suits:

1. He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;

2. He exerted all reasonable efforts, and alleges the same with particularity in the complaint,
to exhaust all remedies available under the AOI, By-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;

3. No appraisal rights are available for the acts or acts complained of; and

4. The suit is not a nuisance or harassment suit.

Yu v. Yukayguan, 589 SCRA 588 (2009)

Candido Pascual v. Eugenio Del Saz Orozco, 19 Phil. 83 (1911)

FACTS: This action was brought by the plaintiff Pascual, in his own right as a stockholder of the
bank, for the benefit of the bank, and all the other stockholders thereof. The Banco
EspañolFilipino is a banking corporation, constituted as such by royal decree of the Crown of
Spain in the year 1854, the original grant having been subsequently extended and modified by
royal decree of July 14, 1897, and by Act No. 1790 of the Philippine Commission.

It is alleged in the amended complaint that the only compensation contemplated or provided for
the managing officers of the bank was a certain per cent of the net profits resulting from the
bank's operations, as set forth in article 30 of its reformed charter or statutes.

The gist of the first and second causes of action is as follows: The defendants constitute a majority
of the present board of directors of the bank, who alone can authorize an action against them in
the name of the corporation. It appears that during the years 1903, 1904, 1905, and 1907 the
defendants and appellees, without the knowledge, consent, or acquiescence of the stockholders,

87
deducted their respective compensation from the gross income instead of from the net profits
of the bank, thereby defrauding the bank and its stockholders of approximately P20,000 per
annum.

The second cause of action sets forth that defendants' and appellees' immediate predecessors in
office in the bank during the years 1899, 1900, 1901, and 1902, committed the same illegality as
to their compensation as is charged against the defendants themselves. In the four years
immediately following the year 1902, the defendants and appellees were the only officials or
representatives of the bank who could and should investigate and take action in regard to the
sums of money thus fraudulently appropriated by their predecessors. They were the only persons
interested in the bank who knew of the fraudulent appropriation by their predecessors.

The court below sustained the demurrer as to the first and second causes of action on the ground
that in actions of this character the plaintiff must aver in his complaint that he was the owner of
stock in the corporation at the time of the occurrences complained of, or else that the stock has
since devolved upon him by operation of law.

ISSUE: Whether or not the petitioner has a cause of action to file a derivative suit.

RULING: Yes.

As to the first cause of action: In suits of this character the corporation itself and not the plaintiff
stockholder is the real party in interest. The rights of the individual stockholder are merged into
that of the corporation. It is a universally recognized doctrine that a stockholder in a corporation
has no title legal or equitable to the corporate property; that both of these are in the corporation
itself for the benefit of all the stockholders. So it is clear that the plaintiff, by reason of the fact
that he is a stockholder in the bank (corporation) has a right to maintain a suit for and on behalf
of the bank, but the extent of such a right must depend upon when, how, and for what purpose
he acquired the shares which he now owns.

As to the Second cause of action: It affirmatively appears from the complaint that the plaintiff
was not a stockholder during any of the time in question in this second cause of action. Upon the
question whether or not a stockholder can maintain a suit of this character upon a cause of action
pertaining to the corporation when it appears that he was not a stockholder at the time of the
occurrence of the acts complained of and upon which the action is based, the authorities do not
agree.

Villamor, Jr. v. Umale, 736 SCRA 325 (2014)

FACTS:
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of
the area owned by Mid-Pasig Development Corporation (Mid-Pasig). On March 1, 2004,
PasigPrinting Corporation (PPC) obtained an option to lease portions of MidPasig’s
property,including the Rockland area. On November 11, 2004, PPC’s board of directors
issued a resolution waiving all its rights, interests, and participation in the option to lease

88
contract in favor of the law firm of Atty. Alfredo Villamor, Jr. (Villamor). PPC received no
consideration for this waiver in favor of Villamor’s law firm.On November 22, 2004, PPC,
represented by Villamor, entered into a memorandum of agreement (MOA) with MC
Home Depot. Under the MOA, MC Home Depot would continue to occupy the area as PPC’s
sublessee for 4 years, renewable for another 4 years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00.

In compliance with the MOA, MC Home Depot issued 20 post-dated checks representing rental
payments for one year and the goodwill money. The checks were given to Villamor who did not
turn these or the equivalent amount over to PPC, upon encashment.Hernando Balmores, a
stockholder and director of PPC, wrote a letter addressed to PPC’sdirectors on April 4, 2005. He
informed them that Villamor should be made to deliver to PPCand account for MC Home Depot’s
checks or their equivalent value.Due to the alleged inaction of the directors, respondent
Balmores filed with the RTC an intra-corporate controversy complaint under Rule 1, Section
1(a)(1) of the Interim Rules for Intra-Corporate Controversies (Interim Rules) against petitioners
for their alleged devices or schemes amounting to fraud or misrepresentation "detrimental to
the interest of the corporation and its stockholders."Respondent Balmores alleged in his
complaint that because of petitioners’ actions, PPC’s assets were ". . . not only in imminent
danger, but have actually been dissipated, lost, wasted anddestroyed." Respondent Balmores
prayed that a receiver be appointed from his list of nominees.He also prayed for petitioners’
prohibition from "selling, encumbering, transferring or disposing in any manner any of [PPC’s]
properties, including the MC Home Depot checks and/or their proceeds." He prayed for the
accounting and remittance to PPC of the MC Home Depot checks or their proceeds and for the
annulment of the board’s resolution waiving PPC’s rights in favor of Villamor’s law firm.

The RTC denied respondent Balmores’ prayer for the appointment of a receiver or the creation
of a management committee. RTC held PPC’s entitlement to the checks was doubtful. The
resolution issued by PPC’s board of directors, waiving its rights to the option to lease contract in
favor of Villamor’s law firm, must be accorded prima facie validity. Also, there was a pending case
filed by one Leonardo Umale against Villamor, involving the same checks. Umale was also
claiming ownership of the checks. This, according to the trial court, weakened Balmores’ claim
that the checks were properties of PPC. Balmores filed with the CA a petition for certiorari under
Rule 65 of the Rules of Court and the same was granted. It reversed the trial court’s decision, and
issued a new order placing PPC under receivership and creating an interim management
committee. As a justification of said decision, the CA stated that the board’s waiver of PPC’s rights
in favor of Villamor’s law firm without any consideration and its inaction on Villamor’s failure to
turn over the proceeds of rental payments to PPC warrant the creation of a management
committee. The circumstances
resulted in the imminent danger of loss, waste, or dissipation of PPC’s assets.

89
According to the CA, the trial court abandoned its duty to the stockholders in a derivative suit
when it refused to appoint a receiver or create a management committee, all during the
pendency of the proceedings.

ISSUE: W/N the action was a derivative suit and refusal to appoint is a denial of the right to a
derivative suit.

RULING:
NO. A derivative suit is an action filed by stockholders to enforce a corporate action. It is an
exception to the general rule that the corporation’s power to sue is exercised only by the board
of directors or trustees. Individual stockholders may be allowed to sue on behalf of the
corporation whenever the directors or officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are in control of the corporation. In
derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere
nominal party.

Balmores’ action in the trial court failed to satisfy all the requisites of a derivative suit.
Respondent failed to exhaust all available remedies to obtain the reliefs he prayed for. He also
failed to allege that appraisal rights were not available for the acts complained of. This is another
requisited as provided under Rule 8, Section 1(3) of the Interim Rules. Neither did respondent
Balmores implead PPC as party in the case nor did he allege that he was filing on behalf of the
corporation.

The non-derivative character of Balmores’ action may also be gleaned from his allegations in the
trial court complaint. In the complaint, he described the nature of his action as an action under
Rule 1, Section 1(a)(1) of the Interim Rules, and not an action under Rule 1, Section 1(a)(4) of the
Interim Rules, which refers to derivative suits.

Ang v. Ang, 699 SCRA 272 (2013)

FACTS: Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the
Ang family. Its current stockholders and their respective stockholdings are as follows:

Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang (Anecita) is
Juanito’s wife and Jeannevie is their daughter. Roberto was elected President of SMBI, while
Juanito was elected as its Vice President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s
Corporate Secretary and Treasurer, respectively.

