IV.

Transportation

A. Common Carriers
1. Concept

Pedro De Guzman vs. CA

GR No. L-47822

December 22, 1988

FACTS:

Respondent Ernesto Cendaña, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan.Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General
Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750
cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in
Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons
were placed on board the other truck which was driven by Manuel Estrada, respondent's driver and employee. Only
150 boxes were delivered to the petitioner while the remaining 600 boxes were hijacked somewhere along
MacArthur Highway in Paqui, Tarlac, according to respondent.

ISSUE:

Whether or not private respondent Ernesto Cendaña may be characterized as a common carrier?

RULING:

Article 1732: Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public. The article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment of the
general population. Respondent is properly characterized as a common carrier even though he merely "back-hauled"
goods for other merchants although such backhauling was done on a periodic or occasional rather than regular or
scheduled manner, and even though private respondent's principal occupation was not the carriage of goods for
others.
 2. Common carrier vs. Private carrier

Planter Product Inc, vs. CA

GR No. 101503

September 15, 1993

FACTS:

Planters Products, Inc. purchased from Mitsubishi International Corporation 9,329.7069 metric tons of Urea 46%
fertilizer, which the latter shipped aboard the cargo vessel M/V Sun Plum on June 16, 1974. Prior to its voyage, a
time-charter party was entered into between Mitsubishi as shipper, and Kyosei Kisen Kabushiki Kaisha as
shipowner. Before loading the fertilizer aboard the vessel, four of her holds were presumably inspected by the
charterer’s representative and found it fit to take the load. Upon arrival of the vessel, petitioner unloaded the cargo,
which took 11 days. A private marine and cargo surveyor, Cargo Superintendents Company, Inc. (CSCI) was hired
by petitioner to determine the outturn of the cargo shipped. CSCI reported shortage of 106.726 metric tons, and
contamination of 18 metric tons due to dirt. The appellate court ruled that the vessel was a private carrier and not a
common carrier by reason of the charter party and was absolved from liability.

ISSUE:

Whether or not a common carrier becomes a private carrier by reason of a charter party?

RULING:

The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a part of the general business or occupation,
although involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier.
When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the
employ of the ship owner and therefore continued to be under its direct supervision and control. Hardly then can we
charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer
did not have any control of the means in doing so. This is evident in the present case considering that the steering of
the ship, the manning of the decks, the determination of the course of the voyage and other technical incidents of
maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the ship
owner. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned.
 3. Diligence required

Eastern Shipping Lines vs. Court of Appeals

GR No. 94151

April 30, 1991

FACTS:

The carrier in this case is Eastern Shipping Lines Inc while the shipper/consignee is Stresstek Post Tensioning
Philippines Inc. The insurer is the First Nationwide Assurance Corporation while the Arrastre Operator is E. Razon
Inc. Eastern Shipping Lines Inc shipped uncoated 7-wire stress relieved wire strand for prestressed concrete were
shipped on board the vessel “Japri Venture,”. Upon arrival at the port of Manila, it discharged the cargo to the
custody of the defendant E. Razon, Inc. from whom the consignee’s customs broker received it for delivery to the
consignee’s warehouse. First Nationwide Assurance, indemnified the consignee in the amount of P171,923.00 for
damage and loss to the insured cargo, whereupon the former was subrogated for the latter. The insurer now seeks to
recover from the defendants what it has indemnified the consignee. The petitioner protested alleging that it should
not be held liable to answer for damages for the event that caused the rusting of the goods was due to the
“encountered very rough seas and stormy weather” classified as force majeure, hence relieving them of any liability.
Aggrieved, respondent filed a case against petitioner. The RTC dismissed the case but the CA set aside the RTC’s
decision and ordered petitioner to pay respondent.

ISSUE:

Whether or not petitioner was negligent and should be held liable for the payment of damages?

