•Mobilia Products, Inc. vs.

Umezawa (452 SCRA 736 [2005])

https://lawphil.net/judjuris/juri2005/mar2005/gr_149357_2005.html

Facts:

Mobilia Products, Inc., a furniture manufacturer, is at the center of a controversy involving its President
and General Manager, Hajime Umezawa, and the creation of a rival entity known as Astem Philippines
Corporation. Mobilia primarily operates through its parent company, Mobilia Products Japan, which
handles marketing and order bookings. However, without the knowledge of Mobilia's Board of Directors,
Umezawa established Astem Philippines Corporation, a competitor in the same industry. Astem's
intention was to participate in the International Furniture Fair '95 in Singapore, a challenging endeavor
given its lack of equipment, personnel, and machinery.

Allegations against Umezawa and his associates include the theft of prototype furniture from Mobilia for
presentation as Astem's exhibits at the Singapore Fair. Umezawa is accused of masterminding these
thefts, which involved storing the stolen furniture in a warehouse owned by Henry Chua, one of
Mobilia's suppliers. Additionally, Umezawa is alleged to have committed further thefts of valuable
furniture from Mobilia's factory in February 1995, exploiting his position to facilitate these acts.
Furthermore, Umezawa is accused of directing the production of furniture using Mobilia's resources,
such as supplies, materials, machinery, labor, and time, all of which were intended exclusively for
Mobilia's use but were diverted for Astem's benefit or personal gain. These actions led to a legal
complaint against Umezawa and the initiation of a legal case. Initially, the prosecution sought a
preliminary attachment of Umezawa's properties, prompting him to file a motion to quash the charges,
discharge the attachment, and request a preliminary investigation. Parallelly, MPI filed additional
criminal complaints against Umezawa and others for theft and misappropriation. Despite Umezawa's
attempts to suspend the proceedings due to a petition with the Securities and Exchange Commission
(SEC), the trial court denied his request. Ultimately, the court dismissed the cases, arguing they were
intra-corporate disputes under the SEC's jurisdiction. However, this led to a petition for certiorari and
mandamus filed by the People of the Philippines, represented by the Office of the Solicitor General,
before the Court of Appeals, marking the continuation of the legal battle.

Issue:

Whether or not the SEC has jurisdiction of the case

Ruling:

The mere fact that the respondent held the positions of president and general manager within the
petitioner corporation at the time the alleged crimes occurred, along with being a stockholder, does not,
by itself, divest the lower court of its exclusive jurisdiction over the alleged offenses. It's important to
note that the corporation's property is distinct from the personal property of its stockholders or officers
who happen to be stockholders. As a guiding principle, the Court emphasized that assets registered
under the corporation's name are its own separate entity, wholly separate from its members. While
shares of stock constitute personal property, they do not equate to ownership of the corporation's
assets. Instead, a share of stock represents a proportionate interest in the corporation's property,
entailing the right to a share of its profits as legally and equitably distributed. Importantly, a stockholder
does not possess ownership of any portion of the corporation's capital or have a claim to specific parts of
its property or assets. Consequently, a stockholder does not hold the status of a co-owner or tenant in
common of the corporate property. The court also noted that disputes between corporations and their
stockholders can coexist, with criminal charges falling under the regular court's jurisdiction.

The Court of Appeals (CA) correctly determined that the Securities and Exchange Commission (SEC) did
not have jurisdiction over the cases filed in the lower court. The CA's reliance on Section 5(b) of
Presidential Decree No. 902 (P.D. No. 902) lacked factual and legal basis. The court explained that while
the SEC has authority over certain cases, the filing of a civil or intra-corporate case with the SEC does not
prevent simultaneous criminal proceedings in regular courts. In this case, the respondent could still be
prosecuted for estafa and qualified theft due to his alleged fraudulent actions, regardless of his position
as the corporation's president and general manager and his stockholder status. The court ultimately
reversed the CA's resolution

•Tan vs. Sycip

https://lawphil.net/judjuris/juri2006/aug2006/gr_153468_2006.html

Facts:

Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen regular
members, who also constitute the board of trustees. During an annual members' meeting held on April
6, 1998, only eleven living member-trustees were present, as four had already died. Seven attended the
meeting through proxies. In this meeting, four new member-trustees were elected to replace the
deceased members. The controversy reached the SEC, where it was argued that the deceased member-
trustees should not be counted in determining the quorum for the meeting. SEC Hearing Officer Militar
declared the meeting null and void for lack of quorum, emphasizing that the basis for quorum
determination should be the number of members specified in the articles of incorporation. The SEC en
banc upheld this decision. The Court of Appeals (CA) dismissed the appeal based on a defective
verification and certification.