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Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband, Theodore Ang
(Theodore), agreed to extend a loan to settle the obligations of SMBI and other corporations
owned by the Ang family, specifically Bayshore Aqua Culture Corporation, Oceanside Marine
Resources and JR Aqua Venture. Nancy and Theodore issued a check in the amount of
$1,000,000.00 payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel
Ang." Nancy was a former stockholder of SMBI, but she no longer appears in SMBI’s General
Information Sheets as early as 1996.Nancy and Theodore are now currently residing in the United
States. There was no written loan agreement, in view of the close relationship between the
parties. Part of the loan was also used to purchase real properties for SMBI, for Juanito, and for
Roberto.

SMBI increased its authorized capital stock to ₱10,000,000.00. The Certificate of Increase of
Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as directors of SMBI. Juanito
claimed, however, that the increase of SMBI’s capital stock was done in contravention of the
Corporation Code. According to Juanito, when he and Anecita left for Canada:

x x x Sps. Roberto and Rachel Ang took over the active management of [SMBI]. Through the
employment of sugar coated words, they were able to successfully manipulate the stocks
sharings between themselves at 50-50 under the condition that the procedures mandated by the
Corporation Code on increase of capital stock be strictly observed (valid Board Meeting). No such
meeting of the Board to increase capital stock materialized. It was more of an accommodation
to buy peace x x x.

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. Nancy and
Theodore, through their counsel here in the Philippines, sent a demand letter to "Spouses Juanito
L. Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal
amounting to $1,000,000.00 plus interest at ten percent (10%) per annum, for a total of
$2,585,577.37 within ten days from receipt of the letter. Roberto and Rachel then sent a letter
to Nancy and Theodore’s counsel on 5 January 2009, saying that they are not complying with the
demand letter because they have not personally contracted a loan from Nancy and Theodore.

Juanito and Anecita executed a Deed of Acknowledgment and Settlement Agreement

(Settlement Agreement) and an Extra-Judicial Real Estate Mortgage (Mortgage). Under the
foregoing instruments, Juanito and Anecita admitted that they, together with Roberto and
Rachel, obtained a loan from Nancy and Theodore for $1,000,000.00.

A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and Theodore, under a Special
Power of Attorney which was not attached as part of the Settlement Agreement or the Mortgage,
nor included in the records of this case.

Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte Writ of
Attachment/Receivership" (Complaint) before the RTC Bacolod.. He alleged that "the intentional
and malicious refusal of defendant Sps. Roberto and Rachel Ang to settle their 50% share x x x of
the total obligation x x x will definitely affect the financial viability of plaintiff SMBI." Juanito also
claimed that he has been "illegally excluded from the management and participation in the

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business of [SMBI through] force, violence and intimidation" and that Rachel and Roberto have
seized and carted away SMBI’s records from its office.

the RTC Bacolod issued an Order granting the application for an ex-parte writ of attachment and
break open order. Atty. Jerry Basiao, who filed an application for appointment as Receiver of
SMBI, was directed by the RTC Bacolod to furnish the required Receivership Bond.17 On the same
date, Roberto and Rachel moved to quash the writ of attachment and set aside the break open
order and appointment of receiver.

That the instant suit is for the benefit of a non-stockholder and not the corporation is obvious
when the primary relief prayed for in the Complaint which is for the defendants "to pay the
amount of Php 60,114,673.62 plus interest which is 50% of the loan obligations of plaintiff [SMBI]
to its creditor Sps. Theodore and Nancy Ang." Otherwise stated, the instant suit is nothing but a
complaint for sum of money shamelessly masked as a derivative suit.

Rachel also argued that the Complaint failed to allege that Juanito "exerted all reasonable efforts
to exhaust all intra-corporate remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation to obtain the relief he desires," as required by the Interim
Rules.

During cross-examination, Juanito admitted that there was no prior demand for accounting or
liquidation nor any written objection to SMBI’s increase of capital stock. He also conceded that
the loan was extended by persons who are not stockholders of SMBI. Thus, Rachel filed a Motion
for Preliminary Hearing on Affirmative Defenses on 27 November 2009, arguing that in view of
Juanito’s admissions, the Complaint should be dismissed pursuant to Section 1 of the Interim
Rules. Juanito filed his Opposition thereto on 8 January 2010,22 arguing that applying this Court’s
ruling in Hi-Yield Realty, Inc. v. Court of Appeals,23 the requirement for exhaustion of intra-
corporate remedies is no longer needed when the corporation itself is "under the complete
control of the persons against whom the suit is filed." Juanito also alleged that he and Anecita
were deceived into signing checks to pay off bogus loans purportedly extended by Rachel’s
relatives in favor of SMBI. Some of the checks were payable to cash, and were allegedly deposited
in Rachel’s personal account. He also claimed that Rachel’s Motion is disallowed under the
Interim Rules.

Juanito moved that Rachel and her daughter, Em Ang (Em), as well as their counsel, Atty.
Filomeno Tan, Jr. (Atty. Tan) be held in contempt. Juanito claimed that on the date the writ of
attachment and break open order were issued, Atty. Tan, accompanied by Rachel and Em,
"arrogantly demanded from the Clerk in charge of Civil Cases that he be furnished a copy of the
[said orders] x x x otherwise he will tear the records of the subject commercial case." Juanito also
accused Atty. Tan of surreptitiously photocopying the said orders prior to service of the
summons, Complaint, Writ of Attachment and Attachment Bond. According to Juanito, the
purpose of obtaning a copy of the orders was to thwart its implementation. Thus, when the
authorities proceeded to the SMBI premises to enforce the orders, they found that the place was
padlocked, and that all corporate documents and records were missing. On 14 December 2010,

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the Sheriff and other RTC Bacolod employees then filed a Verified Complaint against Atty. Tan
before this Court, which also contained the foregoing allegations.

The Ruling of the RTC Bacolod: Defendants is DENIED for lack of merit.

The RTC Bacolod found that the issuance of the checks to settle the purported obligations to
Rachel’s relatives, as well as the removal of Nancy as a stockholder in SMBI’s records as filed with
the SEC, shows that Rachel and Roberto committed fraud. The Order likewise stated that the
requirement of exhaustion of intra-corporate remedies is no longer necessary since Rachel and
Roberto exercised complete control over SMBI.

The Ruling of the CA-Cebu - the CA-Cebu promulgated its Decision which reversed and set aside
the Order of the RTC Bacolod dated 27 September 2010. According to the CA-Cebu, the
Complaint filed by Juanito should be dismissed because it is a harassment suit, and not a valid
derivative suit as defined under the Interim Rules. The CA-Cebu also found that Juanito failed to
exhaust intra-corporate remedies and that the loan extended by Nancy and Theodore was not
SMBI's corporate obligation. There is nothing on record to show that non-payment of the loan
will result in any damage or prejudice to SMBI.

Hence, this petition.

Issues: (1) Whether based on the allegations of the complaint, the nature of the case is one of a
derivative suit or not.

(2) to the above, whether the Honorable Court of Appeals erred x x x in ordering the dismissal of
the Complaint on the ground that the case is not a derivative suit.

HELD: The petition has no merit.

We uphold the CA-Cebu’s finding that the Complaint is not a derivative suit. A derivative suit is
an action brought by a stockholder on behalf of the corporation to enforce corporate rights
against the corporation’s directors, officers or other insiders. Under Sections 23 and 36 of the
Corporation Code, the directors or officers, as provided under the by-laws, have the right to
decide whether or not a corporation should sue. Since these directors or officers will never be
willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are
permitted by law to bring an action in the name of the corporation to hold these directors and
officers accountable. In derivative suits, the real party in interest is the corporation, while the
stockholder is a mere nominal party.