RULING:

YES. Plainly, the heavy seas and rains referred to in the master’s report were not caso fortuito, but normal occurrences that
an ocean-going vessel, particularly in the month of September which, in our area, is a month of rains and heavy seas
would encounter as a matter of routine. They are neither unforeseen nor unforeseeable. These are conditions that ocean-
going vessels would encounter and provide for, in the ordinary course of a voyage. That rain water (not sea water) found
its way into the holds of the Japri Venture is a clear indication that care and foresight did not attend the closing of the
ship’s hatches so that rainwater would not find its way into the cargo holds of the ship. Since the carrier has failed to
establish any caso fortuito, the presumption by law of fault or negligence on the part of the carrier applies; and the carrier
must present evidence that it has observed the extraordinary diligence required by Article 1733 of the Civil Code in order
to escape liability for damage or destruction to the goods that it had admittedly carried in this case. No such evidence
exists of record. Thus, the carrier cannot escape liability. The presumption, therefore, that the cargo was in apparent good
condition when it was delivered by the vessel to the arrastre operator by the clean tally sheets has been overturned and
traversed. The evidence is clear to the effect that the damage to the cargo was suffered while aboard petitioner’s vessel.
D. Extent of Liability

1. Recoverable Damages

Villa Rey Transit vs. CA

GR No. L-25499

February 18, 1970

FACTS:

On March 17, 1960, Policronio Quintos, Jr. was riding the petitioner’s bus, when the said bus frontally hit the rear
side of a bullcart filled with hay. The protruding end of the bamboo pole at the rear of the cart penetrated the
windshield of the bus and landed at Policronio’s face. He died of traumatic shock due to cerebral injuries. Private
respondents are sisters and surviving heirs of the deceased. They brought this action against Villa Rey Transit for
breach of contract of carriage. The trial court found that the death was caused by the negligence of the bus driver, for
whom petitioner was liable under the contract of carriage with the deceased.

ISSUE:

The number of years to be used as basis of computation

RULING:

The determination of the indemnity to be awarded to the heirs of a deceased person has no fixed basis. Much is left
to the discretion of the court considering the moral and material damages involved, and so it has been said that
"(t)here can be no exact or uniform rule for measuring the value of a human life and the measure of damages
cannot be arrived at by precise mathematical calculation, but the amount recoverable depends on the particular
facts and circumstances of each case. The life expectancy of the deceased or of the beneficiary, whichever is
shorter, is an important factor.' Other factors that are usually considered are: (1) pecuniary loss to plaintiff or
beneficiary; (2) loss of support; (3) loss of service; (4) loss of society; (5) mental suffering of beneficiaries; and (6)
medical and funeral expenses."
Thus, life expectancy is, not only relevant, but, also, an important element in fixing the amount recoverable by
private respondents herein. Although it is not the sole element determinative of said amount, no cogent reason has
been given to warrant its disregard and the adoption, in the case at bar, of a purely arbitrary standard, such as a four-
year rule. In short, the Court of Appeals has not erred in basing the computation of petitioner's liability upon the life
expectancy of Policronio Quintos, Jr.
2. Stipulations Limiting Liability

Pioneer Insurance and Surety Corporation vs. APL Co. Pte. Ltd.

G.R. No. 226345;

August 2, 2017 Mendoza, J.

FACTS:

This petition for review on certiorari seeks to reverse and set aside the Resolution of the CA that ruled that a shorter
prescriptive period to bring a suit may be stipulated upon, provided it is reasonable. The respondent carrier received
250 bags of chili pepper for transport from India to Manila. The cargo was insured with petitioner Pioneer Insurance
and Surety Corporation (Pioneer Insurance). On February 2, 2012, the insured consignee received the peppers from
respondent. However, 76 bags were found to be wet and heavily infested with mold. Consequently, the entire
shipment of 250 bags was declared unfit for human consumption and thus a total loss. Pioneer Insurance thus paid
the insurance claim of the consignee. It then sought payment from respondent carrier but the latter refused, which
prompted the former to file a complaint for sum of money on February 1, 2013. Both the MTC and the RTC
declared that as a common carrier, respondent was bound to observe extraordinary diligence. It was proved that the
shipment was wet because of water which seeped inside the steel container that the respondent carrier provided. The
respondent raised as defense Clause 8 of the Bill of Lading which provided that the Carrier (respondent) shall be
absolved from any liability unless a case is filed within nine months from delivery of the goods. The RTC ruled
however that under the COGSA, a prescriptive period shorter that one year cannot be stipulated in the Bill of
Lading. The CA reversed the decision of the RTC and ruled that Clause 8 was binding and thus the present action
was barred by prescription.

ISSUE:

Whether or not the stipulation of a shorter prescriptive period is valid?

