PREMIUM MARBLE RESOURCES, INC., petitioner, vs.

THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK,

respondents.

PRINTLINE CORPORATION, petitioner, vs. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents.

Facts:

Sometime in August to October 1982, Ayala Investment and Development Corporation issued three (3) checks [Nos. 097088, 097414
& 27884] in the aggregate amount of P31,663.88 payable to the plaintiff and drawn against Citibank;

5. On or about August to October 1982, former officers of the plaintiff corporation headed by Saturnino G. Belen, Jr., without any
authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his conduit corporation,
Intervest Merchant Finance (Intervest, for brevity) which the latter maintained with the defendant bank under account No. 0200-
02027-8;

6. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payees account only,
defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the same for
collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the funds to the
prejudice of the plaintiff;

14. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but defendant
refused and continue to refuse to honor plaintiffs demands up to the present;

15. As a result of the illegal and irregular acts perpetrated by the defendant bank, the plaintiff was damaged to the extent of the
amount of P31,663.88.

Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31,663.88 representing the value of
the checks plus interest, P100,000.00 as exemplary damages; and P30,000.00 as attorneys fees.

In its Answer International Corporate Bank alleged, inter alia, that Premium has no capacity/personality/authority to sue in this
instance and the complaint should, therefore, be dismissed for failure to state a cause of action.

A few days after Premium filed the said case, Printline Corporation, a sister company of Premium also filed an action for damages
against International Corporate Bank docketed as Civil Case No. 14444. Thereafter, both civil cases were consolidated.

Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and Ongsiako Law Office as
counsel, filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of
directors as shown by the excerpt of the minutes of the Premiums board of directors meeting.[2]

In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board
resolution namely Belen, Jr., Nograles& Reyes, are not directors of the corporation and were allegedly former officers and
stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the
lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and
Reyes are not majority stockholders.

On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general information sheet
filed with the Securities and Exchange Commission, among others, that is the best evidence that would show who are the
stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that
take place after new stockholders subscribe to corporate shares of stocks.

In the interim, defendant bank filed a manifestation that it is adopting in toto Premiums motion to dismiss and, therefore, joins it
in praying for the dismissal of the present case on the ground that Premium lacks authority from its duly constituted board of
directors to institute the action.

Issue: WON the petitoners have the authority to sue in behalf of the petitioner corporation for damages against the respondent?
Held:

No. they don’t have the authority, because the said persons were never given the authority by the petitioner corporation.

Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, AderitoYujuico and Rodolfo
Millare, presented the Minutes[5] of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the case
against private respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr.,
Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution[6] dated July 30, 1986, to show that Premium did not authorize the
filing in its behalf of any suit against the private respondent International Corporate Bank.

Later on, petitioner submitted its Articles of Incorporation[7] dated November 6, 1979 with the following as Directors: Mario C.
Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva.

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar
Gan, Mario Zavalla, AderitoYujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In
fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981.

We agree with the finding of public respondent Court of Appeals, that in the absence of any board resolution from its board of
directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the
corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the
issue of authority and the invalidity of plaintiff-appellants subscription which is still pending, is a matter that is also addressed,
considering the premises, to the sound judgment of the Securities & Exchange Commission.[9]

By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to
submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and
residences of the directors, trustees and officers elected.

Sec. 26 of the Corporation Code provides, thus:

Sec. 26.Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees and
officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange
Commission, the names, nationalities and residences of the directors, trustees and officers elected. xxx

Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible
officers, of the nature of business, financial condition and operational status of the company together with information on its key
officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of
knowing facts concerning the corporations financial resources and business responsibility.[10]

The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has
not been fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of the
corporation, can validly bind the corporation.[

Roxas v. Dela Rosa

G.R. No. L-26555

November 16, 1926

Doctrine: Under the law, the directors of a corporation can only be removed from office by a vote of the stockholders representing
at least two-thirds of the subscribed capital stock entitled to vote; while vacancies in the board, when they exist, can be filled by
mere majority vote. Moreover, the law requires that when action is to be taken at a special meeting to remove the directors, such
purpose shall be indicated in the call.
J. Street

Facts:

In 1924, the possessors of a majority of the shares of the Binalbagan Estate, Inc., formed a voting trust composed of three members,
namely, Salvador Laguna, SegundaMonteblanco, and Arthur F. Fisher, as trustee. By the document constituting this voting trust, the
trustees were authorized to represent and vote the shares pertaining to their constituents.

In February 1926, the general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at which Mr. J. P.
Heilbronn appeared as representative of the voting trust, his authority being recognized by the holders of all the other shares
present at this meeting. Then Heilbronn, by virtue of controlling the majority of the shares, was able to nominate and elect a board
of directors to his own liking, without opposition from the minority. After the board of directors had been thus elected and had
qualified, they chose a set of officers.

Although the present officers of the Binalbagan Estate, Inc. were elected by the representative of the voting trust, the present
trustee are apparently desirous of ousting said officers, without awaiting the termination of their official terms. In order to effect
this purpose the petitioners in their character as members of the voting trust, in August 1926, caused the secretary of the
Binalbagan Estate, Inc., to issue to the shareholders a notice calling for a special general meeting of shareholders to be held on
August 16, 1926, "for the election of the board of directors, for the amendment of the By-Laws, and for any other business that can
be dealt with in said meeting."

After said notice was issued Agustin Coruña, as member of the existing board, and Mauro Ledesma, as a simple shareholder of the
corporation, instituted a civil action in the CFI-Negros Occidental against the trustees and the Binalbagan Estate, Inc., for the
purpose of enjoining the meeting contemplated in the notice. The complaint directly asserts that the members of the present
directorate were regularly elected at the general annual meeting held in February 1926.

The respondent judge issued the restraining order, or preliminary injunction where the dispositive portion of said order the
Binalbagan Estate, Inc., etc. are restrained from holding the general shareholders' meeting called for the date mentioned and from
electing new directors for the company in substitution of the present incumbents

Issue: W/N the directors of a corporation may be removed by a mere majority vote

Ruling:

NO. It is necessary to take note of the fact that under the law the directors of a corporation can only be removed from office by a
vote of the stockholders representing at least two-thirds of the subscribed capital stock entitled to vote 1; while vacancies in the
board, when they exist, can be filled by mere majority vote 2. Moreover, the law requires that when action is to be taken at a special
meeting to remove the directors, such purpose shall be indicated in the call.

While the trust controls a majority of the stock, it does not have a clear two-thirds majority. It was therefore impolitic for the
petitioners, in forcing the call for the meeting of August 16, to come out frankly and say in the notice that one of the purpose of the
meeting was to remove the directors of the corporation from office. Instead, the call was limited to the election of the board of
directors, it being the evident intention of the voting trust to elect a new board as if the directorate had been then vacant.

It is instituted that there was some irregularity or another in the election of the present directorate. The Court sees nothing upon
which this suggestion can be safely planted; at any rate the present board of directors are de facto incumbents of the office whose
acts will be valid until they shall be lawfully removed from the office or cease from the discharge of their functions.

It will be noted that the order in question enjoins the defendants from holding the meeting called for August 16; and said order must
not be understood as constituting any obstacle for the holding of the regular meeting at the time appointed in the by-laws of the
corporation.

1Act No. 1459, sec. 34

2Act No. 1459, sec. 25
VALLE VERDE COUNTRY CLUB, INC. v VICTOR AFRICA

FACTS:

The following were elected as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo
Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.

Dinglasan resigned from his position as member of the VVCC Board. The remaining directors, still constituting a quorum of VVCC's
nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the resignation of Dinglasan.

A year later Makalintal also resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected by
the remaining members of the VVCC Board.

Africa’s contention: A year after Makalintal's election as member of the VVCC Board in1996, Makalintal's term — as well as those of
the other members of the VVCC Board — should be considered to have already expired. Hence, the resulting vacancy should have
been filed by the stockholders in a regular or special meeting called for that purpose.

VVCC’s contention: A member's term expires only when his successor to the Board is elected and qualified. Hence, at the time
Ramirez replaced Makalintal, the latter’s term is not yet expired. VVCC insists that the board rightfully appointed Ramirez to fill in
the vacancy.

ISSUE: Whether the remaining directors of a corporation's Board, still constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director.

HELD:

NO. The holdover period — that time from the lapse of one year from a member's election to the Board and until his successor's
election and qualification — is not part of the director's original term of office, nor is it a new term; the holdover period, however,
constitutes part of his tenure.

When an incumbent member of the board of directors continues to serve in a holdover capacity, it implies that the office has a fixed
term, which has expired, and the incumbent is holding the succeeding term

HERE, after the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal's term of office is deemed to
have already expired. With the expiration of Makalintal's term of office, a vacancy resulted which, by the terms of Section 29 of the
Corporation Code, must be filed by the stockholders of VVCC in a regular or special meeting called for the purpose.

GRACE CHRISTIAN HIGH SCHOOL vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and
ERNESTO L. GO

G.R. No. 108905, October 23, 1997; Mendoza, J.

Facts:

Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary
courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization
of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L.
Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought.

As adopted in 1968, the by-laws of the association provided in Article IV, as follows:

The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at th e
principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors,
composed of eleven (11) members to serve for one year until their successors are duly elected and have qualified.
It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws,
reading that petitioner herein is a permanent director of the association.

This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably
submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association.

Thereafter, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the
sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent
Director would deprive the right of voters to vote for (15) members of the Board," and "it is undemocratic for a person or entity to
hold office in perpetuity."

For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent
director of the association, although previously tolerated in the past elections should be reexamined." Following this advice, notices
were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would
be observed.

Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in
previous elections, claiming that the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in
violation of the by-laws (of 1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in
the board."

As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty
Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner
based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the
association.

It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the
association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected
members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code.

Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of
the petition for mandamus was merely "a proposed by-laws which has not yet been approved by competent authority nor registered
with the SEC or HIGC."

In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the association was estopped from
questioning the by-laws.

The hearing officer of the HIGC rendered a decision dismissing petitioner's action. The hearing officer held that the
amended by-laws, upon which petitioner based its claim, "[was] merely a proposed by-laws which, although implemented in the
past, had not yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in
the meeting held on April 17, 1990, the directors of the association declared 'the proposed by-law dated December 20, 1975
prepared by the committee on by-laws . . . null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under
which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a
majority of the members of the association and duly filed and approved by the pertinent government agency."

The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution.

Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court affirmed the decision of the
HIGC.

Petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to
do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed
amendment for all intents and purposes should be considered to have been ratified by them.
Issue: Whether the petitioner is entitled to a permanent seat in the board of directors of the association.

Held: NO.

It is actually Sections 28 and 29 of the Corporation Law — not Sec 92 of the present law or Sec 29 of the former one —
which require members of the boards of directors of corporations to be elected.

The provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of
directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are
unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its
representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was
not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged
but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its
validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of
the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the
existence of the association."

Government vs El Hogar Filipino

GR No. L-26649 July 13, 1927

Street, J.:

Facts:

The Philippine Commission enacted Act No. 1459, also known as the Corporation Law, on March 1, 1906. El Hogar Filipino,
organized in 1911 under the laws of the Philippine Islands, was the first corporation organized under Sec. 171-190 Act No. 1459,
devoted to the subject of building and loan associations, their organization and administration. In the said law, the capital of the
corporation was not permitted to exceed P3M, but Act No. 2092 amended the statute, permitting capitalization to the amount of
ten millions.

El Hogar took advantage of the amendment of Act No. 1459 and amended its AOI as a result thereof, stating that the
amount of capital must not exceed what has been stated in Act No. 2092. This resulted to El Hogar having 5,826 shareholders,
125,750 shares with paid-up value of P8.7M. The corporation paid P7.16M to its withdrawing stockholders.

The Government of the Philippine Islands filed an action against El Hogar due to the alleged illegal holding title to real
property for a period exceeding five (5) years after the same was bought in a foreclosure sale. Sec. 13(5) of the Corporation Law
states that corporations must dispose of real estate obtained within 5 years from receiving the title. The Philippine Government also
prays that El Hogar be excluded from all corporate rights and privileges and effecting a final dissolution of said corporation.

It appears from the records that El Hogar was the holder of a recorded mortgage on the San Clemente land as security for a
P24K loan to El Hogar. However, shareholders and borrowers defaulted in payment so El Hogar foreclosed the mortgage and
purchased the land during the auction sale. A deed of conveyance in favor of El Hogar was executed and sent to the Register of
Deeds of Tralac with a request that the certificate of title be cancelled and a new one be issued in favor of El Hogar from the Register
of Deeds of Tarlac. However, no reply was received. El Hogar filed a complaint with the Chief of the General Land Registration Office.
The certificate of title to the San Clemente land was received by El Hogar and a board resolution authorizing Benzon to find a buyer
was issued. Alcantara, the buyer of the land, was given extension of time to make payment but defaulted so the contract treated
rescinded. Efforts were made to find another buyer. Respondent acquired title in December 1920 until the property was finally sold
to Felipa Alberto in July 1926. The interval exceeded 5 years but the period did not commence to run until May 7, 1921 when the
register of deeds delivered the new certificate of title. It has been held that a purchaser of land registered under the Torrens system
cannot acquire the status of an innocent purchaser for value unless the vendor is able to place the owner’s duplicate in his hands
showing the title to be in the vendor. During the period before May 1921, El Hogar was not in a position to pass an indefeasible title
to any purchaser. Therefore, El Hogar cannot be held accountable for this delay which was not due to its fault. Likewise, the period
from March 25, 1926 to April 20, 1926 must not be part of the five-year period because this was the period where respondent was
under the obligation to sell the property to Alcantara prior to the contract’s rescission due to Alcantara’s non-payment.

Another circumstance causing the delay is the fact that El Hogar purchased the property in the full amount of the loan
made by the former owner which is nearly P24K when it was subsequently found that the property was not salable and later sold for
P6K notwithstanding El Hogar’s efforts to find a purchaser upon better terms.

Issue: Whether or not the acts of the respondent corporation merit its dissolution or deprivation of its corporate franchise and to
exclude it from all corporate rights and privileges

Held:

SUSTAINED only as to administering of real property not owned by it and when permitted by contract.

Causes of action:

1) Alleged illegal holding of real property for a period exceeding five years from receipt of title-Cause of delay is not
respondent’s fault

2) That respondent is owning and holding a business lot with the structure thereon in excess of its reasonable requirements
and in contravention of Sec. 13(5) of Corpo. Law- WITHOUT MERIT

Every corporation has the power to purchase, hold and lease such real property as the transaction would of the lawful business may
reasonably and necessarily require.

3) That respondent is engaged in activities foreign to the purposes for which the corporation was created and not reasonably
necessary to its legitimate ends-VALID

The administration of property, payment of real estate taxes, causing necessary repairs, managing real properties of non-borrowing
shareholders is more befitting to the business of a real estate agent or a trust company than a building and loan association.

4) That the by-laws of the association stating that, “the board of directors by the vote of an absolute majority of its members
is empowered to cancel shares and to return the balance to the owner by reason of their conduct or any other motive or
liquidation” is in direct conflict with Sec. 187 of the Corporation Law which provides that the board of directors shall not
have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation or forfeiture of
stock for delinquency-WITHOUT MERIT

There is no provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a corporation; and if there
were such, the hazards incident to corporate effort would be largely increased.

5) Art. 61 of El Hogar’s by-laws which states that “ attendance in person or by proxy by shareholders owning one-half plus one
of the shareholders shall be necessary to constitute a quorum for the election of directors” is contrary to Sec. 31 of the
Corpo Law which provides that owners of the majority of the subscribed capital stock entitled to vote must be present
either in person or by proxy at all elections of directors- WITHOUT MERIT
No fault can be imputed to the corporation on account of the failure of the shareholders to attend the annual meetings and their
non-attendance in meetings is doubtless to be interpreted in part as expressing their satisfaction of the way in which things have
been conducted. Mere failure of a corporation to elect officers does not terminate the terms of existing officers nor dissolve the
corporation. The general rule is to allow the officer to holdover until his successor is duly qualified.

6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have been receiving large
compensation, varying in amount from time to time, out of respondents’ profits- WITHOUT MERIT

With the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably
be necessary is a matter that cannot be corrected in this action. Nor can it properly be made a basis for depriving respondent of its
franchise or enjoining it from compliance with the provisions of its own by-laws. If a mistake has been made, the remedy is to lie
rather in publicity and competition.

7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early stages of the organization of the
association, the board of directors authorized the association to make a contract with him and that the royalty given to him
as founder is “unconscionable, excessive and out of proportion to the services rendered”-NOT SUSTAINED

The mere fact that compensation is in excess of what may be considered appropriate is not a proper consideration for the court to
resolve. That El Hogar is in contact with its promoter did not affect the association’s legal character. The court is of the opinion that
the traditional respect for the sanctity of the contract obligation should prevail over the radical and innovating tendencies.

8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as board of directors to be holders of shares of the paid up
value of P5,000 which shall be held as security, is objectionable since a poor member or wage earner cannot serve as a
director irrespective of other qualifications- NOT SUSTAINED

Corpo. Law expressly gives the power to the corporation to provide in its by-laws for the qualification of its directors and the
requirement of security from them for the proper discharge of the duties of their pffice in the manner prescribed in Art. 70 is highly
prudent and in conformity with good practice.

9) That respondent abused its franchise in issuing “special” shares alleged to be illegal and inconsistent with the plan and
purposes of building and loan associations- WITHOUT MERIT

The said special shares are generally known as advance payment shares which were evidently created for the purpose of meeting
the condition caused by the prepayment of dues that is permitted. Sec. 178 of Corpo Law allows payment of dues or interest to be
paid in advance but the corporation shall not allow interest on advance payment grater than 6% per annum nor for a period longer
than one year. The amount is satisfied by applying a portion of the shareholder’s participation in the annual earnings.The mission of
special shares does not involve any violation of the principle that the shares must be sold at par.

10) That in making purchases at foreclosure sales constituting as security for 54 of the loans, El Hogar bids the full amount after
deducting the withdrawal value, alleged to be pusuing a policy of depreciating at the rate of 10 percent per annum, the
value of the real properties it acquired and that this rate is excessive-UNSUSTAINABLE

The board of directors possess discretion in this matter. There is no provision of law prohibiting the association from writing off a
reasonable amount for depreciation on its assets for the purpose of determining its real profits. Art. 74 of its by-laws expressly
authorizes the board of directors to determine each year the amount to be written down upon the expenses for the installation and
the property of the corporation. The court cannot control the discretion of the board of directors about an administrative matter as
to which they have no legitimate power of action.

11) That respondent maintains excessive reserve funds-UNFOUNDED

The function of this fund is to insure stockholders against losses. When the reserves become excessive, the remedy is in the hands of
the Legislature.

No prudent person would be inclined to take a policy in a

company which had so improvidently conducted its affairs that it only retained a fund barely sufficient to pay its present liabilities
and therefore was in a condition where any change by the reduction of interest upon or depreciation in the value of securities or
increase of mortality would render it insolvent and subject to be placed in the hands of a receiver.

12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 percent per centum
regardless of losses suffered and profits made by the corporation, in contravention with the requirements of Sec. 188 of the Corpo
law- UNFOUNDED

As provided in the previous cause of action, the profits and losses shall be determined by the board of directors and this means that
they shall exercise the usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful of the
welfare of the association. The law contemplates distribution of earnings and losses after legitimate obligations have been met.

13) That El Hogar has made loans to the knowledge of its officers which were intended to be used by the borrowers for other
purposes than the building of homes and no attempt has been made to control the borrowers with respect to the use made of the
borrowed funds- UNFOUNDED

There is no statute expressly declaring that loans may be made by these associations SOLELY for the purpose of building homes. The
building of himes in Sec. 171 of Corpo Law is only one among several ends which building and loan associations are designed to
promote and Sec. 181 authorizes the board of directors of the association to fix the premium to be charged.

14) That the loans made by defendant for purposes other than building or acquiring homes have been extended in extremely large
amounts and to wealthy persons and large companies- WITHOUT MERIT

The question of whether the making of large loans constitutes a misuser of the franchise as would justify the court in depriving the
association of its corporate life is a matter confided to the discretion of the board of directors. The law states no limit as to the size
of the loans to be made by the association. Resort should be had to the legislature because it is not a matter amenable to judicial
control

15) That when the franchise expires, supposing the corporation is not reorganized, upon final liquidation of the corporation, a
reserve fund may exist which is out of all proportion to the requirements that may fall upon it in the liquidation of the company-NO
MERIT

This matter may be left to the discretion of the board of directors or to legislative action if it should be deemed expedient to require
the gradual suppression of reserve funds as the time for dissolution approaches. It is no matter for judicial interference and much
less could the resumption of the franchise be justified on this ground.

16) That various outstanding loans have been made by the respondent to corporations and partnerships and such entities
subscribed to respondents’ shares for the sole purpose of obtaining such loans-NO MERIT

Sec. 173 of Corpo Law declares that “any person” may become a stockholder in building and loan associations. The phrase ANY
PERSON does not prevent a finding that the phrase may not be taken in its proper and broad sense of either a natural or artificial
person.

17) That in disposing real estate purchased by it, some of the properties were sold on credit and the persons and entities to which it
was sold are not members nor shareholders nor were they made members or shareholders, contrary to the provision of Corpo Law
requiring requiring loans to be stockholders only- NOT SUSTAINED

The law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation.
Such sales can be made upon the terms and conditions approved by the parties.

Respondent is enjoined in the future from administering real property not owned by itself, except as may be permitted to it by
contract when a borrowing shareholder defaults in his obligation. In all other respects, the complaint is DISMISSED.

Note : A provision in the corporate by-law requiring that persons elected to the board of directors must be holders of shares of the
paid-up value of a specified amount which shall be held as security for their action, was held valid on the ground that Sec. 21 (now
Sec. 47) of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of
directors and such provision “is highly prudent and in conformity with good practice.”

JOSE TOPACIO NUENOvs. GERARDO ANGELES

G.R. No. L-89 February 1, 1946

FERIA, J.:

Facts: Petitioners were elected in the general election held on December 10, 1940, and qualified on January 1, 1941. Subsequently,
Jose TopacioNueno and Carmen Planas resigned to run for seats in the House of Representatives in the national election held on
November 14, 1941, but they were not elected. After the election, the President of the Philippine Commonwealth appointed
petitioner Nueno to fill the vacancy created by his own resignation, and petitioner Delia C. Diño to fill the vacancy in the place of
Carmen Planas, for the last two belonged to the same political party, "The Young Philippines.”

When the City of Manila was occupied by the Japanese Forces, the Commander in Chief of the Imperial Japanese army
proclaimed military administration under martial law over all districts occupied by the army, and in the proclamation it was provided
that "so far as military administration permits, all the laws now in force in the Commonwealth, as well as executive and judicial
institutions shall continue to be effective as in the past," and "all public officials shall remain in their present posts and and carry on
faithfully their duties as before." By Order No. 1 of January 23, 1942, of the Commander in Chief of the Imperial Japanese army, a
central administrative organization or government under the name of Philippine Executive Commission was organized, and Jorge
Vargas appointed Chairman thereof, and the latter, in Executive Order No. 4, section 9(b) of February 5, 1942, approved by the said
Commander in Chief, provided that "the provincial boards and the boards or councils of cities, municipalities and specially-organized
local governments shall merely serve in an advisory capacity to their respective governor and mayors." Under the so-called Republic
of the Philippines inaugurated on October 14, 1943, no material change was introduced in so far as the City of Manila was
concerned.

The regular election which, according to section 4 of Act No. 357 (Election Code), should have been held on the second Tuesday in
December 1943 to elect the members of the Municipal Board of the City of Manila who were to assume office on the first of
January, 1944, could not be held for the city was still under the Japanese military occupation; and as the special election provided
for in section 16 (c) of said Act could not also be held after the reoccupation of the Philippines and the restoration of the
Commonwealth Government on February 27, 1945, due to physical impossibility, the President of the Commonwealth appointed on
July 18, 1945, the six respondents and four of those elected in December, 1940, as members of the Board.

Petitioners then filed an action against the respondents on the ground that petitioners, having been elected as members of
the Municipal Board of Manila in the general election held in December, 1940, for three years, their term of office has not yet
expired because they have not served for three years completely due to the Japanese occupation, and besides, because they
entitled to hold-over or continue in office until their successors are elected and qualified, and therefore respondents' appointments
are null and void.

the respondents however contend that petitioners have no right to hold public office claimed by them, because their term
of office had already expired on December 31, 1943, and they are not entitled to hold-over; that whether or not they have served
completely for three years as members of the Municipal Board of Manila is immaterial, for the term of office must be distinguished
from the tenure of the incumbent; that as petitioners have no right to institute the present action, this Court has no jurisdiction to
proceed and inquire into the validity of respondents' appointments; and that the appointments of the respondents are legal and
valid under the emergency powers granted by Act No. 671 of the Congress of the Philippines upon the President of the
Commonwealth.

ISSUE:

W/N petitioners are entitled to hold-over as members of the Municipal Board of the City of Manila, notwithstanding the expiration
of their term of office on the last day of December of the year 1943?
HELD:

NO. While there is authority to the contrary, the general trend of decisions of American courts is to adopt the common-law rule of
hold-over. The rule is, as enunciated in 46 Corpus Juris, 968, that "in the absence of an express or implied constitutional or statutory
provision to the contrary, an officer is entitled to hold his office until his successor is appointed or chosen and has qualified." This
enunciation of the rule is substantially the same as that in McQuillin, Municipal Corporations, Vol. II, second ed., art. 307. The
legislative intent not to permit holding over may therefore be express or implied in legislative acts.

From the express provisions of section 2440 of RA 2774, it clearly appears that it was the intention of the Legislature,
independent or irrespective of the ruling of this Court in the above-cited case of Tayko vs. Capistrano relating to appointive officers,
to provide expressly that the elective members of the Municipal Board of the City of Manila as well as elective provincial and
municipal officers in general, shall hold-over after the expiration of their terms until their successors shall be duly qualified. Such
provision was enacted to provide against all contingencies which might result from an office becoming for any period of time
incumbent. Subsequently, the above-quoted provisions of sections 2074, 2177, and 2440 (second paragraph), were expressly
repealed by section 184 of Commonwealth Act No. 357. Section 4 of said act provides, in lieu of said provisions, that "on the second
Tuesday in December, nineteen hundred and fourty, and upon the same day every three years election shall be held to elect the
office who are to occupy all elective provincial, municipal and city offices throughout the Philippines. The officers elected shall
assume office on the first day of January next following." This repeal of all provisions for holding over by the provincial, city and
municipal elective officers by Commonwealth Act No. 357, and the enactment of section 16 thereof which provides for the filling of
all vacancies, temporary or otherwise, which might occur during and after the expiration of a term of office, so as to avoid the
necessity and even the occasion for holding over, clearly show the manifest intention of Congress to suppress the hold-over. The
very attorney who appeared for petitioner Delia C. Diño argued in his brief and oral argument that the latter has no right under the
law to hold-over, but is entitled to be reappointed in accordance with section 16 (b) of Act No. 357.

The policy announced by the President of the Commonwealth in his message to Congress on June 9, 1945, that "the
provincial and municipal officers who were elected in 1940 should, as a general principle, be recalled to their respective positions,
thus giving due consideration to the will of the people as expressed at the polls, and only for strong reasons should they be deprived
of their privilege to serve," quoted in the dissenting opinion, cannot be invoked in support of the right to hold-over. In the first place,
because the message has not the force and effect of law and is therefore not a legislative interpretation of the law; and secondly,
because if any weight may be given to that policy in the decision of this case, it would work against the alleged right to hold-over. If
provincial and municipal officers are entitled by law to hold-over, they would have the right to continue in office irrespective of any
policy which the President may adopt, for the latter cannot deprive them of said right. If the President has to recall and appoint
them to their respective original positions pursuant to such policy, it is because they are not entitled to hold-over.

In addition to all the foregoing, we may add that petitioners Jose TopacioNueno and Delia C. Diño can not claim the right to
hold-over as elective officers of the Municipal Board of Manila, because, as above stated, they held the office before the war by
appointment under subsection (b) to fill the vacancies cause by resignation of the elective incumbents, one of them the same
petitioner Nueno, and to hold the office for the unexpired term in accordance with subsection (f), section 16, of said Commonwealth
Act No. 357. And that petitioner Diño's claim is based on the incorrect assumption that the respondents were appointed under
subsection (b) of said Act.

From the foregoing it clearly appears that petitioners are not entitled to hold-over, and after the expiration of their term of
office on December 31, 1943, the offices of members of the Municipal Board of Manila became vacant from January 1, 1944,
because of failure to hold the regular election on the second Tuesday of December 1943 and the special election, and consequently
to elect the would-be incumbents. And during the interregnum or temporary vacancy from January 1, 1944, until the said special
election is held and new members elected or, in case of failure to elect, appointed by the President (under section 16 [c] and [d] of
Commonwealth Act No. 357) the President had, under section 16 (a) of the same Act, the power to appoint the respondents or any
other, at his discretion, to fill said temporary vacancy or vacancies. As the petitioners are not entitled to hold-over or continue, after
the expiration of their term, in the offices claimed by them and held now by the respondents, they have no right to bring the present
action and impugn the validity of the latter's appointments, according to the provisions of section 6, Rule 68, of the Rules of Court.
DOMINGO PONCE AND BUHAY L. PONCE vs DEMETRIO B. ENCARNACION, Judge of the Court of First Instance of Manila, and
POTENCIANO GAPOL, G.R. No. L-5883, November 28, 1953

FACTS:

PotencianoGapol, the largest stockholder of Daguhoy Enterprises Inc., was appointed at a meeting duly called, as receiver on the
voluntary dissolution of the corporation. However, instead of filing the petition for voluntary dissolution of the of the corporation as
agreed upon, respondent PotencianoGapol, changed his mind and filed a complaint in the Court of First Instance of Manila to
compel the petitioners to render an accounting of the funds and assets of the corporation, to reimburse it, jointly and severally the
total sum of P18,690, allegedly misapplied, misappropriated and converted by the petitioner Domingo Ponce to his own use and
benefit.

Later, PotencianoGapol filed a petition praying to call a meeting of the stockholders of the corporation for the purpose of electing
new board of directors and to preside at such meeting in accordance with section 26 of the Corporation law, which provides:

“Whenever, from any cause, there is no person authorized to call a meeting, or when the officer authorized to do so refuses, fails or
neglects to call a meeting, any judge of a Court of First Instance on the showing of good cause therefor, may issue an order to any
stockholder or member of a corporation, directing him to call a meeting of the corporation by giving the proper notice required by
this Act or by-laws; and if there be no person legally authorized to preside at such meeting, the judge of the Court of First Instance
may direct the person calling the meeting to preside at the same until a majority of the members or stockholders representing a
majority of the stock members or stockholders presenting a majority of the stock present and permitted by law to be voted have
chosen one of their number to act as presiding officer for the purposes of the meeting.”

The CFI of Manila granted the petition of Gapol. Hence, this petition for Certiorari. The Petitioners claim that they and the other
members of the Board of Directors were not notified of the hearing of the motion three days in advance.

ISSUE: W/N the CFI has the power to grant authority to respondent Gapol to conduct a meeting for the election of Board of
Directors?

HELD: Yes.Pursuant to section 26 of the Corporation law (see above).

The requirement that "on the showing of good cause therefor," the court may grant to a stockholder the authority to call such
meeting and to preside thereat does not mean that the petition must be set for hearing with notice served upon the board of
directors. The respondent court was satisfied that there was a showing of good cause for authorizing the respondent
PotencianoGapol to call a meeting of the stockholders for the purpose of electing the board of directors as required and provided
for in the by-laws, because the chairman of the board of directors called upon to do so had failed, neglected, or refused to perform
his duty. It may be likened to a writ of preliminary injunction or of attachment which may be issued ex-parte upon compliance with
the requirements of the rules and upon the court being satisfied that the same should be issue. Such provisional reliefs have not
been deemed and held as violative of the due process of law clause of the Constitution. They had no right to a hold-over brought
about by the failure to perform the duty incumbent upon one of them. If they felt that they were sure to be re-elected, why did they
fail, neglect, or refuse to call the meeting to elect the members of the board? Or, why did they not seek their reelection at the
meeting called to elect the directors pursuant to the order of the respondent court.

Also, Petitioners had no right to a hold-over brought about by the failure to perform the duty incumbent upon one of them. If they
felt that they were sure to be reelected, why did they fail, neglect, or refuse to call the meeting to elect the members of the board?
Or, why did they not seek their reelection at the meeting called to elect the directors pursuant to the order of the respondent court.
Singson vs COA G.R. No. 159355. August 9, 2010

Facts:

The Philippine International Convention Center, Inc. (PICCI) is a government corporation whose sole stockholder is the
BangkoSentral ng Pilipinas (BSP). Petitioner Araceli E. Villanueva was then a member of the PICCI Board of Directors and Officer-in-
Charge (OIC) of PICCI, while co-petitioners Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C.
Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes were then members of the PICCI Board of
Directors and officials of the BSP.

By virtue of the PICCI By-Laws, petitioners were authorized to receive P1,000.00 per diem each for every meeting attended.
Pursuant to its Monetary Board (MB) Resolution No. 15, dated January 5, 1994, as amended by MB Resolution No. 34, the BSP MB
granted additional monthly RATA, in the amount of P1,500.00, to each of the petitioners, as members of the Board of Directors of
PICCI. Consequently, from January 1996 to December 1998, petitioners received their corresponding RATA in the total amount of
P1,565,000.00.

On June 7, 1999, then PICCI Corporate Auditor Adelaida A. Aldovino issued Notice of Disallowance, addressed to petitioner Araceli E.
Villanueva, disallowing in audit the payment of petitioners' RATA in the total amount of P1,565,000.00, and directing them to settle
immediately the said disallowances. They alleged that there was double payment which was in violation of Section 8, Article IX-B of
the 1987 Constitution and PICCI By-Laws.

Petitioners sought reconsideration of the Notice of Disallowance, but the PICCI Corporate Auditor denied it. They filed a notice of
appeal but the Director Sunico of the Corporate Audit Office 1 of COA affirmed the disallowance. He stated that except for per
diems, Section 8, Article III of the PICCI By-Laws prohibits the payment of salary to directors in the form of compensation or
reimbursement of expenses, based upon the principle expression uniusestexclusioalterius (the express mention of one thing in a law
means the exclusion of others not expressly mentioned). Neither can the payment of RATA be legally founded on Section 30 of the
Corporation Code which states that in the absence of any provision in the by-laws fixing their compensation, the directors shall not
receive any compensation as such directors, except for reasonable per diems. The power to fix the compensation which the
directors shall receive, if any, is left to the corporation, to be determined in its by-law o by the vote of stockholders. THE PICC By-
Laws allows only the payment of per diem to the directors. Thus, the BSP board resolution granting RATA of P1,500.00 to petitioners
violated the PICCI By-Laws.

Director Sunico also explained that although MB Resolution No. 15, would have the effect of amending the PICCI By-laws, and may
render the grant of RATA valid, such amendment, however, had no effect because it failed to comply with the procedural
requirements set forth under Sec. 48 of the Corporation Code.

On petition for review by petitioners, the COA rendered the assailed decision affirming the COA 1 decision. Hence, this petition.

Petitioners contend that since PICCI was incorporate with the SEC and has no original charter, it should be governed by Sec. 30 of
the Corporation Code. According to petitioners, the receipt of RATA as directors of PICCI was sanctioned by PICCI’s sole stockholder,
BSP.

Respondent counters that said provision does not apply to petitioners as Sec. 8 of the PICCI By-Laws provides that the compensation
of the members of PICCI BoD shall be given only through per diems.

Issue:

W/N the right to compensation as members of the PICCI BoD is limited only to per diem of P1,000.

Held:

It’s limited to P1,000, but they don’t need to refund the amount.

Section 30 of the Corporation Code, which authorizes the stockholders to grant compensation to its directors, states:
Sec. 30.Compensation of Directors. — In the absence of any provision in the by-laws fixing their compensation, the directors shall
not receive any compensation, as such directors, except for reasonable per diems; Provided, however, that any such compensation
(other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

In construing the said provision, it bears stressing that the directors of a corporation shall not receive any compensation for being
members of the board of directors, except for reasonable per diems. The two instances where the directors are to be entitled to
compensation shall be when it is fixed by the corporation's by-laws or when the stockholders, representing at least a majority of the
outstanding capital stock, vote to grant the same at a regular or special stockholder's meeting, subject to the qualification that, in
any of the two situations, the total yearly compensation of directors, as such directors, shall in no case exceed ten (10%) percent of
the net income before income tax of the corporation during the preceding year.

Section 8 of the Amended By-Laws of PICCI, in consonance with Section 30 of the Corporation Code, restricted the scope of
petitioners' compensation by fixing their per diem at P1,000.00:

Sec. 8.Compensation. — Directors, as such, shall not receive any salary for their services but shall receive a per diem of one
thousand pesos (P1,000.00) per meeting actually attended; Provided, that the Board of Directors at a regular and special meeting
may increase and decrease, as circumstances shall warrant, such per diems to be received. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any capacity and receiving compensation therefor.