This Court, in Yu v. Yukayguan, explained:

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a

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special injury to him for which he is otherwise without redress. In effect, the suit is an action for
specific performance of an obligation owed by the corporation to the stockholders to assist its
rights of action when the corporation has been put in default by the wrongful refusal of the
directors or management to make suitable measures for its protection. 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. (Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

(1) The person filing the suit must be a stockholder or member at the time the acts or transactions
subject of the action occurred and the time the action was filed;

(2) He must have exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed
to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu
correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang
brothers and their spouses. The check was issued to "Juanito Ang and/or Anecita Ang and/or
Roberto Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan were used for payment
of the obligations of the other corporations owned by the Angs as well as the purchase of real
properties for the Ang brothers. SMBI was never a party to the Settlement Agreement or the
Mortgage. It was never named as a co-debtor or guarantor of the loan. Both instruments were
executed by Juanito and Anecita in their personal capacity, and not in their capacity as directors
or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation.

The fact that Juanito and Anecita attempted to constitute a mortgage over "their" share in a
corporate asset cannot affect SMBI. The Civil Code provides that in order for a mortgage to be
valid, the mortgagor must be the "absolute owner of the thing x x x mortgaged." Corporate assets
may be mortgaged by authorized directors or officers on behalf of the corporation as owner, "as
the transaction of the lawful business of the corporation may reasonably and necessarily
require." However, the wording of the Mortgage reveals that it was signed by Juanito and Anecita
in their personal capacity as the "owners" of a pro-indiviso share in SMBI’s land and not on behalf
of SMBI.

We also find that there is insufficient evidence to suggest that Roberto and Rachel fraudulently
and wrongfully removed Nancy as a stockholder in SMBI’s reportorial requirements. As early as
2005, when SMBI increased its capital stock, Juanito and Anecita already knew that Nancy was
not listed as a stockholder of SMBI. However, they attempted to rectify the error only in 2009,

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when the Complaint was filed. That it took four years for them to make any attempt to question
Nancy’s exclusion as stockholder negates their allegation of fraud.

Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be
considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the
corporation, and not the stockholder. No such injury was proven in this case.

The Complaint also failed to allege that all available corporate remedies under the articles of
incorporation, by-laws, laws or rules governing the corporation were exhausted, as required
under the Interim Rules.

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang from
complying with the Interim Rules. In the x x x Yu case, the Supreme Court held that a family
corporation is not exempt from complying with the clear requirements and formalities of the
rules for filing a derivative suit. There is nothing in the pertinent laws or rules which state that
there is a distinction between x x x family corporations x x x and other types of corporations in
the institution by a stockholder of a derivative suit.

Furthermore, there was no allegation that there was an attempt to remove Rachel or Roberto as
director or officer of SMBI, as permitted under the Corporation Code and the by-laws of the
corporation. Thus, the Complaint failed to satisfy the requirements for a derivative suit under the
Interim Rules.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith
dismiss the case.

Records show that Juanito, apart from being Vice President, owns the highest number of shares,
equal to those owned by Roberto. Also, as explained earlier, there appears to be no damage to
SMBI if the loan extended by Nancy and Theodore remains unpaid. The CA-Cebu correctly
concluded that "a plain reading of the allegations in the Complaint would readily show that the
case x x x was mainly filed to collect a debt allegedly extended by the spouses Theodore and
Nancy Ang to [SMBI]. Thus, the aggrieved party is not SMBI x x x but the spouses Theodore and
Nancy Ang, who are not even x x x stockholders."

Republic Planters Bank v. Agana, 269 SCRA 1 (1997)

F. Stockholders’/Members’ Meetings and Voting at Meetings

GSIS v. Court of Appeals, 585 SCRA 679 (2009)

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FACTS: During the annual stockholders meeting of the Manila Electric Company (MERALCO,) due
to the resignation of the corporate secretary Quiason, the Board of Directors (BoD) of MERALCO
designated Vitug to act as corporate secretary. However, the proxy validation was presided over
by respondent Rosete, assistant corporate secretary and in-house chief legal counsel of
MERALCO. GSIS thereafter filed a complaint with the RTC of Pasay City seeking the nullification
of the proxies which were validated during the aforementioned proceeding presided over by
respondent Rosete. On the very same day, a Cease and Desist Order (CDO) was then issued and
signed by SEC Commissioner Jesus Martinez to restrain the use of said proxies during the annual
meeting. Nevertheless, Rosete continued the meeting despite the foregoing. The SEC then issued
a Show Cause Order (SCO) against Rosete ordering them to give an explanation why they should
not be cited in contempt. On appeal, the CA Eighth Division held that the complaint filed by GSIS
is dismissed for lack of jurisdiction, forum shopping by splitting of causes of action. Thereafter,
three different action arose therefrom, one of which involves the jurisdiction of the SEC over the
contested petition as well as the validity of the CDO and SCO. V.

ISSUE: 1. Whether or not the SEC has jurisdiction over the petition filed by GSIS against private
respondents.

2. Whether or not the CDO and SCO issued by the SEC are valid.

RULING: 1. No. Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the
jurisdiction of the regular trial courts with respect to election-related controversies is specifically
confined to “controversies in the election or appointment of directors, trustees, officers or
managers of corporations, partnerships, or associations.” Evidently, Russel Anne Bundoc | JD-2B
| College of Law, Bulacan State University | Corpo | Case Digests the jurisdiction of the regular
courts over so-called election contests or controversies under Section 5(c) does not extend to
every potential subject that may be voted on by shareholders, but only to the election of directors
or trustees, in which stockholders are authorized to participate under Section 24 of the
Corporation Code. This qualification allows for a useful distinction that gives due effect to the
statutory right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular
courts over election contests or controversies. The power of the SEC to investigate violations of
its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters
unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However,
when proxies are solicited in relation to the election of corporate directors, the resulting
controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should
be properly seen as an election controversy within the original and exclusive jurisdiction of the
trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree
No. 902-A.

2. No. The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily
invalidates the CDO and SCO issued by that body. The error of the SEC in granting the CDO
without stating which kind of CDO it was issuing is more unpardonable, as it is an act that
contravenes due process of law. The CDO bore the signature of Commissioner Jesus Martinez,
identified therein as “Officer-in-Charge,” and nobody else’s. The SEC is a collegial body composed

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of a Chairperson and four (4) Commissioners. In order to constitute a quorum to conduct
business, the presence of at least three (3) Commissioners is required. Commissioner Martinez is
not the SEC. He alone does not speak for and in behalf of the SEC. The SEC acts through a five-
person body, and the five members of the commission each has one vote to cast in every
deliberation concerning a case or any incident therein that is subject to the jurisdiction of the
SEC. It is clear that Martinez was designated as OIC because of the official travel of only one
member, Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. VII.
DISPOSITIVE PORTION: WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of
capacity of the petitioner to bring forth the suit. The petition in G.R. No. 183905 is DISMISSED for
lack of merit except that the second and third paragraphs of the fallo of the assailed decision
dated 23 July 2008 of the Court of Appeals, including subparagraphs (1), (2), 2(a), 2(b), 2(c) and
2(d) under the second paragraph, are hereby DELETED.

Lee v. Court of Appeals, 205 SCRA 752 (1992)

Ricafort v. Dicdican, 787 SCRA 163 (2016)

Facts: Nationwide Development Corporation (NADECOR) is a domestic corporation which is a

holder of a Mining Production Sharing Agreement with the DENR. Its regular annual stockholders'
meeting (ASM) was held on August 15, 2011 to elect its Board of Directors. However, on October
20, 2011, (2 months after the ASM), Corazon Ricafort (Corazon) (wife of JG Ricafort) along with
her children (Petitioners), filed a complaint before the RTC to declare the August 15, 2011 ASM
and all acts carried out pursuant thereto, null and void alleging that they received notice about
the ASM only on August 16, 2011, a violation, according to them, of the 3-day notice rule
enshrined in the by-laws. Respondents however alleged that their complaint was an election
contest and thus barred under the 15-day rule under the Interim Rules; that they were sufficiently
notified as the notice was mailed on August 11, 2011; and that they were properly represented
by JG Ricafort by virtue of an Irrevocable Proxy executed by the Petitioners in favor of JG Ricafort.
The RTC ruled in favor of Corazon and held null and void the August 15, 2011 ASM. The
RTC noted that neither of the Petitioners were seeking any elective position. Neither are they
questioning the manner and validity of the elections, and qualifications of the candidates for
directorship. Respondents assailed the decision before the CA and asked for a WPI of the trial
court’s order.
The CA granted the same, hence this Petition.