Issues:

1. Whether the CA erred in denying the Petition based on a defective Verification and Certification.

2. Whether deceased members should be counted in determining the quorum for annual members'
meetings in nonstock corporations.

Rulings:

1. Procedural Issue: Verification and Certification

The initial procedural lapse in the petition's verification and certification was excused due to the
substantial merits of the case and the purely legal question involved. The substantial merits and legal
nature of the case justify an exception to the strict requirements of verification and certification.
2. Main Issue: Basis for Quorum

In stock corporations, quorum is determined based on the outstanding capital stock. In nonstock
corporations, quorum is based on the actual number of members with voting rights. Dead members
should not be counted in determining quorum if the corporation's bylaws or articles of incorporation
provide for termination of membership upon death. In this case, GCHS's bylaws terminated membership
upon the death of a member. Therefore, dead members should not be counted in determining the
quorum for the annual members' meeting.

Vacancy in the Board of Trustees

Vacancies in the board of trustees may be filled either by the remaining trustees (if they constitute a
quorum) or by the stockholders or members in a meeting called for that purpose. The By-Laws of GCHS
prescribed the mode of filling vacancies by a majority vote of the remaining members of the board.
However, this provision could not justify the election of new trustees during an annual members'
meeting. The election of trustees must be conducted by the board of trustees, not during a members'
meeting.

Conclusion:

The CA's dismissal of the petition based on a defective verification and certification was excused due to
the substantial merits and legal nature of the case. Dead members should not be counted in determining
quorum for annual members' meetings in nonstock corporations, provided that the bylaws or articles of
incorporation specify termination of membership upon death. However, the election of trustees should
be conducted by the board of trustees, not during a members' meeting.

•Majority Stockholders of Ruby Industrial Corp. vs. Lim (650 SCRA 461 [2011])

https://chanrobles.com/cralaw/2011junedecisions.php?id=506

Facts:

- Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. It faced
severe liquidity problems beginning in 1980 and filed a petition for suspension of payments with the SEC
in 1983.

- A management committee (MANCOM) was created by the SEC in 1984 to study, review, and evaluate a
proposed rehabilitation plan for RUBY.

- Two rehabilitation plans were submitted, but both were enjoined by the SEC and the Court of Appeals
(CA).

- On September 18, 1991, the SEC issued an order approving the Revised BENHAR/RUBY Plan and
dissolved the MANCOM.

- The Revised Plan proposed calling for a subscription of unissued shares to raise capital.

- On October 2, 1991, RUBY's board of directors held a special meeting to implement the Revised Plan,
authorizing the issuance of additional shares.
- Minority directors claimed they were not notified of the meeting.

- On September 1, 1996, a stockholders' meeting was scheduled, where the majority stockholders
claimed to have increased their shares by subscribing to unissued shares.

- Minority stockholders objected, and the SEC later ruled in favor of the majority.

- Lim, a minority stockholder, filed a motion in 2000 to declare the additional capital infusion and
extension of RUBY's corporate term as null and void.

- The SEC overruled the objections, and the CA affirmed it.

Issue:

Was the additional capital infusion valid?

Ruling:

No, the additional capital infusion was not valid.

Additional Capital Infusion: The court found the additional capital infusion to be invalid as it was done in
breach of trust by the controlling stockholders. The majority sought to impose their will and dilute
minority shareholdings, which was detrimental to RUBY, minority stockholders, and unsecured creditors.

SEC's Handling of Minority Stockholders' Objections: The SEC failed to properly consider the objections
of minority stockholders. The SEC should have acted decisively on the motions filed by the minority
stockholders regarding the capital infusion, expiration of corporate term, and void deeds of assignment
of credit. The minority's concerns were legitimate, especially after the rejection of the Revised
BENHAR/RUBY Plan by the courts.

- While a stock corporation has the power to issue shares, it must be done through a board resolution.

- The issuance does not need approval from stockholders unless the articles of incorporation or bylaws
require it.

- The SEC's reliance on the presumption of regularity and indifference to the minority stockholders'
objections was unjustified.

- The actions of the majority stockholders appeared to be an attempt to dilute the minority's
shareholdings and were done in violation of court orders.

- The SEC should have considered the minority's concerns, especially in light of the evidence provided,
and acted decisively on the motions filed by the minority stockholders.

- Liquidation should have been an option to address the situation and compel accountability.