The nomenclature for the compensation of the directors used herein is per diems, and not salary or any other words of similar
import. Thus, petitioners are allowed to receive only per diems of P1,000.00 for every meeting that they actually attended.
However, the Board of Directors may increase or decrease the amount of per diems, when the prevailing circumstances shall
warrant. No other compensation may be given to them, except only when they serve the corporation in another capacity.

Section 8, Article IX-B of the Constitution provides that no elective or appointive public officer or employee shall receive additional,
double or indirect compensation, unless specifically authorized by law, nor accept without the consent of the Congress, any present
emolument, office or title of any kind from any foreign government. Pensions and gratuities shall not be considered as additional,
double or indirect compensation.

This provision, however, does not apply to the present case as there was no double compensation of RATA to the petitioners.

The Court upholds the findings of respondent that petitioners' right to compensation as members of the PICCI Board of Directors is
limited only to per diem of P1,000.00 for every meeting attended, by virtue of the PICCI By-Laws. In the same vein, we also clarify
that there has been no double compensation despite the fact that, apart from the RATA they have been receiving from the BSP,
petitioners have been granted the RATA of P1,500.00 for every board meeting they attended, in their capacity as members of the
Board of Directors of PICCI, pursuant to MB Resolution No. 15 23 dated January 5, 1994, as amended by MB Resolution No. 34 dated
January 12, 1994, of the BangkoSentral ng Pilipinas. In this regard, we take into consideration the good faith of petitioners.

As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every board meeting they attended, in their
capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 15 as amended, the Court sees no need for
them to refund their RATA respectively.
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioner, vs. RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.

FACTS:

Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas,
belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology,
Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an educational institution. According to
petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special
Board Meeting was held. In attendance were other members of the Board including one of the petitioners Reginald Villasis. Prior to
aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice
allegedly indicated that the meeting to be held on June 1, 1986 included Item No. 6 which states:

Possible implementation of Art.III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all
officers of the corporation.

In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1, 1985.

A few years later, that is, on March 13, 1991, petitioners HomeroVillasis, PrestodVillasis, Reginald Villasis and Dimas
Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of
which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code
and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City.
The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for
the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds
for the compensation of private respondents based on Resolution No. 48, series of 1986, making it appear that the same was passed
by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the
corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986).

After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both counts dated September 6,
1993 without imposing any civil liability against the accused therein.

Petitioners filed a Motion for Reconsideration of the civil aspect of the RTC Decision which was, however, denied in an
Order dated November 23, 1993.

Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by
Western Institute of Technology, Inc., supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting
that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing
the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention
was granted on January 16, 1995.

ISSUE: Whether the grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code.

RULING:

No. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation
when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service,
without compensation.9 Under the section 30, there are only two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when
the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it
to them.

This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not receive any compensation, as such
directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation
given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members
of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a
capacity other than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private
respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman,
Vice-Chairman, Treasurer and Secretary of Western Institute of Technology.

Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as such under
Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which provides:

. . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income
before income tax of the corporation during the preceding year.

does not likewise find application in this case since the compensation is being given to private respondents in their capacity as
officers of WIT and not as board members.

KUENZLE & STREIFF, INC. vs. THE COMMISSIONER OF INTERNAL REVENUE

FACTS:

 Petitioner filed its income tax returns for the years 1953, 1954 and 1955, declaring net losses. Respondent assessed against
it the deficiency income taxes in question.

o For 1953, by disallowing as deductions all amounts paid by the petitioner as bonus to its officers and staff-
members;

o For 1954 and 1955, the similar disallowance as deductions of a portion of the bonuses paid by petitioner in said
years to its officers and staff-members.

 Petitioner filed with the Court of Tax Appeals a petition for review contesting the aforementioned assessments. Said court
affirmed the decision.

 Petitioner moved for a reconsideration

o In this connection it construed Section 30(a) (1) of the Revenue Code as allowing the deduction from gross income
of all the ordinary and necessary expenses incurred, including a reasonable allowance for salaries or other
compensation for personal services actually rendered, that the bonuses in question were not reasonable
considering all material and relevant factors.

ISSUE:

 Whether or not the tax court acted erred in not considering individually the total compensation paid to each of petitioner's
officers and staff members in determining the reasonableness of the bonuses in question.

HELD:
  No, the Court of Tax Appeal did not err.

 It is a general rule that `Bonuses to employees made in good faith and as additional compensation for the services actually
rendered by the employees are deductible, provided such payments, when added to the stipulated salaries, do not exceed
a reasonable compensation for the services rendered'.

 The condition precedents to the deduction of bonuses to employees are:

o the payment of the bonuses is in fact compensation;

o it must be for personal services actually rendered; and

o bonuses, when added to the salaries, are `reasonable ... when measured by the amount and quality of the services
performed with relation to the business of the particular taxpayer'.

 Here it is admitted that the bonuses are in fact compensation and were paid for services actually rendered. The only
question is whether the payment of said bonuses is reasonable.

 There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many
factors, one of them being

o 'the amount and quality of the services performed with relation to the business'.

 Other tests suggested are: payment must be

o 'made in good faith';

o 'the character of the taxpayer's business, the volume and amount of its net earnings, its locality, the type and
extent of the services rendered, the salary policy of the corporation';

o 'the size of the particular business';

o 'the employees' qualifications and contributions to the business venture'; and

o 'general economic conditions’.

 However, 'in determining whether the particular salary or compensation payment is reasonable, the situation must be
considered as a whole. Ordinarily, no single factor is decisive.

 It is important to keep in mind that it seldom happens that the application of one test can give a satisfactory answer, and
that ordinarily it is the interplay of several factors, properly weighted for the particular case, which must furnish the final
answer

 As far as petitioner's contention that as employer it has the right to fix the compensation of its officers and employees and
that it was in the exercise of such right that it deemed proper to pay the bonus in question, all that We need say is this: that
right maybe conceded, but for income tax purposes the employer cannot legally claim such bonuses as deductible expenses
unless they are shown to be reasonable. To hold otherwise would open the gate to rampant tax evasion.

Lastly, We must not lose sight of the fact that the question of allowing or disallowing as deductible expenses the amounts paid to
corporate officers by way of bonus is determined by respondent exclusively for income tax purposes. Concededly, he has no
authority to fix the amounts to be paid to corporate officers by way of basic salary, bonus or additional remuneration — a matter
that lies more or less exclusively within the sound discretion of the corporation itself. But this right of the corporation is, of course,
not absolute. It cannot exercise it for the purpose of evading payment of taxes legitimately due to the State
Central Cooperative Exchange, Inc. v. Enciso

Facts: Petitioner Central Cooperative Exchange, Inc. is the National Federation of Farmers' Cooperative Marketing Association
(FACOMA) in the Philippines. Its single major stockholder is a government entity, the Agricultural Credit and Cooperative Financing
Administration (ACCFA) now Agricultural Credit Administration (ACA), as reorganized under the Land Reform Code. Respondent
Nicolas T. Enciso was then member of the Board of Governors of ACCFA and concurrently a member of petitioner's Board of
Directors from August 1, 1958 to January, 1960.

The ACCFA took over the management of the affairs of CCE by virtue of a resolution of the latter's board of directors and ACCFA
removed the general manager of CCE and on January 22, 1960, designated Eugenio V. Mendoza, one of ACCFA's staff officers, as
Officer-in-Charge of petitioner corporation. As shown by the payrolls and petty cash and check vouchers of the CCE, Nicolas T.
Enciso, as director of said Exchange, received as compensation in the form of commutable per diem, per diem Facoma visitations,
kilometrage allowance, commutable discretionary funds and representation expenses in the total amount of P10,967.85 for the
period 1958 to 1960.

CCE filed a complaint with prayer for a writ of attachment verified by its Officer-in-Charge, against Nicolas T. Enciso for the recovery
of said amount, the same having been collected and received by Enciso in violation of Section 8, Article V of CCE's By-Laws, which
reads:

"Section 8.Compensation. — The compensation, if any, and the per diems for attendance at meetings of the members of the Board
of Directors shall determined by the members of any annual meeting or special meeting of the Exchange called for the purpose."

and of the resolution adopted by the stockholders in their annual meeting on January 31, 1956, that the "members of the board of
Directors attending the CCE (plaintiff) board meetings be entitled to actual transportation expenses plus the per diem of P30.00 and
actual expenses, while waiting." Upon plaintiff's (petitioner herein) filing of a bond, the lower court issued an Order of Attachment.
petitioner claims it is the stockholders not the board of directors who can fix the compensation per diem, and allowances of the
members of the Board of Directors.

In his answer, respondent stated that he was a director of petitioner and that the amount of compensation and per diems of the
directors was fixed by stockholders in their annual meeting. As affirmative defenses, he averred that: (1) plaintiff corporation has
neither the legal personality to institute the action; nor to question the legality of the resolutions enacted by the Board of which he
is a member; (2) plaintiff corporation is guilty of laches; (3) that the stockholders had ratified in their General Annual Meetings the
acts of the Board of Directors, including the collection of the amounts in question; and (4) under the circumstances, CCE is under
estoppel to seek the refund of the amounts involved in the litigation.

Issue: whether or not the board of directors of the petitioner had the power and authority to adopt the resolutions above-
enumerated which appropriated funds of the corporation for per diems, transportation allowance and discretionary funds for the
members of its Board of Directors.

Held: The petition is impressed with merit.

It is not disputed that during the term of private respondent as a member of the Board of Directors, he collected sums of money by
virtue of the Resolutions in question.

In an earlier case, Central Cooperative Exchange, Inc. v. Tibe, Sr. (33 SCRA 596-597 [1970]), the legality of the same resolutions,
involving the same corporation as petitioner and another Board Member, who received the same allowances and benefits
thereunder, under the same circumstances and set of facts as the case at bar, was resolved by this Court, holding that the
questioned resolutions (Nos. 35, 52, 49, 57 and 87) are contrary to the By-Laws of the federation and, therefore, not within the
power of the board of directors to enact. It will be noted that in interpreting the same Section 8 of the ByLaws likewise invoked in
the previous case as in the case at bar, this Court held that the right of the stockholders to determine the compensation of the Board
of Directors was explicitly reserved and even without said reservation, the directors are not entitled to compensation. Moreover,
this Court declared that the law is well settled that directors of corporations presumptively serve without compensation so that
while the directors, in assigning themselves additional duties acted within their power, they nonetheless acted in excess of their
authority by voting for themselves compensation for such additional duties.
Park Hotel v. Soriano, G.R. No. 171118, [September 10, 2012], 694 PHIL 471-488

Facts:

Petitioner Park Hotel is a corporation engaged in the hotel business. Petitioners Gregg Harbutt (Harbutt) and Bill Percy (Percy) are
the General Manager and owner, respectively, of Park Hotel. Percy, Harbutt and Atty. Roberto Enriquez are also the officers and
stockholders of Burgos Corporation (Burgos), a sister company of Park Hotel.

Respondent Manolo Soriano (Soriano) was hired by Park Hotel in July 1990 as Maintenance Electrician, and then transferred to
Burgos in 1992. Respondent Lester Gonzales (Gonzales) was employed by Burgos as Doorman, and later promoted as Supervisor.
Respondent Yolanda Badilla (Badilla) was a bartender of J's Playhouse operated by Burgos.

In October of 1997, Soriano, Gonzales and Badilla were dismissed from work for allegedly stealing company properties. As a result,
respondents filed complaints for illegal dismissal, unfair labor practice, and payment of moral and exemplary damages and
attorney's fees, before the Labor Arbiter (LA). In their complaints, respondents alleged that the real reason for their dismissal was
that they were organizing a union for the company's employees.

On the other hand, petitioners alleged that aside from the charge of theft, Soriano and Gonzales have violated various company
rules and regulations contained in several memoranda issued to them. After dismissing respondents, Burgos filed a case for qualified
theft against Soriano and Gonzales before the Makati City Prosecutor's Office, but the case was dismissed for insufficiency of
evidence.

In his Affidavit, Soriano claimed that on October 4, 1997, he was barred from entering the company premises and that the following
day, Harbutt shouted at him for having participated in the formation of a union. He was later dismissed from work. For his part,
Gonzales averred that he was coerced to resign by Percy and Harbutt in the presence of their goons. Badilla claimed that she was
also forced by Percy and Harbutt to sign a resignation letter, but she refused to do so because she was innocent of the charges
against her. She was nevertheless dismissed from service. ATSIED

The three (3) respondents averred that they never received the memoranda containing their alleged violation of company rules and
they argued that these memoranda were fabricated to give a semblance of cause to their termination. Soriano and Gonzales further
claimed that the complaint filed against them was only an afterthought as the same was filed after petitioners learned that a
complaint for illegal dismissal was already instituted against them.

The LA rendered a Decision finding that respondents were illegally dismissed because the alleged violations they were charged with
were not reduced in writing and were not made known to them, thus, denying them due process. The LA found that respondents did
not actually receive the memoranda allegedly issued by petitioners, and that the same were mere afterthought to conceal the illegal
dismissal.

Issue:

whether Park Hotel, Percy and Harbutt are jointly and severally liable with Burgos for the dismissal of respondents.|||

Held:

As to whether Park Hotel may be held solidarily liable with Burgos, the Court rules that before a corporation can be held accountable
for the corporate liabilities of another, the veil of corporate fiction must first be pierced. Thus, before Park Hotel can be held
answerable for the obligations of Burgos to its employees, it must be sufficiently established that the two companies are actually a
single corporate entity, such that the liability of one is the liability of the other.|||

In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel was a mere instrumentality, agency,
conduit or adjunct of Burgos, or that its separate corporate veil had been used to cover any fraud or illegality committed by Burgos
against the respondents. Accordingly, Park Hotel and Burgos cannot be considered as one and the same entity, and Park Hotel
cannot be held solidary liable with Burgos. HScAEC
Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it does not necessarily mean that Percy
and Harbutt are exempt from liabilitytowards respondents. Verily, a corporation, being a juridical entity, may act only through its
directors, officers and employees. Obligations incurred by them, while acting as corporate agents, are not their personal liability but
the direct accountability of the corporation they represent. However, corporate officers may be deemed solidarily liable with the
corporation for the termination of employees if they acted with malice or bad faith. In the present case, the lower tribunals
unanimously found that Percy and Harbutt, in their capacity as corporate officers of Burgos, acted maliciously in terminating the
services of respondents without any valid ground and in order to suppress their right to self-organization.

||| Section 31 of the Corporation Code makes a director personally liable for corporate debts if he willfully and knowingly votes for
or assents to patently unlawful acts of the corporation. It also makes a director personally liable if he is guilty of gross negligence or
bad faith in directing the affairs of the corporation. Thus, Percy and Harbutt, having acted in bad faith in directing the affairs of
Burgos, are jointly and severally liable with the latter for respondents' dismissal.|||

Urban Bank v Peña

Facts: Urban Bank, Inc. (both petitioner and respondent in these two consolidated cases), was a domestic Philippine corporation,
engaged in the business of banking. The eight individual respondents in G.R. No. 162562 were officers and members of Urban
Bank's board of directors, who were sued in their official and personal capacities. On the other hand, Benjamin L. De Leon, Delfin C.
Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon Group), are the petitioners in G.R. No. 145822 and are three of the same bank
officers and directors, who had separately filed the instant Petition before the Court. Petitioner-respondent Atty. Magdaleno M.
Peña (Peña) is a lawyer by profession and was formerly a stockholder, director and corporate secretary of Isabel Sugar Company, Inc.
(ISCI). ISCI owned a parcel of land located in Pasay City (the Pasay property). In 1984, ISCI leased the Pasay property for a period of
10 years. Without its consent and in violation of the lease contract, the lessee subleased the land to several tenants, who in turn put
up establishments inside the compound. In 1994, a few months before the lease contract was to expire, ISCI informed the lessee
and his tenants that the lease would no longer be renewed and that it intended to take over the Pasay property for the purpose of
selling it. Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank executed a Contract to Sell. Both
parties agreed that the final installment of Php 25,000,000 would be released by the bank upon ISCI's delivery of full and actual
possession of the land, free from any tenants.

ISCI then instructed Peña, who was its director and corporate secretary, to take over possession of the Pasay property against the
tenants upon the expiration of the lease. ISCI's president, Mr. Enrique G. Montilla III (Montilla), faxed a letter to Peña, confirming the
latter's engagement as the corporation's agent to handle the eviction of the tenants from the Pasay property. On 29 November
1994, the day the lease contract was to expire, ISCI and Urban Bank executed a Deed of Absolute Sale over the Pasay property for
the amount agreed upon in the Contract to Sell, but subject to the above escrow provision. 26 The title to the land was eventually
transferred to the name of Urban Bank on 05 December 1994. On 30 November 1994, the lessee duly surrendered possession of the
Pasay property to ISCI, but the unauthorized sub-tenants refused to leave the area. Pursuant to his authority from ISCI, Peña had the
gates of the property closed to keep the sub-tenants out.

In the meantime, a certain Marilyn G. Ong, as representative of ISCI, faxed a letter to Urban Bank — addressed to respondent
Corazon Bejasa, who was then the bank's Senior Vice-President— requesting the issuance of a formal authority for Peña. Two days
thereafter, Ms. Ong faxed another letter to the bank, this time addressed to its president, respondent Teodoro Borlongan. She
repeated therein the earlier request for authority for Peña, since the tenants were questioning ISCI's authority to take over the
Pasay property. In response to the letters of Ms. Ong, petitioner-respondent bank, through individual respondents Bejasa and Arturo
E. Manuel — Senior Vice-President and Vice-President, respectively— advised Peña that the bank had noted the engagement of his
services by ISCI and stressed that ISCI remained as the lawyer's principal. To prevent the sub-tenants from further appropriating the
Pasay property, petitioner-respondent Peña, as director and representative of ISCI, filed a complaint for injunction (the First
Injunction Complaint) with the RTC-Pasay City. Acting on ISCI's prayer for preliminary relief, the trial court favorably issued a
temporary restraining order (TRO), which was duly implemented. At the time the First Injunction Complaint was filed, a new title to
the Pasay property had already been issued in the name of Urban Bank. On 19 December 1994, when "information reached the
judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a
break-open order for the property. According to Peña, it was the first time that he was apprised of the sale of the land by ISCI and of
the transfer of its title in favor of the bank." It is not clear from the records how such information reached the judge or what the
break-open order was in response to. On the same day that the TRO was recalled, petitioner-respondent Peña immediately
contacted ISCI's president, Mr. Montilla, who in turn confirmed the sale of the Pasay property to Urban Bank. Peña told Mr. Montilla
that because of the break-open order of the RTC-Pasay City, he (Peña) would be recalling the security guards he had posted to
secure the property. Mr. Montilla, however, asked him to suspend the planned withdrawal of the posted guards, so that ISCI could
get in touch with petitioner-respondent bank regarding the matter. Later that same day, Peña received a telephone call from
respondent Bejasa. After Peña informed her of the situation, she allegedly told him that Urban Bank would be retaining his services
in guarding the Pasay property, and that he should continue his efforts in retaining possession thereof. He insisted, however, on
talking to the Bank's president. Respondent Bejasa gave him the contact details of respondent Borlongan, then president of Urban
Bank. Respondent Borlongan allegedly asked Peña to maintain possession of the Pasay property and to represent Urban Bank in any
legal action that might be instituted relative to the property. Peña supposedly demanded 10% of the market value of the property as
compensation and attorney's fees and reimbursement for all the expenses incurred from the time he took over land until possession
was turned over to Urban Bank. Respondent Borlongan purportedly agreed on condition that possession would be turned over to
the bank, free of tenants, not later than four months; otherwise, Peña would lose the 10% compensation and attorney's fees. He
then received a letter from appointing him as the authorized representative of Union Bank and authorizing him to hold in possession
the Pasay property. ISCI then confirmed the said agreement. Peña then moved for the dismissal of ISCI's First Injunction Complaint,
filed on behalf of ISCI, on the ground of lack of personality to continue the action, since the Pasay property, subject of the suit, had
already been transferred to Urban Bank. 54 The RTC-Pasay City dismissed the complaint and recalled its earlier break-open order.
Thereafter, petitioner-respondent Peña, now in representation of Urban Bank, filed a separate complaint (the Second Injunction
Complaint) with the RTC-Makati City, to enjoin the tenants from entering the Pasay property. Acting on Urban Bank's preliminary
prayer, the RTC-Makati City issued a TRO. While the Second Injunction Complaint was pending, Peña made efforts to settle the issue
of possession of the Pasay property with the sub-tenants. During the negotiations, he was exposed to several civil and criminal cases
they filed in connection with the task he had assumed for Urban Bank, and he received several threats against his life. The sub-
tenants eventually agreed to stay off the property for a total consideration of PhP1,500,000. Peña advanced the payment for the full
and final settlement of their claims against Urban Bank. Peña claims to have borrowed PhP3,000,000 from one of his friends in
order to maintain possession thereof on behalf of Urban Bank. According to him, although his creditor-friend granted him several
extensions, he failed to pay his loan when it became due, and it later on became the subject of a separate collection suit for
payment with interest and attorney's fees. This collection suit became the basis for Atty. Peña's request for discretionary execution
pending appeal later on. On 07 February 1995, within the four-month period allegedly agreed upon in the telephone conversation,
Peña formally informed Urban Bank that it could already take possession of the Pasay property. There was however no mention of
the compensation due and owed to him for the services he had rendered. On 31 March 1995, the bank subsequently took actual
possession of the property and installed its own guards at the premises. Peña thereafter made several attempts to contact
respondents Borlongan and Bejasa by telephone, but the bank officers would not take any of his calls. On 24 January 1996, or nearly
a year after he turned over possession of the Pasay property, Peña formally demanded from Urban Bank the payment of the 10%
compensation and attorney's fees allegedly promised to him during his telephone conversation with Borlongan for securing and
maintaining peaceful possession of the property. He then filed a case for collection of meny against Urban Bank for the unpaid
compensation promised to him. In response to the complaint of Atty. Peña, Urban Bank and individual bank officers and directors
argued that it was ISCI, the original owners of the Pasay property, that had engaged the services of Peña in securing the premises;
and, consequently, they could not be held liable for the expenses Peña had incurred. On 28 May 1999, the RTC-Bago City 72 ruled in
favor of Peña, after finding that an agency relationship had indeed been created between him and Urban Bank. The eight directors
and bank officers were found to be solidarily liable with the bank for the payment of agency's fees. Urban Bank and the individual
defendant bank directors and officers filed a common Notice of Appeal, 74 which was given due course. 75 In the appeal, they
questioned the factual finding that an agency relationship existed between the bank and Peña. Meanwhile, Benjamin L. de Leon,
Delfin Gonzalez, Jr., and Eric L. Lee (the De Leon Group), 79 the petitioners in the instant Petition docketed as G.R. No. 145822,
argued that, even on the assumption that there had been an agency contract with the bank, the trial court committed reversible
error in holding them — as bank directors — solidarily liable with the corporation. On the other hand, Teodoro Borlongan, Corazon
M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the Borlongan Group) 81 reiterated similar arguments as those
of the De Leon Group, adding that the claimed compensation of 10% of the purchase price of the Pasay property was not
reasonable. the Court of Appeals 85 annulled the Decision of the RTC-Bago City and ruled that no agency relationship had been
created. Nevertheless, it ordered Urban Bank to reimburse Peña for his expenses and to give him reasonable compensation for his
efforts in clearing the Pasay property of tenants in the amount of PhP3,000,000, but absolved the bank directors and officers from
solidary liability. Peña then moved for an execution pending appeal of the award granted to him by the RTC. the RTC-Bago City,
through Judge Henry J. Trocino, 97 favorably granted Peña's motion and issued a Special Order authorizing execution pending
appeal. 98 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, issued a Writ
of Execution on the same day. 100 The Special Order and Writ of Execution were directed at the properties owned by Urban Bank as
well as the properties of the eight individual bank directors and officers.

Issue: Whether or not the corporate officers and directors of Urban Bank shall be solidarily liable with their properties for the
corporate liability of the Bank to Peña.

Held:They are not solidarily liable.

The obligation to pay Peña's compensation, however, falls solely on Urban Bank. Absent any proof that individual petitioners as bank
officers acted in bad faith or with gross negligence or assented to a patently unlawful act, they cannot be held solidarily liable
together with the corporation for services performed by the latter's agent to secure possession of the Pasay property. Thus, the trial
court had indeed committed grave abuse of discretion when it issued a ruling against the eight individual defendant bank directors
and officers and its Decision should be absolutely reversed and set aside. A corporation, as a juridical entity, may act only through its
directors, officers and employees. 286 Obligations incurred as a result of the acts of the directors and officers as corporate agents
are not their personal liabilities but those of the corporation they represent. 287 To hold a director or an officer personally liable for
corporate obligations, two requisites must concur: (1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the
complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. 288 "To hold a director, a trustee or an
officer personally liable for the debts of the corporation and, thus, pierce the veil of corporate fiction, bad faith or gross negligence
by the director, trustee or officer in directing the corporate affairs must be established clearly and convincingly. Peña failed to allege
and convincingly show that individual defendant bank directors and officers assented to patently unlawful acts of the bank, or that
they were guilty of gross negligence or bad faith. Contrary to his claim, the Complaint 290 in the lower court never alleged that
individual defendants acquiesced to an unlawful act or were grossly negligent or acted in bad faith. 291 Neither is there any specific
allegation of gross negligence or action in bad faith that is attributable to the individual defendants in performance of their official
duties. In any event, Peña did not adduce any proof that the eight individual defendants performed unlawful acts or were grossly
negligent or in bad faith. Aside from the general allegation that they were corporate officers or members of the board of directors of
Urban Bank, no specific acts were alleged and proved to warrant a finding of solidary liability. At most, petitioners Borlongan, Bejasa
and Manuel were identified as those who had processed the agency agreement with Peña through their telephone conversations
with him and/or written authorization letter. The Decision of the RTC-Bago City must be utterly rejected on this point because its
conclusion of any cause of action, much less actual legal liability on the part of Urban Bank's corporate officers and directors are
shorn of any factual finding. That they assented to the transactions of the bank with respect to Atty. Peña's services without any
showing that these corporate actions were patently unlawful or that the officers were guilty of gross negligence or bad faith is
insufficient to hold them solidarily liable with Urban Bank. It seems absurd that the trial court will hold the impleaded selected
members of the Board of Directors only, but not the others who also purportedly approved the transactions. Neither is the reason
behind the finding of "solidariness" with Urban Bank in such liability explained at all. It is void for completely being devoid of facts
and the law on which the finding of liability is based. Hence, only Urban Bank, not individual defendants, is liable to pay Peña's
compensation for services he rendered in securing possession of the Pasay property. Its liability in this case is, however, without
prejudice to its possible claim against ISCI for reimbursement under their separate agreements.
ALERT SECURITY vs. PASAWILAN

FACTS: Respondents SaidaliPasawilan, Wilfredo Verceles and MelchorBulusan were all employed by petitioner Alert Security and
Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996, January 14, 1997, and January 24, 1997,
respectively. They were paid 165.00 pesos a day as regular employees, and assigned at the Department of Science and Technology
(DOST) pursuant to a security service contract between the DOST and Alert Security.

Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert Security and its president
and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As a result of their complaint, they were
relieved from their posts in the DOST and were not given new assignments despite the lapse of six months. On January 26, 1999,
they filed a joint complaint for illegal dismissal against petitioners.

Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the DOST, respondents were
merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority (LRTA) Compound in Aurora Blvd. because the wages
therein were already adjusted to the latest minimum wage. Petitioners presented Duty Detail Orders that Alert Security issued to
show that respondents were in fact assigned to LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering
at the DOST and tried to convince other security guards to file complaints against Alert Security. Thus, on August 3, 1998, Alert
Security filed a termination report with the Department of Labor and Employment relative to the termination of the respondents.

Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with respondents’ earlier
complaint for money claims. The records of the illegal dismissal case were sent to Labor Arbiter Ariel C. Santos, but later returned to
the Office of the Labor Arbiter hearing the illegal dismissal complaint because a Decision has already been rendered in the complaint
for money claims on July 14, 1999. In that decision, the complaint for money claims was dismissed for lack of merit but petitioners
were ordered to pay respondents their latest salary differentials.

On January 31, 2007, the NLRC rendered a Decision ruling that Labor Arbiter Del Rosario did not err in taking cognizance of
respondents’ complaint for illegal dismissal because the July 14, 1999 Decision of Labor Arbiter Santos on the complaint for money
claims did not at all pass upon the issue of illegal dismissal. The NLRC, however, dismissed the complaint for illegal dismissal after
ruling that the fact of dismissal or termination of employment was not sufficiently established. According to the NLRC, [the]
sweeping generalization that the complainants were constructively dismissed is not sufficient to establish the existence of illegal
dismissal.

CA rendered the assailed Decision reversing and setting aside the NLRC decision and reinstating the July 28, 2000 Decision of Labor
Arbiter Del Rosario.

ISSUE: W/N respondents were illegally dismissed by petitioners

RULING: Yes. Although we recognize the right of employers to shape their own work force, this management prerogative must not
curtail the basic right of employees to security of tenure. There must be a valid and lawful reason for terminating the employment of
a worker. Otherwise, it is illegal and would be dealt with by the courts accordingly.

We acknowledge and recognize the right of an employer to transfer employees in the interest of the service. This exercise is a
management prerogative which is a lawful right of an employer. However, like all rights, there are limitations to the right to transfer
employees. As ruled in the case of Blue Dairy Corporation v. NLRC:

x xxThe managerial prerogative to transfer personnel must be exercised without grave abuse of discretion, bearing in mind the basic
elements of justice and fair play. Having the right should not be confused with the manner in which that right is exercised. Thus, it
cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular, the employer must be able to
show that the transfer is not unreasonable, inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a
diminution of his salaries, privileges and other benefits. x xx

On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of Alert Security, solidarily
liable with Alert Security for the payment of the money awards in favor of respondents, we find petitioners arguments meritorious.
Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or owners. In exceptional
cases, courts find it proper to breach this corporate personality in order to make directors, officers, or owners solidarily liable for the
companies acts. Section 31, Paragraph 1 of the Corporation Code provides:

Sec. 31.Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a corporation may be
disregarded in order to hold the directors, officers, or owners of the corporation liable for corporate debts. In McLeod v. National
Labor Relations Commission, the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of law making
a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. x xx

In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager of Alert Security, is
using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or defend crime. Further, there is no
showing that Alert Security has folded up its business or is reneging in its obligations. In the final analysis, it is Alert Security that
respondents are after and it is also Alert Security who should take responsibility for their illegal dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 99861 and the
Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner Manuel D. Dasig is held not solidarily liable with
petitioner Alert Security and Investigation, Inc. for the payment of the monetary awards in favor of respondents. Said Decision of the
Court of Appeals in all other aspects is AFFIRMED.

CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D. ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM, CESAR T. LIBI,

RAMONTITO * E. GARCIA and JOSE B. SALA, petitioners, vs .RICARDO F.

ELIZAGAQUE, respondent.

FACTS:

Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a nonprofit and non-stock private
membership club, having its principal place of business in Banilad, Cebu City. Petitioners herein are members of its Board of
Directors.

Sometime in 1987, San Miguel Corporation, a special company proprietary member of CCCI, designated respondent Ricardo
F. Elizagaque, its Senior Vice President and Operations Manager for the Visayas and Mindanao, as a special non-proprietary member.
The designation was thereafter approved by the CCCI's Board of Directors.

In 1996, respondent filed with CCCI an application for proprietary membership. The application was indorsed by CCCI's two
(2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo.

On August 1, 1997, respondent received a letter from Julius Z. Neri, CCCI's corporate secretary, informing him that the
Board disapproved his application for proprietary membership.

On three different occasions from August 6, 1997 until November 5, 1997, Elizague wrote CCCI letters of reconsideration
and inquiring whether any member of the Board objected to his application. However, CCCI never replied to any of his letters.
 Consequently, on December 23, 1998, respondent filed with RTC Branch 71, Pasig City a complaint for damages (moral,
actual and exemplary) against petitioners. After trial, the RTC rendered its Decision dated February 14, 2001 in favor of respondent.
On appeal, the CA affirmed and modified the trial court’s decision (deleting actual damages). MR denied. Hence this petition.

ISSUES:

1. WON in disapproving respondent's application for proprietary membership with CCCI, petitioners are liable to respondent for
damages? YES

2. WON their liability is joint and several? YES

HELD:

1. As shown by the records, the Board adopted a secret balloting known as the "black ball system" of voting wherein each member
will drop a ball in the ballot box. A white ball represents conformity to the admission of an applicant, while a black ball means
disapproval. Pursuant to Section 3 (c), Article 1 of CCCI’s Amended By-Laws, a unanimous vote of the directors is required. When
respondent's application for proprietary membership was voted upon during the Board meeting on July 30, 1997, the ballot box
contained one (1) black ball. Thus, for lack of unanimity, his application was disapproved.

Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the right to approve or disapprove an
application for proprietary membership. But such right should not be exercised arbitrarily. Articles 19 and 21 of the Civil Code on the
Chapter on Human Relations provide restrictions.

In rejecting respondent's application for proprietary membership, we find that petitioners violated the rules governing
human relations, the basic principles to be observed for the rightful relationship between human beings and for the stability of social
order. The trial court and the Court of Appeals aptly held that petitioners committed fraud and evident bad faith in disapproving
respondent's applications. This is contrary to morals, good custom or public policy. Hence, petitioners are liable for damages
pursuant to Article 19 in relation to Article 21 of the same Code.

It bears stressing that the amendment to Section 3 (c) of CCCI's Amended By-Laws requiring the unanimous vote of the
directors present at a special or regular meeting was not printed on the application form respondent filled and submitted to CCCI.
What was printed thereon was the original provision of Section 3 (c) which was silent on the required number of votes needed for
admission of an applicant as a proprietary member.

Petitioners explained that the amendment was not printed on the application form due to economic reasons. We find this
excuse flimsy and unconvincing. Such amendment, aside from being extremely significant, was introduced way back in 1978 or
almost twenty (20) years before respondent filed his application. We cannot fathom why such a prestigious and exclusive golf
country club, like the CCCI, whose members are all affluent, did not have enough money to cause the printing of an updated
application form.

It is thus clear that respondent was left groping in the dark wondering why his application was disapproved. He was not
even informed that a unanimous vote of the Board members was required. When he sent a letter for reconsideration and an inquiry
whether there was an objection to his application, petitioners apparently ignored him. Certainly, respondent did not deserve this
kind of treatment. Having been designated by San Miguel Corporation as a special non-proprietary member of CCCI, he should have
been treated by petitioners with courtesy and civility. At the very least, they should have informed him why his application was
disapproved.

The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm. When the right is
exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is committed for which the wrongdoer
must be held responsible.

2. Section 31 of the Corporation Code provides:

 Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest
in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.

IMMACULADA L. GARCIA, petitioner, vs.SOCIAL SECURITY COMMISSION LEGAL AND COLLECTION, SOCIAL SECURITY
SYSTEM, respondents.

Facts:

Petitioner Immaculada L. Garcia, Eduardo de Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo Villanueva were
directors3 of Impact Corporation. The corporation was engaged in the business of manufacturing aluminum tube
containers and operated two factories. One was a "slug" foundry-factory located in Cuyapo, Nueva Ecija, while the other
was an Extrusion Plant in Cainta, Metro Manila, which processed the "slugs" into aluminum collapsible tubes and similar
containers for toothpaste and other related products.

Records show that around 1978, Impact Corporation started encountering financial problems. By 1980, labor unrest
besieged the corporation.

In March 1983, Impact Corporation filed with the Securities and Exchange Commission (SEC) a Petition for Suspension of
Payments,4 docketed as SEC Case No. 02423

On 8 May 1985, the union of Impact Corporation filed a Notice of Strike with the Ministry of Labor which was followed
by a declaration of strike on 28 July 1985. Subsequently, the Ministry of Labor certified the labor dispute for compulsory
arbitration to the National Labor Relations Commission (NLRC) in an Order5 dated 25 August 1985. The Ministry of
Labor, in the same Order, noted the inability of Impact Corporation to pay wages, 13th month pay, and SSS remittances
due to cash liquidity problems

On 3 July 1985, the Social Security System (SSS), through its Legal and Collection Division (LCD), filed a case before the
SSC for the collection of unremitted SSS premium contributions withheld by Impact Corporation from its employees.

In answer to the allegations raised in SSC Case No. 10048, Impact Corporation, through its then Vice President Ricardo
de Leon, explained in a letter dated 18 July 1985 that it had been confronted with strikes in 1984 and layoffs were
effected thereafter. It further argued that the P402,988.93 is erroneous. It explained among other things, that its
operations had been suspended and that it was waiting for the resolution on its Petition for Suspension of Payments by
the SEC under SEC Case No. 2423. Despite due notice, the corporation failed to appear at the hearings.

In the meantime, the Petition for Suspension of Payments was dismissed which was pending before the SEC in an Order8
dated 12 December 1985. Impact Corporation resumed operations but only for its winding up and dissolution.9 Due to
Impact Corporation’s liability and cash flow problems, all of its assets, namely, its machineries, equipment, office
furniture and fixtures, were sold to scrap dealers to answer for its arrears in rentals.