Issue: What action is proper where one of the reliefs sought in the complaint is to nullify the
election of the Board of Directors at the Annual Stockholders’ Meeting?

Ruling: Election Protest.

Under Sections 1 to 3 of Rule 6 of the Interim Rules, SEC Case No. 11-164 should have been
dismissed for having been filed beyond the 15-day prescriptive period allowed for an election
protest. In substance, the main issues therein are on all fours with Yujuico v. Quimbao, wherein
the Court expressly ruled that where one of the reliefs sought in the complaint is to nullify the
election of the Board of Directors at the ASM, the complaint involves an election contest. Both

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cases put in issue the validity of the ASM and, expressly in Yujuico and indirectly below, the
election of the members of the Board of Directors. The ostensible difference is that in SEC Case
No. 11-164 the petitioners invoked lack of notice of the August 15, 2011 ASM, while in Yujuico
the ground invoked was improper venue.

The shorter notice of three days instead of two weeks for stockholders’ regular or special
meeting is clearly allowed under Section 50 of the Corporation Code, to wit: SECTION 50. Regular
and Special Meetings of Stockholders or Members. Regular meetings of stockholders or members
shall be held annually on a date fixed in the bylaws, or if not so fixed, on any date in April of every
year as determined by the board of directors or trustees: Provided, That written notice of regular
meetings shall be sent to all stockholders or members of record at least two (2) weeks prior to
the meeting, unless a different period is required by the bylaws. Special meetings of
stockholders or members shall be held at any time deemed necessary or as provided in the
bylaws: Provided, however, That at least one (1) week written notice shall be sent to all
stockholders or members, unless otherwise provided in the bylaws. Notice of any meeting may
be waived, expressly or impliedly, by any stockholder or member.

WHEREFORE, premises considered, the application for a [WPI] is GRANTED.

Guy v. Guy, 790 SCRA 288 (2016)

Facts: Respondent Gilbert G. Guy (Gilbert) practically owned almost 80% of the 650k subscribed
capital stock of GoodGold Realty & Development Corporation (GoodGold), which Gilbert claimed
to have established in the 30’s. GoodGold’s remaining shares were divided among Francisco Guy
(Francisco) with 130k shares, Simny Guy (Simny), Bejamin Lim and Paulino Delfin Pe, with one
share each, respectively.

Gilbert is the son of spouses Francisco and Simny. Simny, one of the petitioners, however, alleged
that it was she and her husband who established GoodGold, putting the bulk of its shares under
Gilbert’s name because their eldest son Gaspar Guy (Gaspar) became missionary.

In 1999, Francisco instructed Benjamin Lim, a nominal shareholder of GoodGold and his trusted
employee, to collaborate with Atty. Emmanuel Paras, to redistribute GoodGold’s shareholdings
evenly among his children: Gilbert, Grace, Geraldine, and Gladys, while maintaining a
proportionate share for himself and his wife.

In 2004, Gilbert filed with the RTC a complaint for the “Declaration of Nullity of transfers of Shares
in GoodGold and of General Information Sheets and Minutes of meeting, and for Damages with
Application for a Preliminary Injunctive Relief,” against his mother and his sisters.

In 2008, Gilbert again filed a complaint captioned as “Intra-Corporate Controversy: For the
Declaration of Nullity of Fraudulent Transfers of Shares of Stock Certificates, Fabricated Stock
Certificates, Falsified General Information Sheets, Minutes of Meetings, and Damages with

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Application for the Issuance of a Writ of Preliminary and Mandatory Injunction” against his
mother and his sisters.

RTC dismissed the case, declaring it a nuisance and harassment suit.

The CA, however, found merit on Gilbert’s contention that the complaint should be heard on the
merits.

Issues:

1. Whether Francisco is an indispensable party. YES

2. Whether this is a nuisance and harassment suit. Yes

Ruling:

1. Yes. Suits by stockholders or members of a corporation based on wrongful or fraudulent

acts of directors or other persons may be classified into individual suits, class suits, and derivative
suits.

An individual suit may be instituted by a stockholder against another stockholder for wrongs
committed against him personally, and to determine their individual rights – this is an individual
suit between stockholders. But an individual suit may also be instituted against a corporation,
the same having a separate juridical personality.

Individual suits against another stockholder or against a corporation are remedies which an
aggrieved stockholder may avail of and which are recognized in our jurisdiction as embedded in
the Interim Rules on Intra-Corporate Controversy. Together with this right is the parallel
obligation of a party to comply with the compulsory joinder of indispensable parties whether
they may be stockholders or the corporation itself.

In this case, it is baffling that Gilbert omitted Francisco as defendant in his complaint. While
Gilbert could have opted to waive his shares in the name of Francisco to justify the latter’s non-
inlclusion in the complaint, Gilbert did not do so, but instead, wanted everything back and even
wanted the whole transfer of shares declared fraudulent. This cannot be done without including
Francisco as defendant.

Francisco, in both the 2004 and 2008 complaints, is an indispensable party without whom no final
determination can be had for the following reasons

a. The complaint prays that the shares now under the name of the defendants and Francisco
be declared fraudulent;

b. Francisco owners 195k shares some of which, Gilbert prays be returned to him;

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c. Francisco signed the certificates of stocks evidencing the alleged fraudulent shares
previously in the name of Gilbert.

2. Yes. In ordinary cases, the failure to specifically allege the fraudulent acts does not
constitute a ground for dismissal since such a defect can be cured by a bill of particulars. However,
this does not apply to intra-corporate controversies, where failure to specifically allege the
fraudulent acts in intra-corporate controversies is indicative of a harassment or nuisance suit and
may be dismissed motu proprio. The court has held before tha tin cases of intra-corporate
controversies, a bill of particulars is a prohibited pleading.

Gilbert, instead of particularly describing the fraudulent acts that he complaints of, just made a
sweeping denial of the existence of stock certificates by claiming that such were not necessary,
GoodGold being a mere family corporation.

WHEREFORE, premises considered, the petitions in G.R. Nos. 189486 and 189699 are hereby
GRANTED.

Carolina Que Villongco, et. al. v. Cecilia Que Yabu, et. al., G.R. Nos. 225022 & 225024, 05 Feb.
2018

The total outstanding capital stocks, without distinction as to disputed or undisputed shares of
stock, is the basis in determining the presence of quorum.

FACTS:

Phil-Ville Development and Housing Corporation (Phil-Ville) is a family corporation founded by

Geronima Gallego Que, who died on August 31, 2007. By virtue of the Sale of Shares of Stocks
dated June 11, 2005 purportedly executed by Cecilia as the attorney-infact of Geronima, Cecilia
allegedly effected an inequitable distribution of the 3,140 shares that belonged to Geronima, to
wit:

On January 15, 2014, Eumir Carlo sent a Notice of Annual Stockholders' Meeting to all the
stockholders of Phil-Ville, notifying them of the setting of the annual stockholders' meeting on
January 25, 2014 at 5:00 P.M. During the meeting, respondents Cecilia, Ma. Corazon and Eumir
Carlo were elected as directors and later elected themselves to the following positions: Cecilia as
Chairperson/Vice President/Treasurer; Ma. Corazon as Vice-Chairperson/President/General
Manager; and Eumir Carlo as Corporate Secretary/Secretary.

Consequently, on February 10, 2014, petitioners filed a case against respondents before the RTC
of Malabon City, praying, among others, that the election of respondents as directors be declared

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void considering the invalidity of the holding of the meeting for lack of quorum therein. They
claimed that the basis for determining quorum should have been the total number of undisputed
shares of stocks of Phil-Ville due to the exceptional nature of the case since the 3,140 shares of
the late Geronima and the fractional .67, .67, and .66 shares of Eumir Que Camara, Paolo Que
Camara and Abimar Que Camara are the subject of another dispute filed before the RTC. Thus,
excluding the 3,142 shares from the 200,000 outstanding capital stock, the proper basis of
determining the presence of quorum should be 196,858 shares of stocks.