RULING:

Yes, a stipulation of a shorter prescriptive period for actions is generally valid. In Philippine American General
Insurance Co., Inc. v. Sweet Lines, Inc., the Court recognized that stipulated prescriptive periods shorter than their
statutory counterparts are generally valid because they do not affect the liability of the carrier but merely affects the
shipper's remedy. In this case however, the Bill of Lading categorically provided for an exception such that although
it stipulated a 9-month prescriptive period, it also provided that if a compulsory law provided for a different period,
the compulsory law shall apply. Thus, in construing the clear and unequivocal terms of Clause 8 in the Bill of
Lading, the exception was applicable and thus the prescriptive period that applies in this case shall be the one-year
prescription under the COGSA. Hence, the action of the petitioner has not prescribed when it was filed on February
1, 2013, 358 days from the date the cargo was delivered.
3. Limitations under the Warsaw Convention

Pan American World Airways Inc., vs. Rapadas

GR No. 60673

May 19, 1992

FACTS:

On 16 January 1975, Jose K. Rapadas held Passenger Ticket and Baggage Claim Check 026394830084-5 for Pan
American World Airways Inc.’s (PanAm) Flight 841 with the route from Guam to Manila. While standing in line to
board the flight at the Guam airport, Rapadas was ordered by PanAm’s hand carry control agent to check-in his
Samsonite attache case. Rapadas protested pointing to the fact that other co-passengers were permitted to hand carry
bulkier baggages. He stepped out of the line only to go back again at the end of it to try if he can get through without
having to register his attache’ case. However, the same man in charge of hand carry control did not fail to notice him
and ordered him again to register his baggage. For fear that he would miss the plane if he insisted and argued on
personally taking the valise with him, he acceded to checking it in; He then gave his attache’ case to his brother who
happened to be around and who checked it in for him, but without declaring its contents or the value of its contents.
He was given a Baggage Claim Tag P-749-713. Upon arriving in Manila on the same date, 16 January 1975,
Rapadas claimed and was given all his checked-in baggage’s except the attache’ case. Since Rapadas felt ill on his
arrival, he sent his son, Jorge Rapadas to request for the search of the missing luggage. PanAm exerted efforts to
locate the luggage through the Pan American World Airways-Manila International Airport (PAN AM-MIA)
Baggage Service. On 30 January 1975. Refusing to accept the settlement, Rapadas filed the instant action for
damages on 1 October 1975. Rapadas alleged that PanAm discriminated or singled him out in ordering that his
luggage be checked in; He also alleged that PanAm neglected its duty in the handling and safekeeping of his attache’
case from the point of embarkation in Guam to his destination in Manila.

ISSUE:

Whether or not a passenger is bound by the terms of a passenger ticket declaring the limitations of liability set forth
in the Warsaw Convention?

RULING:

Yes. The Convention governs the availment of the liability limitations where the baggage check is combined with or
incorporated in the passenger ticket which complies with the provisions of Article 3, par. 1(c). (Article 4, par 2) in
the case at bar, the baggage check is combined with the passenger ticket in one document of carriage. The provisions
in the plane ticket sufficient to govern the limitations of liabilities of the airline for loss luggage. The passenger,
upon contracting with the airline and receiving the plane ticket, was expected to be vigilant insofar as his luggage is
concerned. If the passenger fails to adduce evidence to overcome the stipulations, he cannot avoid the application of
the liability limitations.
V. Corporation Law

C. De facto corporations and corporations by estoppel

Malabang vs. Benito

GR No. L-28113

FACTS:

Petitioners assailed the validity of EO 386 of the then President Carlos P. Garcia, which created the Municipality of
Balabagan out of barrios and sitios of Malabang. Petitioner relied on the ruling in Pelaez v. Auditor General while
respondent contended that  that the rule announced in Pelaez can have no application in this case because unlike the
municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation, having been
organized under color of a statute before this was declared unconstitutional, its officers having been either elected or
appointed, and the municipality itself having discharged its corporate functions for the past five years preceding the
institution of this action. It is contended that as a de facto corporation, its existence cannot be collaterally attacked,
although it may be inquired into directly in an action for quo warranto at the instance of the State and not of an
individual like the petitioner Balindong.

ISSUE:

Whether or not the controverted matter may be attacked collateraly?