SSC Commission Ruling: In a Resolution dated 28 May 2003, the Social Security Commission ruled in favor of SSS and
declared petitioner liable to pay the unremitted contributions and penalties

Petitioner elevated her case to the Court of Appeals via a Petition for Review. Respondent SSS filed its Comment dated
20 January 2005, and petitioner submitted her Reply thereto on 4 April 2005.

CA Ruling: The Court of Appeals, applying Section 28(f) of the Social Security Law,21 again ruled against petitioner. It
dismissed the petitioner’s Petition in a Decision dated 2 June 2005

Issue: WON The Court of Appeals, applying Section 28(f) of the Social Security Law,21 again ruled against petitioner. It
dismissed the petitioner’s Petition in a Decision dated 2 June 2005
YES. The director is made liable.

Under Section 22(a), every employer is required to deduct and remit such contributions penalty refers to the 3% penalty
that automatically attaches to the delayed SSS premium contributions. The spirit, rather than the letter of a law
determines construction of a provision of law. It is a cardinal rule in statutory construction that in interpreting the
meaning and scope of a term used in the law, a careful review of the whole law involved, as well as the intendment of
the law, must be made.24 Nowhere in the provision or in the Decision can it be inferred that the persons liable are
absolved from paying the unremitted premium contributions.

Elementary is the rule that when laws or rules are clear, it is incumbent upon the judge to apply them regardless of
personal belief or predilections - when the law is unambiguous and unequivocal, application not interpretation thereof is
imperative.25 However, where the language of a statute is vague and ambiguous, an interpretation thereof is resorted
to. An interpretation thereof is necessary in instances where a literal interpretation would be either impossible or
absurd or would lead to an injustice. A law is deemed ambiguous when it is capable of being understood by reasonably
well-informed persons in either of two or more senses.26 The fact that a law admits of different interpretations is the
best evidence that it is vague and ambiguous.27 In the instant case, petitioner interprets Section 28(f) of the Social
Security Law as applicable only to penalties and not to the liability of the employer for the unremitted premium
contributions. Respondents present a more logical interpretation that is consistent with the provisions as a whole and
with the legislative intent behind the Social Security Law.

Petitioner invokes the rule in statutory construction called ejusdem generic; that is, where general words follow an
enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be
construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as
those specifically mentioned. According to petitioner, to be held liable under Section 28(f) of the Social Security Law,
one must be the "managing head," "managing director," or "managing partner." This Court though finds no need to
resort to statutory construction. Section 28(f) of the Social Security Law imposes penalty on:

(1) the managing head;

(2) directors; or

(3) partners, for offenses committed by a juridical person

The said provision does not qualify that the director or partner should likewise be a "managing director" or "managing
partner."29 The law is clear and unambiguous.

Being a mere fiction of law, however, there are peculiar situations or valid grounds that can exist to warrant the
disregard of its independent being and the lifting of the corporate veil. This situation might arise when a corporation
is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out other similar
unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law.31 Thus, Section 31
of the Corporation Law provides:

Taking a cue from the above provision, a corporate director, a trustee or an officer, may be held solidarily liable with the
corporation in the following instances:

1. When directors and trustees or, in appropriate cases, the officers of

a corporation--

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other
persons.
 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the Corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action. 32

The aforesaid provision states:

SEC. 31.Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons.

The situation of petitioner, as a director of Impact Corporation when said corporation failed to remit the SSS premium
contributions falls exactly under the fourth situation. Section 28(f) of the Social Security Law imposes a civil liability
for any act or omission pertaining to the violation of the Social Security Law, to wit:

(f) If the act or omission penalized by this Act be committed by an association, partnership, corporation or any other
institution, its managing head, directors or partners shall be liable to the penalties provided in this Act for the offense.

In fact, criminal actions for violations of the Social Security Law are also provided under the Revised Penal Code. The
Social Security Law provides, in Section 28 thereof, to wit:

(h) Any employer who, after deducting the monthly contributions or loan amortizations from his employees’
compensation, fails to remit the said deductions to the SSS within thirty (30) days from the date they became due shall
be presumed to have misappropriated such contributions or loan amortizations and shall suffer the penalties provided
in Article Three hundred fifteen of the Revised Penal Code.

(i) Criminal action arising from a violation of the provisions of this Act may be commenced by the SSS or the employee
concerned either under this Act or in appropriate cases under the Revised Penal Code: x xx.

On the defense that the Petitioner Corp is suffering losses:

Petitioner’s defense that since Impact Corporation suffered irreversible economic losses, and by reason of fortuitous
events, she should be absolved from liability, is also untenable. The evidence adduced totally belies this claim. A
reference to the copy of the Petition for Suspension of Payments filed by Impact Corporation on 18 March 1983 before
the SEC contained an admission that:

"[I]t has been and still is engaged in business" and "has been and still is engaged in the business of manufacturing
aluminum tube containers" and "in brief, it is an on-going, viable, and profitable enterprise" which has "sufficient
assets" and "actual and potential income-generation capabilities."

The foregoing document negates petitioner’s assertion and supports the contention that during the period involved
Impact Corporation was still engaged in business and was an ongoing, viable, profitable enterprise. In fact, the latest SSS
form RIA submitted by Impact Corporation is dated 7 May 1984. The assessed SSS premium contributions and penalty
are obligations imposed upon Impact Corporation by law, and should have been remitted to the SSS within the first 10
days of each calendar month following the month for which they are applicable or within such time as the SSC prescribes
Powton Conglomerate, Inc. v. AGCOLICOLG.R. No. 150978April 3, 2003

Doctrine:

The settled rule is that, a corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation
cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach, as a rule, only when — (1) he assents to a patently unlawful
act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered down
stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally
answerable for his corporate action.

J. Ynares-Santiago

Facts:

Sometime in November 1990, respondent Agcolicol, proprietor of Japerson Engineering, entered into an "Electrical Installation
Contract" with Powton thru its President and Chairman of the Board, Philip C. Chien. For a contract price of P5,300,000.00,
respondent undertook to provide electrical works as well as the necessary labor and materials for the installation of electrical
facilities at the Ciano Plaza Building owned by Powton.

In 1994, respondent filed with the RTC-Pasay the instant complaint for sum of money against the petitioners. He alleged that despite
the completion of the electrical works at Ciano Plaza Building, the latter only paid the amount of P5,031,860.40, which is equivalent
to more than 95% of the total contract price, thereby leaving a balance of P268,139.80.

Petitioner Chien testified that they should not be held liable for the additional electrical works allegedly performed by the petitioner
because they never authorized the same.

The RTC rendered judgment in favor of the plaintiff where it ordered the defendants Powton and Chien to pay the plaintiff jointly
and severally the amount of Php 990,867.38.

Issue: Is the petitioner liable to pay the balance of the contract price

Ruling:

NO. The settled rule is that, a corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation
cannot be held personally liable for the liabilities of the latter.

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when — (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or
other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.

Considering that none of the foregoing exceptions was established in the case at bar, petitioner Chien, who entered into a contract
with respondent in his capacity as President and Chairman of the Board of Powton, cannot be held solidarily liable with the latter.
BENGUET ELECTRIC COOPERATIVE, INC., petitioner, vs. NATIONALLABOR RELATIONS COMMISSION, PETER COSALAN and BOARD
OFDIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC. respondents.

FACTS: Peter Cosalan was the General Manager of petitioner Benguet Electric Cooperative, Inc. ("Beneco"), having been elected as
such by the Board of Directors of Beneco.

COA issued a memorandum addressed to respondent Peter Cosalan, inviting attention to the fact that the audit of per diems and
allowances received by officials and members of the Board of Directors of Beneco showed substantial inconsistencies with the
directives of the NEA. Audit Report noted and enumerated irregularities in the utilization of funds amounting to P37 Million released
by NEA to Beneco, and recommended that appropriate remedial action be taken.

Cosalan initiated implementation of the remedial measures recommended by the COA.

The respondent members of the Board of Beneco reacted by adopting a series of resolutions. These Board Resolutions abolished the
housing allowance of respondent Cosalan; reduced his salary and his representation and commutable allowances; directed him to
hold in abeyance all pending personnel disciplinary actions; and struck his name out as a principal signatory to transactions of
petitioner Beneco. Ultimately, he was ousted as General Manager.

Cosalan filed a complaint with the NLRC challenging the legality of the Board resolutions

Labor Arbiter’s decision: Beneco and respondent Board members solidarily liable for the salary, allowances, damages and attorney's
fees

NLRC’s decision: Only Beneco is liable. The records do not disclose that the individual Boardmembers were motivated by malice or
bad faith, rather, it reveals an intramural power play gone awry and misapprehension of its own rules and regulations.

ISSUE: Whether the Board of Directors acted in bad faith

HELD: YES.

The dismissal of an officer or employee in bad faith, without lawful cause and without procedural due process, is an act that is contra
legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or
the clear legal rights of their officers and employees by simply purporting to act for the corporation they control.

HERE, respondent Board members were guilty of "gross negligence or bad faith in directing the affairs of the corporation" in
enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of
General Manager of Beneco. Respondent Board members, in doing so, acted beyond the scope of their authority as such Board
members.

Board of Liquidators vs Kalaw

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by
Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On
August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter,
export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent,
broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize
copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether
eliminate, the margin of middlemen, mostly aliens.4

General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the
Board; defendant Leonor Moll became director only on December 22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by
general manager Kalaw are the disputed contracts, for the delivery of copra, viz:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947.
This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped:
September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog& Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery:
November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York,
to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery:
November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract
was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood& Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and
January, 1948. This contract was assigned to Pacific Vegetable Co.

(i) October 28, 1947: Fairwood& Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract
was assigned to Pacific Vegetable Co.

An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating
typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut
trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were
destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of
copra. Quick turnovers became impossible, financing a problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until
December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held.
Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the
contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President
Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the
same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not
long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They
unanimously approved the contracts hereinbefore enumerated.

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO,
P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog& Sons, P159,040.00.

But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as
follows: For the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14
contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to
this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management
was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular
reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co.
(Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons.

Issue: won there was bad faith on the part of the B.O.D of NACOCO?

Held:

No.

Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers
or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation
and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time."
30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than
the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and
any ratification or adoption is equivalent to a grant of prior authority." 31

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32 By
corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on
corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is
that the embattled contracts remain valid.

It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's
ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the
scale is that the board knew that the contracts so confirmed would cause heavy losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including
Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be
unprofitable for NACOCO.

Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it
partakes of the nature of fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose,"
or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will"
that "partakes of the nature of fraud."

Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to
pocket money at the expense of the corporation. 35 We have had occasion to affirm that bad faith contemplates a "state of mind
affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs.
Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the
following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have
found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of
some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been
prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any
of these malevolent acts.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of
raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair
dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss
resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is
that — in the words of the trial court — the ratification of the contracts was "an act of simple justice and fairness to the general
manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of
those contracts which proved disadvantageous." 37
The directors are not liable.

Montelibano vs Bacolod-Murcia Milling Co.GR No. L-15092 May 18, 1962

Reyes, JBL, J.:

Facts:

Alfredo Montelibano, Alejandro Montelibano, and the limited co-partnership Gonzaga and Company had been and are sugar
planters adhered to the defendant’s sugar central mill under identical milling contracts. Originally executed in 1919, said contracts
were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that the resulting product should be divided
in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended milling contracts,
increasing the planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending
the operation of the milling contract from the original 30 years to 45 years. To this effect, a printed Amended Milling Contract form
was drawn up. On August 20, 1936, the Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution
(Acts No. 11, Acuerdo No. 1) granting further concessions to the planters over and above those contained in the printed Amended
Milling Contract. The bone of contention is paragraph 9 of this resolution, that reads as follows:

Agreement No. 1. - Upon a duly seconded motion, the Board, in consideration of a planters request made by a committee appointed
by them, agrees to amend the amended milling contract as follows: x xxxxxxx 9. That during the validity of this Amended Grinding
Contract, the sugar mills of Negros Occidental, whose annual production of centrifuged sugar is more than a third of the total
production of all the sugar mills of Negros Occidental, will grant their planters If the conditions are better than those stipulated in this
contract, then those better conditions will be granted and will be understood to be granted to the suppliers that have grante d this
Amended Grinding Contract.

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals (La Carlota, Binalbagan-
Isabela and San Carlos), with a total annual production exceeding one-third of the production of all the sugar central mills in the
province, had already granted increased participation (of 62.5%) to their planters, and that under paragraph 9 of the resolution of
August 20, 1936, heretofore quoted, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants
herein). The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in
the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in
effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.

Issue: Whether or not the board resolution is an ultra vires act and in effect a donation from the board of directors

Held: No.

All disquisition concerning donations and the lack of power of the directors of the respondent sugar milling company to make a gift
to the planters would be relevant if the resolution in question had embodied a separate agreement after the appellants had already
bound themselves to the terms of the printed milling contract. But this was not the case. When the resolution was adopted and the
additional concessions were made by the company, the appellants were not yet obligated by the terms of the printed contract, since
they admittedly did not sign it until twenty-one days later, on September 10, 1936. Before that date, the printed form was no more
than a proposal that either party could modify at its pleasure, and the appellee actually modified it by adopting the resolution in
question. So that by September 10, 1936 defendant corporation already understood that the printed terms were not controlling,
save as modified by its resolution of August 20, 1936; and we are satisfied that such was also the understanding of appellants herein,
and that the minds of the parties met upon that basis.

There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the
Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. The rule is that —

It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act
is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within
charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's
business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do
it; otherwise, not.(Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will
cause losses or decrease the profits of the central, the court has no authority to review them.

They hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot
be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated
at a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the
directors of the corporation and not by the court. It is a well-known rule of law that questions of policy or of management are left
solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment
of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not
reviewable by the courts. (Fletcher on Corporations, Vol. 2, p. 390).

C. H. STEINBERG vs. GREGORIO VELASCOG.R. No. L-30460 March 12, 1929

FACTS:

Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation.

It is alleged that the defendants, Gregorio Velasco, as president, Felix del Castillo, as vice-president, Andres L. Navallo, as
secretary-treasurer, and Rufino Manuel, as director of Trading Company, at a meeting of the board of directors held on July 24,
1922, approved and authorized various lawful purchases already made of a large portion of the capital stock of the company from its
various stockholders, thereby diverting its funds to the injury, damage and in fraud of the creditors of the corporation. That pursuant
to such resolution and on March 31, 1922, the corporation purchased from the defendant S. R. Ganzon 100 shares of its capital stock
of the par value of P10, and on June 29, 1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par value of P10,
and on July 16, 1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par value of P10, each, and on April 5,
1922, it purchased from the defendant Dionisio Saavedra 10 shares of the same par value, and on June 29, 1922, it purchased from
the defendant Valentin Matias 20 shares of like value. That the total amount of the capital stock unlawfully purchased was P3,300.
That at the time of such purchase, the corporation had accounts payable amounting to P13,807.50, most of which were unpaid at
the time petition for the dissolution of the corporation was financial condition, in contemplation of an insolvency and dissolution.

As a second cause of action, plaintiff alleges that on July 24, 1922, the officers and directors of the corporation approved a
resolution for the payment of P3,000 as dividends to its stockholders, which was wrongfully done and in bad faith, and to the injury
and fraud of its creditors. That at the time the petition for the dissolution of the corporation was presented it had accounts payable
in the sum of P9,241.19, "and practically worthless accounts receivable."

Plaintiff prays judgment against the defendants with legal interest against the board of directors, and costs.

In his amended answer, the defendant Gregorio Velasco admits paragraphs, 1, 2 and 3 of each cause of action of the
complaint, and that the shares mentioned in paragraph 4 of the first cause of action were purchased, but alleges that they were
purchased by virtue of a resolution of the board of directors of the corporation "when the business of the company was going on
very well." That the defendant is one of the principal shareholders, and that about the same time, he purchase other shares for his
own account, because he thought they would bring profits. As to the second cause of action, he admits that the dividends described
in paragraph 4 of the complaint were distributed, but alleges that such distribution was authorized by the board of directors, "and
that the amount represented by said dividends really constitutes a surplus profit of the corporation," and as counterclaim, he asks
for judgment against the receiver for P12,512.47 for and on account of his negligence in failing to collect the accounts.

It appears that on June 30, 1922, the board of directors of the corporation authorized the purchase of, purchased and paid
for, 330 shares of the capital stock of the corporation at the agreed price of P3,300, and that at the time the purchase was made, the
corporation was indebted in the sum of P13,807.50, and that according to its books, it had accounts receivable in the sum of
P19,126.02. That on September 11, 1923, when the petition was filed for its dissolution upon the ground that it was insolvent, its
accounts payable amounted to P9,241.19, and its accounts receivable P12,512.47, or an apparent asset of P3,271.28 over and above
its liabilities. But it will be noted that there is no stipulation or finding of facts as to what was the actual cash value of its accounts
receivable. Neither is there any stipulation that those accounts or any part of them ever have been or will be collected, and it does
appear that after his appointment on February 28, 1924, the receiver made a diligent effort to collect them, and that he was unable
to do so, and it also appears from the minutes of the board of directors that the president and manager "recommended that P3,000
— out of the surplus account to be set aside for dividends payable, and that payments be made in installments so as not to effect
the financial condition of the corporation."

ISSUE: W/N Board of Directors of the said Corporation could legally declared a dividend of P3,000?

HELD:

NO. It is, indeed, peculiar that the action of the board in purchasing the stock from the corporation and in declaring the dividends on
the stock was all done at the same meeting of the board of directors, and it appears in those minutes that the both Ganzon and
Mendaros were formerly directors and resigned before the board approved the purchase and declared the dividends, and that out
of the whole 330 shares purchased, Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of the 330, which were
purchased by the corporation, and for which it paid P3,300. In other words, that the directors were permitted to resign so that they
could sell their stock to the corporation. As stated, the authorized capital stock was P20,000 divided into 2,000 shares of the par
value of P10 each, which only P10,030 was subscribed and paid. Deducting the P3,300 paid for the purchase of the stock, there
would be left P7,000 of paid up stock, from which deduct P3,000 paid in dividends, there would be left P4,000 only. In this situation
and upon this state of facts, it is very apparent that the directors did not act in good faith or that they were grossly ignorant of their
duties.

Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its own stock, and that it will not declare dividends to stockholders
when the corporation is insolvent.

12. Gokongwei vs SEC

Polymer Rubbing Corporation vs CAG.R. 185160. July 24,2013

Facts:

Salamuding (Salamuding), Mariano Gulanan and Rodolfo Raif were employees of petitioner, Polymer Rubber Corporation who were
dismissed after allegedly committing certain irregularities against Polymer. The 3 employees filed a complaint against Polymer and
Ang for unfair labor practice, illegal dismissal, non-payment of overtime services, violation of P.D. 851with prayer for reinstatement
and payment of back wages, attorney’s fees, moral and exemplary damages.

Labor Arbiter dismissed the complaint for unfair labor practice. But directed Polymer to:

1. Reinstate complainants to their former position with full back wages from the time they were illegally dismissed up to the time of
reinstatement.;

2. To pay individual complainants their 13th month pay;

3. To pay individual complainants overtime;

5. To pay individual complainants moral and exemplary damages; and

6. To pay attorney's fee equivalent to ten (10) percent of the total monetary award of the complainants.
The petitioners appealed to the National Labor Relations Commission (NLRC). The case was subsequently elevated to the Supreme
Court (SC) on a petition for certiorari. In a Resolution dated September 29, 1993, the Court affirmed the disposition of the NLRC with
the further modification that the award of overtime pay to the complainants was deleted.

Upon motion, the Labor arbiter a quo issued a writ of execution but the same was returned unsatisfied. In the latter part of 2004,
Polymer was gutted by fire. Labor arbiter issued a 5th alias writ of execution so that in its implementation, the shares of stocks of
Ang and USA Resources Corp. were levied. Polymer and Ang moved to quash said 5th alias writ of execution and to lift notice of
garnishment. They alleged that Ang should not be held jointly and severally liable with Polymer since it was only the latter which was
held liable in the decision of the Labor Arbiter, NLRC and the Supreme Court. LA granted the motion and the same was affirmed by
the NLRC. Salamuding filed a petition for certiorari with Court of Appeals. CA stated that there has to be a responsible person or
persons working in the interest of Polymer who may also be considered as the employer. Since Ang as the director of Polymer was
considered the highest ranking officer of Polymer, he was therefore properly impleaded and may be held jointly and severally liable
for the obligations of Polymer to its dismissed employees.

Issue: Whether or not Ang as Officer of the Corporation cannot be personally held liable and be made to pay the liability of the
corporation.

Held:

Yes.

A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as
a result of the directors’ and officers’ acts as corporate agents, are not their personal liability but the direct responsibility of the
corporation they represent. As a rule, they are only solidarily liable with the corporation for the illegal termination of services of
employees if they acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations:

1. It must be alleged in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the
officer was guilty of gross negligence or bad faith;

2. There must be proof that the officer acted in bad faith.

In the instant case, the CA imputed bad faith on the part of the petitioners when Polymer ceased its operations the day after the
promulgation of the SC resolution in 1993 which was allegedly meant to evade liability. It necessary to pierce the corporate fiction
and pointed at Ang as the responsible person to pay for Salamuding’s money claims. nothing in the records that show that Ang was
responsible for the acts complained of. we find that it will require a great stretch of imagination to conclude that a
corporation would cease its operations if only to evade the payment of the adjudged monetary awards in favor of three (3) of its
employees.

Ang is merely one of the incorporators of Polymer and to single him out and require him to personally answer for the liabilities of
Polymer is without basis. In the absence of a finding that he acted with malice or bad faith, it was error for the CA to hold him
responsible.

In labor cases, for instance, the Court has held corporate directors and officerssolidarily liable with the corporation for the
termination of employment of employees done with malice or in bad faith. To hold Ang personally liable at this stage is quite unfair.
The judgment of the LA, as affirmed by the NLRC and later by the SC had already long become final and executor.

ROLANDO DS.TORRES, Petitioner, vs. RURAL BANK OF SAN JUAN, INC., ANDRES CANO CHUA, JOBEL GO CHUA, JESUS CANO CHUA,
MEINRADO DALISAY, JOSE MANALANSAN III, OFELIA GINA BE and NATY ASTRERO, Respondents.

FACTS:
 The petitioner was initially hired by RBSJI as Personnel and Marketing Manager in 1991. After a six-month probationary
period and finding his performance to be satisfactory, RBSJI renewed his employment for the same post to a permanent/regular
status. In June 1996, the petitioner was offered the position of Vice-President for RBSJI’s newly created department, Allied Business
Ventures. He accepted the offer and concomitantly relinquished his post. The vacancy created was filled by respondent Jobel who
temporarily held the position concurrently as a Corporate Planning and Human Resources Development Head.

On September 24, 1996, the petitioner was temporarily assigned as the manager of RBSJI’s N. Domingo branch in
view of the resignation of Jacinto Figueroa (Jacinto). On September 27, 1996, Jacinto requested the petitioner to sign a standard
employment clearance pertaining to his accountabilities with RBSJI. When the petitioner declined his request, Jacinto threw a fit and
shouted foul invectives. To pacify him, the petitioner bargained to issue a clearance but only for Jacinto’s paid cash advances and
salary loan.

About seven months later or on April 17, 1997, respondent Jesus issued a memorandum to the petitioner requiring him to
explain why no administrative action should be imposed on him for his unauthorized issuance of a clearance to Jacinto whose
accountabilities were yet to be audited. Jacinto was later found to have unliquidated cash advances and was responsible for a
questionable transaction involving ₱11 million for which RBSJI is being sued by a certain Actives Builders Manufacturing Corporation.
The memorandum stressed that the clearance petitioner issued effectively barred RBSJI from running after Jacinto.

After conducting an investigation, RBSJI’s Human Resources Department recommended the petitioner’s termination from
employment for the following reasons, to wit:

1. The issuance of clearance to Mr. Jacinto Figueroa by the petitioner have been prejudicial to the Bank considering that damages
[sic] found caused by Mr. Figueroa during his stay with the bank;

2. The petitioner is not in any authority to issue said clearance which is a violation of the Company Code of Conduct and Discipline
under Category B Grave Offense No. 1 (falsifying or misrepresenting persons or other company records, documents or papers)
equivalent to termination; and

3. The nature of his participation in the issuance of the said clearance could be a reasonable ground for the Management to believe
that he is unworthy of the trust and confidence demanded by his position which is also a ground for termination under Article 282 of
the Labor Code.

On May 19, 1997, RBSJI’s Board of Directors adopted the above recommendation and issued Resolution No. 97-102
terminating the petitioner from employment, the import of which was communicated to him in a Memorandum. Feeling aggrieved,
the petitioner filed the herein complaint for illegal dismissal, illegal deduction, non-payment of service incentive, leave pay and
retirement benefits.

LA: sustained the claims of the petitioner as against the factually unsubstantiated allegation of loss of trust and confidence
propounded by the respondents. The LA upheld the petitioner’s contention that the loss of trust and confidence in him was indeed a
mere afterthought to justify the respondents’ premeditated plan to ease him out of RBSJI. The LA’s conclusion was premised on the
convergence of the following circumstances: (1) the petitioner’s stint from 1991-1996 was not marred with any controversy or
complaint regarding his performance; (2) when Jobel joined RBSJI in the latter part of 1996, he took over the department led by the
petitioner thus placing the latter in a floating status; and (3) the petitioner’s temporary transfer to the N. Domingo branch was
designed to deliberately put him in a bind and blame him on whatever course of action he may take to resolve the same.

NLRC: disagreed with the LA’s conclusion. The NLRC remarked that the petitioner was indisputably not authorized to issue the
clearance. The fact that the N. Domingo branch had been sued civilly on February 25, 1997 for a tax scam while under Jacinto’s
leadership, should have alerted the petitioner into issuing him a clearance. The action taken by the petitioner lacked the prudence
expected from a man of his stature thus prejudicing the interests of RBSJI.

Upon motion for reconsideration by petitioner, taking an entirely opposite stance, the NLRC declared that the clearance
issued by the petitioner did not prejudice RBSJI’s interest as it was limited in scope and did not entirely clear Jacinto from all his
financial accountabilities. Also, the petitioner was only "a day old" at the N. Domingo branch and thus he cannot be reasonably
expected to be aware of the misdeeds purportedly committed by Jacinto. For the foregoing reasons, the NLRC reversed its earlier
ruling and reinstated the LA’s Decision.

CA: respondents sought recourse which the CA rules that the petitioner was dismissed for a just cause. The appellate court
articulated that as the Acting Manager of RBSJI’s N. Domingo branch, the petitioner held a highly sensitive and critical position which
entailed the conscientious observance of company procedures. Not only was he unauthorized to issue the clearance, he also failed
to exercise prudence in clearing Jacinto of his accountabilities given the fact that the same were yet to be audited. Such omission
financially prejudiced RBSJI and it amounted to gross negligence and incompetence sufficient to sow in his employer the seed of
mistrust and loss of confidence.

ISSUE: Whether or not petitioner was validly dismissed for loss of trust and confidence reposed in him

RULING:

As provided in Article 282 of the Labor Code and as firmly entrenched in jurisprudence, an employer has the right to dismiss
an employee by reason of willful breach of the trust and confidence reposed in him. The law mandates that before validity can be
accorded to a dismissal premised on loss of trust and confidence, two requisites must concur, viz:

(1) the employee concerned must be holding a position of trust; and

(2) the loss of trust must be based on willful breach of trust founded on clearly established facts.

There is no arguing that the petitioner was part of the upper echelons of RBSJI’s management from whom greater fidelity to
trust is expected. At the time when he committed the act which allegedly led to the loss of RBSJI’s trust and confidence in him, he
was the Acting Manager of N. Domingo branch. It was part of the petitioner’s responsibilities to effect a smooth turn-over of
pending transactions and to sign and approve instructions within the limits assigned to the position under existing regulations. Prior
thereto and ever since he was employed, he has occupied positions that entail the power or prerogative to dictate management
policies – as Personnel and Marketing Manager and thereafter as Vice-President.

The presence of the first requisite is thus certain. Anent the second requisite, the Court finds that the respondents failed to
meet their burden of proving that the petitioner’s dismissal was for a just cause. The act alleged to have caused the loss of trust and
confidence of the respondents in the petitioner was his issuance, without prior authority and audit, of a clearance to Jacinto who
turned out to be still liable for unpaid cash advances and for an ₱11-million fraudulent transaction that exposed RBSJI to suit.
According to the respondents, the clearance barred RBSJI from running after Jacinto. The records are, however, barren of any
evidence in support of these claims. As correctly argued by the petitioner and as above set forth, the onus of submitting a copy of
the clearance allegedly exonerating Jacinto from all his accountabilities fell on the respondents. Their failure to present it and the
lack of explanation for such failure or the document’s unavailability props up the presumption that its contents are unfavorable to
the respondents’ assertions.

It must be pointed out that the petitioner was caught in the quandary of signing on the spot a standard employment
clearance for the furious Jacinto sans any information on his outstanding accountabilities, and refusing to so sign but risk alarming or
scandalizing RBSJI, its employees and clients. Contrary to the respondents’ allegation, the petitioner did not concede to Jacinto’s
demands. He was, in fact, able to equalize two equally undesirable options by bargaining to instead clear Jacinto only of his settled
financial obligations after proper verification with branch cashier Lily. It was only after Lily confirmed Jacinto’s recorded payments
that the petitioner signed the clearance. The absence of an audit was precisely what impelled the petitioner to decline signing a
standard employment clearance to Jacinto and instead issue a different one pertaining only to his paid accountabilities. Under these
circumstances, it cannot be concluded that the petitioner was in any way prompted by malicious motive in issuing the clearance. He
was also able to ensure that RBSJI’s interests are protected and that Jacinto is pacified. He did what any person placed in a similar
situation can prudently do. He was able to competently evaluate and control Jacinto’s demands and thus prevent compromising
RBSJI’s image, employees and clients to an alarming scene.

The Court has repeatedly emphasized that the act that breached the trust must be willful such that it was done
intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly,
heedlessly or inadvertently. The conditions under which the clearance was issued exclude any finding of deliberate or conscious
effort on the part of the petitioner to prejudice his employer.

MERCY VDA.DE ROXAS, represented by ARLENE C. ROXAS-CRUZ, vs. OUR LADY'S FOUNDATION, INC.

FACTS:

 Salve DealcaLatosa filed a Complaint for the recovery of ownership of a portion of her residential land According to her,
Atty. Henry Amado Roxas (Roxas), encroached her property by extending his concrete fence beyond the correct limits.

 Roxas imputed the blame to respondent Our Lady’s Village Foundation, Inc., now Our Lady’s Foundation, Inc. (OLFI). He
then filed a Third-Party Complaint against respondent and claimed that he only occupied the portion in order to get the
equivalent area of what he had lost when OLFI trimmed his property for the subdivision road.

 The trial court found that Roxas occupied a total of 112 square meters of Latosa’s lots, and that, in turn, OLFI trimmed his
property by 92 square meters.

 The RTC issued a Writ of Execution ordering OLFI to reimburse Roxas. The trial court then approved the Sheriff’s Bill, which
valued the subject property at ₱2,500 per square meter or a total of ₱230,000. Adding the legal interest of 12% per annum
for 10 years, respondent’s judgment obligations totaled ₱506,000.

 Opposing the valuation of the subject property, OLFI filed a Motion to Quash the Sheriff’s Bill and a Motion for Inhibition of
the RTC judge. It insisted that it should reimburse Roxas only at the rate of ₱40 per square meter, the same rate that Roxas
paid when the latter first purchased the property.

 RTC denied both the Motion for Inhibition and the Motion to Quash the Sheriff’s Bill. However, the trial court approved an
Amended Sheriff’s Bill, which reduced the valuation to ₱1,800 per square meter.

 To collect the aforementioned amount, Notices of Garnishment were then issued to the managers of the Development
Bank of the Philippines and the United Coconut Planters Bank to garnish the account of Bishop Robert Arcilla-Maullon
(Arcilla-Maullon), OLFI’s general manager.

 CA reversed the decision.

ISSUE:Whether or not the Notices of Garnishment against the bank accounts of Arcilla-Maullon as OLFI’s general manager is
proper.

HELD:

 No, the notice of garnishment is not proper.

 The appellate court appreciated that in the main case for the recovery of ownership, only OLFI was named as respondent
corporation, and that its general manager was never impleaded in the proceedings a quo.

 This Court holds that since OLFI’s general manager was not a party to the case, the CA correctly ruled that Arcilla-Maullon
cannot be held personally liable for the obligation of the corporation.

 In Santos v. NLRC, this Court upholds the doctrine of separate juridical personality of corporate entities. The case
emphasizes that a corporation is a juridical entity with a legal personality separate and distinct from those acting for and on
 its behalf and, in general, of the people comprising it. Hence, the obligations incurred by the corporation, acting through its
officers such as in this case, are its sole liabilities.

 To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit of Arcilla-Maullon, hence,
the corporation does not maintain a bank account separate and distinct from the bank accounts of its members. This
argument does not persuade us, for any piercing of the corporate veil has to be done with caution. Save for its rhetoric,
petitioner fails to adduce any evidence that would prove OLFI's status as a dummy corporation. In this regard, we recently
explained in Sarona v. NLRC as follows:

o A court should be mindful of the milieu where it is to be applied.1âwphi1 It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of
rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous application.

 In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the corporation and thus pierce
the veil of corporate fiction, we have required that the bad faith of the officer must first be established clearly and
convincingly.

Heirs of Tan Uy v. International Exchange Bank

Facts:

On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank), granted loans to
Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment. These were made pursuant to
the Letter-Agreement, 4 dated March 23, 1996, between iBank and Hammer, represented by its President and General Manager,
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P25 Million-Peso Omnibus Line. 5 The loans were secured
by a P9 Million-Peso Real Estate Mortgage 6 executed on July 1, 1997 by Goldkey Development Corporation (Goldkey) over several
of its properties and a P25 Million-Peso Surety Agreement 7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.

Hammer had an outstanding obligation of P25,420,177.62 to iBank. 8 Hammer defaulted in the payment of its loans, prompting
iBank to foreclose on Goldkey's third-party Real Estate Mortgage. The mortgaged properties were sold for P12 million during the
foreclosure sale, leaving an unpaid balance of P13,420,177.62. 9 For failure of Hammer to pay the deficiency, iBank filed a Complaint
10 for sum of money on December 16, 1997 against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court, Makati City
(RTC).

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in default. In her separate
answer, Uy claimed that she was not liable to iBank because she never executed a surety agreement in favor of iBank. Goldkey, on
the other hand, also denies liability, averring that it acted only as a third-party mortgagor and that it was a corporation separate and
distinct from Hammer. Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by the RTC
in its December 17, 1997 Order. 13 The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering the
properties under the name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.

The RTC, in its Decision, 15 dated December 27, 2000, ruled in favor of iBank. While it made the pronouncement that the signature
of Uy on the Surety Agreement was a forgery, it nevertheless held her liable for the outstanding obligation of Hammer because she
was an officer and stockholder of the said corporation. The RTC agreed with Goldkey that as a third-party mortgagor, its liability was
limited to the properties mortgaged. Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16,
2004, it promulgated its decision affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating the
financial stability of Hammer. According to the appellate court, iBank was induced to grant the loan because petitioners, with intent
to defraud the bank, submitted a falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of Hammer.
Because petitioners acted maliciously and in bad faith and used the corporate fiction to defraud iBank, they should be treated as one
and the same as Hammer.
Issue: (1) whether Uy can be held liable to iBank for the loan obligation of Hammer as an officer and stockholder of the said
corporation; and (2) whether Goldkey can be held liable for the obligation of Hammer for being a mere alter ego of the latter.

Held: Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate
and distinct from those acting for and in its behalf and, in general, from the people comprising it.

Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the
corporation. 24 Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. 25 This is consistent
with the provisions of the Corporation Code of the Philippines, which states:

Sec. 31.Liability of directors, trustees or officers. — Directors or trustees who wilfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts
of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are guilty of conflict of
interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the
corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites
must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith.

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an officer of
Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that with regard to Uy, iBank did
not demand that she be held liable for the obligations of Hammer because she was a corporate officer who committed bad faith or
gross negligence in the performance of her duties such that the lifting of the corporate mask would be merited. What the complaint
simply stated is that she, together with her errant husband Chua, acted as surety of Hammer, as evidenced by her signature on the
Surety Agreement which was later found by the RTC to have been forged. Considering that the only basis for holding Uy liable for the
payment of the loan was proven to be a falsified document, there was no sufficient justification for the RTC to have ruled that Uy
should be held jointly and severally liable to iBank for the unpaid loan of Hammer.

It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only be done if it has
been clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or
perpetrate a deception. 31 As aptly explained in Philippine National Bank v. Andrada Electric & Engineering Company:

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it
cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned requisites for
making a corporate officer, director or stockholder personally liable for the obligations of a corporation, Uy, as a treasurer and
stockholder of Hammer, cannot be made to answer for the unpaid debts of the corporation.