The RTC rendered a Decision declaring the election of Cecilia Que, et al. as void and of no effect
considering the lack of quorum during the annual stockholders' meeting. On appeal, the CA
declared the RTC decision void for violating Section 14, Article VIII of the Constitution. However,
the CA declared the annual stockholders meeting conducted by Cecilia Que void for lack of
quorum.

Hence, both parties filed separate petitions for review on certiorari.

ISSUE: Whether the total undisputed shares of stocks in Phil-Ville should be the basis in
determining the presence of a quorum.

RULING:

NO. In affirming the Court of Appeals and denying the parties’ respective petitions for review,
the Supreme Court held that the total outstanding capital stocks, without distinction as to
disputed or undisputed shares of stock, is the basis in determining the presence of quorum.

Section 52 of the Corporation Code states that:

Section 52. Quorum in meetings. — Unless otherwise provided for in this Code or in the
bylaws, a quorum shall consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the case of non-stock
corporations.

While Section 137 of the same Code defines "outstanding capital stock," thus:

Section 137. Outstanding capital stock defined. — The term "outstanding capital stock,"
as used in this Code, means the total shares of stock issued under binding subscription
agreements to subscribers or stockholders, whether or not fully or partially paid, except
treasury shares.

The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled
that unissued stocks may not be voted or considered in determining whether a quorum is present
in a stockholders' meeting. Only stocks actually issued and outstanding may be voted. 23 Thus,
for stock corporations, the quorum is based on the number of outstanding voting stocks. 24 The
distinction of undisputed or disputed shares of stocks is not provided for in the law or the
jurisprudence. Ubi lex non distinguit nec nos distinguere debemus — when the law does not
distinguish we should not distinguish. Thus, the 200,000 outstanding capital stocks of Phil-Ville

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should be the basis for determining the presence of a quorum, without any distinction. Therefore,
to constitute a quorum, the presence of 100,001 shares of stocks in Phil-Ville is necessary.

WHEREFORE, premises considered, the Petitions for Review on Certiorari are DENIED. The
Decision of the Court of Appeals are AFFIRMED in toto.

G. Close Corporations

Sec. 95 – 104, RCC

Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431 (2003)

FACTS:

On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala,
Raul Gala, and Rita Benson, and their encargados Virgilio Galeon and Julian Jader formed and
organized the Ellice Agro-Industrial Corporation. Subsequently, on September 16, 1982, Guia
Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader incorporated the Margo
Management and Development Corporation (Margo). Gala Sps. transferred their shares from
Ellise to Margo. Before Mariano’s death, he transferred all of his shares to Raul Gala.

On June 23, 1990, a special stockholders meeting of Margo was held, where a new board of
directors was elected. That same day, the newly-elected board elected a new set of officers. Raul
Gala was elected as chairman, president and general manager. During the meeting, the board
approved several actions, including the commencement of proceedings to annul certain
dispositions of Margos property made by Alicia Gala. The board also resolved to change the name
of the corporation to MRG Management and Development Corporation.

On August 24, 1990, a special stockholders meeting of Ellice was held to elect a new board of
directors. In the ensuing organizational meeting later that day, a new set of corporate officers
was elected. Likewise, Raul Gala was elected as chairman, president and general manager.

On March 27, 1990, respondents filed against petitioners with the Securities and Exchange
Commission (SEC) a petition for the appointment of a management committee or receiver,
accounting and restitution by the directors and officers, and the dissolution of Ellice Agro-
Industrial Corporation for alleged mismanagement, diversion of funds, financial losses and the
dissipation of assets, docketed as SEC Case No. 3747.

In turn, on June 26, 1991, petitioners initiated a complaint against the respondents, docketed as
SEC Case No. 4027, on the ground that the purpose of the corporations were illegal and contrary
to public policy. They claim that the respondents never pursued exemption from land reform
coverage in good faith and instead merely used the corporations as tools to circumvent land
reform laws and to avoid estate taxes. They pointed out that the respondents have not shown

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that the transfers of land in favor of Ellice were executed in compliance with the requirements
of Sec. 13 of RA 3844. Furthermore, they allege that the corporation was run by without the
conventional corporate formalities.

ISSUE: W/N the purposes for which the family corporations, Ellice and Margo, were organized
should be declared as illegal and contrary to public policy.

RULING:
The Court holds that petitioners’ contentions impugning the legality of the purposes for which
Ellice and Margo were organized, amount to collateral attacks which are prohibited in this
jurisdiction. The best proof of the purpose of a corporation is its articles of incorporation and by-
laws. The articles of incorporation must state the primary and secondary purposes of the
corporation, while the by-laws outline the administrative organization of the corporation, which,
in turn, is supposed to insure or facilitate the accomplishment of said purpose.

In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of
the allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a
corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no
authority to inquire whether the corporation has purposes other than those stated, and
mandamus will lie to compel it to issue the certificate of incorporation.

Assuming there was even a grain of truth to the petitioners claims regarding the legality of what
are alleged to be the corporations’ true purposes, we are still precluded from granting them
relief. We cannot address here their concerns regarding circumvention of land reform laws, for
the doctrine of primary jurisdiction precludes a court from arrogating unto itself the authority to
resolve a controversy the jurisdiction over which is initially lodged with an administrative body
of special competence. Since primary jurisdiction over any violation of Section 13 of Republic Act
No. 3844 that may have been committed is vested in the Department of Agrarian Reform
Adjudication Board (DARAB), then it is with said administrative agency that the petitioners must
first plead their case. With regard to their claim that Ellice and Margo were meant to be used as
mere tools for the avoidance of estate taxes, suffice it say that the legal right of a taxpayer to
reduce the amount of what otherwise could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted.

It is always sad to see families torn apart by money matters and property disputes. The concept
of a close corporation organized for the purpose of running a family business or managing family
property has formed the backbone of Philippine commerce and industry. Through this device,
Filipino families have been able to turn their humble, hard-earned life savings into going concerns
capable of providing them and their families with a modicum of material comfort and financial
security as a reward for years of hard work. A family corporation should serve as a rallying point
for family unity and prosperity, not as a flashpoint for familial strife. It is hoped that people
reacquaint themselves with the concepts of mutual aid and security that are the original driving
forces behind the formation of family corporations and use these tenets in order to facilitate
more civil, if not more amicable, settlements of family corporate disputes.

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 Manuel R. Dulay Enterprises v. CA, 225 SCRA 678 (1993)

Facts: Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members
of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president,
treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-
president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel
C. Jose with 10 shares and designated as secretary, owned a property known as Dulay Apartment
consisting of sixteen (16) apartment units. Petitioner corporation through its president, Manuel
Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel
(now Frederick Hotel).

Manuel Dulay by virtue of Board Resolution No 18 sold the subject property to spouses Maria
Theresa and Castrense Veloso. Maria Veloso (buyer), without the knowledge of Manuel Dulay,
mortgaged the subject property to private respondent Manuel A. Torres. Upon the failure of
Maria Veloso to pay Torres, the property was sold to Torres in an extrajudicial foreclosure
sale.Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the
apartment. RTC rendered a decision in favor of private respondents and ordered the corporation
and the tenants to vacate the building. CA afiirmed the trial court’s decision. Hence, this petition.

Petitioners contend that the respondent court had acted with grave abuse of discretion when it
applied the doctrine of piercing the veil of corporate entity in the instant case considering that
the sale of the subject property between private respondents spouses Veloso and Manuel Dulay
has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized the
sale of the subject property was resolved without the approval of all the members of the board
of directors and said Board Resolution was prepared by a person not designated by the
corporation to be its secretary.

Issue: Whether or not the doctrine of piercing the veil of corporate entity shall be applied in the
case considering that the sale of the subject property between private respondents spouses
Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No.
18 which authorized the sale of the subject property was resolved without the approval of all the
members of the board of directors and said Board Resolution was prepared by a person not
designated by the corporation to be its secretary.

WON the sale to Veloso is valid notwithstanding that it was resolved without the approval of all
the members of the board of directors. (YES)

Ruling: Yes.