RULING:

Yes. It is indeed true that, generally, an inquiry into the legal existence of a municipality is reserved to the State in a
proceeding for quo warranto or other direct proceeding, and that only in a few exceptions may a private person
exercise this function of government. But the rule disallowing collateral attacks applies only where the municipal
corporation is at least a de facto corporations. For where it is neither a corporation de jure nor de facto, but a nullity,
the rule is that its existence may be, questioned collaterally or directly in any action or proceeding by any one whose
rights or interests are affected thereby, including the citizens of the territory incorporated unless they are estopped
by their conduct from doing so.
 International Express Travel vs. CA

GR No. 119002

FACTS:

On June 30 1989, petitioner, through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn, wherein the former
offered its services as a travel agency to the latter. The offer was accepted. Petitioner secured the airline
tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala
Lumpur as well as various other trips to China and Brisbane.  The total cost of the tickets amounted to
P449,654.83.  The Federation made two partial payments, both in September of 1989, in the total
amount of P176,467.50. Petitioner to filed a civil case before RTC- Manila.  Petitioner sued Henri Kahn in
his personal capacity and as President of the Federation and impleaded the Federation as an alternative
defendant.  Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased
by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation. Henri Kahn
averred that the petitioner has no cause of action against him either in his personal capacity or in his
official capacity as president of the Federation because he did not guarantee payment but merely acted
as an agent of the Federation which has a separate and distinct juridical personality. The Federation
failed to file its answer, hence, was declared in default by the trial court.

ISSUE:

Whether or not the doctrine of corporation by estoppel applies in this case?

RULING:

We do not agree with the position taken by the CA that even assuming that the Federation was
defectively incorporated; the petitioner cannot deny the corporate existence of the Federation because
it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its
existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the
petitioner.  The application of the doctrine applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but
rather is the one claiming from the contract.
F. Stockholders and Members

1. Doctrine of equality of shares

CIR vs. Soriano

GR No. 108576

FACTS:

1m capitalization (10,000 common shares at a par value of 100php/share). Don Andres subscribed to 4,963 shares of
the 5,000 originally issued. Increased to 2.5m capital stock (25,000 common shares at a par value of 100php/share),
10,000 were only issued from the 15,000 additional shares. All of which was subscribed by DA. Due to the above,
Don Andres had 14,963 common shares. DA transferred 1,250 shares each to sons Jose and Andres Jr., leaving DA
with 12,463 shares. DA died leaving 185,154 shares (50,945 original issues and 134,659 shares as stock dividend
declarations.) 92,577 shares were transferred to DA’s wife, Carmen Soriano (DC), as her Conjugal share. On the
matter on whether or not an exchange of common with preferred share may be considered as a tax avoidance
scheme, the IRS opined that the exchange is only a recapitalization scheme and not tax avoidance. DC exchanged
her whole 138, 864 common shares for 138,860 preferred shares, Estate of DA exchanged 11,140 common shares
for the remaining 11,140 preferred shares, reducing the estate common shares to 127,727. ANSCOR redeemed
28,000 common shares from DA’s estate. First redemption from DA’s estate. ANSCOR’s capital stock was
increased to P75M divided into 150,000 preferred shares and 600,000 common shares. ANSCOR, again redeemed
80,000 common shares from the DA’s estate Second redemption from DA’s Estate. It decreased DA’s estate
common shareholdings to 19,727. ANSCOR was assessed for deficiency withholding tax-at-source. BIR
proceeded with the assessment notwithstanding the claim of ANSCOR that it availed of the tax amnesty under PD
23 which were amended by PD’s 67 and 157. CIR ruled that the invoked decrees do not cover Sections 53 and 54 in
relation to Sec 83(b) which ANSCOR was assessed.

ISSUE:

W/N ANSCOR’s redemption of stocks from its stockholder as well as the exchange of common with preferred
shares can be considered as “essentially equivalent to the distribution of taxable dividend” making the proceeds
thereof taxable under the provisions of the Sec 83(b)?

RULING:

General Rule: A stock dividend representing the transfer of surplus to capital account shall not be subject to tax.
Rationale: Stock dividends represent capital and do not constitute income to its recipient. As capital, it is not yet
subject to income tax.
Exception: However, if a corporation cancels or redeems stock issued as a dividend at such time and in such
manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the
distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be
considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March
first, nineteen hundred and thirteen.