UCPB v. Planters Products, Inc., G.R. No. 179015, [June 13, 2012], 687 PHIL 266-273

Facts:

Respondent Planters Products, Incorporated (PPI), a fertilizer manufacturer, entered into an arrangement with respondent Janet
Layson for the delivery of fertilizers to her, payable from the proceeds of the loan that petitioner United Coconut Planters Bank
(UCPB) extended to her. On February 11, 1980 Layson executed a document called "pagares," written on the dorsal side of a UCPB
promissory note. 1 The pagares stated that Layson had an approved loan with UCPB-Iloilo Branch for P200,000.00. The second
portion of the pagares, signed by that branch's manager respondent Gregory Grey, stated that the "assignment has been duly
accepted and payment duly guaranteed within 60 days from PPI's Invoice.|||

Subsequently, Layson executed a third document "Letter Guarantee by the Dealer," stating that she binds herself to pay PPI the face
value of the pagares in case UCPB did not pay the same at maturity. But contrary to her undertakings, on the following day, February
12, 1980, Layson withdrew with branch manager Grey's connivance the P200,000.00 loan that UCPB granted her.

On the strength of the three documents, PPI delivered quantities of fertilizers to Layson. Layson and Grey duplicated their
transactions with PPI on February 18 and 27, 1980 covering two loans of P100,000.00 each.

Consequently, in April 1980 PPI sued Layson, UCPB, and Grey for breach of contract with damages before the Regional Trial Court
(RTC) of Makati|.|. RTC rendered a decision, absolving UCPB from liability for the value of the fertilizer products that PPI sold to
Layson on credit.|||

CA rendered a decision, reversing that of the RTC and declaring UCPB jointly and severally liable with Layson for the latter's
obligation to PPI to the extent of P200,000.00 covering the February 11, 1980 credit accommodation.

Issue:

Whether or not UCPB is bound by Grey's undertaking on its behalf to deliver to PPI the proceeds of the bank's loan to Layson in
payment of the fertilizers she bought||

Held:

True, a corporation like UCPB is liable to innocent third persons where it knowingly permits its officer, or any other agent, to
perform acts within the scope of his general or apparent authority, holding him out to the public as possessing power to do those
acts. 5

But, here, it is plain from the guarantee Grey executed that he was acting for himself, not in representation of UCPB.

UCPB cannot be bound by Grey's above undertaking since he appears to have made it in his personal capacity. He signed it under his
own name, not in UCPB's name or as its branch manager. Indeed, the wordings of the undertaking do not at all make any allusion to
UCPB.|||

With UCPB absolved of any liability, the Court affirms the ruling of the RTC of Makati that finds Layson primarily liable to PPI with the
latter having the right of recourse to Grey in the event that it could not recover from her. Importantly, Layson never denied her
business dealings with PPI and her receipt of PPI's fertilizer products. This admission cements her liability for the fertilizers she got
from it.|||

Carag v NLRC
Facts: National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) (collectively,
complainants), on behalf of all of MAC's rank and file employees, filed a complaint against MAC for illegal dismissal brought about by
its illegal closure of business. In their complaint dated 12 August 1993, complainants alleged the following:

2. Complainant NAFLU is the sole and exclusive bargaining agent representing all rank and file employees of [MAC]. That there is an
existing valid Collective Bargaining Agreement (CBA) executed by the parties and that at the time of the cause of action herein below
discussed happened there was no labor dispute between the Union and Management except cases pending in courts filed by one
against the other.

3. That on July 8, 1993, without notice of any kind filed in accordance with pertinent provisions of the Labor Code, [MAC], for
reasons known only by herself [sic] ceased operations with the intention of completely closing its shop or factory. Such intentions
[sic] was manifested in a letter, allegedly claimed by [MAC] as its notice filed only on the same day that the operations closed.

4. That at the time of closure, employees who have rendered one to two weeks work were not paid their corresponding
salaries/wages, which remain unpaid until time [sic] of this writing.

5. That there are other benefits than those above-mentioned which have been unpaid by [MAC] at the time it decided to cease
operations, benefits gained by the workers both by and under the CBA and by operations [sic] of law.

6.That the closure made by [MAC] in the manner and style done is per se [sic] illegal, and had caused tremendous prejudice to all of
the employees, who suffered both mental and financial anguish and who in view thereof merits [sic] award of all damages (actual,
exemplary and moral), [illegible] to set [an] example to firms who in the future will [illegible] the idea of simply prematurely closing
without complying [with] the basic requirement of Notice of Closure.

Upon receipt of the records of the case, Arbiter Ortiguerra summoned the parties to explore options for possible settlement. The
non-appearance of respondents prompted Arbiter Ortiguerra to declare the case submitted for resolution "based on the extant
pleadings.” Petitioner Carag was then impleaded in the complaint as Chairman of the Board of MAC. Complainants contend that he
should be made solidarily liable with MAC for the full satisfaction of their prayer. The Labor Arbiter then ruled that Petitioner is
solidarily liable with the corporation for illegal closure. The CA affirmed the ruling of the Labor Arbiter. The appellate court found
that Carag and David, as the most ranking officers of MAC, had a direct hand at the time in the illegal dismissal of MAC's employees.
The failure of Carag and David to observe the notice requirement in closing the company shows malice and bad faith, which justifies
their solidary liability with MAC.

Issue: Whether or not petitioner is solidarily liable with the corporation for illegal closure.

Held: Petitioner is not solidarily liable. Section 31 makes a director personally liable for corporate debts if he wilfully and knowingly
votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a director personally liable if he is guilty of
gross negligence or bad faith in directing the affairs of the corporation. Complainants did not allege in their complaint that
Caragwilfully and knowingly voted for or assented to any patently unlawful act of MAC. Complainants did not present any evidence
showing that Caragwilfully and knowingly voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra
make any finding to this effect in her Decision. Complainants did not also allege that Carag is guilty of gross negligence or bad faith in
directing the affairs of MAC. Complainants did not present any evidence showing that Carag is guilty of gross negligence or bad faith
in directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision. After stating what she
believed is the law on the matter, Arbiter Ortiguerra stopped there and did not make any finding that Carag is guilty of bad faith or
of wanton violation of labor standard laws. Arbiter Ortiguerra did not specify what act of bad faith Carag committed, or what
particular labor standard laws he violated. To hold a director personally liable for debts of the corporation, and thus pierce the veil
of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. 24 Bad faith is never
presumed. 25 Bad faith does not connote bad judgment or negligence. Bad faith imports a dishonest purpose. Bad faith means
breach of a known duty through some ill motive or interest. Bad faith partakes of the nature of fraud. Neither does bad faith arise
automatically just because a corporation fails to comply with the notice requirement of labor laws on company closure or dismissal
of employees. The failure to give notice is not an unlawful act because the law does not define such failure as unlawful. Such failure
to give notice is a violation of procedural due process but does not amount to an unlawful or criminal act. Such procedural defect is
called illegal dismissal because it fails to comply with mandatory procedural requirements, but it is not illegal in the sense that it
constitutes an unlawful or criminal act. For a wrongdoing to make a director personally liable for debts of the corporation, the
wrongdoing approved or assented to by the director must be a patently unlawful act. Mere failure to comply with the notice
requirement of labor laws on company closure or dismissal of employees does not amount to a patently unlawful act. Patently
unlawful acts are those declared unlawful by law which imposes penalties for commission of such unlawful acts. There must be a law
declaring the act unlawful and penalizing the act.

PRIME WHITE CEMENT vs. IAC

FACTS: On or about the 16th day of July, 1969, plaintiff Alejandro Te and defendant corporation Prime White Cement Corporation
thruits President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement wherebysaid
plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation of its cement products in
the entire Mindanao area for a term of five (5) years and providing among others that:

a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of
white cement per month;

b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB Davao andCagayan de
Oro ports;

c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any bank or banking institution a
confirmed, unconditional, and irrevocable letter of credit in favor of the corporation and that upon certification by the boat captain
on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall
release the corresponding amount as payment of the goods so shipped.

Plaintiff placed an advertisement in a national, circulating newspaper the fact of his being the exclusive dealer of the defendant
corporation's white cement products in Mindanao area, more particularly, in the Manila Chronicle.

Plaintiff entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of
Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity,
by September, 1970. After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be
disposed of, he informed the defendant corporation in his letter dated August 18, 1970 that he is making the necessary preparation
for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970
(Exhibit B), looking forward to the defendant corporation's duty to comply with the dealership agreement. In reply to the aforesaid
letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said
defendant decided to impose the following conditions:

a. Delivery of white cement shall commence at the end of November, 1970;

b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered;

c. The price of white cement was priced at P13.30 per bag;

d. The price of white cement is subject to readjustment unilaterally on the part of the defendant;

e. The place of delivery of white cement shall be Austurias;

f. The letter of credit may be opened only with the Prudential Bank, Makati Branch;

g. Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening
of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement.
(Exhibit C).
Several demands to comply with the dealership agreement were made by the plaintiff to the defendant, however, defendant
refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of
white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement.

Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting, the defendant
corporation, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an
exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao hence, this suit.

After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as actual
damages,P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The appellate court affirmed the said
decision..

ISSUE: Whether or not the ruling of the lower court is correct.

RULING: No. Te is what can be called as a self-dealing director – he deals business with the same corporation in which he is a
director. There is nothing wrong per se with that. However, Sec. 32 provides that:

SEC. 32.Dealings of directors, trustees or officers with the corporation. —- A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of Directors.

In this particular case, the Supreme Court focused on the fact that the contract between PWCC and Te through Falcon and Trazo was
not reasonable. Hence, PWCC has all the rights to void the contract and look for someone else, which it did. The contract is
unreasonable because of the very low selling price. The Price at that time was at least P13.00 per bag and the original contract only
stipulates P9.70. Also, the original contract was for 6 years and there’s no clause in the contract which protects PWCC from inflation.
As a director, Te in this transaction should protect the corporation’s interest more than his personal interest. His failure to do so is
disloyalty to the corporation.

Anent the issue of moral damages, there is no question that PWCC’s goodwill and reputation had been prejudiced due to the filing of
this case. However, there can be no award for moral damages under Article 2217 of the Civil Code in favor of a corporation.

NOTE: In a later case, Coastal Pacific Trading, Inc. vs Southern Rolling Mills Co., Inc. (July 28, 2006), it was ruled that a corporation
may be entitled to moral damages provided that its good reputation was debased resulting in its humiliation in the business realm.

LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES ,petitioners,vs. FLORENTINA FONTECHA, ET AL., AND THE NLRC,
respondents.

J. Puno:

FACTS:

Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its
majority shareholders. Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors.
 It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a)
Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside,
twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said
contingency; and (b) Resolution No. 10, Series of 1980 , setting aside the amount of P157,750.00 as Gratuity Fund covering the
period from 1950 up to 1980.

On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of
Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution
giving gratuity pay for their laid-off employees and retained employees.

Private respondents were the retained employees of petitioner-corporation. In a letter, dated August 31, 1981, private
respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September
1, 1981 while Asuncion was still abroad.

Asuncion Lopez Gonzales, allegedly, while she was still out of the country, she sent a cablegram to the corporation,
objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon
her return, she filed a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F.
Lopez. Meanwhile, the first 2 installments of the gratuity pay of the employees were paid. LRI had prepared the cash vouchers and
checks for the 3rd installment of the gratuity pay but for some reason, they were cancelled by Asuncion Lopez Gonzales.

Despite private respondents' repeated demands for their gratuity pay, petitioner- corporation refused to pay the same. On
July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents.

Petitioner appealed to NLRC insisting that the payment of the gratuity was a mere mistake since said gratuity pay should be
given only upon the employee’s retirement. NLRC dismissed the appeal. MR was denied.

ISSUE: WON the board resolutions granting gratuity pay are ultra vires acts for lack of notice?

HELD: NO. The general rule is that a corporation, through its board of directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant
to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or
shareholder.

Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack
of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the
corporation's subsequent course of conduct.

In the case at, bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying th e
board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2)
installments thereof, of private respondents FlorentinaFontecha, Mila Refuerzo, MarcialMamaril and Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed,
we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she
acquiesced thereto by affixing her signature on the cash vouchers evidencing the gratuity pay of private respondents.

Therefore, that the conduct of petitioners after the passage of resolutions dated August 17, 1981 and September 1, 1981,
had estopped them from assailing the validity of said board resolutions.

The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To
stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence,
petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions.
C. H. STEINBERG, as Receiver of the Sibuguey Trading Company, Incorporated, plaintiff-appellant, vs.GREGORIO VELASCO, ET AL.,
defendants-appellees.

Facts:

Plaintiff is the receiver of the Sibuguey Trading Company, a domestic corporation. The defendants are residents of the Philippine
Islands.

It is alleged that the defendants, Gregorio Velasco, as president, Felix del Castillo, as vice-president, Andres L. Navallo, as secretary-
treasurer, and Rufino Manuel, as director of Trading Company, at a meeting of the board of directors held on July 24, 1922,
approved and authorized various lawful purchases already made of a large portion of the capital stock of the company from its
various stockholders, thereby diverting its funds to the injury, damage and in fraud of the creditors of the corporation. That
pursuant to such resolution and on March 31, 1922, the corporation purchased from the defendant S. R. Ganzon 100 shares of its
capital stock of the par value of P10, and on June 29, 1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par
value of P10, and on July 16, 1922, it purchased from the defendant Felix D. Mendaros 100 shares of the par value of P10, each, and
on April 5, 1922, it purchased from the defendant Dionisio Saavedra 10 shares of the same par value, and on June 29, 1922, it
purchased from the defendant Valentin Matias 20 shares of like value. That the total amount of the capital stock unlawfully
purchased was P3,300. That at the time of such purchase, the corporation had accounts payable amounting to P13,807.50, most of
which were unpaid at the time petition for the dissolution of the corporation was financial condition, in contemplation of an
insolvency and dissolution.

As a second cause of action, plaintiff alleges that on July 24, 1922, the officers and directors of the corporation approved a
resolution for the payment of P3,000 as dividends to its stockholders, which was wrongfully done and in bad faith, and to the
injury and fraud of its creditors. That at the time the petition for the dissolution of the corporation was presented it had accounts
payable in the sum of P9,241.19, "and practically worthless accounts receivable."

Plaintiff prays judgment for the sum of P3,300 from the defendants Gregorio Velasco, Felix del Castillo, Andres L. Navallo and Rufino
Manuel, personally as members of the Board of Directors, or for the recovery from the defendants S. R. Ganzon, of the sum of
P1,000, from the defendant Felix D. Mendaros, P2,000, and from the defendant Dionisio Saavedra, P100, and under his second cause
of action, he prays judgment for the sum of P3,000, with legal interest against the board of directors, and costs.

For answer the defendants Felix del Castillo, Rufino Manuel, S. R. Ganzon, Dionisio Saavedra and Valentin Matias made a general and
specific denial.

In his amended answer, the defendant Gregorio Velasco admits paragraphs, 1, 2 and 3 of each cause of action of the complaint, and
that the shares mentioned in paragraph 4 of the first cause of action were purchased, but alleges that they were purchased by
virtue of a resolution of the board of directors of the corporation "when the business of the company was going on very well."
That the defendant is one of the principal shareholders, and that about the same time, he purchase other shares for his own
account, because he thought they would bring profits. As to the second cause of action, he admits that the dividends described in
paragraph 4 of the complaint were distributed, but alleges that such distribution was authorized by the board of directors, "and
that the amount represented by said dividends really constitutes a surplus profit of the corporation," and as counterclaim, he asks
for judgment against the receiver for P12,512.47 for and on account of his negligence in failing to collect the accounts.

Although duly served, the defendant Mendaros did not appear or answer. The defendant Navallo was not served, and the case
against him was dismissed.

Issue: won the respondent board of directors are negligent in their duties.

Yes. They are negligent.

It is very apparent that on June 24, 1922, the board of directors acted on assumption that, because it appeared from the books of
the corporation that it had accounts receivable of the face value of P19,126.02, therefore it had a surplus over and above its debts
and liabilities. But as stated there is no stipulation as to the actual cash value of those accounts, and it does appear from the
stipulation that on February 28, 1924, P12,512.47 of those accounts had but little, if any, value, and it must be conceded that, in the
purchase of its own stock to the amount of P3,300 and in declaring the dividends to the amount of P3,000, the real assets of the
corporation were diminished P6,300. It also appears from paragraph 4 of the stipulation that the corporation had a "surplus profit"
of P3,314.72 only. It is further stipulated that the dividends should "be made in installments so as not to effect financial condition of
the corporation." In other words, that the corporation did not then have an actual bona fide surplus from which the dividends could
be paid, and that the payment of them in full at the time would "affect the financial condition of the corporation."

It is, indeed, peculiar that the action of the board in purchasing the stock from the corporation and in declaring the dividends on the
stock was all done at the same meeting of the board of directors, and it appears in those minutes that the both Ganzon and
Mendaros were formerly directors and resigned before the board approved the purchase and declared the dividends, and that out
of the whole 330 shares purchased, Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of the 330, which were
purchased by the corporation, and for which it paid P3,300. In other words, that the directors were permitted to resign so that they
could sell their stock to the corporation. As stated, the authorized capital stock was P20,000 divided into 2,000 shares of the par
value of P10 each, which only P10,030 was subscribed and paid. Deducting the P3,300 paid for the purchase of the stock, there
would be left P7,000 of paid up stock, from which deduct P3,000 paid in dividends, there would be left P4,000 only. In this
situation and upon this state of facts, it is very apparent that the directors did not act in good faith or that they were grossly
ignorant of their duties.

Upon each of those points, the rule is well stated in Ruling Case Law, vol. 7, p. 473, section 454 where it is said:

General Duty to Exercise Reasonable Care. — The directors of a corporation are bound to care for its property and manage its
affairs in good faith, and for a violation of these duties resulting in waste of its assets or injury to the property they are liable to
account the same as other trustees. Are there can be no doubt that if they do acts clearly beyond their power, whereby loss
ensues to the corporation, or dispose of its property or pay away its money without authority, they will be required to make good
the loss out of their private estates. This is the rule where the disposition made of money or property of the corporation is one
either not within the lawful power of the corporation, or, if within the authority of the particular officer or officers.

And section 458 which says:

Want of Knowledge, Skill, or Competency. — It has been said that directors are not liable for losses resulting to the corporation
from want of knowledge on their part; or for mistake of judgment, provided they were honest, and provided they are fairly within
the scope of the powers and discretion confided to the managing body. But the acceptance of the office of a director of a
corporation implies a competent knowledge of the duties assumed, and directors cannot excuse imprudence on the ground of
their ignorance or inexperience; and if they commit an error of judgment through mere recklessness or want of ordinary prudence
or skill, they may be held liable for the consequences. Like a mandatory, to whom he has been likened, a director is bound not only
to exercise proper care and diligence, but ordinary skill and judgment. As he is bound to exercise ordinary skill and judgment, he
cannot set up that he did not possess them.

Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to purchase its own stock, and that it will not declare dividends to stockholders
when the corporation is insolvent.

B. Corporate Officers

Barba v. Liceo de Cagayan UniversityGR No. 193857

28 November 2012

Doctrine: Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office… The rest of the corporate officers could be considered only as employees of subordinate officials.
An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand,
an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee.

J. Villarama

Facts:

Petitioner Dr. Ma. Mercedes L. Barba was the Dean of the College of Physical Therapy of respondent Liceo de Cagayan University,
Inc.

Petitioner started working for respondent as medical officer/school physician for a period of one school year. Then, she was chosen
by respondent to be the recipient of a scholarship grant to pursue a three-year residency training in Rehabilitation Medicine at the
Veterans Memorial Medical Center (VMMC). The Scholarship Contract provides:

5. That the SCHOLAR after the duration of her study and training shall serve the SCHOOL in whatever position the SCHOOL desires
related to the SCHOLAR's studies for a period of not less than ten (10) years;

After completing her residency training with VMMC, petitioner returned to continue working for respondent. She was appointed as
Acting Dean of the College of Physical Therapy and at the same time designated as Doctor-In-Charge of the Rehabilitation Clinic.
Then, she was appointed as Dean of the College of Physical Therapy by respondent's President.

In the school year 2003 to 2004, the College of Physical Therapy suffered a dramatic decline in the number of enrollees. Thus,
respondent's President Dr. Pelaez-Golez informed petitioner that her services as dean of the said college will end at the close of the
school year. Thereafter, the College of Physical Therapy ceased operations on March 31, 2005, and petitioner went on leave without
pay. Subsequently, respondent's Executive Vice President instructed petitioner to return to work on June 1, 2005 and report to
Palomares, the Acting Dean of the College of Nursing, to receive her teaching load and assignment as a full-time faculty member in
that department for the school year 2005-2006. But she did not report to Palomares. Thus, petitioner asked for her separation pay
and other benefits.

Petitioner added that coercing her to become a faculty member from her position as College Dean is a great demotion which
amounts to constructive dismissal.

LA Ruling: Respondent did not constructively dismiss petitioner.

NLRC Ruling: Reversed the LA and held that she was constructively dismissed.

CA Ruling: Petitioner was respondent’s employee but held that she was never demoted and her transfer, being a consequence of
the closure of the College of Physical Therapy, was valid.

CA MR Ruling: Set aside its earlier ruling and ruled that the position of a College Dean is a corporate office and therefore the labor
tribunals had no jurisdiction over the complaint for constructive dismissal.

Issue: Whether petitioner was an employee or a corporate officer of respondent university

Ruling:

Petitioner is an EMPLOYEE of respondent. Corporate officers are elected or appointed by the directors or stockholders and are those
who are given that character either by the Corporation Code or by the corporation's by-laws. Section 25 of the Corporation
Code enumerates corporate officers as the president, the secretary, the treasurer and such other officers as may be provided for in
the by-laws.

The phrase "such other officers as may be provided for in the by-laws" has been clarified in the case of Matling Industrial v. Coros,
thus:
Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a corporate
office… The rest of the corporate officers could be considered only as employees of subordinate officials.

An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other
hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such employee.

In respondent's by-laws, there are four officers specifically mentioned, namely, a president, a vice president, a secretary and a
treasurer. In addition, it is provided that there shall be other appointive officials, a College Director and heads of departments whose
appointments, compensations, powers and duties shall be determined by the board of directors. It is worthy to note that a College
Dean is not among the corporate officers mentioned in respondent's by-laws. Petitioner, being an academic dean, also held an
administrative post in the university but not a corporate office as contemplated by law. Petitioner was not directly elected nor
appointed by the board of directors to any corporate office but her appointment was merely approved by the board together with
the other academic deans of respondent university in accordance with the procedure prescribed in respondent's Administrative
Manual.

Though the board of directors may create appointive positions other than the positions of corporate officers, the persons occupying
such positions cannot be deemed as corporate officers as contemplated by Section 25 of the Corporation Code. On this point, the
SEC Opinion dated November 25, 1993 provides that:

[W]hoever are the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no
power to create other Offices without amending first the corporate By-laws. However, the Board may create appointive positions
other than the positions of corporate Officers, but the persons occupying such positions are not considered as corporate officers
within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions of the corporate
Officers.

Nowhere in petitioner's appointment letter was it stated that petitioner was designated as the College Director or that petitioner
was to assume the functions and duties of a College Director. Neither can it be inferred in respondent's by-laws that a dean of a
college is the same as a College Director of respondent.

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA ,
petitioners, vs . RICARDO R. COROS, respondent.

FACTS: Ricardo Coros, Vice President for Finance and Administration, filed a complaint for illegal suspension and illegal dismissal
against Matling before the NLRC

Matling’s contentions:

1. Case should have been filed before the Securities and Exchange Commision being intra-corporate inasmuch as the
respondent was a member of Matling's Board of Directors aside from being its Vice- President for Finance and
Administration prior to his termination.

2. Position of Vice President for Finance and Administration was a corporate office, having been created by Matling's
President pursuant to By-Law No. V, as amended

Coros’ contention: Matling's By-Laws did not list his position as Vice President for Finance and Administration as one of the
corporate officces

ISSUE: Whether or not the respondent's position as Vice President for Finance and Administration was a corporate office.
HELD: NO. Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a position a
corporate office. Only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws;
the rest of the corporate officers could be considered only as employees or subordinate officials.

HERE, power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of Directors, and
could not be delegated to subordinate officers or agents. The office of Vice President for Finance and Administration created by
Matling's President pursuant to By Law No. V was an ordinary, not a corporate, office.

PAMPLONA PLANTATION COMPANY vs. RAMON ACOSTAG.R. No. 153193, December 6, 2006; Austria-Martinez, J.

Facts:

There were originally 66 complainants in the case before the Labor Arbiter for underpayment, overtime pay, premium pay
for rest day and holiday, service incentive leave pay, damages, attorney's fees, and 13th month pay. The complainants claimed that
they were regular rank and file employees of the Pamplona Plantation Co., Inc. with different hiring periods, work designations, and
salary rates. Petitioner, however, denied this, alleging that some of the complainants are seasonal employees, some are contractors,
others were hired under the pakyaw system, while the rest were hired by the Pamplona Plantation Leisure Corporation, which has a
separate and distinct entity from it.

In a Decision, the Labor Arbiter held petitioner and its manager, Jose Luis Bondoc, liable for underpayment as complainants
were regular employees of petitioner. They were also held guilty of illegal dismissal with regard to complainants JoselitoTinghil and
Pedro Emperado.

On appeal to the (NLRC), the LA's Decision was reversed and another one was entered dismissing all the complaints. It was
the NLRC's finding that the complaint should have been directed against the Pamplona Plantation Leisure Corporation since
complainants' individual affidavits contained the allegations that their tasks pertained to their work "in the golf course."

The (CA), in turn, vacated and set aside the NLRC's dismissal in its Decision and reinstated the LA's Decision with the
modification that the award of wage differentials was limited to (22) persons.

Issue: Whether Jose Luis Bondoc is a corporate officer and thus may be held liable solidarily with the petitioner.

Held: NO.

The rule is that officers of a corporation are not personally liable for their official acts unless it is shown that they have
exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and
members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues.

Moreover, a corporate officer is not personally liable for the money claims of discharged corporate employees unless he
acted with evident malice and bad faith in terminating their employment.

Under Section 25 of the Corporation Code, three officers are specifically provided for which a corporation must have:
president, secretary, and treasurer. The law, however, does not limit corporate officers to these three. Section 25 gives corporations
the widest latitude to provide for such other offices, as they may deem necessary. The by-laws may and usually do provide for such
other officers, e.g., vice-president, cashier, auditor, and general manager.

In this case, there is no basis from which it may be deduced that Bondoc, as manager of petitioner, is also a corporate
officer such that he may be held liable for the money claims awarded in favor of respondents. Even assuming that he is a corporate
officer, still, there is no showing that he acted with evident malice and bad faith. Bondoc may have signed and approved the
payrolls; nevertheless, it does not follow that he had a direct hand in determining the amount of respondents' corresponding
salaries and other benefits. Bondoc, therefore, should not have been held liable together with petitioner.
Metro Drug vs NarcisoGR No. 147478 July 17, 2006

Corona, J.:

Facts:

An illegal dismissal complaint was filed by respondent Noel M. Narciso against petitioners on November 7, 1997. On
September 25, 1998, labor arbiter Donato G. Quinto, Jr. decided in favor of petitioners and dismissed the complaint for lack of merit.
On May 22, 2000, the National Labor Relations Commission (NLRC) affirmed the findings of the labor arbiter but awarded separation
pay to respondent.

Petitioners filed a motion for reconsiderationon June 19, 2000 questioning the grant of separation pay. On June 30, 2000, the NLRC
denied the motion for reconsideration.On September 28, 2000, petitioners filed a petition for certiorariunder Rule 65 before the
Court of Appeals. They questioned the NLRCs grant of separation pay to respondent in the face of the finding that his dismissal was
legal.

On October 26, 2000 petition for certiorari filed by petitioner Metro Drug Distributions, Inc./Marsman and Company, Inc., et al. is
DENIED DUE COURSE and as a consequence DISMISSED for the following reasons:

1. The caption of the petition did not specify all the petitioners as required on Section 1, Rule 7 of the 1997 Rules of Civil
Procedure; and

2. The certification against forum shopping was executed and signed by the alleged Vice-President for Finance and Human
Resources without any evidence to prove his authority from the Board of Directors to represent the petitioner corporation. Being a
defective certification, it is equivalent to non-compliance with the requirement of Section 1 par. 2 of Rule 65 and Section 3 par. 3,
Rule 46, 1997 Rules of Civil Procedure.

Petitioners moved for reconsideration on November 6, 2000.On February 21, 2001, petitioners received the second assailed
resolutiondenying it. Hence, the present petition for review centered on the following issues:

Issue: Whether or not the Court of Appeals erred and committed grave abuse of discretion in dismissing the petition

Held: No.

We have ruled time and again that litigants should have the amplest opportunity for a proper and just disposition of their cause free,
as much as possible, from the constraints of procedural technicalities. Our judicial system encourages full adjudication of the merits
of an appeal. On the other hand, we also follow the rule that, save for the most persuasive of reasons, strict compliance with
procedural requirements must be observed to facilitate the orderly administration of justice.

While litigation is not a game of technicalities and the rules of procedure should not be enforced at the cost of substantial justice, it
does not mean that the Rules of Court may be ignored at will and at random. Procedural rules should not be belittled or
dismissed. Like all rules, their application is necessary except only for the most persuasive of reasons.

It therefore follows that a party invoking a liberal application of the rules of procedure should at least exert some effort to comply
with them.

Here, petitioners failed to specify all the petitioners in the caption as required by Section 1, Rule 7of the Rules of Court. Despite the
dismissal of their petition because of this admitted inadvertence, they carelessly committed the same mistake in their motion for
reconsideration.

The same error occurred with respect to their certificate against forum shopping which failed to conform to the requirements of
Section 1 (2), Rule 65and Section 3 (3), Rule 46.The appellate court correctly ruled that the certificate was defective because it was
signed by the Vice-President for Finance and Human Resources without evidence of her authority to represent petitioner
corporation and the officers impleaded. Again, despite the dismissal of the petition on this ground, petitioners repeated the
omission in their motion for reconsideration. They failed to attach the required proof. The appellate court therefore found no reason
to reconsider the dismissal of the petition.

Petitioners maintain that the procedural requirements they allegedly disregarded applied only to original complaints or
petitions. Thus, even if they wanted to comply, they deliberately did not do so in their motion for reconsideration. We find this
explanation unacceptable. In justifying their non-compliance, petitioners lost sight of the fact that subsequently conforming with the
rules could have cured the procedural defects of their petition and could have provided a basis for reconsideration. In many
instances, courts have reconsidered petitions initially deficient in form upon an erring party’s satisfactory explanation and
subsequent compliance with the rules.

Petitioners also insist that the Rules of Court did not require the presentation of an authority from the board of directors
for the validity of a certification of non-forum shopping. The lack of authority from petitioner’s board of directors should not have
affected the validity of the certification considering that it had already been signed by the Vice-President for Finance and Human
Resources.

In case of a corporation, it has long been settled that the certificate must be signed for and on its behalf by a specifically authorized
officer or agent who has personal knowledge of the facts required to be disclosed.

Consequently, without the needed proof from the board of directors, the certificate would be considered defective. Thus,
in another case,we held that even the regular officers of a corporation, like the chairman and president, may not even know the
details required in a certificate of non-forum shopping; they must therefore be authorized by the board of directors just like any
other officer or agent.

The right to file a special civil action for certiorari is neither a natural right nor a part of due process. The acceptance of a
petition for certiorari as well as the grant of due course thereto is addressed to the sound discretion of the court.We will not
therefore disturb the Court of Appeals decision to strictly apply the rules.

NATIVIDAD G. REYES VS. RCPI EMPLOYEES CREDIT UNION, INC.[ G.R. No. 146535, August 18, 2006 ]

GARCIA, J.:

FACTS:

On December 8, 1986, David F. Halican, President and Chairman of the Board of Directors of the respondent credit union,
together with Nestor Estremera, respondent's Accounting Officer, executed in favor of petitioner Natividad Reyes a promissory note
purportedly for and in behalf of the respondent.

Unable to collect the amount of the note on its due date despite repeated demands therefor, the petitioner filed with the
RTC of Caloocan City a complaint for a sum of money with damages against the respondent credit union.

In its Answer, the respondent, as defendant, denied any obligation to the petitioner asserting that it "did not authorize" the
signatories to the promissory note sued upon "to act for and in behalf of the association," hence the plaintiff has no cause of action
against it. In the same Answer, the respondent interposed a counterclaim in the sum of P1,049,51 5.70, representing the amount
allegedly misappropriated by the latter while serving as respondent's treasurer from 1981 to 1987, as allegedly shown in the
Financial Audit Report prepared and submitted by the Philippine Federation of Credit Cooperatives, inc., which conducted an audit
of respondent's financial condition.

To buttress her allegation that the respondent as defendant in the case is liable to her under the subject promissory note,
petitioner, as plaintiff, proffered in evidence the promissory note itself and her oral testimonies that when the respondent credit
union defaulted in the payment of its obligation under said promissory note, David F. Halican, respondent's President and Chairman
of its Board, issued four postdated PCIB checks in her favor, which checks were all dishonored by the drawee bank when presented
for payment; that when requested to make good the dishonored checks, the respondent instead filed a complaint for estafa against
her before the City Prosecutor's Office of Quezon City, thereunder alleging her misappropriation of corporate funds while still
treasurer of the respondent, which complaint was recommended for dismissal by the investigating fiscal for insufficiency of
evidence, a recommendation duly approved by the City Prosecutor and against which a petition for review was dismissed by the
Department of Justice; that thereafter, the respondent filed another estafa case against her (I.S. No. 90-108555) which was likewise
dismissed by the City Prosecutor; that she filed with the same office a criminal complaint for violation of Batas Pambansa Big. 22
against David Halican in connection with the same dishonored postdated PCIB checks, but her complaint was dismissed because she,
as the payee in those checks, is also a signatory thereto; and that the respondent's board of directors was informed of the loan
covered by the promissory note in question.

For its part, the respondent credit union, maintaining its main defense that David F. Halican had no authority to sign the
subject promissory note for and in its behalf, adduced in evidence the testimonies of two (2) of the members of its board of
directors, namely Rolando Babar and Hector Bolano. to disprove petitioner's claim that its board knew of the loan contracted by
Halican and of the latter's execution of the subject promissory note. In support of its counterclaim, the respondent presented the
four (4) postdated PCIB checks drawn and signed by Halican and payable to the petitioner, as well as the Financial Audit Report
earlier adverted to, showing that the petitioner incurred an accountability in the amount of P-l,049,515.70 while still the
respondent's treasurer in custody of its funds and checks and herself a signatory to its checks together with Halican as the
respondent's former president.

In its decision, the trial court ruled that Halican's authority to execute the same promissory note for and in behalf of the respondent
was impliedly admitted by the latter when it failed to deny under oath the matters alleged in the petitioner's Request for Admission.

ISSUE:

whether or not the respondent credit union is liable to the petitioner on the subject promissory note executed and signed by its
officers, namely, its president, David F. Halican and its accounting officer, Estremera?

HELD:

NO. Indisputably, the respondent is a credit cooperative duly organized and existing under Philippine laws. As such
corporate entity, it has its own acts and liabilities and exercises corporate powers, including the power to enter into all contracts,
through its board of directors pursuant to Section 23 of the Corporation Code.

It is the rule that a corporation, like the respondent, may act only through its board of directors or, when authorized either
by its by-laws or by board resolution, through its officers or agents in the normal course of business. It is important, however, that
for such corporate officers or agents to be deemed fully clothed by the corporation to exercise a power of the board, the latter must
specially authorize them to do so.

Here, the respondent denies that it ever authorized its officers, in particular, its president, David Halican, to contract a loan
with the petitioner and execute a promissory note in connection therewith. With that denial, it behooves upon the petitioner to
establish by the requisite quantum of proof that Halican was in fact authorized by the respondent to represent and bind it in the
questioned transaction. Unfortunately for the petitioner, she failed to discharge her burden. As it is, the evidence adduced by her is
bereft of any proof of authority on the part of Halican and Estremera, either by way a provision on the respondent's by-laws or a
board resolution, to contract the alleged loan and to execute relative thereto the promissory note in dispute. This being so, Halican's
act of executing and signing the subject promissory note cannot bind the respondent credit union.

Furthermore, petitioner has not shown that the respondent credit union ratified, expressly or impliedly, the act of Halican
in executing and signing in its behalf the promissory note in dispute. Indeed, such ratification cannot be inferred from the
aforementioned circumstances proffered by the petitioner. The fact that the respondent admitted Halican to be its president at the
time the promissory note was executed; that Halican signed the postdated PCIB checks as payment for the note; that the said checks
were dishonored by the drawee bank upon presentment for payment; and that Halican failed to raise as a defense his lack of
authority to sign the note in the B.P. Big. 22 case filed against him, does not necessarily mean that the respondent credit union has
thereby already ratified Halican's act of contracting the obligation under the same promissory note.

KOJI YASUMA vs HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING CORPORATION, G.R. No. 150350, August 22, 2006

FACTS: Cecilio S. de Villa obtained loans from petitioner Koji Yasuma in the amounts of P1,100,000, P100,000 and P100,000,
respectively, for the total amount of P1.3 million. The loans were secured by three separate real estate mortgages on a parcel of
land in the name of respondent East Cordillera Mining Corporation. The deeds of mortgage were executed on the dates the loans
were obtained, signed by de Villa as president of respondent corporation. During the pendency of the case in the RTC, de Villa died.
Petitioner consequently amended the complaint and impleaded the heirs of de Villa as defendants.