Section 101 of the Corporation Code of the Philippines provides:

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Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws
provide otherwise, any action by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors,
orchanrobles virtual law library

2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; orchanrobles virtual law library

3. The directors are accustomed to take informal action with the express or implied acquiese
of all the stockholders, orchanrobles virtual law library

4. All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection thereto in writing.

If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof.

In the instant case, petitioner corporation is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject property is not necessary to bind
the corporation for the action of its president. At any rate, corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay
failed to do.

It is relevant to note that although a corporation is an entity which has a personality distinct and
separate from its individual stockholders or members, the veil of corporate fiction may be pierced
when it is used to defeat public convenience justify wrong, protect fraud or defend crime. The
privilege of being treated as an entity distinct and separate from its stockholder or members is
therefore confined to its legitimate uses and is subject to certain limitations to prevent the
commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation as the act of that person.
The Supreme Court had repeatedly disregarded the separate personality of the corporation
where the corporate entity was used to annul a valid contract executed by one of its members.

WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.

Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997)

Facts:

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Petitioner CFTI (Clark Field Taxi, Inc.) held a concessionaire's contract with the Army Air Force
Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. Sergio F.
Naguiat was CFTI's president, while Antolin T. Naguiat was its vice-president. Like Sergio F.
Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned
corporation.

Private respondents were taxi drivers employed by CFTI. They are required to pay a daily
boundary fee. The drivers worked at least three to four times a week, depending on the
availability of taxicabs. They earned not less than US$15.00 daily.

Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was
not spared, the AAFES was dissolved, and the services of individual respondents were officially
terminated on November 26, 1991.

AAFEX Taxi Drivers Association negotiated with CFTI as regards to the drivers’ separation pay.
They agreed that CFTI will pay P500 for every year of service as a separation pay. However,
private respondent did not accept it.

Private respondent filed a complaint against Sergio F. Naguiat doing business under the name
and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark
Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo
Castillo as President," for payment of separation pay due to termination/phase-out. Said
complaint was later amended6 to include additional taxi drivers who were similarly situated as
complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party
respondent.

LA – ruled in favor of private respondent and ordered the petitioner to pay P1200 as their
separation pay.

NLRC - Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and Antolin Naguiat,
father and son at the same time the President and Vice-President and General Manager,
respectively, should be joined as indispensable party whose liability is joint and several

Issue: who are liable for the payment of the separation pay of private respondent?

Held: Naguiat Enterprise and Antolin Naguiat Not Liable

CFTI President (Sergio Naguiat) is liable jointly and several liable with CFTI

Naguiat Enterprise and Antolin Naguiat Not Liable

From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat
Enterprises is an indirect employer of individual respondents much less a labor only contractor.
On the contrary, petitioners submitted documents such as the drivers' applications for
employment with CFTI, 23 and social security remittances 24 and payroll 25 of Naguiat Enterprises
showing that none of the individual respondents were its employees. Moreover, in the contract

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26between CFTI and AAFES, the former, as concessionaire, agreed to purchase from AAFES for a
certain amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI,
pursuant to their concessionaire's contract. This indicates that CFTI became the owner of the
taxicabs which became the principal investment and asset of the company.

Private respondents failed to substantiate their claim that Naguiat Enterprises managed,
supervised and controlled their employment. It appears that they were confused on the
personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F.
Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They presumed
that Sergio F. Naguiat, who was at the same time a stockholder and director 27 of Sergio F. Naguiat
Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer
scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F.
Naguiat, in supervising the taxi drivers and determining their employment terms, was rather
carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate
corporation does not appear to be involved at all in the taxi business.

From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of
individual respondents, and that Naguiat Enterprises was neither their indirect employer nor
labor-only contractor. It was not involved at all in the taxi business.

Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general
manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no
evidence on the extent of his participation in the management or operation of the business was
preferred. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio
Naguiat to the private respondents.

Liability of Sergio Naguiat as the president of CFTI

In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as
president of CFTI, cannot be exonerated from joint and several liability in the payment of
separation pay to individual respondents.

Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus,
applying the ruling in A.C. Ransom, he falls within the meaning of an "employer" as contemplated
by the Labor Code, who may be held jointly and severally liable for the obligations of the
corporation to its dismissed employees.

Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations" 34 owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close
Corporations) of the Corporation Code, states:

(5) To the extent that the stockholders are actively engage(d) in the management or operation
of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary
duties to each other and among themselves. Said stockholders shall be personally liable for

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corporate torts unless the corporation has obtained reasonably adequate liability insurance.
(emphasis supplied)

Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;"
thus, what remains is to determine whether there was corporate tort.

Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort"
consists in the violation of a right given or the omission of a duty imposed by law. 35 Simply stated,
tort is a breach of a legal duty. 36 Article 283 of the Labor Code mandates the employer to grant
separation pay to employees in case of closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, which is the condition
obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently,
its stockholder who was actively engaged in the management or operation of the business should
be held personally liable.

The Court here finds no application to the rule that a corporate officer cannot be held solidarily
liable with a corporation in the absence of evidence that he had acted in bad faith or with malice.
In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had
actively engaged in the management and operation of CFTI, a close corporation.

Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)

Ong Yong v. Tiu, 401 SCRA 1 (2003)

MR Resolution

FACTS:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage
and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC),
which was owned by the Tius, encountered financial difficulties. It was heavily indebted to the
PNB for P190 million. Hence, the Tius entered into a Pre-Subscription Agreement with the Ongs.

Under the Pre-Subscription Agreement, the Ongs and the Tius agreed to maintain equal
shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00
each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition
to their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius
were entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs
were entitled to nominate the President, the Secretary and six directors (including the chairman)
to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall.

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Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock
while the Tius committed to contribute to FLADC a four-storey building and two parcels of land
respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8
million (for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs
paid in another P70 million to FLADC and P20 million to the Tius over and above their P100 million
investment, the total sum of which (P190 million) was used to settle the P190 million mortgage
indebtedness of FLADC to PNB.

In 1996, the following conflicts between the parties arose that led to the Tius rescinding the Pre-
Subscription Agreement and later on seeking confirmation of rescission before the SEC.

- That the Ongs refused to credit to the other party the FLADC shares covering their
real property contributions;
- That David and Cely Tiu were prevented from assuming the positions of and
performing their duties as Vice-President and Treasurer
- That the Tius were refused office space

SEC – confirmed rescission by the Tius.

CA – AFFIRMED

SC - Affirmed. Both the Ongs and the Tius violated their respective obligations under the Pre-
Subscription Agreement. The Ongs prevented the Tius from assuming the positions of Vice-
President and Treasurer of the corporation. On the other hand, the Decision established that the
Tius failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC
to their MATTERCO account. Rescission was not possible since both parties were in pari delicto
but the other remedy of specific performance was not practical and sound and would only lead
to further "squabbles and numerous litigations" between the parties.

Tius filed before the SC Motion for Issuance of a Writ of Execution and the Ongs filed their
"Motion for Reconsideration;

Ongs’ argument: that specific performance and not rescission was the proper remedy under the
premises; and

ISSUE: Are the Tius entitled for rescission?

HELD: MR GRANTED. The Tius cannot legally rescind the Pre-Subscription Agreement

1. The subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated
to the Ongs. Since these were unissued shares, the parties' Pre-Subscription Agreement was in
fact a subscription contract as defined under Section 60, Title VII of the Corporation Code:

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still
to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the
fact that the parties refer to it as a purchase or some other contract.

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A subscription contract necessarily involves the corporation as one of the contracting parties
since the subject matter of the transaction is property owned by the corporation its shares of
stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius.
Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they
were not selling any of their own shares to them. It was FLADC that did.

Considering therefore that the real contracting parties to the subscription agreement were
FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by
the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only
FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription
agreement with the Ongs inasmuch as it was the real party in interest therein.