Overall, the SEC failed to protect the legitimate interests of Ruby, the minority stockholders, and
unsecured creditors, allowing the majority to impose their will and engage in questionable actions. The
additional capital infusion was not valid due to the breach of trust by the controlling stockholders.
•Republic Planters Bank vs. Agana (269 SCRA 1 [1997])

https://chanrobles.com/scdecisions/jurisprudence1997/mar1997/gr_51765_1997.php

**Facts:**

- On September 18, 1961, a private respondent corporation secured a loan from the petitioner bank in
the amount of P120,000.00.

- As part of the loan, preferred shares of stocks were issued to the private respondent corporation. These
shares were partly given as money and partly in the form of stock certificates.

- The stock certificates, numbered 3204 and 3205, each represented 400 shares with a par value of
P10.00 per share.

- The stock certificates contained terms and conditions, including the right to receive a quarterly
dividend of 1%, cumulative and participating, and the possibility of redemption by the corporation after
two years from the date of issue.

- In 1979, the private respondents filed a complaint against the petitioner, seeking to collect dividends on
the preferred shares and to have the shares redeemed according to the stock certificates.

- The Central Bank had issued a directive in 1973 prohibiting the redemption of preferred shares by the
petitioner due to its chronic reserve deficiency.

**Issues:**

1. Can the private respondents compel the petitioner to redeem the preferred shares as per the stock
certificates?

2. Are the preferred shares considered "interest-bearing stocks" entitling the private respondents to
dividends as a matter of right?

3. Is the claim of the private respondents barred by prescription or laches?

**Rulings:**

1. The court ruled that the private respondents cannot compel the petitioner to redeem the preferred
shares. The stock certificates clearly indicated that the option to redeem rested with the corporation
(the petitioner bank). The terms and conditions used the word "may," signifying discretion, and the
option was not vested in the private respondents. The court found that the Central Bank's directive
prohibiting redemption was a valid exercise of police power to protect the bank's financial stability.

2. The court rejected the notion that the preferred shares were "interest-bearing stocks" granting the
private respondents the right to dividends as a matter of right. Dividends are generally subject to the
availability of profits, and the issuance of dividends requires the approval of stockholders.
3. The court held that the private respondents' claim was barred by prescription. A right of action
founded upon a written contract prescribes in ten years under Article 1144 of the New Civil Code. The
private respondents' letter-demand was made almost eighteen years after the issuance of the stock
certificates, and no evidence of prior demand was presented. Additionally, the claim was barred by
laches, as the private respondents had waited an unreasonably long time to assert their rights, which
could have been done much earlier.

**Emphasis on Corporate/Commercial Law:**

- The case highlights the importance of clearly defined terms and conditions in stock certificates and the
discretion of the corporation regarding the redemption of preferred shares.

- It demonstrates that dividend payments are not automatic and depend on the availability of profits and
stockholder approval.

- The case underscores the concept of police power, allowing regulatory bodies like the Central Bank to
issue directives to protect the financial stability of financial institutions.

- It illustrates the application of prescription and laches in commercial disputes and the need for timely
assertion of rights in commercial transactions.

•W.G. Philpotts vs. Philippine Mfg. Co. (40 Phil. 471 [1919])

https://chanrobles.com/cralaw/1919novemberdecisions.php?id=114

**Facts:**

- The petitioner, W. G. Philpotts, is a stockholder in the Philippine Manufacturing Company, one of the
respondents in this case.

- Philpotts seeks a writ of mandamus to compel the respondents to allow him, or his duly authorized
agent or attorney, to inspect and examine the records of business transactions conducted by the
Philippine Manufacturing Company since January 1, 1918.

- The petition was filed with the court, and the respondents raised a demurrer challenging the suit's
validity on specific grounds.

**Issues:**

1. Whether there is a defect of parties in the lawsuit due to the naming of the secretary of the
corporation as a co-defendant.

2. Whether a stockholder's right to inspect corporate records under Section 51 of the Corporation Law
can be exercised through an authorized agent or attorney.

**Rulings:**
1. The court held that the naming of the secretary of the corporation as a co-defendant is proper. While
the corporation was the necessary party in such a proceeding, naming the secretary, who is typically the
custodian of corporate records, is customary and acceptable. The president of the corporation could also
be joined later if necessary.

2. The court ruled that a stockholder's right to inspect corporate records, as granted under Section 51 of
the Corporation Law, can be exercised by the stockholder through an authorized agent or attorney. There
is nothing in the statute that restricts this right to personal examination by the stockholder. The court
emphasized that the right to inspection should be liberally construed and may be exercised through
another person properly authorized.