The RTC ordered respondent corporation to pay petitioner P1.3 million plus legal interest, attorneys fees, liquidated damages and
costs of suit. The complaint was dismissed against respondent heirs. On appeal, the CA reversed the ruling and held that the loan
was personal to de Villa and that the mortgage was null and void for lack of authority from the corporation. Hence, this petition.
Petitioner insists that the mortgage executed by de Villa, as president of the corporation, was ratified by the latter since the
mortgage was an accessory contract of the loan.

ISSUE: W/N the loans are debts of respondent corporation?

HELD: No.

The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of
attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. The promissory notes
evidencing the loans were signed by de Villa (who was the president of respondent corporation) as borrower without indicating in
what capacity he was signing them. In fact, there was no mention at all of respondent corporation. On their face, they appeared to
be personal loans of de Villa. There was no showing that respondent corporation ever authorized de Villa to obtain the loans on its
behalf. The notes did not show that de Villa acted on behalf of the corporation. Actually, the corporation would not have figured in
the transaction at all had it not been for its admission that it received the amount of P1.3 million. As could be gleaned from the
promissory notes, it was a stranger to the transaction. Thus, we conclude that petitioner himself did not consider the corporation to
be his debtor for if he really knew that de Villa was obtaining the loan on behalf of the corporation, then why did he allow the notes
to reflect only the personal liability of de Villa? Even the demand letters of petitioner were personally addressed to de Villa and not
to respondent corporation. Undoubtedly, petitioner dealt with de Villa purely in his personal capacity.

Also, the mortgage was not ratified by the Corporation. A special power of attorney is necessary to create or convey real rights over
immovable property. Furthermore, the special power of attorney must appear in a public document. In the absence of a special
power of attorney in favor of de Villa as president of the corporation, no valid mortgage could have been executed by him. Since the
mortgage was void, it could not be ratified.

Litonjua vs Eternit CorporationG.R. 144805. June 8, 2006

Facts:

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in
the manufacture of roofing materials and pipe products. Ninety (90%) percent of the shares of stocks of EC were owned by
Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium. Jack Glanville, an
Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia
of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations
in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of EC's Board of Directors, to dispose of the
eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for
sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land to Eduardo B. Ltonjua, Jr. in a Letter dated September 12, 1986, Marquez declared
that he was authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother Antonio K.
Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua
siblings' offer and relayed the same to Delsaux in Belgium, but the latter did not respond.

On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/counterproposal to the offer of the Litonjua
siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision,"
the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation.”

Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and confirmed that the Litonjua siblings
had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days
after execution and preparation of all documents of sale, together with the necessary governmental clearances.

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and
drafted an Escrow Agreement to expedite the sale.

With the assumption of Corazon Aquino as President of RP, the political situation in the Philippines had improved. Marquez received
a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a letter, confirming that
he had been instructed by his principal to inform Marquez that the decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corp. is situated.

When apprised of this development, the Litonjuas, through counsel, wrote Eternit Corp., demanding payment for damages they had
suffered on account of the aborted sale. EC, however, rejected their demand.

Issue:

W/N THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL
THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN
THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.

Held: No.

A corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights,
obligations and transactions of the latter. It may act only through its board of directors or, when authorized either by its by-laws or
by its board resolution, through its officers or agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of
law.

The property of a corporation is not the property of the stockholders or members, and as such, may not be sold without express
authority from the board of directors. Physical acts, like the offering of the properties of the corporation for sale, or the acceptance
of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be
performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of
the board of directors. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director,
are not binding on the corporation.
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of
directors through its officers and agents as authorized by a board resolution or by its by-laws. An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null
and void.

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to repudiate the
agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the circumstances. Agency may be oral unless
the law requires a specific form. However, to create or convey real rights over immovable property, a special power of attorney is
necessary.

The Litonjuas failed to adduce in evidence any resolution of the Board of Directors of Eternit Corp. empowering Marquez, Glanville
or Delsaux as its agents, to sell, let alone offer for sale, for and in itsbehalf, the 8 parcels of land owned by Eternit Corp. including the
improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC cannot be used as basis for Litonjua’s claim that he had likewise been authorized by Eternit Corp. to sell the parcels
of land.

While Glanville was the President and General Manager of Eternit Corp., and Adams and Delsaux were members of its Board of
Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of Eternit Corp.; a board
resolution evincing the grant of such authority is needed to bind Eternit Corp. to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a condition sine qua non to bind Eternit Corp. Requisites of an
agency by estoppels:

(1) the principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority;

(2) the third person, in good faith, relied upon such representation; and

(3) relying upon such representation, such third person has changed his position to his detriment.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. SPOUSES FRANCISCO ONG and LETICIA ONG, respondents.

FACTS:

Petitioner’s foreclosed asset, formerly owned by one Enrique Abada under TCT No. T-4786 and located at Corrales
Extension, Cagayan de Oro City is the subject of this controversy. On May 25, 1988, respondent Francisco Ong with the conformity of
his wife Leticia Ong, addressed a written offer to petitioner thru its branch manager at Cagayan de Oro City to buy the subject
property on a negotiated sale basis and submitted his "best and last offer" to purchase. The foregoing offer was duly "NOTED" by
petitioner’s branch head at its Cagayan de Oro City Branch, Jose Z. Lagrito (Lagrito, for brevity), and Official Receipt No. 3081947 was
issued for the amount of ₱14,000.00 as respondents’ deposit.

In a letter dated October 21, 19883, sent to respondents via registered mail, Lagrito informed the spouses that the bank
recently received an offer from another interested third-party-buyer of the same property at the same price and term, "but better
and more advantageous to the Bank considering that the buyer will assume the responsibility at her expense for the ejectment of
present occupants in the said property". Nonetheless, respondents were given in the same letter three (3) days within which "to
match the said offer", failing in which the Bank "will immediately award the said property to the other buyer", in which event
respondents’ deposit of ₱14,000.00 shall be refunded to them upon surrender of O.R. No. 3081947. In yet another written offer
dated October 28, 1988, respondents matched the said offer of the second interested buyer by assuming the responsibility "at
my/our own expense for the ejection of squatters/occupants, if any, on the property”.
 There was a conference between respondents, together with their counsel, and the bank whereat respondents were
informed why the sale could not be awarded to them. Thereafter, in a letter dated September 6, 1990, respondents were notified
that the property would instead be offered for public bidding.

RTC: respondents filed a complaint for breach of contract and/or specific performance against petitioner.

- trial court dismissed the complaint finding that there was "no perfected contract of sale" between the parties, hence, "there is no
breach to speak of since there was no contract from the very beginning".

- However, upon respondents’ motion for reconsideration, the trial court vacated its judgment and set the case for the reception of
evidence. This time, only the respondents adduced their evidence consisting of the lone testimony of respondent Francisco Ong and
the documents identified by him in the course thereof.

In his testimony, Ong gave the respondents’ version of what supposedly transpired in their transaction with petitioner.
According to him, he and his wife went to the bank branch at Cabayan de Oro City and looked for Roy Palasan, a bank clerk thereat
and told the latter that they were interested to buy two (2) lots. Palasan went to talk to Lagrito, the branch manager. Palasan
returned to the spouses and informed them that the branch manager agreed to sell the property to them. Palasan further told them
that they will be required to pay ten (10%) percent of the purchase price as downpayment, adding that if they were to pay the
purchase price in cash, they would be entitled to a ten (10%) percent discount. After some computations, respondents rounded up
the purchase price at ₱136,000.00 and pegged the downpayment therefor at ₱14,000.00. They were then required by Palasan to
sign a bank form supposedly to express their firm offer to purchase the subject property. But since the form signed by them contains
the statement that the approval of higher authorities of the bank is required to close the deal, respondents queried Palasan about it.
Palasan, however, told them that the documents were only for formality purposes, and further assured them that the branch
manager has already agreed to sell the subject property to them. The trial court came out with a new decision, this time rendering
judgment for the respondents.

ISSUE: Whether the actuation of Palasan, a mere bank clerk, upon which respondents relied in believing that their offer to purchase
was already approved by the bank manager, would bind the bank to a perfected contract of sale between the parties in this case

RULING:

No. True it is that the signature of branch manager Lagrito appears below the typewritten word "NOTED" at the bottom of
respondents’ offer to purchase dated May 25, 1988. By no stretch of imagination, however, can the mere "NOTING" of such an offer
be taken to mean an approval of the supposed sale. Quite the contrary, the very circumstance that the offer to purchase was merely
"NOTED" by the branch manager and not "approved", is a clear indication that there is no perfected contract of sale to speak of.

The representation of Roy Palasan, a mere clerk at petitioner’s Cagayan de Oro City branch, that the manager had already
approved the sale, even if true, cannot bind the petitioner bank to a contract of sale with respondents, it being obvious to us that
such a clerk is not among the bank officers upon whom such putative authority may be reposed by a third party. There is, thus, no
legal basis to bind petitioner into any valid contract of sale with the respondents, given the absolute absence of any approval or
consent by any responsible officer of petitioner bank.

And because there is here no perfected contract of sale between the parties, respondents’ action for breach of contract
and/or specific performance is simply without any leg to stand on and must therefore fall.

IGNACIO VICENTE and MOISES ANGELES, vs. HON. AMBROSIO M. GERALDEZ,

FACTS:

 Hi Cement Corporation filed a complaint for injunction and damages against Juan Bernabe, Ignacio Vicente and Moises
Angeles. Hi Cement alleged that it had acquired a Placer Lease Contract from the Banahaw Shale Mining Association, that
the said Placer Lease Contract was for a period of 25 years and covered two mining claims (Red Star VIII & IX);
 o that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the defendants Juan
Bernabe, Ignacio Vicente, and Moises Angeles;

o that Hi Cement had requested the defendants to allow its workers to enter the area for exploration as well as for
extraction of minerals, promising to pay defendants reasonable amounts as damages, but defendants refused to
allow entry of Hi Cement representatives;

o that defendants were threatening Hi Cement’s workers with bodily harm if they entered the premises.

 The trial court issued a restraining order. The defendants filed their respective answers,

o that they are rightful owners of portions of the land covered by the supposed mining claims;

o that it was Hi Cement and its workers who had committed acts of force and violence when they entered into and
intruded upon the defendants' lands; and

o that the complaint failed to state a cause of action.

 The respective counsels of the parties then conferred on terminating the case by compromise, the defendants having
previously signified their willingness to sell their properties at reasonable prices. Counsels to the party executed and
submitted a Compromise Agreement which was approved by the trial court.

 Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the judgment, being
based on a compromise agreement, is not appealable and is, on the other hand, immediately executory. The other two
defendants, likewise filed their respective motions for execution. These motions were granted by the court

 Hi Cement filed a motion for reconsideration, alleging that it had an opposition to the defendants' motions for execution,
and that the Compromise Agreement had been repudiated by the plaintiff corporation through its Vice President, as earlier
manifested by the plaintiff.

 Hi Cement filed a motion for new trial on the ground that the decision is null and void because it was based on the
Compromise Agreement which was itself null and void for want of a special authority by Hi Cement’s lawyers to enter into
the said agreement.

 Juan Bernabe filed an opposition on the grounds that the decision is in accordance with law, Atty. Cardenas, was an official
representative of plaintiff corporation, hence, when he signed the Compromise Agreement, he did so in the dual capacity of
lawyer and representative of the management of the corporation

ISSUE:

 Whether the respondent court, in setting aside its decision and denying the motions for execution of said decision, had
acted without or in excess of its jurisdiction or with grave abuse of discretion.

HELD:

 No, there was no grave abuse of discretion.

 Special powers of attorney are necessary to compromise and to renounce the right to appeal from a judgment.

o Attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing,
and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority,
compromise their clients' litigation, or receive anything in discharge of their clients' claims but the full amount in
cash.
 o The Compromise Agreement was signed only by the lawyers for petitioners and by the lawyers for respondent
corporation. It is not disputed that the lawyers of Hi Cement had not submitted to the Court any written authority
from their client to enter into a compromise.

 The law specifically requires that "juridical persons may compromise only in the form and with the requisites which may be
necessary to alienate their property."

 Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and
primarily committed to the Board of Directors. The right of the Directors "to compromise a disputed claim against the
corporation rests upon their right to manage the affairs of the corporation according to their honest and informed
judgment and discretion as to what is for the best interests of the corporation." This power may however be delegated
either expressly or impliedly to other corporate officials or agents. Thus it has been stated, that as a general rule an officer
or agent of the corporation has no power to compromise or settle a claim by or against the corporation, except to the
extent that such power is given to him either expressly or by reasonable implication from the circumstances.

 It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded that the Board of
Directors of the HI Cement Corporation had authorized its lawyers to enter into the said compromise agreement.

 Whatever authority the officers or agents of a corporation may have is derived from the board of directors, or other
governing body, unless conferred by the charter of the corporation. A corporation officer's power as an agent of the
corporation must therefore be sought from the statute, the charter, the by-laws, or in a delegation of authority to such
officer, from the acts of board of directors, formally expressed or implied from a habit or custom of doing business.

 In the case at bar no provision of the charter and by-laws of the corporation or any resolution or any other act of the board
of directors of HI Cement Corporation has been cited, from which We could reasonably infer that the administrative
manager had been granted expressly or impliedly the power to bind the corporation or the authority to compromise the
case.

 Absent such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would be legally
ineffectual.

Boyer-Roxas v. Court of Appeals

5. ID.; ID.; ID.; TRANSACTS BUSINESS ONLY THRU ITS AUTHORIZED OFFICERS OR AGENTS. — The corporation transacts its business
only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra) 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. (Vicente v. Geraldez, 52 SCRA 210 [1973]) In the present case, the record shows that 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, EufrocinoRoxas 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 EufrocinoRoxas. 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.

Facts: In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners
Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the
ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly
owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No. 802-84-C), the respondent corporation alleged that Rebecca is in
possession of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that
her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation.

In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a
house which was built at the expense of the former during the time when Guillermo's father, EribertoRoxas, 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. 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 evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V. Roxas, Incorporated, was incorporated
on December 4, 1962 (Exh. 'C') with the primary purpose of engaging in agriculture to develop the properties inherited from Eugenia
V. Roxas and that of EufrocinoRoxas; that the Articles of Incorporation of the plaintiff, in 1871, was amended to allow it to engage in
the resort business (Exh. 'C-1'); that the incorporators as original members of the board of directors of the plaintiff were all members
of the same family, with EufrocinoRoxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden
Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639; that
improvements were introduced in the resort by the plaintiff.

Issue: Whether petitioners were correct in their contention that they should be respected as regards their occupancy since they
own an aliquot part of the corporation.

Held: The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members
composing it. There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is registered
in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and
the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the
respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila,

". . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While
shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its
own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the
capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not
a co-owner or tenant in common of the corporate property.

The petitioners point out that their occupancy of the staff house which was later used as the residence of EribertoRoxas, husband of
petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of
EufrocinoRoxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In
his lifetime, EufrocinoRoxas together with EribertoRoxas, the husband or petitioner Rebecca Boyer-Roxas, and the father of
petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners
argue that ". . . that authority thus given by EufrocinoRoxas for the conversion of the recreation hall into a residential house can no
longer be questioned by the stockholders of the private respondent and/or its board of directors for they impliedly but no less
explicitly delegated such authority to said EufrocinoRoxas."

Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation
transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra) 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.

In the present case, the record shows that 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, EufrocinoRoxas 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 EufrocinoRoxas.

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 EufrocinoRoxas, who during his
lifetime, controlled and managed the corporation. EufrocinoRoxas' 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 EufrocinoRoxas 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."

Torres Jr vs CA 276 scra 783, 1997

Facts:

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development Corporation (TRDC). TRDC is a small
family owned corporation and other stockholders thereof include Judge Torres’ nieces and nephews. However, even though Judge
Torres owns the majority of TRDC and was also the president thereof, he is only entitled to one vote among the 9-seat Board of
Directors, hence, his vote can be easily overridden by minority stockholders. So in 1987, before the regular election of TRDC officers,
Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose of qualifying them to be elected as directors
in the board and thereby strengthen Judge Torres’ power over other family members.

However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina Carlos (niece) in the stock and
transfer book of TRDC. When the validity of said assignments were questioned, Judge Torres ratiocinated that it is impractical for
him to order Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was to make the entries
himself because he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere secretary can do
because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders, they refused to take part in the election. Judge
Torres and his five assignees then decided to conduct the election among themselves considering that the 6 of them constitute a
quorum.

Issue: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is valid.

Held: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not comply with the by laws of
TRDC nor did it comply with Section 74 of the Corporation Code. Section 74 provides that the stock and transfer book should be kept
at the principal office of the corporation. Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his
excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry
of said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make the entry. There are
judicial remedies for this. Needless to say, the subsequent election is invalid because the assignment of shares is invalid by reason of
procedural infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and practices other
than those established by law.
Esguerra v Court of Appeals

Facts: On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or
separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on
31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants. he
parties entered into a compromise agreement which was submitted to the court. On the basis of the said agreement, the court on
11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter
and VECCI. In the said agreement, it is stipulated that VECCI shall sell some of its properties in which the proceeds will be used as
payment for the obligation it incurred from petitioner Julieta Esguerra. Esguerra Bldg. II was sold to (herein private respondent
Sureste Properties, Inc.) for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of
the sale before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she has not
been notified nor consulted as to the terms and conditions of the sale. Not being a party to the civil case, (private respondent
Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioner's) motion to declare the sale void ab initio. In its
Manifestation (Sureste) points out that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her
express consent to the sale of the said building. On 05 August 1993, respondent judge (who took over the case from Judge
Buenaventura Guerrero, now Associate Justice of this court) issued an Omnibus Order denying among others, (Sureste's) motion, to
which a motion for reconsideration was filed.

After trial on the merits, the Regional Trial Court of Makati, Branch 133, 4 rendered its order, the dispositive portion of which reads:

"WHEREFORE, the Court resolves as it is resolved that:

1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that:

a. The Notice of is Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at Amorsolo St., Legaspi
Village, Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and,

b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value thereof but
ineffectual and unenforceable with respect to the other half as the acknowledged owner of said portion was not consulted as to the
terms and conditions of the sale

The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory.

2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well as
plaintiff's tenants at Esguerra Bldg. II;

3. Plaintiff's Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic.

4. Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on February 15, 1994 at
10:30 in the morning for the physical examination of defendant or counsel.

SO ORDERED."

From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the Court of Appeals which
ruled in its favor.

Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made "under the
terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders." 22 She rues that no
shareholders' or directors' meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper
for not having complied with the requirements mandated by Section 40 of the Corporation Code.

Issue: Whether or not the sale of Esguerra II Building to Sureste is valid.

Held: It is valid. Said sale is not in violation of the compromise agreement in which it is stipulated that the selling of the properties
must be in accordance with the board resolutions. The trial court's partial decision dated January 11, 1990 approving the
compromise agreement clearly showed that the "enabling resolutions of its (VECCI's) board of directors and stockholders" referred
to were those then already existing; to wit: (1) "the resolution of the stockholders of VECCI dated November 9, 1989, (where) the
stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions
and for such consideration as the board of directors may deem expedient." 24 (2) the "resolution dated 9 November 1989, (where)
the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the
corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenient
under the circumstances, and authorized the President Vicente B. Esguerra, Jr. to negotiate, contract, execute and sign such sale for
and in behalf of the corporation." 25 VECCI's sale of all the properties mentioned in the judicially-approved compromise agreement
was done on the basis of its Corporate Secretary's Certification of these two resolutions. The partial decision did not require any
further board or stockholder resolutions to make VECCI's sale of these properties valid. Being regular on its face, the Secretary's
Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the
facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and
unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra Building II to private respondent was not ultra vires but a valid
execution of the trial court's partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of
Section 40 of the Corporation Code. Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCI's
corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in
VECCI's prior sales of the other properties sold including the Esguerra Building I. 26 The same identical resolutions and certification
were used in such prior sales.

SAN JUAN STRUCTURAL FABRICATORS vs. CA

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 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.

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

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

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

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided in this code, the corporate powers of all
corporations formed under this code shall be exercised, all business conducted, and all property of such corporations controlled and
held by the board of directors or trustees to be elected from among the stockholders of stocks, or where there is no stock, from
among the members of the corporations, who shall hold office for 1 year and until their successors are elected and qualified.

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

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.

SALOME PABON and VICENTE CAMONAYAN, petitioners, vs .NATIONAL LABOR RELATIONS COMMISSION MARKETING

CORPORATION, respondents.

J. Martinez:

FACTS:

On May 24, 1994 and June 22, 1994, complaints for illegal dismissal and non-payment of benefits were filed by petitioners
Salome Pabon and Vicente Camonayan against private respondent Senior Marketing Corporation (SMC) and its Field Manager, R-Jay
Roxas. Summons and notices of hearings were sent to Roxas at private respondent's provincial office in Valley Homes, Patul Road,
Santiago, Isabela which were received by its bookkeeper, Mina Villanueva.

On September 15, 1994, the Labor Arbiter rendered a judgment by default after finding that private respondent tried to
evade all the summons and orders of hearing by refusing to claim all the registered mail addressed to it. Thus, a copy of the Labor
Arbiter's Decision was sent to private respondent's principal office in Manila.
 Instead of appealing the Labor Arbiter's decision to the National Labor Relations Commission (NLRC), within ten (10) days
from receipt of the said decision, private respondent filed a motion for reconsideration/new trial before the Labor Arbiter. It was
only after the said ten-day period had lapsed that private respondent appealed to the NLRC which ruled for herein private
respondent, thus this petition.

ISSUE: WON private respondent was properly served with summons through its bookkeeper at its provincial office address?

HELD:

Courts acquire jurisdiction over the person of a party-defendant by virtue of the service of summons in the manner
required by law. In the case at bar, although as a rule, modes of service of summons are strictly followed in order that the court may
acquire jurisdiction over the person of a defendant, such procedural modes, however, are liberally construed in quasi-judicial
proceedings, as in this case, substantial compliance with the same being considered adequate.

We are of the view that a bookkeeper can be considered as an agent of private respondent corporation within the
purview of Section 13, Rule 14 of the old Rules of Court. The rationale of all rules with respect to service of process on a
corporation is that such service must be made to an agent or a representative so integrated with the corporation sued as to make it
a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. The
bookkeeper's task is one under consideration. The job of a bookkeeper is so integrated with the corporation that his regular
recording of the corporation's "business accounts'' and "essential facts about the transactions of a business or enterprise'
safeguards the corporation from possible fraud being committed adverse to its own corporate interest.

Although it may be true that the service of summons was made on a person not authorized to receive the same in behalf of
the petitioner, nevertheless since it appears that the summons and complaint were in fact received by the corporation through its
said clerk, the Court finds that there was substantial compliance with the rule on service of summons. Indeed the purpose of said
rule as above stated to assure service of summons on the corporation had thereby been attained. The need for speedy justice must
prevail over technicality.

As can be gleaned from the records, all summons and notices of hearings addressed to private respondent were served on
and received by its bookkeeper on behalf of private respondent as its employer who, under the circumstances of this case, is
considered as an agent within the contemplation of the aforecited NLRC rule. Such an employee is not one of those lesser
employees of the corporation who would not have been able to appreciate the importance of the papers delivered to her.

ELLICE AGRO-INDUSTRIAL CORPORATION, represented by its Chairman of the Board of Directors and President, RAUL E. GALA,
Petitioner, vs.RODEL T. YOUNG, DELFIN CHAN, JIM WEE, and GUIA G. DOMINGO,

Facts:

On July 24, 1995, Rodel T. Young, Delfin Chan and Jim Wee (respondents) and Ellice Agro-Industrial Corporation (EAIC), represented
by its alleged corporate secretary and attorney-in-fact, Guia G. Domingo (Domingo), entered into a Contract to Sell, under certain
terms and conditions, wherein EAIC agreed to sell to the respondents a 30,000 square-meter portion of a parcel of land located in
Lutucan, Sariaya, Quezon and registered under EAIC’s name and covered by Transfer Certificate of Title (TCT) No. T-157038 in
consideration of One Million and Fifty Thousand (P1,050,000.00) Pesos.

Pursuant to the Contract to Sell,3 respondents paid EAIC, through Domingo, the aggregate amount of Five Hundred Forty Five
Thousand (P545,000.00) Pesos as partial payment for the acquisition of the subject property. Despite such payment, EAIC failed to
deliver to respondents the owner’s duplicate certificate of title of the subject property and the corresponding deed of sale as
required under the Contract to Sell.

On November 8, 1996, prompted by the failure of EAIC to comply with its obligation, respondents had their Affidavit of Adverse
Claim annotated in TCT No. T-157038.4
On November 14, 1996, respondents filed a Complaint5 for specific performance, docketed as Civil Case No. 96-177, against EAIC
and Domingo before the RTC.

Consequently, on November 18, 1996, respondents caused the annotation of a Notice of Lis Pendens involving Civil Case No. 96-177
in TCT No. T-157038.6

The initial attempt to serve the summons and a copy of the complaint and its annexes on EAIC, through Domingo, on Rizal Street,
Sariaya, Quezon, was unsuccessful as EAIC could not be located in the said address.

Another attempt was made to serve the alias summons on EAIC at 996 Maligaya Street, Singalong, Manila, the residence of
Domingo. The second attempt to serve the alias summons to Domingo was, this time, successful.

On March 21, 1997, EAIC, represented by Domingo, filed its Answer with Counterclaim.7

Meanwhile, respondent Jim Wee (Wee) sent Raul E. Gala (Gala), EAIC’s Chairman and President, a letter,8 dated July 9, 1997,
seeking a conference with the latter relating to the execution of an absolute deed of sale pursuant to the Contract to Sell entered
into between EAIC and respondents.

Petitioners defense: In response, the Robles Ricafrente Aguirre Sanvicente&Cacho Law Firm, introducing itself to be the counsel of
EAIC, sent Wee a letter,9 dated July 18, 1997, informing him of Domingo’s lack of authority to represent EAIC.

On the scheduled pre-trial conference on January 27, 1998, neither Domingo nor her counsel appeared. As a result of EAIC’s failure
to appear in the pre-trial conference, respondents were allowed to present their evidence ex parte, pursuant to Section 5, Rule 1810
of the Rules of Court.

RTC: ruled in favor of respondents and against petitioners:

CA: ruled in favor of respondents and against petitioners on the ground that Domingo was a proper representative of the
Petitioner Corp.

Issue: WON Domingo has the authority to represent the Corporation and therefore the RTC has jurisdiction over the case against
the Petitioner Corporation?

Held:

No. Domingo has only the authority to represent Alicia Galang, the owner of EAIC, not the EAIC itself. Therefore the corporation
has no jurisdiction over EAIC

It is a settled rule that jurisdiction over the defendant is acquired either upon a valid service of summons or the defendant’s
voluntary appearance in court. When the defendant does not voluntarily submit to the court’s jurisdiction or when there is no
valid service of summons, any judgment of the court which has no jurisdiction over the person of the defendant is null and void.27
The purpose of summons is not only to acquire jurisdiction over the person of the defendant, but also to give notice to the
defendant that an action has been commenced against it and to afford it an opportunity to be heard on the claim made against it.
The requirements of the rule on summons must be strictly followed, otherwise, the trial court will not acquire jurisdiction over the
defendant.28

Section 13, Rule 14 of the 1964 Rules of Civil Procedure, the applicable rule on service of summons upon a private domestic
corporation then, provides:

Sec. 13. Service upon private domestic corporation or partnership.— If the defendant is a corporation organized under the laws of
the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any
of its directors. [Underscoring supplied]

Based on the above-quoted provision, for service of summons upon a private domestic corporation, to be effective and valid, should
be made on the persons enumerated in the rule. Conversely, service of summons on anyone other than the president, manager,
secretary, cashier, agent, or director, is not valid. The purpose is to render it reasonably certain that the corporation will receive
prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the
corporation that such person will know what to do with the legal papers served on him.29

In the present case, the 1996 GIS30 of EAIC, the pertinent document showing EAIC’s composition at the time the summons was
served upon it, through Domingo, will readily reveal that she was not its president, manager, secretary, cashier, agent or director.
Due to this fact, the Court is of the view that her honest belief that she was the authorized corporate secretary was clearly mistaken
because she was evidently not the corporate secretary she claimed to be. In view of Domingo’s lack of authority to properly
represent EAIC, the Court is constrained to rule that there was no valid service of summons binding on it.

Granting arguendo that EAIC had actual knowledge of the existence of Civil Case No. 96-177 lodged against it, the RTC still failed to
validly acquire jurisdiction over EAIC. In Cesar v. Ricafort-Bautista,31 it was held that "x xx jurisdiction of the court over the person of
the defendant or respondent cannot be acquired notwithstanding his knowledge of the pendency of a case against him unless he
was validly served with summons. Such is the important role a valid service of summons plays in court actions."

The Court cannot likewise subscribe to respondents argument that by filing its answer with counterclaim, through Domingo, with
the RTC, EAIC is deemed to have voluntarily submitted itself to the jurisdiction of the RTC. In Salenga v. Court of Appeals,32 the
Court stated:

A corporation can only exercise its powers and transact its business through its board of directors and through its officers and
agents when authorized by a board resolution or its bylaws. The power of a corporation to sue and be sued is exercised by the
board of directors. The physical acts of the corporation, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act of the board.

In this case, at the time she filed the Answer with Counterclaim, Domingo was clearly not an officer of EAIC, much less duly
authorized by any board resolution or secretary’s certificate from EAIC to file the said Answer with Counterclaim in behalf of EAIC.
Undoubtedly, Domingo lacked the necessary authority to bind EAIC to Civil Case No. 96-177 before the RTC despite the filing of an
Answer with Counterclaim. EAIC cannot be bound or deemed to have voluntarily appeared before the RTC by the act of an
unauthorized stranger.

Incidentally, Domingo alleged in her Answer with Counterclaim that "Alicia E. Gala is the real owner and possessor of all the real
properties registered in the business name and style Ellice-Agro Industrial Corporation x x x."33 In the same pleading, Domingo
claimed that she was authorized by Alicia E. Gala, the purported beneficial owner of the subject property, to represent her in Civil
Case No. 96-177 by virtue of a General Power of Attorney. In advancing the said allegations, among others, Domingo evidently
acted in representation of Alicia E. Gala, not EAIC. Hence, her conduct in the filing of the Answer with Counterclaim cannot and
should not be binding to EAIC.

In view of the fact that EAIC was not validly served with summons and did not voluntarily appear in Civil Case No. 96-177, the RTC
did not validly acquire jurisdiction over the person of EAIC. Consequently, the proceedings had before the RTC and ultimately its
November 11, 1999 Decision were null and void.1âwphi1

Pursuant to Section 7, Rule 4734 of the Rules of Court, a judgment of annulment shall set aside the questioned judgment or final
order or resolution and render the same null and void.

7. E.B. Villarosa vs Benito

Kanlaon Construction Enterprises vs NLRC

FACTS:
Petitioner Corporation was contracted by the National Steel Corporation to construct residential houses for its plant employees in
Steeltown, Sta. Elena, Iligan City. Private respondents were hired by petitioner as laborers in the project under the supervision of
Engineers Paulino Estacio and Mario Dulatre. When the project neared its completion, petitioner started terminating the services of
private respondents and its other employees. Private respondents filed separate complaints against petitioner before the Sub-
Regional Arbitration Branch XII, Iligan City. Private respondents claim that petitioner paid them wages below the minimum and
sought payment of their salary differentials and thirteenth month pay. Summonses and notices of preliminary conference were
served on the two engineers and petitioner through Estacio. Some of the cases were assigned to Labor Arbiter GuardsonSiao while
the others were assigned to Labor Arbiter Nicodemo C. Palangan. During the preliminary conference before Arbiter Siao, Engr.
Estacio admitted petitioner's liability to private respondents and agreed to pay their claims. When Estacio failed to settle the claims,
Arbiter Siao granted the complaint and ordered petitioner to pay the claims of the private respondents. Arbiter Palangan also issued
a similar order. Petitioner appealed to the NLRC alleging denial of due process and thatEngrs. Estacio and Dulatre had no authority
to represent and bind petitioner. The respondent commission affirmed the orders of the Arbiters

Petitioner alleges that there was no valid service of summons; Engrs. Estacio and Dulatre had no authority to appear and
bind petitioner

ISSUE: Whether the act of the respondents may bind the corporation

HELD: THE TWO COMPANY OFFICERS COULD BIND THE PETITIONER ONLY ON PROCEDURAL MATTERS BEFORE THE ARBITER AND
THE RESPONDENT COMMISSION SINCE ITS LIABILITY AROSE FROM THE ALLEGED PROMISE TO PAY MADE BY ONE OF THE
OFFICERS; THE PROMISE TO PAY AMOUNTS TO AN OFFER OF COMPROMISE AND REQUIRES A SPECIAL POWER OF ATTORNEY OR
THE EXPRESS CONSENT OF THE PETITIONER. — Even assuming that Engineer Estacio and Atty. Abundiente were authorized to
appear as representatives of petitioner, they could bind the latter only in procedural matters before the arbiters and respondent
Commission. Petitioner's liability arose from Engineer Estacio's alleged promise to pay. A promise to pay amounts to an offer to
compromise and requires a special power of attorney or the express consent of petitioner. The authority to compromise cannot be
lightly presumed and should be duly established by evidence. This is explicit from Section 7 of Rule III of the NLRC Rules of
Procedure. The promise to pay allegedly made by Engineer Estacio was made at the preliminary conference and constituted an offer
to settle the case amicably. The promise to pay could not be presumed to be single unilateral act, contrary to the claim of the
Solicitor General. A defendant's promise to pay and settle the plaintiff's claims ordinarily requires a reciprocal obligation from the
plaintiff to withdraw the complaint and discharge the defendant from liability. In effect, the offer to pay was an offer to compromise
the cases.

EDWIN GESULGON vs. NATIONAL LABOR RELATIONS COMMISSION and A. A. MARISCOR CORPORATION

G.R. No. 90349, March 5, 1993; Feliciano, J.

Facts:

Private respondent ("Mariscor") hired petitioner Gesulgon as Chief Cook on board its fishing vessel named "Susan II." It was
agreed that petitioner Gesulgon, aside from his usual monthly salary, was entitled to an additional 3-day incentive pay, based on the
daily wage rate, for every one thousand (1,000) tubs of fish brought in by the "Susan II" in excess of petitioner's quota, both during
the in-season and off-season months. Petitioner Gesulgon's quota was 3,000 tubs for an in-season month and 1,500 tubs for an off-
season month.

Thereafter, petitioner Gesulgon filed with the Labor Arbiter a complaint for illegal dismissal, non-payment of 3-day
incentive bonus, non-reimbursement of provident fund payments and damages against private respondent Mariscor. He stated that
in the month of April 1986, Susan II had a total catch of 4,000 tubs of fish and that under the company's salary incentive program he
was entitled to additional pay equivalent to (3) days pay; that thereafter, private respondent Mariscor's Assistant Manager
ArtemioHermosura met with him and the other crew members of Susan II to distribute their incentive pay for the month of April
1986, but that petitioner Gesulgon protested believing the pay distributed to be inadequate; that after that incident, he was ordered
by private respondent Mariscor to proceed to its office in Manila and there, private respondent Mariscor through Assistant Manager
ArtemioHermosura informed him that the company had decided to dismiss him as "his act of questioning the incentive pay was
conduct unbecoming;" and, that he had insisted on reinstatement and payment of his 3-day incentive pay for April 1986 amounting
to P400.00, but private respondent Mariscor simply ignored him.

The summons and the notices of hearing in respect of that complaint were addressed to the President/Manager of private
respondent Mariscor and served by registered mail. These were respectively received by Agnes Trajeco and DalisayGardiola, who
were clerks in the office of Assistant Manager Hermosura. However, during the scheduled hearings no one appeared for private
respondent Mariscor. Accordingly, the Labor Arbiter allowed petitioner Gesulgon to present his evidence ex parte and, a decision
was rendered declaring petitioner Gesulgon's dismissal to be illegal and ordering his reinstatement.

A copy of that decision was served and received by Agnes Trajeco, a clerk of private respondent Mariscor working in the
office of Assistant Manager Hermosura.

The decision of the Labor Arbiter having become final, petitioner Gesulgon filed a Motion for Execution. Notices were
served on the parties informing them of a conference. Notwithstanding notification, private respondent Mariscor again failed to
appear and the conference had to be reset. On the latter date, Mariscor finally appeared through its Assistant Manager Romeo H.
Gardiola. In succeeding conferences, Mariscor was represented by its legal counsel.

Thereafter, Mariscor filed with the NLRC a Motion to Set Aside Judgment and Writ of Execution, which motion the NLRC
treated as a Petition for Relief from Judgment. Mariscor contended that the decision of the Labor Arbiter was void since summons
had been served on Ms. Trajeco, a person not duly authorized to receive summons and other legal process for the company and as
such the NLRC had not acquired jurisdiction over the person of Mariscor; that the dismissal of Gesulgon was legal as he had proved
during the six-month probationary period to be an inefficient and incompetent cook; and that the decision of the Labor Arbiter was
obtained through extrinsic fraud since ArtemioHermosura as Assistant Manager of Mariscor to whom the summons was finally
turned over by Ms. Trajeco, had failed to act for the company.