2. Assuming arguendo, that the Tius possess the legal standing to sue for rescission based on
breach of contract, said action will nevertheless still not prosper since rescission will violate the
Trust Fund Doctrine and the procedures for the valid distribution of assets and property under
the Corporation Code:

The Trust Fund Doctrine provides that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for the satisfaction of their claims.
This doctrine is the underlying principle in the procedure for the distribution of capital assets,
embodied in the Corporation Code, which allows the distribution of corporate capital only in
three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital
stock, (2) purchase of redeemable shares by the corporation, regardless of the existence of
unrestricted retained earnings, and (3) dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire
its own shares and in Section 122 on the prohibition against the distribution of corporate assets
and property unless the stringent requirements therefor are complied with.

The distribution of corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on
the earnest desire of the court a quo "to prevent further squabbles and future litigations" unless
the indispensable conditions and procedures for the protection of corporate creditors are
followed. Otherwise, the "corporate peace" laudably hoped for by the court will remain nothing
but a dream because this time, it will be the creditors' turn to engage in "squabbles and
litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund
Doctrine.

3. Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to
compel FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock.
The Tius are actually not just asking for a review of the legality and fairness of a corporate
decision. They want this Court to make a corporate decision for FLADC. The Court decline to
intervene and order corporate structural changes not voluntarily agreed upon by its stockholders

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and directors.Truth to tell, a judicial order to decrease capital stock without the assent of FLADC's
directors and stockholders is a violation of the "business judgment rule" which states that:

Contracts intra vires entered into by the board of directors are binding upon the corporation and
courts will not interfere unless such contracts are so unconscionable and oppressive as to amount
to wanton destruction to the rights of the minority, as when plaintiffs aver that the defendants
(members of the board), have concluded a transaction among themselves as will result in serious
injury to the plaintiff’s stockholders.

Courts and other tribunals are wont to override the business judgment of the board mainly
because, courts are not in the business of business, and the laissez faire rule or the free enterprise
system prevailing in our social and economic set-up dictates that it is better for the State and its
organs to leave business to the businessmen; especially so, when courts are ill-equipped to make
business decisions. More importantly, the social contract in the corporate family to decide the
course of the corporate business has been vested in the board and not with courts. (Villanueva)

Florete, Sr. v. Florete, Jr., G.R. Nos. 223321, 02 April 2018

Facts: Marsal & Co., Inc. (Marsal) was organized as a close corporation by Marcelino, Sr., Salome,
Rogelio, Marcelino, Jr., Ma. Elena, and Teresita (all surnamed Florete). Since its incorporation,
the Articles of Incorporation (AOI) had been amended several times to increase its authorized
capital stocks of P500,000.00 to P5,000,000.00. Notwithstanding the amendments, paragraph 7
of their AOI which provides for the procedure in the sale of the shares of stocks of a stockholder
remained the same, to wit:

SEVENTH. x x x Any stockholder who desires to sell his share of stock in the company must notify
in writing the Board of Directors of the company of his intention to sell. The Board of Directors
upon receipt of such notice must immediately notify all stockholders of record within five days
upon receipt of the letter of said stockholder. Any stockholder of record has the preemptive right
to buy any share offered for sale by any stockholder of the company on book value base[d] on
the balance sheet approved by the Board of Directors. The aforementioned preemptive right
must be exercised by any stockholder of the company within ten (10) days upon his receipt of
the written notice sent to him by the Board of Directors of the offer to sell. Any sale or transfer
in violation of the above terms and conditions shall be null and void. The above terms and
conditions must be printed at the back of the stock certificate.

Upon Teresita Florete Menchavez death, her husband’s (Ephraim) Petition for Issuance of Letters
of Administration over her estate was granted. Subsequently, Ephraim, the special administrator,
entered into a Compromise Agreement and Deed of Assignment with petitioner Rogelio ceding
all the shareholdings of Teresita in various corporations owned and controlled by the Florete
family, which included the 3,464 shares in Marsal corporation to petitioner Rogelio.
Respondents Marcelino Jr. and Ma. Elena filed with the RTC a case for annulment/rescission of
sale of shares of stocks and the exercise of their preemptive rights in Marsal corporation and
damages against petitioners Rogelio Florete, Sr. and the estate of the late Teresita F. Menchavez,

111
herein represented by her heirs, namely, Mary Ann Therese Menchavez, Christine Joy F.
Menchavez, Ma. Rosario F. Menchavez, Diane Grace Menchavez, Rosie Jill F. Menchavez, and
Ephraim Menchavez.
Respondents claimed that the sale of Teresita’s 3,464 Marsal shares of stocks made by petitioner
estate to petitioner Rogelio was void ab initio as it violated paragraph 7 of Marsal’s AOI, since the
sale was made sans written notice to the Board of Directors who was not able to notify
respondents in writing of the petitioner estate and heirs’ intention to sell and convey the Marsal
shares and depriving respondents of their preemptive rights.
The RTC, as a Special Commercial Court, dismissed the complaint.
On appeal, the CA reversed and set aside the RTC ruling.

Issue: Whether the violation of the restrictions enumerated under Section 99 of the Corp. Code
makes such transfer invalid. NO

Factual issue/ in other words: Whether the sale of Teresita’s 3,464 Marsal shares of stocks made
by petitioner estate of Teresita to petitioner Rogelio was in violation of par. 7 of Marsal’s AOI and
hence null and void and must be annulled or rescinded. NO

Ruling: Preliminarily, petitioners’ claim that Marsal is not a close corporation deserves scant
consideration as they had already admitted that it is.
As Marsal is a close corporation, it is allowed under the Corporation Code to provide for
restrictions on the transfer of its stocks, as stipulated in Sec. 97 (Articles of incorporation) and
Sec. 98 (Sec. 98. Validity of restrictions on transfer of shares)

In this case, the lack of notification in writing to the BOD of the intention to sell, does not make
the sale null and void.
While it would appear that petitioner estate of Teresita, through its administrator Ephraim and
petitioner Rogelio, did not comply with the procedure on the sale of Teresita’s Marsal shares as
stated under paragraph 7 of the AOI, however, it appeared in the records that respondents had
nonetheless been informed of such sale to which they had already given their consent thereto.
First. Teresita died on September 19, 1989. Her husband Ephraim filed a petition for letters of
administration of her estate in 1992. Petitioner Rogelio filed an Opposition thereto which was
later amended to include MARSAL & CO., INC. as represented by its President, herein petitioner.
Second. The sale of all of Teresita’s shares which she inherited from her deceased parents which
were sold to petitioner Rogelio, and which included the 3,464 Marshal shares, had also been
made known to respondents in the intestate proceedings to settle the estate of Marcelino
Florete, Sr., who died on October 3, 1990. Petitioner Rogelio was later appointed as the
administrator of the estate.
There was already substantial compliance with paragraph 7 of the AOI when respondents
obtained actual knowledge of the sale of Teresita’s 3,464 Marsal shares to petitioner Rogelio as
early as 1995. In fact, respondents had already given their consent and conformity to such sale
by their inaction for 17 years despite knowledge of the sale. Moreover, they had already waived
the procedure of the stockholder’s sale of stocks as provided under paragraph 7 of the AOI. In
People v. Judge Donato, We explained the doctrine of waiver as follows:

112
Waiver is defined as “a voluntary and intentional relinquishment or abandonment of a known
existing legal right, advantage, benefit, claim or privilege, which except for such waiver the party
would have enjoyed; x x x

Moreover, Section 99 of the Corporation Code provides for the effects of transfer of stock in
breach of qualifying conditions, to wit:
Sec. 99. Effects of issuance or transfer of stock in breach of qualifying conditions.—
xxxx3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer
of stock of the corporation, the transferee of the stock is conclusively presumed to have notice
of the fact that he has acquired stock in violation of the restriction, if such acquisition violates
the restriction.

4. Whenever any person to whom stock of a close corporation has been issued or transferred
has, or is conclusively presumed under this section to have, notice either
(a) that he is a person not eligible to be a holder of stock of the corporation, or
(b) that transfer of stock to him would cause the stock of the corporation to be held by more than
the number of persons permitted by its articles of incorporation to hold stock of the corporation,
or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation
may, at its option, refuse to register the transfer of stock in the name of the transferee.

xxx

Clearly, under the above quoted provision, even if the transfer of stocks is made in violation of
the restrictions enumerated under Section 99, such transfer is still valid if it has been consented
to by all the stockholders of the close corporation and the corporation cannot refuse to register
the transfer of stock in the name of the transferee. In this case, We find that the sale of Teresita’s
3,464 Marsal shares had already been consented to by respondents as We have discussed, and
may be registered in the name of petitioner Rogelio.
We find that there is indeed no violation of paragraph 7 of Marsal’s Articles of Incorporation. We
need not discuss the other issues raised in the petition. WHEREFORE, premises considered, the
petition for review is GRANTED.