**Significance of the Case:**

- This case establishes that a stockholder's right to inspect corporate records can be exercised through an
authorized agent or attorney.

- The ruling aligns with the general principle that if an action can be done by an individual personally, it
can also be done through a representative.

- The court emphasizes the importance of liberally construing the right to inspection granted to
stockholders and underscores the practicality of allowing stockholders to use agents or attorneys to
exercise this right, especially when they may lack the necessary knowledge or expertise.

•Yujuico vs. Quiambao (G.R. No. 180416, June 2, 2014)

https://lawphil.net/judjuris/juri2014/jun2014/gr_180416_2014.html

Facts:

- Strategic Alliance Development Corporation (STRADEC) is a domestic corporation.

- In March 2004, Aderito Z. Yujuico was elected as the president and chairman of STRADEC, replacing
Cezar T. Quiambao.

- Disputes arose when Yujuico and other appointed officers demanded access to corporate records,
which Quiambao and others allegedly refused to provide.

- Criminal complaints were filed against the respondents, accusing them of violating Section 74 of the
Corporation Code by refusing access to corporate records and the stock and transfer book of STRADEC.

Issues:

1. Whether the act of refusing to allow inspection of the stock and transfer book is punishable under the
Corporation Code.

2. Whether a criminal action based on the violation of a stockholder's right to inspect corporate records
and the stock and transfer book can be maintained against respondents.

Rulings:
1. The act of refusing to allow inspection of the stock and transfer book, when done in violation of
Section 74(4) of the Corporation Code, is punishable as an offense under Section 144 of the same code.

2. A criminal action based on the violation of a stockholder's right to examine or inspect the corporate
records and the stock and transfer book of a corporation under the second and fourth paragraphs of
Section 74 of the Corporation Code can only be maintained against corporate officers or any other
persons acting on behalf of such corporation. The complaints failed to establish that respondents were
acting on behalf of STRADEC, leading to the dismissal of the case.

Emphasis on Corporation/Commercial Law:

- The case revolves around the interpretation and application of Section 74 and Section 144 of the
Corporation Code, focusing on the right of stockholders to access corporate records and the penalties for
violations.

- The ruling clarifies that refusing to allow inspection of the stock and transfer book, when violating
Section 74(4), is punishable under the Corporation Code.

- The case highlights the distinction between enforcing a stockholder's inspection rights and pursuing
proprietary rights of a corporation, emphasizing that criminal actions under Section 74 apply to actions
against corporate officers acting on behalf of the corporation.

•Ang-Abaya vs. Ang (573 SCRA 129 [2008])

https://lawphil.net/judjuris/juri2008/dec2008/gr_178511_2008.html

Facts:

- Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) are family-owned
corporations with shareholders, officers, and board members including petitioners Ma. Belen Flordeliza
C. Ang-Abaya, Francis Jason A. Ang, Vincent G. Genato, Hanna Zorayda A. Ang, and private respondent
Eduardo G. Ang.

- Civil Case No. 4257-MC was filed by VMC, Genato, and Oriana Manufacturing Corporation against
Eduardo, Michael Edward Chi Ang, and others, alleging fraudulent attempts to gain control of the
corporations.

- During this dispute, Eduardo requested permission to inspect the corporate books of VMC and Genato,
which was denied by petitioners.

- Eduardo filed an Affidavit-Complaint against petitioners for violating Section 74 of the Corporation Code
by refusing the inspection of corporate books.

- Petitioners argued that Eduardo's motive was improper, citing extravagant personal loans, demands for
property transfers, office space, and other coercive behavior.
- The City Prosecutor's Office recommended filing charges against petitioners, but the Department of
Justice (DOJ) reversed this recommendation, directing the withdrawal of the charges.

- The Court of Appeals (CA) nullified the DOJ's decision, stating that it had to address the defense of
improper use and motive during the preliminary investigation.

Issues:

1. Whether the Secretary of Justice exceeded authority by considering the defense of improper use and
motive during preliminary investigation.

2. Whether the CA erred in nullifying the DOJ's decision and requiring an inquiry into the motive behind
Eduardo's inspection request.

Rulings:

1. The Secretary of Justice did not exceed authority by considering the defense of improper use and
motive during preliminary investigation. Section 74 of the Corporation Code provides that a
stockholder's right to inspect corporate books may be denied if the person demanding it acted
improperly or lacked good faith. This defense is relevant and should be addressed during the preliminary
investigation.