The NLRC issued a Resolution dismissing Mariscor's Motion.

Not satisfied, Mariscor moved for reconsideration.

In its Resolution, the NLRC reversed and set aside its original Resolution.

Issue: Whether the NLRC had acquired jurisdiction over the person of Mariscor.

Held: YES.

The fact that both the summons and the copy of the decision of the Labor Arbiter had been served upon Mariscor by
delivery thereof to Ms. Trajeco, a clerk in the office of Mariscor's Assistant Manager Hermosura, is of no moment. Under Section 13
of Rule 14 of the Rules of Court, summons may be served upon a domestic corporation like Mariscor by service made on "the
president, manager, secretary, cashier, agent, or any of its directors." In Villa Rey Transit, Inc., et al v. Far East Motor Corporation, et
al, 13 the Court held that service of summons made on petitioner corporation through delivery of summons to its Assistant General
Manager for Operations was valid service which vested the trial court with jurisdiction over the person of the corporation, and that
an Assistant General Manager for Operations is properly regarded as falling within the term "manager" or "agent" used in Section
13, Rule 14 of the Rules of Court. We note that in the Villa Rey Transit, Inc. case, the papers were delivered by the sheriff not
personally to the Assistant General Manager for Operations, but rather were left with one of the night tellers of the corporation.

Whether or not Assistant Manager Hermosura actually turned over the papers received by him in his office to unspecified
"appropriate officers" of Mariscor, does not appear in the record. In any case, Mariscor cannot be relieved of responsibility for the
acts or omissions of its officers. Mariscor is bound by the service of summons effected upon its Assistant Manager. It would be
contrary to public policy to permit a corporation to free itself from the consequences of service upon it of legal process by pleading
the supposed failure of one of its officers to carry out duties incumbent upon such officer. The public is entitled to assume that an
Assistant General Manager of a corporation, like Mr. Hermosura in the case at bar, will in fact do what was necessary to be done in
respect of a summons and a complaint like that filed by petitioner Gesulgon. In litigations before the regular courts, the rules on
service of summons and other legal processes are liberally construed so long as actual receipt and knowledge of the summons and
process is shown. We will not apply a more technical and stringent rule in quasi-judicial administrative proceedings.
Golden Country Farms vs Sanvar Development Corp.GR No. 58027 Sept. 28, 1992

Melo, J.:

Facts:

On February 28, 1980, respondent Sanvar Development Corporation (Sanvar, for short) sued petitioner GCFI and its President,
Armando T. Romualdez, for a sum of money representing the unpaid balance of construction materials purchased by petitioner
from Respondent.

Per return of the sheriff, summons and copy of the complaint were served on March 5, 1980 upon petitioner at its principal office
through a certain Miss I.E. Lagrimas, clerk-typist of petitioner. On March 20, 1980, petitioner filed a motion to dismiss on the ground
that summons was not properly served in accordance with Section 13, Rule 14 of the Revised Rules of Court. Petitioner’s motion to
dismiss was denied by the lower court on May 2, 1980 and copy of the denial order was received by petitioner on May 15, 1980. On
May 30, 1980, Petitioner, together with its president, filed a joint motion for reconsideration, the resolution of which was held in
abeyance by the lower court. Subsequently, respondent filed an omnibus motion praying that the joint motion for reconsideration
be denied and that petitioner be declared in default. On February 16, 1981, the lower court issued an omnibus order denying the
joint motion for reconsideration and declaring petitioner in default for failure to file an answer within the reglementary period.

Pursuant to the order of default, respondent Sanvar presented its evidence ex-parte and based on said evidence, the lower court
adjudged petitioner GCFI liable to respondent Sanvar in the principal sum of P105,362.50. The complaint against petitioner’s
president was, however, dismissed because he was sued in his capacity as president of petitioner. A copy of the decision was
received by petitioner on August 14, 1981.

Issue : Whether or not summons directed to petitioner corporation which was served through Miss Lagrimas, clerk-typist of the
petitioner, is sufficient service for the trial court to acquire jurisdiction over said corporation

Held : Yes.

Service of process on a corporation is controlled by Sec. 13, Rule 14 of the Revised Rules of Court, thus —

"SECTION 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the
laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent,
or any of its directors."

Petitioner claims that the foregoing enumeration is exclusive and service of summons is without force and effect unless made upon
any one of those enumerated. So in the case at bar, it is argued, the lower court did not acquire jurisdiction over petitioner-
corporation since service of summons was effected through a mere clerk, a person who is not one of those authorized officers
mentioned in the aforequoted Section 13 upon whom valid service of summons can be made.

We cannot accept the strict and literal interpretation of petitioner. Thus, in G & G Trading Corp. v. Court of Appeals (158 SCRA 466,
469), we had occasion to rule.
"Although it maybe true that the service of summons was made on a person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and complaint were in fact received by the corporation through its said
clerk, the Court finds that there was substantial compliance with the rule on service of summons. Indeed the purpose of said rule as
above stated to assure service of summons on the corporation had thereby been attained. The need for speedy justice must prevail
over a technicality."

In the case at bar, the fact that summons was received by petitioner through Miss Lagrimas, is not disputed; rather, petitioner
admits that on March 18, 1980, the corporation and its legal counsel were informed by Miss Lagrimas of the summons she received
(pp. 8 and 9, Rollo). And indeed, by virtue of the receipt of the summons, petitioner even filed a motion to dismiss.
The court a quo thereupon concluded:

". . . inasmuch as the spirit and purpose of the rule is ‘to bring home to the corporation notice of the filing of the action’ . . . and it
appearing that said defendant had actually received the summons and a copy of the complaint albeit thru its clerk-typist Miss
Iluminada E. Lagrimas, and in fact has filed this instant motion, the Court hereby considers the same as substantial compliance with
the rules and therefore denies the aforesaid motion." (Annex B, p. 22, Rollo).

There was, therefore, substantial compliance with the rules on service of summons since it appears that the summons and
complaint were actually received by the petitioner corporation through its clerk, thereby satisfying the purpose of notice (Rebollido
v. Court of Appeals, 170 SCRA 800, 811).

Note: We do not agree with petitioner’s claim that it cannot be declared in default for not filing an answer while resolution of its
joint motion for reconsideration of the order denying its motion to dismiss was held in abeyance by the lower court.

Petitioner received the denial order of its motion to dismiss on May 15, 1980; hence, by mathematical computation, the 15-
day period to file an answer provided in Section 1, Rule 77 of the Revised Rules of Court expired on May 30, 1980. However, on May
30, 1980, which was the last day to file its answer, petitioner filed a joint motion for reconsideration, instead of filing an answer. In
this regard, we share the opinion of the lower court that petitioner’s joint motion for reconsideration which merely reiterated the
grounds in its motion to dismiss was pro forma and did not toll the running of the period to file an answer.

An answer, not a motion for reconsideration of the order denying its motion to dismiss, should have been filed within the
reglementary period. The record does not disclose that the proper answer was in fact filed. Withal, there can be no serious challenge
to the reception of evidence for the plaintiff thereafter.

Moreover, notwithstanding its receipt of the order of default on March 6, 1981, petitioner did not even bother to take any steps to
lift said order of default, but it simply folded its arms for five months until the decision was handed down on July 15, 1981. Further
weakening the position of the petitioner is the absence of a viable defense against the documented claims of respondent for unpaid
construction materials purchased by petitioner.

It is to be noted in this regard that not even once, not in its motion to dismiss and not now in its appeal has there been the least
intimation on petitioner’s part that the claim of respondent has been paid. All that petitioner can harp at is the alleged defective
service of summons.

G & G TRADING CORPORATION vs. HON. COURT OF APPEALSG.R. No. L-78299 February 29, 1988

GANCAYCO, J.:

FACTS:

On October 1, 1985, private respondent Lancaster Commercial & Trading Corporationan action for the recovery of a sum of money
with a prayer for the issuance of a writ of preliminary attachment against the herein petitioner G & G Trading Corporation. Summons
was served on a certain Melinda Molo. On November 18, 1985, respondent Judge Baylen of Branch CIII (103) of the Regional Trial
Court of Quezon City granted the issuance of a writ of preliminary attachment on the properties of petitioner corporation.

On December 12, 1985, the counsel of petitioner corporation filed a special appearance and "Urgent Motion to Lift Order of
Attachment" on the ground that jurisdiction over said corporation has not been validly acquired inasmuch as summons and copy of
the complaint were allegedly received by a mere clerical secretary of the corporation. Private respondent corporation filed an
Opposition wherein it stated among others that, "... in the event that the theory of the defendant prevails, the defect can be
remedied with the issuance of an Alias Writ of Summons ...."

However, in an Order dated May 22, 1986, the lower court, through respondent Judge Baylen, denied the motion to lift the writ of
attachment filed by the petitioner corporation.
After the denial of the lower court of its motion for reconsideration, petitioner corporation filed a petition with the Court of Appeals
to declare the Order dated May 22, 1986 null and void with a prayer for the issuance of a restraining order to enjoin respondent
Judge Baylen from further proceeding.

The lower court concluded that there was valid service of summons on petitioner corporation as Melinda C. Molo, who
received the summons, was the secretary of the corporation. The basis of such finding was the lower court's belief that Melinda
Identified herself as the secretary of the corporation when she wrote after her signature the word "secretary" in the return made by
the process server. However, this is denied by the petitioner which insists on the other hand that Melinda is merely its clerical
secretary and not the official secretary of the corporation. To this effect, evidence was presented by petitioner.

ISSUE:

W/N summons was properly served on petitioner G & G Trading Corporation so as to confer jurisdiction on the Regional Trial Court
of Quezon City over this corporation?

HELD:

YES. The law applicable to this case is Section 13 of Rule 14 of the Revised Rules of Court, which provides:

SEC. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation organized under the laws of
the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of
its directors.

The lower court said that at the very least, she can be considered as an 'agent' of the corporation...." The Court of Appeals,
in affirming the decision of the Lower Court, cited the case of Villa-Rey Transit vs. Far East Motor Corporation, which held that the
Assistant General Manager for Operations of Villa-Rey Transit is embraced within the terms "manager" or "agent"as used in Section
13, Rule 14 of the Revised Rules of Court.

What the records show is that the petitioner had actually received the summons and complaint when it was served on Miss
Molo. The Court of Appeals thus correctly maintained that the summons served at the office of petitioner is a substantial compliance
with the rule on the service of summons.

Although it maybe true that the service of summons was made on a person not authorized to receive the same in behalf of the
petitioner, nevertheless since it appears that the summons and complaint were in fact received by the corporation through its said
clerk, the Court finds that there was substantial compliance with the rule on service of summons. Indeed the purpose of said rule as
above stated to assure service of summons on the corporation had thereby been attained. The need for speedy justice must prevail
over a technicality.

SUMMIT TRADING AND DEVELOPMENT CORPORATION vs. JUDGE HERMINIO A. AVENDANO, SEGUNDO PILIPINIA and EDGARDO
MINDOrepresented by ERNESTO PILIPINIA.G.R. No. L-6003, March 18, 1985

FACTS: Segundo Pilipinia and Edgardo Mindo in 1973 acquired under Land Authority Administrative Order No. 4 two registered lots
located at Barrio San Vicente, San Pedro, Laguna. The titles of the lots contain the annotation that should Pilipinia and Mindo sell the
same, they have the right to redeem the lots within five years from the date of the sale. Pilipinia and Mindo sold the lots to Gavino
Ortega on February 14 and April 19, 1977. At the instance of Ortega, the aforesaid annotation was cancelled by Judge Avendaño
ostensibly because the lots would be converted into commercial, industrial or residential sites. However, conversion has not taken
place and the two lots are still ricelands. Ortega resold the two lots on November 14, 1979 to Summit Trading through its president,
Virgilio P. Balaguer. On August 10, 1981, or within the five-year period, Pilipinia and Mindo filed a complaint against Ortega and
Summit Trading for the redemption or repurchase of the two lots.

Ortega was duly summoned. He failed to answer the complaint. He was declared in default. Summit Trading was also declared in
default. The default judgment was rendered on the assumption that Summit Trading was duly summoned through Marina
Saquilayan as secretary of Summit Trading. Actually, Saquilayan received the summons as secretary of Balaguer and not of Summit
Trading as BonifacioTiongson was the corporate secretary. Summit Trading filed a motion for reconsideration on the ground that the
trial court did not acquire jurisdiction over it because summons was not served upon it in accordance with Rule 14 of the Rules of
Court of the Rules of Court which provides:

“SEC. 13.Service upon private domestic corporation or partnership.- If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its
directors.”

ISSUE: W/N the Saquilayan is an agent of the corporation as contemplated by Rule 14, Sec 13 on service of summons?

HELD: Yes.It is true that Saquilayan is not among the persons mentioned in section 13. However, she, being under the control of
Summit Trading, has not explained what she has done with the summons and complaint. The logical assumption is that she delivered
it to her boss, the president of Summit Trading. As already stated, she received a copy of the decision and Summit Trading became
aware of it. Summit Trading's motion for reconsideration was denied. While Summit Trading is technically correct in contending that
there was no strict compliance with section 13, we cannot close our eyes to the realities of the situation. Under the facts of this case,
Saquilayan, being the secretary of the president (whose contact with the outside world is normally through his secretary), may be
regarded as an "agent" within the meaning of section 13 (See Villa Rey Transit, Inc. vs. Far East Motor Corporation, L-31339, January
31, 1978, 81 SCRA 298; Filoil Marketing Corporation vs. Marine Development Corporation of the Phil., L-29636, September 30, 1982,
117 SCRA 86.) In the instant case, service was made on the president's secretary who could have easily notified the president that an
action was filed against the corporation just as she had apprised him of the judgment in this case.

We are not saying that service on such a secretary is always proper. Generally, it is improper. The president himself must be served
personally with the summons if it is desired to effect the service on that particular officer. But, as already stated, under the facts of
this case, the president's secretary may be regarded as the "agent" within the meaning of section 13 since service upon her of the
judgment itself came to the notice of Summit Trading.

13. Viason Corp vs CA

FILOIL MARKETING CORPORATION, plaintiff-appellee, vs. MARINE DEVELOPMENT CORPORATION OF THE PHILIPPINES, defendant-
appellant.

FACTS:

Complaint dated April 25, 1967, for sum of money, more specifically, the sum of P45,604.76, which is the alleged balance
owing from defendant-appellant to plaintiff-appellee.

Summons and complaint were served on defendant-corporation, thru AquilinaSitubal, a house girl of Mr. Victor
Nepomuceno, the General Manager of defendant-corporation. Defendant-corporation, thru counsel Atty. Paulino Al. Aquino and by
way of special appearance, filed on August 4, 1967 a Motion to Dismiss on ground of improper service of summons. Plaintiff filed its
opposition to dismiss.

The lower court in its order dated August 5, 1967 did not dismiss the case; instead, it ordered "that a new summons be
issued to be served in accordance with the provisions of Section 13, Rule 14 of the Revised Rules of Court ... to be complied within a
period of fifteen days from today, (or) otherwise this case would be dismissed.” As no valid summons was served within the period
of fifteen (15) days as required in the order of August 5, 1967, defendant-corporation, through Atty. Paulino Al. Aquino, filed another
Motion to Dismiss. This was opposed by plaintiff, alleging that summons was served on defendant-corporation on August 17, 1967
thru "Mr. Rodolfo Marigmen, Purchasing Chief of Stock of defendant corporation.”
 Arguing that the second service of summons was also improper, defendant- corporation, thru counsel Atty. Paulino Al.
Aquino and likewise by way of special appearance, filed a Supplemental Motion to Dismiss dated September 4, 1967. On the other
hand, plaintiff filed an ex-parte motion to declare defendant in default.

The lower court, in an order directed defendant-corporation's counsel, Atty. Paulino Al. Aquino "to inform the court within
five (5) days from today the whereabouts of the officers of the defendant-corporation so that proper service of summons may be
made on them.” On January 9, 1968, Atty. Aquino filed his compliance, giving the names and addresses of the Officers and Directors
of defendant-corporation. This was followed by an urgent motion and manifestation, filed by plaintiff praying that the secretary of
defendant-corporation be ordered to appear before the lower court "to receive the summons.”

The court ordered "that summons be issued and served through 'the lawyers of the defendant-corporation, Messrs. Syquia
and Associates." Pursuant to this order, plaintiff obtained an alias summons and with the assistance of Special Sheriff Enrique
Escriba, served the summons and complaint on defendant-corporation, through its counsel Atty. Paulino Al. Aquino, an Assistant
Attorney in the Syquia Law Offices.

Plaintiff filed a Motion to declare defendant in default and to allow plaintiff to present its evidence ex parte, The lower
court, in its order granted the same. Plaintiff presented its evidence ex-parte before the Branch Clerk of Court who was appointed
commissioner to receive the evidence. Thereafter, the court rendered a decision sentencing the defendant to pay the plaintiff.

ISSUE: Whether or not the court acquired jurisdiction over the person of the defendant-private corporation when the summons and
copy of the complaint were served on its retained counsel.

RULING:

No. Section 13, Rule 14 of the New Rules of Court, provides:

SEC. 13. Service upon private domestic corporation or partnership.—If the defendant is a corporation organized under the laws of the
Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its
directors.

It is admitted that in this case the summons and copy of the complaint were served upon Atty. Paulino Al. Aquino, an
Assistant Attorney in the Syquia Law Offices and who, in three or four instances, had already appeared in court in connection with
the Motions to Dismiss on the ground of improper service of summons. Section 13, Rule 14 of the Revised Rules of Court, provides
that service of summons upon a domestic corporation may be made on its agent. In the case at bar, where defendant- corporation's
counsel received the summons, he was acting for and in behalf of the defendant in connection with the Motions to Dismiss on the
ground of lack of jurisdiction on the person of the defendant due to improper service of summons. Perforce, he was the defendant's
agent and under the aforecited rule, service upon him is sufficient.

SALOME PABON and VICENTE CAMONAYAN, vs. NATIONAL LABOR RELATIONS COMMISSION and SENIOR MARKETING
CORPORATION

FACTS:

 Complaints for illegal dismissal and non-payment of benefits were filed by Salome Pabon and Vicente Camonayan against
Senior Marketing Corporation (SMC) and its Field Manager, R-Jay Roxas.

 Labor Arbiter rendered a judgmentby default after finding that private respondent tried to evade all the summons and
orders of hearing by refusing to claim all the registered mail addressed to it.
  Instead of appealing the Labor Arbiter's decision to the National Labor Relations Commission (NLRC), private respondent
filed a motion for reconsideration/new trial before the Labor Arbiter. It was only after the said ten-day period had lapsed
that private respondent appealed to the NLRC.

 NLRC reversed.

 Petitioners elevated the case to the Supreme Court via petition for certiorari.

o They alleged that private respondent was properly served with summons through its bookkeeper at its provincial
office address. That by virtue of said service of summons, the Labor Arbiter acquired jurisdiction over private
respondent and that the latter, by deliberately failing to present evidence, cannot now cry transgression of its right
to due process simply because the Labor Arbiter's decision is based solely on petitioners' evidence.

 Private respondent contends that it was not validly served with summons, since its bookkeeper cannot be considered as an
agent under Section 13, Rule 14 of the old Rules of Court upon whom valid service can be made.

ISSUE:

 Whether or not private respondent was properly served with summons.

HELD:

 Yes, summons are properly served.

 In the case at bar, although as a rule, modes of service of summons are strictly followed in order that the court may acquire
jurisdiction over the person of a defendant, such procedural modes, however, are liberally construed in quasi-judicial
proceedings, as in this case, substantial compliance with the same being considered adequate.

 We are of the view that a bookkeeper can be considered as an agent of private respondent corporation within the purview
of Section 13, Rule 14 of the old Rules of Court.

 The rationale of all rules with respect to service of process on a corporation is that such service must be made to an agent
or a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers served on him.

 The bookkeeper's task is one under consideration. The job of a bookkeeper is so integrated with the corporation that his
regular recording of the corporation's "business accounts" and "essential facts about the transactions of a business or
enterprise" safeguards the corporation from possible fraud being committed adverse to its own corporate interest.

 Although it may be true that the service of summons was made on a person not authorized to receive the same in behalf of
the petitioner, nevertheless since it appears that the summons and complaint were in fact received by the corporation
through its said clerk, the Court finds that there was substantial compliance with the rule on service of summons. Indeed
the purpose of said rule as above stated to assure service of summons on the corporation had thereby been attained. The
need for speedy justice must prevail over technicality

 Black's Law Dictionary defines an "agent" as "a business representative, whose function is to bring about, modify, affect,
accept performance of, or terminate contractual obligations between principal and third person." To this extent, an
"agent" may also be shown to represent his principal in some one or more of his relations to others, even though he may
not have the power to enter into contracts.
  The rules on service of process make service on "agent" sufficient. It does not in any way distinguish whether the "agent"
be general or special, but is complied with even by a service upon an agent having limited authority to represent his
principal. As such, it does not necessarily connote an officer of the corporation. However, though this may include
employees other than officers of a corporation, this does not include employees whose duties are not so integrated to the
business that their absence or presence will not toll the entire operation of the business.

Liabilities of Corporate Officers

Ever Electrical Manufacturing vs. Samahang Manggagawa ng Ever Electrical

Facts:

Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation engaged in the business of manufacturing electrical
parts and supplies. On the other hand, the respondents are members of Samahang Manggagawa ng Ever
Electrical/NAMAWU Local 224 (respondents) headed by Felimon Panganiban.

The controversy started when EEMI closed its business operations on October 11, 2006 resulting in the termination of the
services of its employees. Aggrieved, respondents filed a complaint for illegal dismissal with prayer for payment of
13thmonth pay, separation pay, damages, and attorneys fees. Respondents alleged that the closure was made without
any warning, notice or memorandum and in full disregard of the requirements of the Labor Code.

EEMI explained that it had closed the business due to various factors. In 1995, it invested in Orient Commercial Banking
Corporation (Orient Bank) the sum of P500,000,000.00 and during the Asian Currency crises, various economies in the
South East Asian Region were hurt badly. EEMI was one of those who suffered huge losses. In November 1996, it
obtained a loan in the amount of P121,400,000.00 from United Coconut Planters Bank (UCPB). As security for the loan,
EEMIs land and its improvements, including the factory, were mortgaged to UCPB. EEMIs business suffered further
losses due to the continued entry of cheaper goods from China and other Asian countries. Adding to EEMIs financial
woes was the closure of Orient Bank where most of its resources were invested. As a result, EEMI was not able to meet
its loan obligations with UCPB.

In an attempt to save the company, EEMI entered into a dacion en pagoarrangement with UCPB which, in effect,
transferred ownership of the companys property to UCPB.

Originally, EEMI wanted to lease the premises to continue its business operation but under UCPBs policy, a previous
debtor who failed to settle its loan obligation was not eligible to lease its acquired assets. Thus, UCPB agreed to lease it
to an affiliate corporation, EGO Electrical Supply Co, Inc. (EGO), for and in behalf of EEMI. On February 2, 2002, a lease
agreement was entered into between UCPB and EGO.[4] The said lease came to a halt when UCPB instituted an
unlawful detainer suit against EGO before the Metropolitan Trial Court.

the Labor Arbiter(LA) ruled that respondents were not illegally dismissed. It, however, ordered EEMI and its President,
Vicente Go (Go), to pay their employees separation pay and 13th month pay respectively.

the NLRC reversed and set aside the decision of the LA. The NLRC dismissed the complaint for lack of merit and ruled
that since EEMIs cessation of business operation was due to serious business losses, the employees were not entitled to
separation pay.
Issue: 1. Whether the CA erred in finding that the closure of EEMIs operation was not due to business losses;
and

2. Whether the CA erred in finding Vicente Go solidarily liable with EEMI.

Held: The petition is partly meritorious.

1. Article 283 of the Labor Code identifies closure or cessation of operation of the establishment as an authorized
cause for terminating an employee. Similarly, the said provision mandates that employees who are laid off from work due
to closures that are not due to business insolvency should be paid separation pay equivalent to one-month pay or to at
least one-half month pay for every year of service, whichever is higher. A fraction of at least six months shall be
considered one whole year.

Although business reverses or losses are recognized by law as an authorized cause, it is still essential that the alleged
losses in the business operations be proven convincingly; otherwise, this ground for termination of employment would be
susceptible to abuse by conniving employers, who might be merely feigning business losses or reverses in their business
ventures in order to ease out employees.

In this case, EEMI failed to establish that the main reason for its closure was business reverses. As aptly observed by the
CA, the cessation of EEMIs business was not directly brought about by serious business losses or financial reverses, but
by reason of the enforcement of a judgment against it. Thus, EEMI should be required to pay separation pay to its
affected employees.

As a general rule, corporate officers should not be held solidarily liable with the corporation for separation pay for it is
settled that a corporation is invested by law with a personality separate and distinct from those of the persons composing
it as well as from that of any other legal entity to which it may be related. 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 sufficient ground for disregarding
the separate corporate personality.

In the present case, Go may have acted in behalf of EEMI but the companys failure to operate cannot be equated to bad
faith. Cessation of business operation is brought about by various causes like mismanagement, lack of demand,
negligence, or lack of business foresight. Unless it can be shown that the closure was deliberate, malicious and in bad
faith, the Court must apply the general rule that a corporation has, by law, a personality separate and distinct from that of
its owners. As there is no evidence that Go, as EEMIs President, acted maliciously or in bad faith in handling their
business affairs and in eventually implementing the closure of its business, he cannot be held jointly and solidarily liable
with EEMI.

Jaime Gosiaco vs. Leticia GR 173807

Facts:

On 16 February 2000, petitioner Jaime Gosiaco (petitioner) invested P8,000,000.00 with ASB Holdings, Inc. (ASB) by way
of loan. The money was loaned to ASB for a period of 48 days with interest at 10.5% which is equivalent to P112,000.00.
In exchange, ASB through its Business Development Operation Group manager Ching, issued DBS checks no.
0009980577 and 0009980578 for P8,000,000.00 and P112,000.00 respectively. The checks, both signed by Ching, were
drawn against DBS Bank Makati Head Office branch. ASB, through a letter dated 31 March 2000, acknowledged that it
owed petitioner the abovementioned amounts.

Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to deposit the two (2) checks.
However, upon presentment, the checks were dishonored and payments were refused because of a stop payment order
and for insufficiency of funds. Petitioner informed respondents, through letters dated 6 and 10 April 2000, about the
dishonor of the checks and demanded replacement checks or the return of the money placement but to no avail. Thus,
petitioner filed a criminal complaint for violation of B.P. Blg. 22 before the Metropolitan Trial Court of San Juan against the
private respondents.

Ching was arraigned and tried while Casta remained at large. Ching denied liability and claimed that she was a mere
employee of ASB. Such responsibility, she claimed belonged to another department.
Petitioner movedthat ASB and its president, Luke Roxas, be impleaded as party defendants. However, the MTC denied
the motion as the case had already been submitted for final decision.

MTC acquitted Ching of criminal liability but it did not absolve her from civil liability. The MTC ruled that Ching, as a
corporate officer of ASB, was civilly liable since she was a signatory to the checks.

Both petitioner and Ching appealed the ruling to the RTC. Petitioner appealed to the RTC on the ground that the MTC
failed to hold ASB and Roxas either jointly or severally liable with Ching. On the other hand, Ching moved for a
reconsideration which was subsequently denied. Thereafter, she filed her notice of appeal on the ground that she should
not be held civilly liable for the bouncing checks because they were contractual obligations of ASB.

On 12 July 2005, the RTC rendered its decision sustaining Ching's appeal. The RTC affirmed the MTCs ruling which
denied the motion to implead ASB and Roxas for lack of jurisdiction over their persons. The RTC also exonerated Ching
from civil liability and ruled that the subject obligation fell squarely on ASB. Thus, Ching should not be held civilly liable.

Petitioner filed a petition for review with the Court of Appeals on the grounds that the RTC erred in absolving Ching from
civil liability; in upholding the refusal of the MTC to implead ASB and Roxas; and in refusing to pierce the corporate veil of
ASB and hold Roxas liable.

Court of Appeals affirmed the decision of the RTC and stated that the amount petitioner sought to recover was a loan
made to ASB and not to Ching. Roxas testimony further bolstered the fact that the checks issued by Ching were for and in
behalf of ASB. The Court of Appeals ruled that ASB cannot be impleaded in a B.P. Blg. 22 case since it is not a natural
person and in the case of Roxas, he was not the subject of a preliminary investigation. Lastly, the Court of Appeals ruled
that there was no need to pierce the corporate veil of ASB since none of the requisites were present
Issue:

(1) is a corporate officer who signed a bouncing check civilly liable under B.P. Blg. 22;

(2) can a corporation be impleaded in a B.P. Blg. 22 case; and

(3) is there a basis to pierce the corporate veil of ASB?

Held:

“Where the check is drawn by a corporation, company or entity, the person or persons, who actually signed the check in
behalf of such drawer shall be liable under this Act.”

When a corporate officer issues a worthless check in the corporate name he may be held personally liable for violating a
penal statute.The statute imposes criminal penalties on anyone who with intent to defraud another of money or property,
draws or issues a check on any bank with knowledge that he has no sufficient funds in such bank to meet the check on
presentment.Moreover, the personal liability of the corporate officer is predicated on the principle that he cannot shield
himself from liability from his own acts on the ground that it was a corporate act and not his personal act.

The general rule is that a corporate officer who issues a bouncing corporate check can only be held civilly liable when he
is convicted.

We recognize though the bind entwining the petitioner. The records clearly show that it is ASB is civilly obligated
to petitioner. In the various stages of this case, petitioner has been proceeding from the
premise that he is unable to pursue a separate civil action against ASB itself for the recovery of the amounts due from the
subject checks. From this premise, petitioner sought to implead ASB as a defendant to the B.P. Blg. 22 case, even if such
case is criminal in nature.

We are unable to agree with petitioner that he is entitled to implead ASB in the B.P. Blg. 22 case, or any other corporation
for that matter, even if the Rules require the joint trial of both the criminal and civil liability. A basic maxim in statutory
construction is that the interpretation of penal laws is strictly construed against the State and liberally construed against
the accused. Nowhere in B.P. Blg. 22 is it provided that a juridical person may be impleaded as an accused or defendant
in the prosecution for violations of that law, even in the litigation of the civil aspect thereof.

Nonetheless, the substantive right of a creditor to recover due and demandable obligations against a debtor-corporation
cannot be denied or diminished by a rule of procedure. Technically, nothing in Section 1(b) of Rule 11 prohibits the
reservation of a separate civil action against the juridical person on whose behalf the check was
issued. What the rules prohibit is the reservation of a separate civilaction against the natural person charged with violating
B.P. Blg. 22, including such corporate officer who had signed the bounced check.
Let us pursue this point further. B.P. Blg. 22 imposes a distinct civil liability on the signatory of the check which is
distinct from the civil liability of the corporation for the amount represented from the check. The civil liability attaching to
the signatory arises from the wrongful act of signing the check despite the insufficiency of funds in the account,
while the civil liability attaching to the corporation is itself the very obligation covered by the check or the
consideration for its execution. Yet these civil liabilities are mistaken to be indistinct. The confusion is traceable
to the singularity of the amount of each.
If we conclude, as we should, that under the current Rules of Criminal Procedure, the civil action that is impliedly
instituted in the B.P. Blg. 22 action is only the civil liability of the signatory, and not that of the corporation itself, the
distinctness of the cause of action against the signatory and that against the corporation is rendered beyond dispute. It
follows that the actions involving these liabilities should be adjudged according to their respective standards and merits. In
the B.P. Blg. 22 case, what the trial court should determine whether or not the signatory had signed the check with
knowledge of the insufficiency of funds or credit in the bank account, while in the civil case the trial court should ascertain
whether or not the obligation itself
is valid and demandable. The litigation of both questions could, in theory, proceed independently and simultaneously
without being ultimately conclusive on one or the other.

Elcee Farms Inc. v NLRC

Facts:

Pampelo Semillano and one hundred forty-three (143) other complainants, represented by the labor union, Sugar
Agricultural Industrial Labor Organization (SAILO), filed this complaint for illegal dismissal with prayer for reinstatement
with back wages, or in the alternative, separation pay, with damages against Elcee Farms, Corazon Saguemuller, Hilla
Corporation (HILLA), Rey Hilado, and Roberto Montaño. 2 Private respondents alleged that they were all regular farm
workers in Hacienda Trinidad, which was owned and operated by petitioner corporation Elcee Farms. Complainants
alleged that petitioner Corazon Saguemuller was the president of Elcee Farms, but records disclosed that it was her son,
Konrad Saguemuller, who was the president thereof. 3 Some of the complainants allegedly worked in Hacienda Trinidad
as early as 1960. 4 On 27 April 1987, Elcee Farms entered into a Lease Agreement with Garnele Aqua Culture
Corporation (Garnele). Nevertheless, most of the private respondents continued to work in Hacienda Trinidad. On appeal,
they presented payrolls and Social Security System (SSS) Forms E-4 issued during the period that Garnele leased the
hacienda, naming Elcee Farms as their employer. On 15 November 1990, Garnele sub-leased Hacienda Trinidad to
Daniel Hilado, who operated HILLA. The contract of lease executed between Garnele and Daniel Hilado stipulated the
continued employment of 120 of the former's employees by the latter, but the contract was silent as to the benefits which
may accrue to the employees as a consequence of their employment with Elcee Farms. Thus, private respondents were
allowed to continue working in Hacienda Trinidad, under the management of HILLA. Soon after HILLA took over, Daniel
Hilado entered into a Collective Bargaining Agreement (CBA) with the United Sugar Farmers' Organization (USFO) in
which it contains a closed shop provision. Due to their refusal to join the labor union, the private respondents were
terminated by HILLA. On 26 December 1990, SAILO and 144 complainants, including the 131 private respondents herein,
filed against Elcee Farms, Corazon Saguemuller, HILLA and its officers, Ray Hilado and Roberto Montaño, a complaint
for illegal dismissal with reinstatement with back wages and separation pay with damages before the Labor Arbiter.

In a Decision, dated 20 October 1993, the Labor Arbiter noted that of the 144 complainants, only three were able to testify
and only twenty-eight complainants, including the three who testified, signed the joint affidavit executed in support of their
claims. Complainants who were unable to sign the said joint affidavit were dropped as party complainants for failure to
adduce evidence in their favor. The remaining twenty-eight complainants were considered by the Labor Arbiter as regular
employees of HILLA entitled to separation pay, equivalent to one month pay as they were employed by HILLA for a period
less than one year. 12 The Labor Arbiter dismissed their claim for damages and denied all claims made against Elcee
Farms, Corazon Saguemuller, Rey Hilado and Roberto Montaño.

In a Decision dated 29 March 1995, the NLRC affirmed the amount awarded by the Labor Arbiter as separation pay, but
modified the assailed Decision by holding Elcee Farms, Corazon Saguemuller, Rey Hilado and Roberto Montaño liable for
the payment of the aforementioned separation pay, and added to their liability Five Thousand Pesos (P5,000.00) for moral
damages to each of the 28 complainants. The NLRC absolved HILLA and its officers from any liability to the workers since
the dismissal of the complainants was due to their failure to join USFO, in accordance with the closed shop clause found
in its CBA with the USFO. The NLRC found that there was no existing labor union at the time HILLA took legal possession
of Hacienda Trinidad. On the other hand, SAILO filed a petition for certification elections only on 26 December 1990, after
Daniel Hilado entered into the CBA with USFO.

Issue: Whether or not Corazon Sagmueller shall be solidarily liable with Elcee Farms Inc. for the award to the
dismissed employees as the president of the latter corporation.

Held: She is not solidarily liable.

the NLRC absolved HILLA and its officers from any liability to the workers since the dismissal of the complainants was
due to their failure to join USFO, in accordance with the closed shop clause found in its CBA with the USFO. The NLRC
found that there was no existing labor union at the time HILLA took legal possession of Hacienda Trinidad. On the other
hand, SAILO filed a petition for certification elections only on 26 December 1990, after Daniel Hilado entered into the CBA
with USFO. In the case of Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, 35 the Court restated
the rule that corporate directors and officers are solidarily liable with the corporation for the termination of employees done
with malice or bad faith. Bad faith was defined by the Court thus: "It has been held that bad faith does not connote bad
judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means
breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.” In the present case,
the NLRC took into account the testimony of the witness Roel Benignos who said that they believed that petitioner
Corazon Saguemuller was the president of Elcee Farms because the employees would approach her if they needed help,
as well as the fact that her sons were the officers of Elcee Farms and Garnele. Beyond these bare suppositions, no
evidence, oral or documentary, was presented to prove that Corazon Saguemuller was truly the President of Elcee Farms.
Nor was there even proof that she was in active management of the corporation and had dictated policies for
implementation by the corporation. Extending help to private respondents certainly did not automatically vest upon her the
position of President of the corporation. There, likewise, appears to be no evidence on record that she had acted
maliciously or in bad faith in terminating the services of the private respondents; nor has it been shown that she has in any
way consented to the simulated lease contract executed by her sons which effectively terminated the services of the
private respondents.