San Juan Structural v. CA, 296 SCRA 631 (1998)

Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s amended complaint
alleged that on February 14, 1989, plaintiff-appellant entered into an agreement with defendant-
appellee Motorich Sales Corporation for the transfer to it of a parcel of land identified as lot 30,
Block 1 of the Acropolis Greens Subdivision located in the district of Murphy, Quezon City, Metro
Manila containing an area of 414 sqm, covered by TCT no. 362909; that as stipulated in the
agreement of February 14, 1i989, plaintiff-appellant paid the down payment in the sum of
P100,000, the balance to be paid on or before March 2, 19889; that on March 1, 1989,Mr. Andres
T. Co, president of Plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich
Sales Corporation requesting a computation for the balance to be paid; that said letter was

113
coursed through the defendant-appellee’s broker. Linda Aduca who wrote the computation of
the balance; that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding
to the balance, covered by Metrobank cashier’s check no. 004223 payable to defendant-appellee
Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee were supposed to
meet in the plaintiff-appellant’s office but defendant-appellee’s treasurer, Nenita Lee Gruenbeg
did not appear; that defendant-appelle despite repeated demands and in utter disregard of its
commitments had refused to execute the transfer of rights/deed of assignment which is
necessary to transfer the certificate of title; that defendant ACL development corporation is
impleaded as a necessary party since TCT no. 362909 is still in the name of said defendant; while
defendant VNM Realty and Development Corporation is likewise impleaded as a necessary party
in view of the fact that it is the transferor of the right in favor of defendant-appellee Motorich
Sales Corporation; that on April 6, 1989 defendant ACL Development Corporation and Motorich
Sales Corporation entered into a deed of absolute sale whereby the former transferred to the
latter the subject property; that by reason of said transfer; the registry of deeds of Quezon City
issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee
Nenita Lee Gruenbeg and Reynaldo L. Gruenbeg, under TCT no. 3751; that as a result of
defendants-appellees Nenita and Motorich’s bad faith in refusing to execute a formal transfer of
rights/deed of assignment, plaintiff-appellant suffered moral and nominal damages which may
be assessed against defendant-appellees in the sum of P500,000; that as a result of an unjustified
and unwarranted failure to execute the required transfer or formal deed of sale in favor of
plaintiff-appellant, defendant-appellees should be assessed exemplary damages in the sum of
P100,000; that by reason of the said bad faith in refusing to execute a transfer in favor of plaintiff-
appellant the latter lost opportunity to construct a residential building in the sum of P100,000
and that as a consequence of such bad faith, it has been constrained to obtain the services of
counsel at an agreed fee of P100,000 plus appearance fee of for every appearance in court
hearings.

Issues: Whether or not the corporation’s treasurer act can bind the corporation.

Whether or not the doctrine of piercing the veil of corporate entity is applicable.

Held: No. Such contract cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of the corporation is not the
property of its stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation’s board of directors.

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

this code, the corporate powers of all corporations formed under this code shall be exercised, all
business conducted, and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the stockholders of stocks, or where there is no

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stock, from among the members of the corporations, who shall hold office for 1 year and until
their successors are elected and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are binding on
the corporation. But when these officers exceed their authority, their actions, cannot bind the
corporation, unless it has ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to respondent Gruenbeg to sell its
parcel of land, we hold that the February 14, 1989 agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.

The statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On
equitable consideration,the veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity, defeat public convenience; confuse legitimate issues; or serve as a mere
alter ego or business conduit of a person or an instrumentality, agency or adjunct of another
corporation.

We stress that the corporate fiction should be set aside when it becomes a shield against liability
for fraud, or an illegal act on inequity committed on third person. The question of piercing the
veil of corporate fiction is essentially, then a matter of proof. In the present case, however, the
court finds no reason to pierce the corporate veil of respondent Motorich. Petitioner utterly
failed to establish the said corporation was formed, or that it is operated for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said
veil was used to conceal fraud, illegality or inequity at the expense of third persons like petitioner.

Tan v. SEC, 206 SCRA 740 (1992)

Bitong v. Court of Appeals, 292 SCRA 503 (1998)
Makati Sports Club, Inc. v. Cheng, 621 SCRA 103 (2010)
Baltazar v. Lingayen Gulf Elect. Power Co., 14 SCRA 522 (1965)
De los Santos v. Republic, 96 Phil. 577 (1955)
Guy v. Guy, 680 SCRA 214 (2012)
Forest Hills Golf & Country Club v. Vertex Sales and Trading, Inc., 692 SCRA 706 (2013)
Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 362 SCRA 635 (2001)
Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002)
Cojuangco v. Sandiganbayan, 586 SCRA 790 (2009) Chua Guan v. Samahang Magsasaka, Inc.,
62 Phil. 472 (1935)
Bachrach Motor Co. v. Lacson Ledesma, 64 Phil. 681 (1937) Nava v. Peers Marketing Corp., 74
SCRA 65 (1976) MR Holdings, Ltd. V. Bajar, 683 SCRA 336 (2012)

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Stockholders of F. Guanson and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962)
Tan v. Sycip, 499 SCRA 216 (2006)
Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 SCRA 461 (2011)
General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007)
Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996)
Traders Royal Bank v. Court of Appeals, 269 SCRA 15 (1997)
Gochan v. Young, 354 SCRA 207 (2001)
Boyer-Roxas v. CA, 211 SCRA 470 (1992)
Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665 (2014)
Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003)
Lambert v. Fox, 26 Phil. 588 (1914) Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925) Padgett v.
Babcock & Templeton, Inc., 59 Phil. 232 (1933)
Teng v. SEC, 784 SCRA 216 (2016)
Interport Resources Corp. v. SSI, 792 SCRA 155 (2016)
Teng Ling Kiat v. Ayala Corp., G.R. No. 192530, 07 March 2018
Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)
Gokongwei, Jr. v. SEC, 89 SCRA 336 (1979)
Chua v. People, 801 SCRA 436 (2016)
Gonzales v. PNB, 122 SCRA 489 (1983)
PASAR Corp. v. Lim, 804 SCRA 600 (2016)
Ang-Abaya v. Ang, 573 SCRA 129 (2008)
Chua v. Court of Appeals, 443 SCRA 259 (2004)
Ching v. Subic Bay Golf and Country Club, Inc., 734 SCRA 569 (2014)
Yu v. Yukayguan, 589 SCRA 588 (2009) Pascual v. Orozco, 19 Phil. 83 (1911)
Villamor, Jr. v. Umale, 736 SCRA 325 (2014)
Ang v. Ang, 699 SCRA 272 (2013).
Republic Planters Bank v. Agana, 269 SCRA 1 (1997)

F. Stockholders’/Members’ Meetings and Voting at Meetings

Sec. 48-51, Sec. 54-58, Sec. 88, RCC

Cases:
GSIS v. Court of Appeals, 585 SCRA 679 (2009)
Lee v. Court of Appeals, 205 SCRA 752 (1992)
Ricafort v. Dicdican, 787 SCRA 163 (2016)
Guy v. Guy, 790 SCRA 288 (2016)
Villongco v. Yabut, G.R. Nos. 225022 & 225024, 05 Feb. 2018

G. Close Corporations
Sec. 95 – 104, RCC

Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431 (2003)

Manuel R. Dulay Enterprises v. CA, 225 SCRA 678 (1993)
Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997)
Andaya v. Rural Bank of Cabadbaran, 799 SCRA 325 (2016)

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Ong Yong v. Tiu, 401 SCRA 1 (2003)
Florete, Sr. v. Florete, Jr., G.R. Nos. 223321, 02 April 2018 San Juan Structural v. CA, 296
SCRA 631 (1998)

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