The redemption or cancellation of stock dividends, depending on the “time” and “manner” it was made, is
essentially equivalent to a distribution of tax dividends, making the proceeds thereof “taxable income” to the extent
it represents profits.

The proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid
becomes the absolute property of the stockholder. Having realized gain from that redemption, the income earner
cannot escape income tax.
2. Proprietary rights

a. right to dividends

Republic Planters Bank vs. Agana

G.R. No. 51765; March 3, 1997

FACTS:

Private respondent Robes Francisco Realty & Development Corp. secured a loan from petitioner. As part of the
proceeds of the loan, preferred shares of stocks were issued to private respondent corporation. In other words,
instead of giving the legal tender totalling to the full amount of the loan, petitioner lent such amount partially in the
form of money and of stock certificates.  Said stock certificates were in the name of private respondent Adalia
Robes and Carlos Robes, later on, subsequently endorsed his shares in favor of Adalia Robes. Said certificates of
stock bear the following terms and conditions: (1) the right to receive a quarterly dividend of 1%, cumulative and
participating; (2) that such preferred shares may be redeemed, by the system of drawing lots, at any time after 2
years from the date of issue at the option of the corporation. Private respondents proceeded against petitioner and
filed a complaint anchored on private respondents’ alleged rights to collect dividends under the preferred shares in
question and to have petitioner redeem the same under the terms and conditions of the stock certificates. The trial
court ordered the petitioner to pay private respondents the face value of the stock certificates as redemption price,
plus 1% quarterly interest. Hence this petition.

ISSUE:

Whether or not the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes?

HELD:

NO. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank.
The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or
refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a
settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having
a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the
Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive to the
President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share,
on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and
creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a
banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but
also to the banking industry as a whole. The directive, in limiting the exercise of  a right granted by law to a
corporate entity, may thus be considered as an exercise of police power.
b. right to inspect

Pardo vs. Hercules Lumber

G.R. No. L-22442; August 1, 1924

FACTS:

Corporate secretary of Hercules Lumber refused to permit Pardo, a stockholder, or his agent to
inspect the records and business transactions of the company at the times desired by Pardo. Basis of the
refusal was the provision in the company’s by-laws which stipulated that every stockholder may
examine the books of the company and other documents upon the days which the board annually fixes.

ISSUE:

When is the time or times within which the right of inspection may be exercised?

HELD:

The resolution of the board limiting the rights of stockholders to inspect its records to a period
of 10 days prior to the annual SH meeting is an unreasonable restriction in accordance with the
Corporation Code which provides that the right to inspect can be exercised at reasonable hours. The
right of inspection was interpreted to mean that the right may be exercised at reasonable hours on
business days throughout the year, and not merely during an arbitrary period of a few days chosen by
the directors.
3. intra corporate disputes

a. concept

San Jose vs. Ozamis

GR No. 190590

FACTS:

San Jose was elected Corporate Secretary and as a member of the Board of Directors of Philcomsat Holdings
Corporation (PHC) since 1996 until he resigned and ceased to be connected with PHC in 2007. He was then
replaced Angcao as the Corporage Secretary. Angcao received a letter from Ozamiz, a stockholder of PHC
requesting for a copy of all the Minutes of the Meetings of the Board of Directors and Executive Committee of PHC
from 2000 to 2007 and a certification as to the completeness thereof. Ozamiz and his secretary followed-up with the
petitioners to no avail. Ozamiz filed a complaint for inspection of books with the RTC. Petitioners filed their
Answer Ad Cautelam where they denied the allegations of Ozamiz and argued that the RTC had no jurisdiction over
the complaint. Petitioners asserted that since 80.35% of PHC is owned by Philippine Communications Satellite
Corporation (Philcomsat), and Philcomsat is wholly owned by Philippine Overseas Telecommunications
Corporation (POTC), and both Philcomsat and POTC are subjects of a standing sequestration order issued by the
Presidential Commission on Good Government (PCGG), the case should have been filed before the Sandiganbayan.
They prayed that the complaint be dismissed for lack of jurisdiction and for lack of merit. The RTC dismissed the
complaint for lack of jurisdiction. Ozamiz assailed the Order of the RTC with the CA. The CA reversed and set
aside the Order of the RTC, finding that the case filed by Ozamiz was a simple intra-corporate dispute, and thus it
was the RTC which had jurisdiction over the case. The CA denied the Motion for Reconsideration filed by
petitioners.Hence, this petition.