2. The CA erred in nullifying the DOJ's decision. A preliminary investigation is essential to determine the
existence of probable cause, and the defense of improper use and motive is relevant in evaluating
whether Section 74 of the Corporation Code was violated. The DOJ had the authority to weigh the
evidence and dismiss the charges if it found that the defense had merit. The CA should not have
interfered with the DOJ's discretionary power.

Emphasis on Corporation/Commercial Law:

- The case highlights the importance of a stockholder's right to inspect corporate books under Section 74
of the Corporation Code.

- It emphasizes that the defense of improper use and motive is a legitimate consideration during the
preliminary investigation stage.

- The case underscores the role of the Department of Justice in evaluating evidence and deciding
whether to file charges based on the existence of probable cause in cases involving corporate law
violations.
•Yu vs. Yukayguan (589 SCRA 588 [2009])

https://lawphil.net/judjuris/juri2009/jun2009/gr_177549_2009.html

**Facts:**

This case revolves around two families, the Yus (petitioners) and the Yukayguans (respondents), who are
stockholders of Winchester Industrial Supply, Inc., a domestic corporation engaged in the hardware and
industrial supply business. The respondents initiated a derivative suit against the petitioners, alleging
embezzlement and falsification of corporate records. During the proceedings, the parties initially
reached an amicable settlement, but this was later repudiated by the respondents. The Regional Trial
Court (RTC) dismissed the complaint for failure to comply with essential prerequisites and inadequate
substantiation of allegations. On appeal, the Court of Appeals affirmed the RTC's findings.

**Issues:**

1. Whether the Court of Appeals was correct in converting the derivative suit into a liquidation
proceeding.

2. Whether the requirements for filing a derivative suit were met by the respondents.

**Rulings:**

1. The Court ruled that the conversion of the derivative suit into a liquidation proceeding was improper.
A derivative suit is distinct from liquidation proceedings and should not be merged with them. The Court
of Appeals had no basis to make such a conversion.

2. The Court held that the requirements for filing a derivative suit were not met by the respondents.
They failed to exhaust all available remedies under the corporation's articles of incorporation, by-laws,
laws, or rules. Moreover, their reasons for not meeting these requirements were deemed insufficient.
Family corporation status does not exempt stockholders from complying with the formalities of
derivative suit rules.

Cua, Jr. vs. Tan (607 SCRA 645 [2009])

https://lawphil.net/judjuris/juri2009/dec2009/gr_181455_2009.html
•San Miguel Corp. vs. Kahn (176 SCRA 447 [1989])

https://lawphil.net/judjuris/juri1989/aug1989/gr_85339_1989.html

**Facts:**

In December 1983, 33,133,266 shares of San Miguel Corporation (SMC) were acquired by 14
corporations and placed under a Voting Trust Agreement in favor of Andres Soriano Jr. After Soriano Jr.'s
death, Eduardo M. Cojuangco Jr. became the Substitute Trustee. Following the 1986 revolution,
Cojuangco left the country amid allegations of irregular cash disbursements and support for Ferdinand
Marcos's candidacy. On March 26, 1986, an agreement was made for the sale of these shares to Andres
Soriano III. However, the shares were sequestered by the Presidential Commission on Good Government
(PCGG) on the grounds of violating Executive Orders prohibiting the transfer of assets acquired by
Marcos and associates.

**Issues:**

The primary issue revolves around the ownership and sale of the 33,133,266 SMC shares, with questions
concerning whether they rightfully belonged to Eduardo Cojuangco Jr., their sale's legality, and whether
the PCGG had authority to sequester them. Additionally, there is a corporate governance issue
surrounding the assumption of Neptunia Corporation's loans by SMC and the actions of its board of
directors.

**Rulings:**

The Supreme Court clarified that the PCGG's sequestration of the SMC shares did not deprive the
Securities and Exchange Commission (SEC) of jurisdiction over the dispute. The matter concerns
corporate governance, not the ownership of sequestered assets tied to the Marcos regime.

Regarding the conflict-of-interest claim, the Court held that a stockholder's legal capacity to bring a
derivative suit is not determined by the number of shares held but by the fulfillment of certain
requisites, such as ownership at the time of the transaction, attempting to exhaust intra-corporate
remedies, and that the cause of action affects the corporation. Thus, de los Angeles, who owned 20
shares, had the legal capacity to bring the derivative suit.

Furthermore, the Court rejected the argument that the PCGG's voting of sequestered shares was
unauthorized. The Baseco decision had allowed such voting under certain conditions, and in the absence
of evidence to the contrary, it must be assumed that the PCGG acted within those parameters.