CHING VS. SECRETARY OF JUSTICE

FACTS:
Ching was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980,
PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of
commercial letters of credit to finance its importation of assorted goods. Under the receipts, petitioner agreed to hold the
goods in trust for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise; and in case
such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances
and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period,
the goods were to be returned to respondent bank without any need of demand. Thus, said “goods, manufactured
products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of
identification” were respondent bank’s property. When the trust receipts matured, petitioner failed to return the goods to
respondent bank, or to return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal
complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila.

ISSUE: Whether or not Ching is liable for Estafa

HELD:

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts
signed by petitioner, as entrustee, with the bank as entruster. The failure of person to turn over the proceeds of the sale of
the goods covered by the trust receipt to the entruster or to return said goods, if not sold, is a public nuisance to be abated
by the imposition of penal sanctions.—It must be stressed that P.D. No. 115 is a declaration by legislative authority that,
as a matter of public policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust
receipt or to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.

Failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or
to return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D.
No. 115, without need of proving intent to defraud.—In Colinares v. Court of Appeals, the Court declared that there are
two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received
under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is
covered by the provision which refers to merchandise received under the obligation to return it (devolvera) to the owner.
Thus, failure of the entrustee to turn over the proceeds of the sale of the goods cov- ered by the trust receipts to the
entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime
under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in
the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A
mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest.

P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code,
or estafa with abuse of confidence.—The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa
under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by
a corporation or other juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the
periods provided in said Article 315.

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ v. THE COURT OF APPEALS and BPI

CARPIO, J.:

FACTS:
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract
with the Philippine Army to supply the latter with survival bolos.
To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation,
applied with respondent Bank of the Philippine Islands (respondent bank) for two commercial letters of credit. The letters
of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated (Tanchaoco Incorporated)
and Maresco Rubber and Retreading Corporation (Maresco Corporation). Respondent bank granted petitioners
application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No.
2-00914-5 for P294,000 to Maresco Corporation.
Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent
bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity,
a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound
himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return
the goods, if not sold, on or before 29 December 1981.
On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt
corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered
by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before
8 December 1981.
After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation,
respondent bank paid the former P564,871.05 and P294,000, respectively.
Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several
demands for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983,
respondent banks counsel and its representative respectively sent final demand letters to El Oro Corporation. El Oro
Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for
the survival bolos.
Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (Section 13)
or Trust Receipts Law (PD 115). After preliminary investigation, the then Makati Fiscals Office found probable cause to
indict petitioners. The Makati Fiscals Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848
and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court)
on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued.
 On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However,
the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal
debt under the trust receipts.
Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal operates to
extinguish [their] civil liability and (2) at any rate, they are not personally liable for El Oro Corporations debts. In
its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling and held that the acquittal of the
accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of
credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers
of El Oro Engraver Corporation, the letter of credit applicant and principal debtor. The trust receipt agreement indicated in
clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound
themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit
which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is
likewise clear that the undertaking of the accused is that of a surety. Having contractually agreed to hold themselves
solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the
Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said
corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee,
notwithstanding their acquittal in the criminal cases filed against them.

ISSUES:
(1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts;

(2) If so, (a) whether petitioners liability is solidary with El Oro Corporation; and (b) whether petitioners acquittal of estafa
under Section 13, PD 115 extinguished their civil liability.

HELD:
A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred
by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they
represent. As an exception, directors or officers are personally liable for the corporations debts only if they so
contractually agree or stipulate.
In the trust receipt dated 9 October 1981, petitioners signed as officers of El Oro Corporation. Thus, under
petitioner Petronila Tupazs signature are the words Vice-PresTreasurer and under petitioner Jose Tupazs
signature are the words Vice-PresOperations. By so signing that trust receipt, petitioners did not bind
themselves personally liable for El Oro Corporations obligation.
For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we
find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro
Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro
Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable
under such trust receipt.
As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory
liabilities under the trust receipt dated 30 September 1981.
Petitioner Jose Tupaz’ Acquittal did not Extinguish his Civil Liability. The rule is that where the civil action
is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal [w]here the
acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the
court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the
felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art.
332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which
the accused was acquitted xxx
Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability.
As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex
delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the
trust receipt of 30 September 1981 in his personal capacity.
CA decision affirmed with modifications: 1) El Oro Engraver Corporation is principally liable for the total amount
due under the trust receipts dated 30 September 1981 and 9 October 1981; 2) Petitioner Jose C. Tupaz IV is liable for El
Oro Engraver Corporations total debt under the trust receipt dated 30 September 1981; and 3) Petitioners Jose C. Tupaz
IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.

C. Stockholders

STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-appellants, vs.REGISTER OF DEEDS OF

MANILA, respondent-appellee.

Facts:

On September 19, 1960, the five stockholders of the F. Guanzon and Sons, Inc. executed a certificate of liquidation of the
assets of the corporation reciting, among other things, that by virtue of a resolution of the stockholders adopted on
September 17, 1960, dissolving the corporation, they have distributed among themselves in proportion to their
shareholdings, as liquidating dividends, the assets of said corporation, including real properties located in Manila.

The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied registration on seven
grounds, of which the following were disputed by the stockholders:

3. The number of parcels not certified to in the acknowledgment;

5. P430.50 Reg. fees need be paid;

6. P940.45 documentary stamps need be attached to the document;

7. The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation need
be presented (Rules of Court, Rule 104, Sec. 3).

Deciding the consulta elevated by the stockholders, the Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

Issue: WON that certificate merely involves a distribution of the corporation's assets or should be considered a
transfer or conveyance.

HELD:

IT SHOULD BE CONSIDERED A TRANSFER OR CONVEYANCE.

A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute
personal property they do not represent property of the corporation. The corporation has property of its own
which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123
N.W. 743). 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 (Hall & Faley v. Alabama Terminal, 173 Ala
398, 56 So., 235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder 36
Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried v.
Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of
the corporate property (Halton v. Hohnston, 166 Ala 317, 51 So 992).

On the basis of the foregoing authorities, it is clear that the act of liquidation made by the stockholders of the F.
Guanzon and Sons, Inc. of the latter's assets is not and cannot be considered a partition of community property,
but rather a transfer or conveyance of the title of its assets to the individual stockholders. Indeed, since the
purpose of the liquidation, as well as the distribution of the assets of the corporation, is to transfer their title from
the corporation to the stockholders in proportion to their shareholdings, — and this is in effect the purpose
which they seek to obtain from the Register of Deeds of Manila, — that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature of a transfer or conveyance

Republic of the Philippines v. Cocofed, et al. G.R. Nos. 147062-64

December 14, 2001

Doctrine:
The right to vote sequestered shares of stock registered in the names of private individuals or entities and alleged to have
been acquired with ill-gotten wealth shall, as a rule, be exercised by the registered owner. The PCGG may, however, be
granted such voting right provided it can (1) show prima facie evidence that the wealth and/or the shares are indeed ill-
gotten; and (2) demonstrate imminent danger of dissipation of the assets, thus necessitating their continued sequestration
and voting by the government until a decision, ruling with finality on their ownership, is promulgated by the proper court.

However, the foregoing “two-tiered test” does not apply when the sequestered stocks are acquired with funds that
are prima facie public in character or, at least, are affected with public interest. Inasmuch as the subject UCPB shares in
the present case were undisputably acquired with coco levy funds which are public in character, then the right to vote
them shall be exercised by the PCGG. In sum, the “public character test, not the “two-tiered” one, applies in the instant
controversy.

J. Panganiban

Facts:
Then Pres. Aquino issued EO Nos. 1, 2, and 14.

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional
takeovers of allegedly ill-gotten companies, assets and properties, real or personal.

Among the properties sequestered by the Commission were shares of stock in the UCPB registered in the names of the
alleged “one million coconut farmers, the so-called Coconut Industry Investment Fund companies (CIIF companies) and
Private Respondent Cojuangco Jr. (hereinafter “Cojuangco”).

In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an action for
reconveyance, reversion, accounting, restitution and damages in the Sandiganbayan.

On November 15, 1990, upon Motion of Private Respondent COCOFED, the Sandiganbayan issued a Resolution lifting
the sequestration of the subject UCPB shares on the ground that herein private respondents — in particular, COCOFED
and the so-called CIIF companies — had not been impleaded by the PCGG as parties-defendants.

This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari in this Court. Meanwhile, upon
motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of Directors of UCPB. However,
the PCGG applied for and was granted by this Court a Restraining Order enjoining the holding of the election.
Subsequently, the Court lifted the Restraining Order and ordered the UCPB to proceed with the election of its board of
directors. Furthermore, it allowed the sequestered shares to be voted by their registered owners.

on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law Office a letter written on behalf of
the COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a stockholders’ meeting
for the purpose of, among others, electing the board of directors. In response, the board approved a Resolution calling for
a stockholders’ meeting on March 6, 2001 at three o’clock in the afternoon.

On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the “Class Action Omnibus Motion referred to earlier in
Sandiganbayan, asking the court a quo:

“1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the
more than one million coconut farmers; and

“2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding
companies including those registered in the name of the PCGG.

Issue:

Who may vote the sequestered UCPB shares while the main case for their reversion to the State is pending in the
Sandiganbayan?
Ruling:
The government should be allowed to continue voting those shares inasmuch as they were purchased with coconut levy
funds — funds that are prima facie public in character or, at the very least, are “clearly affected with public interest.

General Rule: Sequestered SharesAre Voted by the Registered Holder

At the outset, it is necessary to restate the general rule that the registered owner of the shares of a corporation exercises
the right and the privilege of voting. This principle applies even to shares that are sequestered by the government, over
which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On the other hand, it is
authorized to vote these sequestered shares registered in the names of private persons and acquired with allegedly ill-
gotten wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v. Calpo and PCGG v.
Cojuangco Jr., as follows:

(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?

(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting by the PCGG,
while the main issue is pending with the Sandiganbayan?

Sequestered Shares Acquired withPublic Funds Are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG and Cojuangco Jr. v. Roxas has provided two clear
“public character exceptions under which the government is granted the authority to vote the shares:

(1) Where government shares are taken over by private persons or entities who/which registered them in their own
names, and

(2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands.

The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property
registered in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner should be
given the privilege of enjoying the rights flowing from the prima facie fact of ownership.

In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration by
the PCGG. Explained the Court:

“The facts show that the corporation known as BASECO was owned and controlled by President
Marcos ˜during his administration, through nominees, by taking undue advantage of his public office
and/or using his powers, authority, or influence,’ and that it was by and through the same means, that
BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co.,
Inc., and other government-owned or controlled entities.

In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with
public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character
exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.

UCPB Shares Were AcquiredWith Coconut Levy Funds

In the present case before the Court, it is not disputed that the money used to purchase the sequestered UCPB shares
came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds.

Coconut Levy Funds AreAffected With Public Interest

Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold that these
funds and shares are, at the very least, “affected with public interest”.

The Resolution issued by the Court in Republic v. Sandiganbayan stated that coconut levy funds were “clearly affected
with public interest; thus, herein private respondents — even if they are the registered shareholders — cannot be
accorded the right to vote them.

Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima facie public funds,
this Court believes that the government should be allowed to vote the questioned shares, because they belong to it as
the prima facie beneficial and true owner.

As stated at the beginning, voting is an act of dominion that should be exercised by the share owner. One of the
recognized rights of an owner is the right to vote at meetings of the corporation. The right to vote is classified as the right
to control. Voting rights may be for the purpose of, among others, electing or removing directors, amending a charter, or
making or amending bylaws. Because the subject UCPB shares were acquired with government funds, the government
becomes their prima facie beneficial and true owner.

Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other than those
established by law or by the owner. Ownership has been aptly described as the most comprehensive of all real rights. And
the right to vote shares is a mere incident of ownership. In the present case, the government has been shown to be
the prima facie owner of the funds used to purchase the shares. Hence, it should be allowed the rights and privileges
flowing from such fact.

PCGG v COJUANGCO

DOCTRINE: The fact that the sequestration remains does not automatically deprive the stockholders of their right to vote
those shares which is a basic feature of their ownership — although questioned. But in resolving who should vote the
sequestered shares, necessitates a determination of the alleged ill-gotten character of those shares and consequently the
rightful ownership thereof, which issue is still the subject of the main case still pending in the courts.

FACTS: Private respondents (herein respondent Stockholders) other than San Miguel Corporation (SMC) are registered
Stockholders of the latter corporation. A stockholders meeting was scheduled on April 21, 1998 at 2 p.m. During the
pendency of the sequestration suit involving the sequestered shares of SMC, respondent stockholders filed a
motion before the Sandiganbayan (SB) to enjoin petitioner Presidential Commission on Good Government (PCGG) from
voting the PCGG-sequestered shares of stock and instead allow the movants a quo to vote those shares.

SB granted the motion.

ISSUE: Who between petitioners and respondent stockholder should vote the sequestered shares of stock?

HELD: Until the main sequestration suit is resolved, the right to vote the SMC sequestered shares depends on whether
the two-tiered test set by the Court concurs. Those guidelines must be observed by the SB in resolving similar motions
involving the right to vote the said shares, which are:

1. Whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the state; and

2. Whether there is an immediate danger of dissipation thus necessitating their continued sequestration and voting by the
PCGG while the main issue pends with the Sandiganbayan.

W. S. PRICE and THE SULU DEVELOPMENT COMPANY, plaintiffs-appellants,

vs. H. MARTIN, defendant-appellant. THE AGUSAN COCONUT COMPANY, defendant-appellee.

Facts:

Plaintiffs brought suit in the Court of First Instance of Manila praying that a mortgage executed by the Sulu Development
Company on its properties in favor of the Agusan Coconut Company be dissolved and declared null and void, the principal
contentions being that at the stockholders' meeting in which the officers of the Sulu Development Company were elected
and at which the proposed mortgage was approved of, 97 shares of stock of the Sulu Development Company were voted
by the proxy of Mrs. Worcester, in whose name the stock at that time stood upon the books of the company, whereas
defendant Martin claimed that he was the true owner and that he should have voted the stock.

From the records of the Sulu Development Company it appears that at the meeting of November 12, 1925, Martin
presented evidence to the effect that he, and not Mrs. Worcester, was the owner of the 97 shares of stock. Copies of the
documents relied upon by Martin were made a part of the record, but apparently no action was taken by the stockholders
or by the directors, and at the meetings of November 12, 17, and 19, Mrs. Worcester's proxy apparently voted the stock
without protest on the part of Martin or any other stockholder.

As far as the record shows, every formal action taken at those three meetings was unanimous, and Martin at the last two
meetings was accompanied by two members of the Bar of the Philippine Islands as his counsel.

The Sulu Development Company from its inception up to the time of executing the contract was virtually owned and
controlled by Martin. Prince purchased one share of stock about a month before the called meeting but was not present at
the meetings in question.
Another ground relied upon by plaintiffs is a claim that the mortgage was without consideration. The evidence shows that
for years the Agusan Coconut Company, through its general manager, had been advancing sums through Martin in order
that the Sulu Development Company might secure good and sufficient title to a large tract of land situated near Siasi and
thereon develop a coconut plantation. The amount of money so advanced was in dispute, but between the meeting on
November 12 and the final action on November 19, the attorney of the Sulu Development Company, one of whom was
also an accountant, and the attorneys of the Agusan Coconut Company went over the mutual accounts with care and
arrived at the sum set forth in the mortgaged. Had there been no agreement, suit would have been instituted by the
Agusan Company against the Sulu Development Company.

There is also a claim that there was a parol agreement between Martin and Worcester, representing the two companies,
that after the death of Mr. Worcester on May 2, 1924, the Agusan Coconut Company failed to comply with the terms and
conditions of the so-called cultivation agreement, and Martin prayed in his special cross-complaint and counter-claim that
the Defendant Agusan Coconut Company be required to make such further cash advances to "carry out the full scale
development of the tract of land in the cultivation agreement and as contemplated therein."

Issue: WON THE MORTAGE MADE WAS WITHOUT CONSIDERATION

HELD:

YES.

Plaintiffs contend that the transference on the books of the company of 97 shares of stock in the name of Mrs. Worcester
was fraudulent and illegal. The evidence of record, however, under all the circumstances of the case, fails to demonstrate
the allegation of fraud, and this court believes that she acted in good faith and in the honest belief that she had not only a
legal right but a duty to participate in the stockholders meeting.

As to whether the stock was rightfully the property of Martin, that is a question for the courts and for a
stockholder's meeting. Until challenged in a proper proceeding, a stockholder according to the books of the company
has a right to participate in that meeting, and in the absence of fraud the action of the stockholders' meeting cannot be
collaterally attacked on account of such participation. "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
recorder upon the books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be
made." (Morrill vs. Little Falls Mfg. Co., 53 Minn., 371; 21 L.R.A., 175-178, citing Cook, Stock & Stockholders, par. 611;
People vs. Robinson, 64 Cal., 373; Downing vs. Potts, 23 N.J.L., 66; State vs. Ferris, 42 Conn., 560; New York & N.H.R.
Co. vs. Schuyler, 34 N.Y., 80; Bank of Commerce's App., 73 Pa., 59; Hoppin vs. Buffum, 9 R.I., 513; 11 Am. Rep., 219;
Re St. Lawrence S.R. Co., 44 N. J. L., 529.)

As to the question of lack of consideration for the mortgage, throughout the brief for appellants it appears by the constant
reiteration of the phrase that all the advances were made "by the Agusan Coconut Company and/or its then General
Manager, the late Dean C. Worcester, to H. Martin and/or the Sulu Development Company."

It must be remembered that there is no dispute between the Worcester interests and the Agusan Coconut Company as to
who advanced the money, namely, the Agusan Coconut Company, nor is there any difficulty in determining to whom the
money was advanced. Although Martin was virtually the owner of all the capital stock of the Sulu Development Company,
business was carried on in the name of the company, and the land and properties were secured in the name of the
company, and up to the time of the execution of the mortgage and some time thereafter there was no claim from anybody
the money had been advanced to Martin instead of the company. Even a repeated use of the questionable phrase
"and/or" as to the grantor "and/or" as to the grantee, will not fabricate a life-raft on which a recalcitrant debtor can reach a
safe harbor of repudiation.lawphil.net

We are therefore convinced that the contention that the mortgage was made without consideration was a
afterthought without foundation in fact and in a vain attempt to avoid a legal and binding obligation.

Cojuangco Jr. vs RoxasGR No. 91925 April 16, 1991

Gancayco, J,:
Facts :
Petitioners are stockholders of record of SMC, Eduardo Cojuangco Jr. (13,225 shares), Manuel Cojuangco (5,750
shares), and Rafael Abello (5,750 shares). On April 18, 1989, the annual meeting of shareholders of SMC was held.
Among the matters taken up was the election of fifteen members of the board of directors for the ensuing year. Petitioners
were among the twenty four nominees. On the date of the annual meeting, there were 140,849,970 shares outstanding, of
which 133,224,130 shares, or 94.58%, were present at the meeting, either in person or by proxy. Because of PCGG's
claim that the shares of stock were under sequestration, PCGG was allowed to represent and vote the shares of stocks of
certain shareholders amounting to 27,211,770 shares collectively referred to as “corporate shares”.
Representatives of the corporate shares at the meeting claimed that the shares are not under sequestration or
that if they are under sequestration, the PCGG had no right to vote the same. They were overruled. The fifteen individuals
who received the highest number of votes were declared elected with the petitioners receiving the 16 th, 18th, and 19th
highest number of votes respectively.
Petitioners allege that the 27,211,770 shares or a total of 408,176,550 votes representing the corporate shares,
were illegally cast by PCGG and should be counted in favor of petitioners. On May 31, 1989, petitioners filed with the
Sandiganbayan a petition for quo warranto impleading as respondents the fifteen (15) candidates who were declared
elected members of the board of directors of SMC for the year 1989-1990.
In due course, a resolution was rendered by the Sandiganbayan on November 16, 1989, affirming its jurisdiction
over the petition but dismissing it for lack of cause of action on the ground that the PCGG has the right to vote
sequestered shares.
Hence, this petition for certiorari, the main thrust of which is that the right to vote sequestered shares of stock is
vested in the actual shareholders not in the PCGG.

Issue : Whether or not the PCGG may vote the sequestered shares of stock of San Miguel Corporation and elect
its members of the board of directors

Held : No.
The court ruled in BASECO vs PCGG that the PCGG cannot exercise acts of dominion over property
sequestered. It may not vote sequestered shares of stock or elect the members of the board of directors of the corporation
concerned. Equally evident is that the resort to the provisional remedies in question should entail the least possible
interference with business operations or activities so that, in the event that the accusation of the business enterprise being
"ill-gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the
time of sequestration.
The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name;
receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary
to fulfill its mission as conservator and administrator. There should be no exercise of the right to vote simply because the
right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting
power.
The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of sequestered
property. It is a mere conservator. It may not vote the shares in a corporation and elect the members of the board of
directors. The only conceivable exception is in a case of a takeover of a business belonging to the government or whose
capitalization comes from public funds, but which landed in private hands as in BASECO.

THE BOARD OF DIRECTORS AND ELECTION COMMITTEE OF THE SMB WORKERS SAVINGS AND LOAN
ASSOCIATION, INC., ET AL. vs. HON. BIENVENIDO A. TAN, ETC., ET AL.

G.R. No. L-12282 March 31, 1959

PADILLA, J.:

FACTS:

John Castillo et al., commenced a suit in the court of First Instance of Manila to declare null and void election of
the members of the board of directors of the SMB Workers Savings and Loan Association, Inc. and of the members of the
board of directors of the association to call for and hold another election in accordance with its constitution and by-laws
and the Corporation Law; to restain the defendants who had been illegally elected as members of the board of directors
from exercising the functions of their office; to order the defendants to pay the plaintiffs attorney's fees and costs of the
suit; and to grant them other just and equitable. The defendants filed an answer, and after joinder of issues the Court set
the case for trial. On the day set for trial of the case, neither the defendants nor their attorney appeared. The Court
proceeded to received the plaintiffs' evidence. The Court rendered judgment declaring the election held on 11 and 12
January null and void, ordering the defendants to call for and hold another election in accordance with the constitution and
by-laws of the association and the Corporation Law. Before the expiration of the time to appeal, the plaintiffs move for
immediate execution of the judgment. In compliance with the judgment rendered by the Court, on 26 March the election
committee composed of Quintin Tesalona, Manuel Dumaup and Jose' Capinio Santos set the meeting of the members of
the association for 28 March at 5:30 o'clock in the afternoon to elect the new members of the board of directors.
 On 27 March the plaintiff filed an ex-parte motion alleging that the election committee that had called the meeting
of members of the association is composed of the same members that had conducted and supervised the election of the
members of the board of directors that was declared null and void by the Court; that in view thereof it would be inequitable
to allow them to conduct and supervise again the forthcoming election; that the election to be conducted and supervised
by the said committee would not be held in accordance with the constitution and by laws of the association providing for
five days notice to the members before the election, since the notice was posted and sent out only on 26 March, and the
election would be held on 28 March, or two days after notice; that the notice that beginning 26 March any member could
secure his ballot and proxy from the office of the association is in violation of section 5, article III of the constitution and by
laws, which prohibits voting by proxy in the election of members of the board of directors,and that the defendant did not
show that arrangement is being made "to guarantee that the election will be held in accordance with the constitution and
by laws."

ISSUE: W/N the election is null and void for lack of notice?

HELD: YES.Section 3, article III, of the constitution and by-laws the association provides:

“Notice of the time and place of holding of any annual meeting, or any special meeting, the members, shall be given either
by posting the same in a postage prepaid envelope, addressed to each member on the record at the address left by such
member with the Secretary of the Association, or at his known post-office address or by delivering the same person at
least (5) days before the date set for such meeting. . . . In lieu of addressing or serving personal notices to the members,
notice of the members, notice of a regular annual meeting or of a special meeting of the members may be given by
posting copies of said notice at the different departments and plants of the San Miguel Brewery Inc., not less than five (5)
days prior to the date of the meeting”

Notice of a special meeting of the members should be given at leasts five days before the date of the meeting. Therefore,
the five days previous notice required would not be complied with, having issued the notice on March 26, 2 days before
the scheduled march 28 election.

LIM TAY vs., COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF ALFONSO LIM, G.R.
No. 126891. August 5, 1998

FACTS:

Sy Guiok secured a loan from the Petitioner Lim Tay in the amount of P40,000 payable within six (6) months. To secure
the payment of the aforesaid loan and interest thereon, Respondent Guiok pledged his three hundred (300) shares of
stock in the Go Fay & Company Inc., (respondent Corporation). Also, on the same day, Alfonso Sy Lim secured a loan
from the Petitioner in the amount of P40,000 payable in six (6) months. To secure the payment of his loan, Sy Lim
pledged his three hundred (300) shares of stock in Respondent Corporation. Under each respective contracts of pledge,
Sy Guiok and Sy Lim obliged themself to pay interest on his loan at the rate of 10% per annum from the date of the
execution of said contract. Also, the contract stipulates:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the
PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same
at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his
option; and the PLEDGEE is hereby authorized and empowered at his option, to transfer the said shares of stock on the
books of the corporation to his own name and to hold the certificate issued in lieu thereof under the terms of this pledge,
and to sell the said shares to issue to him and to apply the proceeds of the sale to the payment of the said sum and
interest, in the manner hereinabove provided;

Respondent Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon to the Petitioner.
Consequently, Petitioner filed a Petition for Mandamus against Respondent Corporation, with the SEC entitled Lim Tay
versus Go Fay & Company, Inc praying an order be issued directing the corporate secretary of Go Fay & Co., Inc. to
register the stock transfers and issue new certificates in favor of Lim Tay. The SEC dismissed the petition ruling, pursuant
to SC decision on the case of Rural Bank of Salinas, et al. vs CA that he failed to prove the legal basis for the secretary of
the Respondent Corporation to be compelled to register stock transfers in favor of him. On appeal, the CA affirmed the
SEC and debunked petitioners claim that he had acquired ownership over the shares by virtue of novation. Also,
Petitioners claim that he had acquired ownership of the shares by virtue of prescription was likewise dismissed as the
prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover the shares of stock from the Petitioner
accrued only from the time they paid their loans and the interests thereon and made a demand for their return.

ISSUE: W/N Lim tay acquired ownership of the pledged shares of stocks?

HELD: No. Lim Tay was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such
foreclosure is not automatic, for it must be done in a public or private sale. Nowhere did the Complaint mention that
petitioner had in fact foreclosed the pledge and purchased the shares after such foreclosure. His status as a mere
pledgee does not, under civil law, entitle him to ownership of the subject shares. It is also noteworthy that petitioners
Complaint did not aver that said shares were acquired through extraordinary prescription, novation or laches.

Also, In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal
right to the thing demanded and that it is the imperative duty of the respondent to perform the act required. It neither
confers powers nor imposes duties and is never issued in doubtful cases. It is simply a command to exercise a power
already possessed and to perform a duty already imposed. In the present case, petitioner has failed to establish a clear
legal right. Petitioners contention that he is the owner of the said shares is completely without merit.

On Prescription: the right to recover the shares based on the written contract of pledge between petitioner and
respondents would arise only upon payment of their respective loans. Therefore, the prescriptive period within which to
demand the return of the thing pledged should begin to run only after the payment of the loan and a demand for the thing
has been made, because it is only then that respondents acquire a cause of action for the return of the thing pledged.

On Novation: Novation is defined as the extinguishment of an obligation by a subsequent one which terminates it, either
by changing its object or principal conditions, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. The delivery of the pledged shares was merely in compliance with Article 2093 of the
Civil Code, which requires that the thing pledged be placed in the possession of the creditor or a third person of common
agreement; and Article 2095, which states that if the thing pledged are shares of stock, then the instrument proving the
right pledged must be delivered to the creditor.

Lastly, in this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand payment of the
debt. More important, under the contracts of pledge, petitioner could have foreclosed the pledges as soon as the loans
became due. But for still unknown or unexplained reasons, he failed to do so, preferring instead to pursue his baseless
claim to ownership.

DOMINGO PONCE and BUHAY L. PONCE, petitioners, vs. DEMETRIO B. ENCARNACION, Judge of the Court of
First Instance of Manila, Branch I, and POTENCIANO GAPOL, respondents.

G.R. No.L-5883. November 28, 1953

Facts:

This is a petition for a writ of certiorari to annul an order of the respondent court granting Potenciano Gapol authority,
pursuant to section 26, Act No. 1459, otherwise known as the Corporation Law, to call a meeting of the stockholders of
the Dagunoy Enterprises, Inc. and to preside at such meeting by giving proper notice to the stockholders, as required by
law or by laws of the corporation, until after the majority of the stockholders present and qualified to vote shall have
chosen one of them to act as presiding officer of the meeting; another order denying a motion of the petitioners to have
the previous order set aside; and a third order denying a motion to the same effect as the one previously filed.

Daguhoy Enterprises, Inc., was duly registered at a meeting duly called, the voluntary dissolution of the corporation and
the appointment of Potenciano Gapol as receiver were agreed upon.

The respondent Potenciano Gapol, who is the largest stockholder, changed his mind and filed a complaint to compel the
petitioners to render an accounting of the funds and assets of the corporation, to reimburse it, jointly and severally
because they contended that Domingo Ponce, the president of the company, used the company funds for his own benefit.

The petitioner filed an action with the trial court and prayed for an order directing him to a call a meeting of the
stockholders of the corporation and to preside at such meeting in accordance with section 26 of the Corporation law. Trial
court granted their petition.

Issue: W/N under the corporation code, the trial court can validly call for a stockholder’s meeting?

Held:

Yes.

Under and pursuant to section 26 of Act. No. 1459, on the showing of good cause therefor the court may authorize a
stockholder to call a meeting and to preside thereat until the majority stockholders representing a majority of the
stockholders present and permitted to be voted shall have chosen one among them to preside it. And this showing of
good cause therefor exists when court is apprised of the fact that the by-laws of the corporation require the calling of a
general meeting of the stockholders to elect the board of directors but the call for such meeting has not been done.

The requirement that "on the showing of good cause therefor," the court may grant to a stockholder the authority to call
such meeting and to preside thereat does not mean that the petition must be set for hearing with notice served upon the
board of directors. The respondent court was satisfied that there was a showing of good cause for authorizing the
respondent Potenciano Gapol to call a meeting of the stockholders for the purpose of electing the board of directors as
required and provided for in the by-laws, because the chairman of the board of directors called upon to do so had failed,
neglected, or refused to perform his duty.

It may be likened to a writ of preliminary injunction or of attachment which may be issued ex-parte upon compliance with
the requirements of the rules and upon the court being satisfied that the same should be issue. Such provisional reliefs
have not been deemed and held as violative of the due process of law clause of the Constitution.

PETRONILO J. BARAYUGA , petitioner, vs. ADVENTIST UNIVERSITY OF THE PHILIPPINES, THROUGH ITS
BOARD OF TRUSTEES, REPRESENTED BY ITS CHAIRMAN, NESTOR D. DAYSON, respondents.

FACTS:

AUP, a non-stock and non-profit domestic educational institution incorporated under Philippine laws on March 3,
1932, was directly under the North Philippine Union Mission (NPUM) of the Southern Asia Pacific Division of the Seventh
Day Adventists. During the 3rd Quinquennial Session of the General Conference of Seventh Day Adventists held from
November 27, 2000 to December 1, 2000, the NPUM Executive Committee elected the members of the Board of Trustees
of AUP, including the Chairman and the Secretary. Respondent Nestor D. Dayson was elected Chairman while the
petitioner was chosen Secretary.

The Board of Trustees appointed the petitioner President of AUP. During his tenure, or from November 11 to
November 13, 2002, a group from the NPUM conducted an external performance audit. The audit revealed the petitioner's
autocratic management style, like making major decisions without the approval or recommendation of the proper
committees, including the Finance Committee; and that he had himself done the canvassing and purchasing of materials
and made withdrawals and reimbursements for expenses without valid supporting receipts and without the approval of the
Finance Committee. The audit concluded that he had committed serious violations of fundamental rules and procedure in
the disbursement and use of funds.

The NPUM Executive Committee and the Board of Trustees decided to immediately request the services of the
General Conference Auditing Service (GCAS) to determine the veracity of the audit findings. Accordingly, GCAS auditors
worked in the campus from December 4 to December 20, 2002 to review the petitioner's transactions during the period
from April 2002 to October 2002.

The Board of Trustees set a special meeting at 2 p.m. on January 22, 2003. Being the Secretary, the petitioner
himself prepared the agenda and included an item on his case. In that meeting, he provided copies of the auditors' report
and his answers to the members of the Board of Trustees. After hearing his explanations and oral answers to the
questions raised on issues arising from the report, the members of the Board of Trustees requested him to leave to allow
them to analyze and evaluate the report and his answers. Despite a long and careful deliberation, however, the members
of the Board of Trustees decided to adjourn that night and to set another meeting in the following week considering that
the meeting had not been specifically called for the purpose of deciding his case. The adjournment would also allow the
Board of Trustees more time to ponder on the commensurate disciplinary measure to be meted on him.

On January 23, 2003, Chairman Dayson notified the petitioner in writing that the Board of Trustees would hold in
abeyance its deliberation on his answer to the auditors' report and would meet again at 10:00 a.m. on January 27, 2003.
Chairman Dayson indicated that some sectors in the campus had not been properly represented in the January 22, 2003
special meeting, and requested the petitioner as Secretary to ensure that all sectors are duly represented in the next
meeting of the Board of Trustees.

In the January 27, 2003 special meeting, the petitioner sent a letter to the Board of Trustees. The members, by
secret ballot, voted to remove him as President because of his serious violations of fundamental rules and procedures in
the disbursement and use of funds as revealed by the special audit; to appoint an interim committee consisting of three
members to assume the powers and functions of the President; and to recommend him to the NPUM for consideration as
Associate Director for Secondary Education.

On January 28, 2003, the petitioner was handed inside the NPUM office a letter, together with a copy of the
minutes of the special meeting held the previous day. In turn, he handed to Chairman Dayson a letter requesting two
weeks within which to seek a reconsideration, stating that he needed time to obtain supporting documents because he
was then attending to his dying mother. The Board of Trustees denied the petitioner's request for reconsideration because
his reasons were not meritorious. Board Member Elizabeth Role served the notice of the denial on him the next day, but
he refused to receive the notice, simply saying Alam ko na yan.

On February 4, 2003, the petitioner brought his suit for injunction and damages in the RTC, with prayer for the
issuance of a temporary restraining order (TRO), impleading AUP and its Board of Trustees, represented by Chairman
Dayson, and the interim committee. His complaint alleged that the Board of Trustees had relieved him as President
without valid grounds despite his five-year term; that the Board of Trustees had thereby acted in bad faith; and that his
being denied ample and reasonable time to present his evidence deprived him of his right to due process.

RTC: issued the TRO enjoining the respondents and persons acting for and in their behalf from implementing the
resolution removing him as President issued by the Board of Trustees during the January 27, 2003 special meeting, and
enjoining the interim committee from performing the functions of President of AUP. The RTC did not require a bond.

After further hearing, the RTC issued on April 25, 2003 its controversial order, granting the petitioner's application
for a writ of preliminary injunction. It thereby resolved three issues, namely: (a) whether the special board meetings were
valid; (b) whether the conflict-of-interest provision in the By-Laws and Working Policy was violated; and (c) whether the
petitioner was denied due process. It found for the petitioner upon all the issues. On the first issue, it held that there was
neither a written request made by any two members of the Board of Trustees nor proper notices sent to the members as
required by AUP's By-Laws, which omissions, being patent defects, tainted the special board meetings with nullity. Anent
the second issue, it ruled that the purchase of coco lumber from his balae (i.e., mother-in-law of his son) was not covered
by the conflict-of-interest provision, for AUP's Model Statement of Acceptance form mentioned only the members of the
immediate family and did not extend to the relationship between him and his balae. On the third issue, it concluded that he
was deprived of due process when the Board of Trustees refused to grant his motion for reconsideration and his request
for additional time to produce his evidence, and instead immediately implemented its decision by relieving him from his
position without according him the treatment befitting a university President.

CA: respondents filed a Petition for certiorari

- issued a TRO to enjoin the RTC from proceeding for a period of 60 days, and declared that the prayer for injunctive
relief would be resolved along with the merits of the main case.

- rendered its decision nullifying the RTC's writ of preliminary injunction. It rejected the petitioner's argument that Article
IV, Section 3 of AUP's Constitution and By-Laws and Working Policy of the Conference provided a five- year term for
him, because the provision was inexistent. It ruled that the petitioner's term of office had expired on January 22, 2003,
or two years from his appointment, based on AUP's amended By-Laws; that, consequently, he had been a mere de
facto officer appointed by the members of the Board of Trustees; and that he held no legal right warranting the
issuance of the writ of preliminary injunction.

ISSUE: Whether the CA correctly ruled that the petitioner had no legal right to the position of President of AUP
that could be protected by the injunctive writ issued by the RTC.

RULING:

To begin with, the petitioner rested his claim for injunction mainly upon his representation that he was entitled to
serve for five years as President of AUP under the Constitution, By-Laws and Working Policy of the General Conference
of the Seventh Day Adventists (otherwise called the Bluebook). All that he presented in that regard, however, were mere
photocopies of pages 225-226 of the Bluebook. Yet, the document had no evidentiary value. It had not been officially
adopted for submission to and approval of the Securities and Exchange Commission. It was nothing but an unfilled model
form. As such, it was, at best, only a private document that could not be admitted as evidence in judicial proceedings until
it was first properly authenticated in court.