ISSUE:

Whether or not this case involves a mere intra-corporate dispute?

RULING:

To determine whether or not a case involves an intra-corporate dispute, two tests are applied – the relationship test
and the nature of the controversy test. Under the relationship test, there is an intra-corporate controversy when the
conflict is (1) between the corporation, partnership, or association and the public; (2) between the corporation,
partnership, or association and the State insofar as its franchise, permit, or license to operate is concerned; (3)
between the corporation, partnership, or association and its stockholders, partners, members, or officers; and (4)
among the stockholders, partners, or associates themselves. On the other hand, in accordance with the nature of
controversy test, an intra-corporate controversy arises when the controversy is not only rooted in the existence of an
intra-corporate relationship, but also in the enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the corporation. Based on the foregoing
tests, it is clear that this case involves an intra-corporate dispute. It is a conflict between a stockholder and the
corporation, which satisfies the relationship test, and it involves the enforcement of the right of Ozamiz, as a
stockholder, to inspect the books of PHC and the obligation of the latter to allow its stockholder to inspect its books.
We find that the dispute at hand, which involves the stockholder, Ozamiz, demanding to inspect the books of PHC
and the consequent refusal of the corporation to show its books, is simply an intra-corporate dispute. And because
this is an intra-corporate dispute, the matter was properly elevated to the CA.
b. individual vs representatives vs derivative suits

Wellington vs. Subic Bay

GR No. 174353

FACTS:

Petitioners Nestor Ching and Andrew Wellington own stocks of the Subic Bay Golf and Country Club, Inc.
(SBGCCI). On June 27, 1996, Securities and Exchange Commission (SEC) approved amendments to SBGCCI
Articles of Incorporation which the petitioners allege make their shares non-proprietary. Petitioners allege that this
change was made without the appropriate disclosure of SBGCCI to its shareholders. Furthermore, petitioners allege
several instances of fraud committed by SBGCCI’s board of directors in its February 26, 2003 complaint.
Respondent’s answered the complaint by refuting allegations made by petitioners. As a way of defense, respondents
underscored petitioners’ failure to: show that it was authorized by SBGSI to file complaint on said company’s behals
comply with the requisites for filing a derivative suit and an action for receivership justify their prayer for injunctive
relief since the complaint may be considered a nuisance or harassment suit Thus, respondents prayed for dismissal
of the complaint. On July 28, 2003, the RTC held that the action is a derivative suit and issued an order dismissing
the complaint. Petitioners elevated the case to the Court of Appeals but the appellate court affirmed the RTC
decision.

ISSUE:

WON the petitioners are proper party in interest?

WON the complaint is a derivative suit?

RULING:

Petitioners did not offer proof that they were authorized to represent SBGSI. The Court ruling in Cua, Jr. v. Tan
elaborated the three (3) types of suit: individual, class or representative, and derivative suit. The reliefs prayed for by
petitioners, to wit: (i) enjoining defendants from acting as officers and Board of Directors of the corporation, (ii) the
appointment of receiver, (iii) damages, clearly show that the complaint was filed to curb the alleged mismanagement
of SBGCCI. The cause of action pleaded by petitioners do not accrue to a single shareholder or a class of
shareholders but to the corporation itself.

While there were allegations of fraud in the subscription, petitioners do not wish to have their subscription
rescinded. Instead, the petitioners asked that the respondents be removed from the management of the corporation.
Petitioner’s only possible cause of action as the minority shareholder against the actions of the board is to file the
common law right to file a derivative suit. As minority shareholders, petitioners do not have any statutory right to
override the business judgements of SBGCCI’s officers and board of directors on the ground of the latter’s alleged
lack of qualification to manage a golf course. The legal standing of the petitioners is not a statutory right, there being
no provision in the Corporation Code or related statutes, but is instead a product of jurisprudence based on equity.
However, a derivative suit cannot prosper without first complying with the legal requisites for its institution: Interim
Rules Governing Intra-Corporate Controversies. Petitioners failed to comply with second requisite: “…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…” Thus, a complaint which contained no allegation whatsoever of any effort to avail of intra-corporate
remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners thought it was futile to exhaust
intra-corporate remedies, they should have stated the same in the Complaint and specified the reasons for such
opinion. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at
will.