In conclusion, the case underscores the jurisdiction of the SEC in corporate governance disputes, affirms
the legal capacity of a stockholder with minimal shares to bring a derivative suit, and recognizes the
PCGG's authority to vote sequestered shares for the benefit of corporations when necessary.

•BSP vs. Campa, Jr., et.al. (G.R. No.185979, March 16, 2016)

https://chanrobles.com/cralaw/2016marchdecisions.php?id=239

**Facts:**
In the case of **Bangko Sentral ng Pilipinas v. Vicente Jose Campa, Jr., et al.** (G.R. No. 185979, March
16, 2016), the Bangko Sentral ng Pilipinas (BSP) was involved in a dispute with Bankwise, which had
obtained a Special Liquidity Facility (SLF) loan from BSP. BSP required Bankwise to secure its loan with
mortgages on properties owned by third parties. When Bankwise defaulted on its obligations, BSP
initiated extra-judicial foreclosure proceedings on these third-party mortgaged properties and acquired
them through public auction.

Eduardo Aliño, a stockholder of VR Holdings, filed a complaint against BSP and Bankwise, seeking specific
performance, novation of contracts, and damages. Aliño claimed that he allowed his properties to be
used as collateral for the loan based on assurances from Bankwise and VR Holdings that the properties
would be returned to him without the risk of foreclosure. Subsequently, respondents, who were the
registered owners of some of the mortgaged properties, sought to intervene in the case, asserting their
legal interest in the matter due to their ownership of these properties and their accommodation of
Bankwise's request, which had also assured them that there was no risk of foreclosure.

**Issues:**

The primary issue in this case revolves around whether Commercial Case No. 06-114866 qualifies as a
derivative suit. Specifically, the court needed to determine whether the harm or injury sought to be
prevented pertains to properties registered under Aliño and other third-party mortgagors, and whether
Aliño and respondents had exhausted all available remedies and met the requirements for a derivative
suit.

**Rulings:**

The Supreme Court ruled that Commercial Case No. 06-114866 was not a derivative suit. The essence of
a derivative suit is to protect or vindicate corporate rights when corporate officials refuse to sue, are the
ones to be sued, or hold control of the corporation. However, in this case, the harm and injury did not
devolve on the corporation; it pertained to properties registered under Aliño and other third-party
mortgagors.

Furthermore, the suit was not for the benefit of the corporation, as a judgment in favor of Aliño would
mean the recovery of his personal property. There was no actual or threatened injury alleged to have
been done to the corporation due to the foreclosure of properties belonging to third-party mortgagors.

Additionally, the court found that Aliño failed to exhaust all remedies available to him as a stockholder of
VR Holdings and that the complaint did not satisfy the requirements for a derivative suit. The
unavailability of appraisal rights as a requirement for derivative suits did not apply in this case since the
subject of the act complained of involved the private properties of a stockholder, not that of the
corporation.
In summary, the court concluded that the case was not a derivative suit but appeared to be a
harassment suit. Therefore, the Court of Appeals' ruling in favor of respondents and the admission of
their Complaint-in-Intervention were affirmed, and BSP's motion for reconsideration was denied.

•Turner vs. Lorenzo Shipping Corp. (636 SCRA 13 [2010])

https://lawphil.net/judjuris/juri2010/nov2010/gr_157479_2010.html

**Facts:**

The petitioners held 1,010,000 shares of stock in the respondent, a domestic corporation primarily
engaged in cargo shipping activities. In June 1999, the respondent decided to amend its articles of
incorporation, removing stockholders' pre-emptive rights to newly issued shares of stock. The petitioners
voted against this amendment, demanding payment for their shares based on the book value, totaling
₱2,298,760. However, the respondent insisted on a lower market value of ₱0.41/share, citing its listing
on the Philippine Stock Exchange and a lack of unrestricted retained earnings to cover the payment.

To resolve the dispute over the valuation of shares, an appraisal committee was constituted, which
determined the fair value at ₱2.54/share. Subsequently, the petitioners demanded payment based on
this valuation, along with a 2% per month penalty from their original demand for payment.

The respondent refused to pay, stating that, according to the Corporation Code, dissenting stockholders
exercising appraisal rights could only be paid if the corporation had unrestricted retained earnings at the
time of demand. The respondent claimed that it had no retained earnings based on its Financial
Statements for Fiscal Year 1999, showing a deficit of ₱72,973,114.00 as of December 31, 1999.

The petitioners filed a lawsuit in the RTC in Makati City on January 22, 2001, demanding payment and
damages. The RTC granted the petitioners' motion for partial summary judgment, ruling that the
respondent had retained earnings as of March 21, 2002, when the demand was made, and ordered the
payment of the fair value of the shares.

**Issues:**

1. Whether the petitioners had a valid cause of action when they filed the lawsuit against the
respondent.

2. Whether the RTC erred in granting the motion for partial summary judgment.

**Rulings:**

The Court of Appeals (CA) correctly determined that the petitioners did not have a valid cause of action
when they initiated the lawsuit. In cases involving appraisal rights of dissenting stockholders, a cause of
action arises when the corporation has made objectionable corporate actions and when the stockholder
has made a valid demand for payment of the fair value of their shares. The petitioners filed their
complaint on January 22, 2001, but the respondent had no unrestricted retained earnings at that time.
Therefore, the cause of action had not yet accrued, and the petitioners had no valid basis to sue.

The RTC's grant of the motion for partial summary judgment was also erroneous because it should have
dismissed the case due to the absence of a valid cause of action. The subsequent existence of
unrestricted retained earnings as of March 21, 2002, did not cure the absence of a cause of action at the
time of filing the complaint. An action prematurely brought should be dismissed, and a complaint
without a cause of action cannot be remedied by subsequent events.

In conclusion, the CA's decision to dismiss Civil Case No. 01-086 was proper because the petitioners
lacked a valid cause of action when they filed the lawsuit, and the RTC's grant of partial summary
judgment was based on an erroneous premise. Therefore, the CA's ruling was upheld, and the petition
was denied.

•President of PDIC vs. Reyes (460 SCRA 473 [2005])

https://www.chanrobles.com/scdecisions/jurisprudence2005/jun2005/154973.php

**Case Digest: President of PDIC as Liquidator of Pacific Banking Corporation v. Wilfredo D. Reyes (GR
No. 154973, June 21, 2005)**

**Facts:**

Pacific Banking Corporation (PaBC) was placed under receivership in 1985 due to insolvency,
subsequently leading to its liquidation. The Singaporean investors, who had equity investments in PaBC,
filed a claim before the liquidation court seeking the return of their investment of US$2,531,632.18 with
interest until the closure of PaBC. The liquidation court initially ruled in favor of the Singaporeans as
preferred creditors, ordering the payment of their investment.

**Issues:**

The primary issues revolved around the entitlement to interest on the Singaporeans' equity investment
and the legal basis for such interest in the context of corporation and commercial law.

1. **Entitlement to Interest on Investment:** The key issue was whether the Singaporeans, as equity
investors in PaBC, were entitled to interest on their investment from the time it was made until the
closure of the corporation, considering that PaBC had been terminated.
**Rulings:**

The Supreme Court made the following rulings, emphasizing corporation and commercial law principles:

1. **Entitlement to Interest Clarification:** The Court clarified that the Singaporeans' equity investment
in PaBC was not akin to a loan or forbearance of money, as interests or dividends on such investments
are granted only after profits or gains are generated. Therefore, the liquidation court's award of interest
was improper.

2. **Application of Eastern Shipping Guidelines:** The Court applied the guidelines established in
Eastern Shipping Lines, Inc. v. Court of Appeals for the imposition of interest:

- In cases involving the payment of a sum of money (e.g., loans or forbearances of money), interest
should be based on stipulations in writing and accrues from the time of judicial demand. In the absence
of stipulation, the rate of interest shall be 12% per annum computed from default.

- When an obligation not involving a loan is breached, interest may be imposed at the court's discretion
at a rate of 6% per annum. No interest shall be adjudged on unliquidated claims until the demand is
reasonably certain.

3. **Interest Rate Modification:** The Court ruled that the Singaporeans' equity investment would bear
interest at 12% per annum from the finality of the liquidation court's order in 1992 until its full
satisfaction, following the Eastern Shipping guidelines for cases involving the payment of a sum of
money.

4. **Liquidating Dividends:** The Court emphasized that the Singaporeans were entitled to a share of
the liquidating dividends, which would be determined by the Liquidator separately.

This case underscores the distinction between equity investments and loans in commercial law, clarifying
the basis for awarding interest in cases of corporate liquidation. It also highlights the application of
Eastern Shipping guidelines in determining interest rates in such contexts.
•Forest Hills Golf & Country Club vs. Vertex Sales & Trading (692 SCRA 706 [2013])

https://lawphil.net/judjuris/juri2013/mar2013/gr_202205_2013.html

**Facts:**

Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock corporation that operates a
golf and country club in Antipolo City. Forest Hills resulted from a joint venture between Kings Properties
Corporation and Fil-Estate Golf and Development, Inc. (FEGDI), with Kings owning 40% and FEGDI
owning 60% of the shares. In August 1997, FEGDI sold one Class "C" common share of Forest Hills to RS
Asuncion Construction Corporation (RSACC) for ₱1.1 million. RSACC later transferred its interest to Vertex
Sales and Trading, Inc. (Vertex) before full payment. Vertex demanded a stock certificate, which was not
issued, leading to a complaint for rescission with damages against Forest Hills, FEGDI, and Fil-Estate
Land, Inc. (FELI), the developer of the golf course. Vertex claimed the failure to issue the stock certificate
constituted a breach.

**Issues:**

1. Whether the failure to issue a stock certificate constitutes a substantial breach of the contract of sale.

2. Whether Forest Hills, which was not a party to the sale, is liable for the return of amounts paid by
Vertex.

**Rulings:**

1. **Rescission of Sale:** The Court of Appeals (CA) ruled that non-issuance of a stock certificate
constitutes a substantial breach of the contract of sale, and thus, rescission is justified. This ruling was
based on Section 63 of the Corporation Code, which requires the delivery and endorsement of a stock
certificate for a valid transfer of stock. The CA ordered the rescission of the sale.

2. **Liability for Return of Amounts:** Forest Hills, not being a party to the sale, was not liable for the
return of amounts paid by Vertex for the share. The CA's ruling did not prejudice Forest Hills because it
was not a party to the contract of sale. The CA ordered Forest Hills, FEGDI, and FELI to return the amount
paid by Vertex, but the Court held that Forest Hills was not obliged to return any amount paid by Vertex
except for a membership fee of ₱150,000, which Forest Hills could retain in consideration of the
privileges Vertex enjoyed.

**Significance:**

This case highlights the importance of issuing stock certificates for a valid transfer of shares in
corporations. It also clarifies the liability of parties not involved in the sale transaction for the return of
amounts paid, emphasizing that such liability depends on their role in the transaction and the nature of
their receipt of payments.
•Commissioner of Internal Revenue vs. CA (301 SCRA 152 [1999])

https://lawphil.net/judjuris/juri1999/jan1999/gr_108576_1999.html

**Facts**:

Don Andres Soriano, a U.S. citizen and resident, founded the corporation "A Soriano Y Cia" in the 1930s,
which later became ANSCOR. Upon Don Andres' death in 1964, ANSCOR increased its capital stock to
P20 million and subsequently to P30 million in 1966. Stock dividends were issued in 1966, resulting in
increased holdings for Don Andres' estate and Doña Carmen. In 1968, ANSCOR redeemed 28,000
common shares from Don Andres' estate, and later increased its capital stock to P75 million. In 1969,
ANSCOR again redeemed 80,000 common shares from Don Andres' estate, reducing their common
shareholdings. The purpose cited for these redemptions was to reduce foreign exchange remittances in
case cash dividends were declared.

The Bureau of Internal Revenue (BIR) assessed ANSCOR for deficiency withholding tax-at-source in 1968
and the second quarter of 1969 based on the stock exchange and redemption transactions. ANSCOR
appealed the tax assessments to the Court of Tax Appeals (CTA), which ruled in favor of ANSCOR, finding
sufficient evidence to overturn the assessments. The Court of Appeals (CA) affirmed the CTA's decision.

**Issues**:

1. Whether ANSCOR's redemption of stocks and the exchange of common shares can be deemed
equivalent to the distribution of taxable dividends, making the proceeds subject to taxation under
Section 83(B) of the 1939 Revenue Act.

**Rulings**:

The Supreme Court modified the CA's decision. The redemption of 82,752.5 stock dividends by ANSCOR
was considered essentially equivalent to a distribution of taxable dividends, and ANSCOR was held liable
for withholding tax-at-source. The Court rejected ANSCOR's stated purpose of reducing foreign exchange
remittances, as no cash dividends had been declared for nearly three decades, casting doubt on the
legitimacy of this purpose.

Regarding the exchange of shares, the Court ruled that the exchange of common shares for preferred
shares was not taxable because it did not result in realized income for the shareholders. The exchange
involved a mere modification of rights and privileges, not a flow of wealth for tax purposes. The Court
emphasized that reclassification or exchange of shares does not trigger income tax unless there is a
complete disposal of the subscriber's entire interest, which was not the case here. The doctrine of
equality of shares was cited, stating that all shares issued by a corporation are presumed equal unless
the Articles of Incorporation specify otherwise. In this instance, the exchange produced no realized
income for tax purposes.