Petitioner's assertion of a five-year duration for his term of office lacked legal basis. Section 108 of the
Corporation Code determines the membership and number of trustees in an educational corporation, viz.:

Section 108.Board of trustees. — Trustees of educational institutions organized as educational corporations shall not be
less than five (5) nor more than fifteen (15): Provided, however, That the number of trustees shall be in multiples of five
(5).

Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of
incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the
term of office of one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular term, shall hold office only for the unexpired period. Trustees elected
thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years . A majority of the trustees shall
constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the by-laws.
 For institutions organized as stock corporations, the number and term of directors shall be governed by
the provisions on stock corporations.

The second paragraph of the provision, although setting the term of the members of the Board of Trustees at five
years, contains a proviso expressly subjecting the duration to what is otherwise provided in the articles of incorporation or
by-laws of the educational corporation. That contrary provision controls on the term of office.

In AUP's case, its amended By-Laws provided the term of the members of the Board of Trustees, and the period
within which to elect the officers, thusly:

Article I

Board of Trustees

Section 1. At the first meeting of the members of the corporation, and thereafter every two years, a Board of Trustees
shall be elected. It shall be composed of fifteen members in good and regular standing in the Seventh-day Adventist
denomination, each of whom shall hold his office for a term of two years, or until his successor has been elected and
qualified. If a trustee ceases at any time to be a member in good and regular standing in the Seventh-day Adventist
denomination, he shall thereby cease to be a trustee.

xxx xxx xxx

Article IV Officers

Section 1.Election of officers. — At their organization meeting, the members of the Board of Trustees shall elect from
among themselves a Chairman, a Vice-Chairman, a President, a Secretary, a Business Manager, and a Treasurer. The
same persons may hold and perform the duties of more than one office, provided they are not incompatible with each
other.

In light of foregoing, the members of the Board of Trustees were to serve a term of office of only two years; and
the officers, who included the President, were to be elected from among the members of the Board of Trustees during
their organizational meeting, which was held during the election of the Board of Trustees every two years. Naturally, the
officers, including the President, were to exercise the powers vested by Section 2 of the amended By-Laws for a term of
only two years, not five years.

Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for only two
years, or until January 22, 2003. By the time of his removal for cause as President on January 27, 2003, he was already
occupying the office in a hold-over capacity, and could be removed at any time, without cause, upon the election or
appointment of his successor. His insistence on holding on to the office was untenable, therefore, and with more reason
when one considers that his removal was due to the loss of confidence on the part of the Board of Trustees.
JOHN GOKONGWEI, JR. vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS,
ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA

FACTS:

 Petitioner, having discovered that respondent corporation has been investing corporate funds in other
corporations and businesses outside of the primary purpose clause of the corporation, he filed with respondent
Commission, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well
as the respondent corporation declared guilty of such violation, and ordered to account for such investments and
to answer for damages
 Respondents issued notices of the annual stockholders' meeting, the Agenda thereof, the Re-affirmation of the
authorization to the Board of Directors to invest corporate funds in other companies or businesses for purposes
other than the main purpose for which the Corporation has been organized, and ratification of the investments
made pursuant thereto.
 Petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private
respondents from taking up the Agenda at the annual stockholders' meeting.
 Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to
May 16 and 17, 1977, or after the scheduled annual stockholders' meeting.
 On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become
moot and academic for the reason, among others that the acts of private respondent sought to be enjoined have
reference to the annual meeting of the stockholder; that in the same meeting, the Agenda was discussed, voted
upon, ratified and confirmed.

ISSUE:

 Whether or not respondent SEC committed grave abuse of discretion in allowing discussion of the Agenda of the
Annual Stockholders' Meeting, and the ratification of the investment in a foreign corporation of the corporate
funds, allegedly in violation of section 17-1/2 of the Corporation Law.

HELD:

 Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for which it was organized" provided that its Board of
Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise
at least two-thirds of the voting power.
  If the investment is made in pursuance of the corporate purpose, it does not need the approval of the
stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the
purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise
at least two-thirds of the voting power is necessary.
 As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in
the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market
beer.
 Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra, appears relevant.
o A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and
subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage,
pledge or dispose of shares, bonds, securities, and other evidence of indebtedness of any domestic or
foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the
approval of stockholders; but when the purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its incorporation, the vote of approval of the
stockholders is necessary.
o A private corporation has the power to invest its corporate funds "in any other corporation or business, or
for any purpose other than the main purpose for which it was organized, provide that 'its board of
directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in
the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a
stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining
corporation shall in anywise be interested in any other agricultural or mining corporation. When the
investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the
approval of the stockholders is not necessary.

Chas Realty and Dev Corps v Talavera

Facts:

Chas Realty and Development Corporation (CRDC) is the owner and developer of a three-hectare shopping complex,
also known as the Megacenter Mall (Megacenter), in Cabanatuan City. Because of factors beyond the control of CRDC,
such as high interest rates on its loans, unpaid rentals of tenants, low occupancy rate, sluggishness of the economy and
the freezing of its bank account by its main creditor, the Land Bank of the Philippines, |||CRDC encountered difficulty in
paying its obligations as and when they fell due and had to contend with collection suits and related cases. A special
meeting of its stockholders was held, during which the majority of the outstanding capital stock of CRDC approved the
resolution authorizing the filing of a petition for rehabilitation CRDC filed for Rehabilitation with RTC attaching thereto its
proposed rehabilitation plan. Angel D. Concepcion, Sr., moved to dismiss and/or to deny the petition for rehabilitation on
the ground that there was no approval by the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock which, according to him, would be essential under paragraph 2(k), Section 2, Rule 4, of the Interim Rules on
Corporate Rehabilitation. Concepcion further asserted that the supposed approval by the directors of the filing of the
petition for rehabilitation was inaccurate considering that the membership of petitioner CRDC's board of directors was still
then being contested and pending final resolution. RTC issued an order directing petitioner within a period of 15 days from
receipt of a copy of this order to secure from its directors and stockholders the desired certification and submit the same in
accordance with the provision of the Interim Rules of Procedure on Corporate Rehabilitation. CRDC filed a special civil
action with CA for certiorari but was denied
Issue: W/N an affirmative vote of at least 2/3 of the outsanding stockholders is necessary in filing a petition for
rehabilitation?
Held: No. SC Reversed CA.
Rule 4, Section 2(k), distinctly provides that, first, under letter (a), the filing of the petition has been duly authorized; and,
second, under letter (b), the directors and stockholders have irrevocably approved and/or consented to, in accordance
with existing laws, all actions or matters necessary and desirable to rehabilitate the debtor including, but not limited to,
amendments to the articles of incorporation and by-laws or articles of partnership; increase or decrease in the authorized
capital stock; issuance of bonded indebtedness, alienation, transfer, or encumbrance of assets of the debtor; and
modification of shareholder's rights|||

Nowhere in Section 2, Rule 4(k) of the Interim Rules of Procedure on Corporate Rehabilitation can it be inferred that an
affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding stock is invariably necessary for
the filing of a petition for rehabilitation regardless of the corporate action that the plan envisions. Just to the contrary, it
only requires in the filing of the petition that the corporate actions therein proposed have been duly approved or
consented to by the directors and stockholders "in consonance with existing laws."

The Court stressed that the said requirement is designed to avoid a situation where a rehabilitation plan, after being
developed and judicially sanctioned, cannot ultimately be seen through because of the refusal of directors or stockholders
to cooperate in the full implementation of the plan.

The rehabilitation plan submitted by petitioner merely consists of a repayment or re-structuring scheme of CRDC's bank
loans to Land Bank of the Philippines and Equitable-PCI Bank and of leasing out most of the available spaces in the
Megacenter, including the completion of the construction of the fourth floor, to increase rental revenues. None of the
proposed corporate actions would require a vote of approval by the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock.

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION vs. MIGUEL LIM et al.

G.R. No. 165887: June 7, 2011

Doctrine: Pre-emptive right under Sec. 39 of the Corporation Code 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. However, even if the
pre-emptive right does not exist, either because the issue comes within the exceptions in Section 39 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.

FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. Reeling from
severe liquidity problems beginning in 1980, RUBY filed on December 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. On April 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 RUBYs stockholders in a
meeting called for the purpose. Notwithstanding the objections of 90% of RUBYs creditors and three members of the
MANCOM, the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY Plan and 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: Whether or not the minority’s pre-emptive rights were violated

HELD: Yes. COMMERCIAL LAW: Corporation Law, Pre-emptive right under Sec. 39 of the Corporation Code 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 Section 39 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 the give-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:

"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" (Additional emphasis supplied.)

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 RUBYs 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, RUBYs corporate term was validly extended, as if such extension would provide the solution to RUBYs 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.

DEE v. SEC

FACTS:
Naga Telephone Company, Inc. was organized in 1954, the authorized capital was P100,000.00. In 1974 Naga
Telephone Co., Inc. (Natelco for short) decided to increase its authorized capital to P3,000,000.00. As required by the
Public Service Act, Natelco filed an application for the approval of the increased authorized capital with the then Board of
Communications under BOC Case No. 74-84. On January 8, 1975, a decision was rendered in said case, approving the
said application subject to certain conditions, among which was:

3. That the issuance of the shares of stocks will be for a period of one year from the date hereof, "after which no further
issues will be made without previous authority from this Board."

Pursuant to the approval given by the then Board of Communications, Natelco filed its Amended Articles of Incorporation
with the Securities and Exchange Commission (SEC for short). When the amended articles were filed with the SEC, the
original authorized capital of P100,000.00 was already paid. Of the increased capital of P2,900,000.00 the subscribers
subscribed to P580,000.00 of which P145,000 was fully paid.

On April 12, 1977, Natelco entered into a contract with Communication Services, Inc. (CSI for short) for the "manufacture,
supply, delivery and installation" of telephone equipment. In accordance with this contract, Natelco issued 24,000 shares
of common stocks to CSI on the same date as part of the downpayment. On May 5, 1979, another 12,000 shares of
common stocks were issued to CSI. In both instances, no prior authorization from the Board of Communications, now the
National Telecommunications Commission, was secured pursuant to the conditions imposed by the decision in BOC Case
NO. 74-84 aforecite

On May 19, 1979, the stockholders of the Natelco held their annual stockholders' meeting to elect their seven directors to
their Board of Directors, for the year 1979-1980. In this election Pedro Lopez Dee (Dee for short) was unseated as
Chairman of the Board and President of the Corporation, but was elected as one of the directors, together with his wife,
Amelia Lopez Dee.

In the election CSI was able to gain control of Natelco when the latter's legal counsel, Atty. Luciano Maggay (Maggay for
short) won a seat in the Board with the help of CSI. In the reorganization Atty. Maggay became president.

The following were elected in the May 19, 1979 election: Atty. Luciano Maggay, Mr. Augusto Federis, Mrs. Nilda Ramos,
Ms. Felipa Javalera, Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee and Mrs Amelia C. Lopez Dee. The last three named
directors never attended the meetings of the Maggay Board. The members of the Maggay Board who attended its
meetings were Maggay. Federis, Ramos and Javalera. The last two were and are CSI representatives (Ibid., p. 812).

Petitioner Dee having been unseated in the election, filed a petition in the SEC docketed as SEC Case No. 1748,
questioning the validity of the elections of May 19, 1979 upon the main ground that there was no valid list of stockholders
through which the right to vote could be determined. A restraining order was issued by the SEC placing petitioner and the
other officers of the 1978-1979 Natelco Board in hold-over capacity

The SEC restraining order was elevated to the Supreme Court in G.R. No. 50885 where the enforcement of the SEC
restraining order was restrained. Private respondents therefore, replaced the hold-over officers
Subsequently, the Supreme Court dismissed the petition in G.R. No. 50885 upon the ground that the same was
premature and the Commission should be allowed to conduct its hearing on the controversy. The dismissal of the petition
resulted in the unseating of the Maggay group from the board of directors of Natelco in a "hold-over" capacity

In the course of the proceedings in SEC Case No. 1748, respondent hearing officer issued an order on June 23, 1981,
declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote; (2) that unexplained 16,858 shares of
Natelco appear to have been issued in excess to CSI which should not be allowed to vote; (3) that 82 shareholders with
their corresponding number of shares shall be allowed to vote; and (4) consequently, ordering the holding of special
stockholder' meeting to elect the new members of the Board of Directors for Natelco based on the findings made in the
order as to who are entitled to vote

THE SEC EN BANC AFFIRMED THE DECISION OF HEARING OFFICER.

Meanwhile on May 20, 1982 (G.R. No. 63922), petitioner Antonio Villasenor (as plaintiff) filed Civil Case No. 1507 with the
Court of First Instance of Camarines Sur, Naga City, against private respondents and co-petitioners, de Jesus, Tordilla
and the Dee's all defendants therein, which was raffled to Branch I, presided over by Judge Delfin Vir Sunga (Rollo, G.R.
No. 63922; pp. 25-30). Villasenor claimed that he was an assignee of an option to repurchase 36,000 shares of common
stocks of Natelco under a Deed of Assignment executed in his favor (Rollo, p. 31). The defendants therein (now private
respondents), principally the Maggay group, allegedly refused to allow the repurchase of said stocks when petitioner
Villasenor offered to defendant CSI the repurchase of said stocks by tendering payment of its price (Rollo, p. 26 and p.
78). The complaint therefore, prayed for the allowance to repurchase the aforesaid stocks and that the holding of the May
22, 1982 election of directors and officers of Natelco be enjoined (Rollo, pp. 28-29).

A restraining order dated May 21, 1982 was issued by the lower court commanding desistance from the scheduled
election until further orders (Rollo, p. 32).

Nevertheless, on May 22, 1982, as scheduled, the controlling majority of the stockholders of the Natelco defied the
restraining order, and proceeded with the elections, under the supervision of the SEC representatives. The group of
Manggay won the election again.

Despite service of the order of May 25, 1982, the Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez
Dee kept insisting no elections were held and refused to vacate their positions (Rollo, Vol. III, p. 985; p. 11).

On May 28, 1982, the SEC issued another order directing the hold-over directors and officers to turn over their respective
posts to the newly elected directors and officers and directing the Sheriff of Naga City, with the assistance of PC and INP
of Naga City, and other law enforcement agencies of the City or of the Province of Camarines Sur, to enforce the
aforesaid order (Rollo, Vol. 11, pp. 577-578).

On June 2, 1982, a charge for contempt was filed by petitioner Villasenor alleging that private respondents have been
claiming in press conferences and over the radio airlanes that they actually held and conducted elections on May 22,
1982 in the City of Naga and that they have a new set of officers, and that such acts of herein private respondents
constitute contempt of court
The RTC found Manggay group guilty of contempt thus a penalty of 6 months imprisonment and a fine of P1000 is
ordered by the court.

An appeal before the CA was made by group of Manggay which reversed the decision of contempt order and that there is
a valid election ordering the hold-over officers to vacate the said office.

Hence, these petitions

ISSUE: Whether or not Natelco stockholders have a right of preemption to the 113,800 shares in question

HELD:

While the group of Luciano Maggay was in control of Natelco by virtue of the restraining order issued in G.R. No. 50885,
the Maggay Board issued 113,800 shares of stock to CSI Petitioner said that the Maggay Board, in issuing said shares
without notifying Natelco stockholders, violated their right of pre-emption to the unissued shares.

This Court in Benito vs. SEC, et al., has ruled that:

Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to
exercise his right of pre-emption over the unissued shares. However, the general rule is that pre-emptive right is
recognized only with respect to new issues of shares, and not with respect to additional issues of originally authorized
shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered
all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they
form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later
re-offered, he cannot therefore (sic) claim a dilution of interest (Benito vs. SEC, et al., 123 SCRA 722).

The questioned issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the
stockholders as claimed by the petitioner. The power to issue shares of stocks in a corporation is lodged in the board of
directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not
need approval of the stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the
issuance of the 113,800 shares to CSI.

DATU TAGORANAO BENITO vs SEC

FACTS:

In February 6, 1959, Articles of Incorporation (AIC) of Jamiatul Philippine-Al Islamia, Inc. (Jamiatul) (originally Kamilol
Islam Institute, Inc.) were filed with the SEC. In December 14, 1962, SEC approved the AIC. The corporation had an
authorized capital stock of P200K divided into 20K shares at a par value of P10 each. Of the authorized capital stock,
8,058 shares worth P80,580.00 were subscribed and fully paid for. Datu Tagoranao Benito subscribed to 460 shares
worth P4,600. In October 28, 1975,a certificate of increase of its capital stock from P200K to P1M
was filed. In November 25, 1975, stockholders meeting was held were P191,560.00 worth of shares were represented.
P110,980 worth of shares were subsequently issued by the corporation from the unissued portion of the authorized capital
stock of P200,000. Of the increased capital stock of P1M0, P160K worth of shares were subscribed by Mrs. Fatima A.
Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto. In November 18, 1976, Datu Tagoranao filed with SEC a
petition alleging that the additional issue (worth P110,980) was made in violation of his pre-emptive right to said additional
issue and that the increase in the authorized capital stock was illegal considering that the stockholders of record were not
notified of the meeting wherein the proposed increase was in the agenda. SEC ruled that the issuance by the corporation
of its unissued shares was validly made and was not subject to the pre-emptive rights of stockholders, SEC also directed
Jamiatul to allow petitioner to subscribe thereto, at par value, proportionate to his present shareholdings, adding thereto
the 2,540 shares transferred to him by Mr. Domocao Alonto and Mrs. Moki-in Alonto.

ISSUES:

1. Whether or not the issuance of the P110,980 of authorized capital stock of P200,000 is in violation of pre-
emptive right.
2. Whether or not the issuance of the increase in the authorized capital stock is in violation of petitioner’s
pre-emptive right.

HELD:

1. No. As a general rule, pre-emptive right is recognized only with respect to new issue of shares, and not with
respect to additional issues of originally authorized shares. Theory is that, when a corporation, at its inception,
offers its first shares, it is presumed to have offered all of those which it is authorized to issue. The original
subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole
number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a
dilution of interest.
2. No. With respect to the claim that the increase in the authorized capital stock was without the consent, expressed
or implied, of the stockholders, it was the finding of the SEC that a stockholders' meeting was held on November
25, 1975, presided over by Mr. Ahmad Domocao Alonto, Chairman of the Board of Trustees and, among the
many items taken up then were the change of name of the corporation from Kamilol Islam Institute Inc. to Jamiatul
Philippine-Al Islamia, Inc., the increase of its capital stock from P200,000.00 to P1,000,000.00, and the increase
of the number of its Board of Trustees from five to nine. "Despite the insistence of petitioner, this Commission is
inclined to believe that there was a stockholders' meeting on November 25, 1975 which approved the increase.
The petitioner had not sufficiently overcome the evidence of respondents that such meeting was in fact held.
What petitioner successfully proved, however, was the fact that he was not notified of said meeting and that he
never attended the same as he was out of the country at the time. The documentary evidence of petitioner
conclusively proved that he was attending the Mecca pilgrimage when the meeting was held on November 25,
1975. While petitioner doubts the authenticity of the alleged minutes of the proceedings, the Commission notes
with significance that said minutes contain numerous details of various items taken up therein that would negate
any claim that it was not authentic. Another thing that petitioner was able to disprove was the allegation in the
certificate of increase that all stockholders who did not subscribe to the increase of capital stock have waived their
pre-emptive right to do so. As far as the petitioner is concerned, he had not waived his pre-emptive right to
subscribe as he could not have done so for the reason that he was not present at the meeting and had not
executed a waiver, thereof. Not having waived such right and for reasons of equity, he may still be allowed to
subscribe to the increased capital stock proportionate to his present shareholdings." Administrative bodies, such
 as SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not supported by substantial evidence.

Imelda Cojuangco vs. Sandiganbayan

Facts:

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

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

The Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares, hence, the Republic
appealed to this Court, docketed as G.R. No. 153459, which appeal was later consolidated with pending cases of similar
import G.R. Nos. 149802, 150320, and 150367.

By Decision[3] dated January 20, 2006, this Court, in G.R. No. 153459, ruled in favor of the Republic, declaring it to be the
owner of 111,415 PTIC shares registered in the name of Prime Holdings.

The Decision became final and executory on October 26, 2006, hence, the Republic filed on November 20, 2006 with the
Sandiganbayan a Motion for the Issuance of a Writ of Execution, praying for the cancellation of the 111,415
shares/certificates of stock registered in the name of Prime Holdings and the annotation of the change of ownership on
PTICs Stock and Transfer Book. The Republic further prayed for the issuance of an order for PTIC to account for all cash
and stock dividends declared and/or issued by PLDT in favor of PTIC from 1986 up to the present including compounded
interests appurtenant thereto.

On Motion for Reconsideration of the Republic, the Sandiganbayan, by the first assailed Resolution dated November 7,
2007, directed PTIC to deliver the cash and stock dividends pertaining to the 111,415 shares, including compounded
interests, ratiocinating that the same were covered by this Courts Decision in G.R. No. 153459, since the Republic was
therein adjudged the owner of the shares and, therefore, entitled to the fruits thereof.

The Cojuangcos (hereafter petitioners) moved to reconsider the November 7, 2007 Sandiganbayan Resolution, alleging
that this Courts Decision in G.R. No. 153459 did not include a disposition of the dividends and interests accruing to the
shares adjudicated in favor of the Republic.

Issue: (1) whether the Sandiganbayan gravely abused its discretion in ordering the accounting, delivery, and
remittance to the Republic of the stock, cash, and property dividends pertaining to the 111,415 PTIC shares of
Prime Holdings, this Courts Decision in G.R. No. 153459not having even discussed the same; and
(2) whether the Republic, having transferred the shares to a third party, is entitled to the dividends, interests, and
earnings thereof.

Held: The term dividend in its technical sense and ordinary acceptation is that part or portion of the profits of the
enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the capital
stock.[5]It is a payment to the stockholders of a corporation as a return upon their investment,[6] and the right thereto is
an incident of ownership of stock.[7]

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

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 what it produces.

while the general rule is that the portion of a decision that becomes the subject of execution is that ordained or decreed in
the dispositive 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 dispositive part of a
decision must find support from the decisions ratio decidendi; and (b).where extensive and explicit discussion and
settlement of the issue is found in the body of the decision.

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

It would be absurd to award the shares to the Republic as their owner and not include the dividends and interests
accruing thereto. An owner who cannot exercise the juses or attributes of ownership -- the right to possess, to use and
enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate, and to the fruits - is a crippled
owner.

Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a
certain future date, as the case may be, unless the parties have agreed otherwise.[11] And a transfer of shares which is
not recorded in the books of the corporation is valid only as between the parties, hence, the transferor has the right to
dividends as against the corporation without notice of transfer but it serves as trustee of the real owner of the dividends,
subject to the contract between the transferor and transferee as to who is entitled to receive the dividends.[12]

It is thus clear that the Republic is entitled to the dividends accruing from the subject 111,415 shares since 1986 when
they were sequestered up to the time they were transferred to Metro Pacific via the Sale and Purchase Agreement of
February 28, 2007;[13] and that the Republic has since the latter date been serving as trustee of those dividends for the
Metro Pacific up to the present, subject to the terms and conditions of the said agreement they entered into.
Republic Planters vs. Agana, 269 SCRA 1, 1997

Facts:

On September 18, 1961, private respondent Corporation secured a loan from petitioner in the amount of P120,000.00. As
part of the proceeds of the loan, preferred shares of stocks were issued to private respondent Corporation, through its
officers then, private respondent Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan, which is P120,000.00, petitioner lent such amount partially in the form of
money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value
of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of private
respondent Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.

Said certificates of stock bear the following terms and conditions:

"The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit:

1. Of the right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating.

xxx

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

On January 31, 1979, 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.

Petitioner filed a Motion to Dismiss private respondents' Complaint on the following grounds: (1) that the trial court had no
jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive law; and (3) that
the action was barred by the statute of limitations and/or laches.

Petitioner's Motion to Dismiss was denied by the trial court.

On September 7, 1979, the trial court rendered the herein assailed decision in favor of private respondents. In ordering
petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1% quarterly
interest thereon until full payment.

Issue:
 RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN DISREGARDING THE ORDER OF THE CENTRAL BANK TO PETITIONER TO DESIST FROM
REDEEMING ITS PREFERRED SHARES AND FROM PAYING DIVIDENDS THEREON

Held:

The petition is meritorious.

Before passing upon the merits of this petition, it may be pertinent to provide an overview on the nature of preferred
shares and the redemption thereof, considering that these issues lie at the heart of the dispute.

A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of
common stock. The preferences are designed to induce persons to subscribe for shares of a corporation. Preferred
shares take a multiplicity of forms. The most common forms may be classified into two: (1) preferred shares as to assets;
and (2) preferred shares as to dividends. The former is a share which gives the holder thereof preference in the
distribution of the assets of the corporation in case of liquidation; the latter is a share the holder of which is entitled to
receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common
stock. There is no guaranty, however, that the share will receive any dividends. Under the old Corporation Law in force at
the time the contract between the petitioner and the private respondents was entered into, it was provided that "no
corporation shall make or declare any dividend except from the surplus profits arising from its business, or distribute its
capital stock or property other than actual profits among its members or stockholders until after the payment of its debts
and the termination of its existence by limitation or lawful dissolution." Similarly, the present Corporation Code] provides
that the board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings. The
Code, in Section 43, adopting the change made in accounting terminology, substituted the phrase unrestricted retained
earnings," which may be a more precise term, in place of "surplus profits arising from its business" in the former law.
Thus, the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings, as
the case may be. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of
the corporation nor make them creditors of the corporation, the right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits earned by the corporation and as a general rule, even if there are
existing profits, the board of directors has the discretion to determine whether or not dividends are to be
declared. Shareholders, both common and preferred, are considered risk takers who invest capital in the business and
who can look only to what is left after corporate debts and liabilities are fully paid.

Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable at a fixed date,
or at the option of either issuing corporation, or the stockholder, or both at a certain redemption price.A redemption by the
corporation of its stock is, in a sense, a repurchase of it for cancellation. The present Code allows redemption of shares
even if there are no unrestricted retained earnings on the books of the corporation. This is a new provision which in effect
qualifies the general rule that the corporation cannot purchase its own shares except out of current retained
earnings. However, while redeemable shares may be redeemed regardless of the existence of unrestricted retained
earnings, this is subject to the condition that the corporation has, after such redemption, assets in its books to cover debts
and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the corporation is insolvent or if
such redemption will cause insolvency or inability of the corporation to meet its debts as they mature.
The respondent judge also stated that since the stock certificate granted the private respondents the right to receive a
quarterly dividend of one Per Centum (1%), cumulative and participating, it "clearly and unequivocably (sic) indicates that
the same are 'interest bearing stocks' or stocks issued by a corporation under an agreement to pay a certain rate of
interest thereon. As such, plaintiffs (private respondents herein) become entitled to the payment thereof as a matter of
right without necessity of a prior declaration of dividend." There is no legal basis for this observation. Both Sec. 16 of the
Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is
not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or surplus only. Clearly, the respondent judge, in compelling the
petitioner to redeem the shares in question and to pay the corresponding dividends, committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as
well as the clear mandate of the law.

Fisher v Trinidad

Facts: That during the year 1919 the Philippine American Drug Company was a corporation duly organized and existing
under the laws of the Philippine Islands, doing business in the city of Manila; that the appellant was a stockholder in said
corporation; that said corporation, as a result of the business for that year, declared a "stock dividend;" that the
proportionate share of said stock dividend of the appellant was P24,800; that the stock dividend for that amount was
issued to the appellant; that thereafter, in the month of March, 1920, the appellant, upon demand of the appellee, paid,
under protest, and involuntarily, unto the appellee the sum of P889.91 as income tax on said stock dividend. For the
recovery o that sum (P889.91) the present action was instituted. The defendant demurred to the petition upon the ground
that it did not state facts sufficient to constitute cause of action. The demurrer was sustained and the plaintiff appealed. To
sustain his appeal the appellant cites and relies on some decisions of the Supreme Court of the United States as well as
the decisions of the supreme courts of some of the states of the Union, in which the question before us, based upon
similar statutes, was discussed. Among the most important decisions may be mentioned the following: Towne vs. Eisner,
245 U. S., 418; Doyle vs. Mitchell Bros. Co., 247 U. S., 179; Eisner vs. Macomber, 252 U. S., 189; Dekoven vs. Alsop,
205 Ill., 309; 63 L. R. A., 587; Kaufman vs. Charlottesville Woolen Mills, 93 Va., 673. In each of said cases an effort was
made to collect an "income tax" upon "stock dividends" and in each case it was held that "stock dividends" were capital
and not an "income" and therefore not subject to the "income tax law.” The appellee admits the doctrine established in
the case of Eisner vs. Macomber (252 U.S., 189), that a "stock dividend" is not "income" but argues that said Act No.
2833, in imposing the tax on the stock dividend, does not violate the provisions of the Jones Law. The appellee further
argues that the statute of the United States providing for tax upon stock dividends is different from the statute of the
Philippine Islands, and therefore the decision of the Supreme Court of the United States should not be followed in
interpreting the statute in force here.

Issue: Whether or not stock dividends are income therefore should be subject to income tax.
Held: Stock dividends are not income. Generally speaking, stock dividends represent undistributed increase in the capital
of corporations of firms, joint stock companies, etc., for a particular period. They are used to show the increased interest
or proportional share in the capital of each stockholder. In other words, the inventory of the property of the corporation,
etc., for a particular period shows an increase in its capital, so that the stock theretofore issued does not show the real
value of the stockholder's interest, and additional stock is issued showing the increase in the actual capital, or property, or
asset of the corporation, etc. The New Standard Dictionary, edition of 1915, defines an income as "the amount of money
coming to a person or corporation within a specified time whether as payment for services, interest, or profit from
investment." Webster's International Dictionary defines an income as "the receipts, salary; especially, the annual receipts
of a private person or a corporation from property." Bouvier, in his law dictionary, says that an "income" in the federal
constitution and income tax act, is used in its common or ordinary meaning and not in its technical or economic sense.
(146 Nortwestern Reporter, 812,) Mr. Black in his law dictionary says: "An income is the return in money from one's
business, labor, or capital invested; gains, profit, or private revenue." "An income tax is a tax on the yearly profits arising
from property, professions, trades, and offices.” For bookkeeping purposes, when stock dividends are declared, the
corporation or company acknowledges a liability, in form, to the stockholders, equivalent to the aggregate par value of
their stock, evidenced by a "capital stock account." If profits have been made by the corporation during a particular period
and not divided, they create additional bookkeeping liabilities under the head of "profit and loss," "undivided profits,"
"surplus account," etc., or the like. None of these, however, gives to the stockholders as a body, much less to any one of
them, either a claim against the going concern or corporation, for any particular sum of money, or a right to any particular
portion of the asset, or any share unless or until the directors conclude that dividends shall be made and a part of the
company's assets segregated from the common fund for that purpose. The dividend normally is payable in money and
when so paid, then only does the stockholder realize a profit or gain, which becomes his separate property, and thus
derive an income from the capital that he has invested. Until that is done the increased assets belong to the corporation
and not to the individual stockholders.

When a corporation or company issues "stock dividends" it shows that the company's accumulated profits have been
capitalized, instead of distributed to the stockholder or retained as surplus available for distribution, in money or in kind,
should opportunity offer. Far from being a realization of profits of the stockholder, it tends rather to postpone said
realization, in that the fund represented by the new stock has been transferred from surplus to assets, and no longer is
available for actual distribution. The essential and controlling fact is that the stockholder has received nothing out of the
company's assets for his separate use and benefit; on the contrary, every dollar of his original investment, together with
whatever accretions and accumulations resulting from employment of his money and that of the other stockholders in the
business of the company, still remains the property of the company, and subject to business risks which may result in
wiping out the entire investment.

Having regard to the very truth of the matter, to substance and not to form, the stockholder by virtue of the stock dividend
has in fact received nothing that answers the definition of an "income.” The stockholder who receives a stock dividend
has received nothing but a representation of this increased interest in the capital of the corporation. There has been no
separation or segregation of his interest. All the property or capital of the corporation still belongs to the corporation. There
has been no separation of the interest of the stockholder from the general capital of the corporation. The stockholder, by
virtue of the stock dividend, has no separate or individual control over the interest represented thereby, further than he
had before the stock dividend was issued. He cannot use it for the reason that it is still the property of the corporation and
not the property of the individual holder of the stock dividend. A certificate of stock represented by the stock dividend is
simply a statement of his proportional interest or participation in the capital of the corporation. For bookkeeping purposes,
a corporation, by issuing stockholders, evidenced by a capital stock account. The receipt of a stock dividend in no way
increases the money received by the stockholder nor his cash account at the close of the year. It simply shows that there
has been an increase in the amount of the capital of the corporation during the particular period, which may be due to an
increased business or to a natural increase of the value of the capital due to business, economic, or another reason. We
believe that the Legislature, when it provided for an "income tax," intended to tax only the "income" of corporations, firms,
or individuals, as that term is generally used in its common acceptation; that is, that the income means money received,
common to a person or corporation for services, interest, or profit from investments. We do not believe that the Legislature
intended that a mere increase in the value of the capital or assets of a corporation, firm, or individual, should be taxed as
"income." Such property can be reached under the ordinary form of taxation. There is a clear distinction between an
extraordinary cash dividend, no matter when earned, and stock dividends declared, as in the present case. The one is a
disbursement to the stockholder of accumulated earnings, and the corporation at once parts irrevocably with all interest
thereon.

The other involves no disbursement by the corporation. It parts with nothing to the stockholder. The latter receives, not an
actual dividend, but certificate of stock which simply evidences his interest in the entire capital, including such as by
investment of accumulated profits has been added to the original capital. They are not income to him, but represent
additions to the source of his income, namely, his invested capital. Such a person is in the same position, so far as his
income is concerned, as the owner of a young domestic animal, one year old at the beginning of the year, which is worth
P50 and, which, at the end of the year, and by reason of its growth, is worth P100. The value of his property has
increased, but has he had an income during the year? It is true that he had taxable property at the beginning of the year of
the value of P50, and the same taxable property at another period, of the value of P100, but he has had no income in the
common acceptation of that word. The increase in the value of the property should take account of on the tax duplicate for
the purpose of ordinary taxation, but not as income for he has had none. The distinction between the title of a corporation,
and the interest of its members or stockholder in the property of the corporation, is familiar and well settled. The
ownership of that property is in the corporation, and not in the holders of shares of its stock. The interest of each
stockholders consist in the right to a proportionate part of the profits whenever dividends are declared by the corporation,
during its existence, under its charter, and to a like proportion of the property remaining, upon the termination or
dissolution of the corporation, after payment of its debts. There is a clear distinction between an extraordinary cash
dividend, no matter when earned, and stock dividends declared. The one is a disbursement to the stockholders of
accumulated earning, and the corporation at once parts irrevocably with all interest therein. The other involves no
disbursement by the corporation. It parts with nothing to the stockholders. The latter receives, not an actual dividend, but
certificates of stock which evidence in a new proportion his interest in the entire capital. When a cash dividend is declared
and paid to the stock holders, such cash dividend is declared and paid to the stockholder, such cash becomes the
absolute property of the stockholder and cannot be reached by the creditors of the corporation in the absence of fraud.

A stock dividend, however, still being the property of the corporation, and not of the stockholder, it may be reached by an
execution against the corporation, and sold as a part of the property of the corporation. In such a case, if all of the
property of the corporation is sold, then the stockholder certainly could not be charged with having received an income by
virtue of the issuance of the stock dividend. Until the dividend is declared and paid, the corporate profits still belong to the
corporation, not to the stockholders, and are liable for corporate indebtedness. The rule is well established that cash
dividends, whether large or small, are regarded as "income" and all stock dividends, as capital or assets. If the ownership
of the property represented by a stock dividend is still in the corporation and not in the holder of such stock, then it is
difficult to understand how it can be regarded as income to the stockholder and not as a part of the capital or assets of the
corporation. (Gibbons vs. Mahon, supra.) The stockholder has received nothing but a representation of an interest in the
property of the corporation and, as a matter of fact, he may never receive anything, depending upon the final outcome of
the business of the corporation. The entire assets of the corporation may be consumed by mismanagement, or eaten up
by debts and obligations, in which case the holder of the stock dividends will never have received an income from his
investment in the corporation. A corporation may be solvent and prosperous today and issue stock dividends in
representation of its increased assets, and tomorrow be absolutely insolvent by reason of changes in business conditions,
and in such a case the stockholder would have received nothing from his investment. In such a case, if the holder of the
stock dividend is required to pay an income tax on the same, the result would be that he has paid a tax upon an income
which he never received. Such a conclusion is absolutely contradictory to the idea of an income. An income subject to
taxation under the law must be and actual income and not a promised or prospective income.

NIELSON AND CO. VS. LEPANTO CONSOLIDATED MINING CO

FACTS:

On January 30, 1937, the parties have entered into an operating agreement wherein Nielson & Co. would operate
and manage the mining properties owned by Lepanto Consolidated Mining Co. for a period of five years. Before the lapse
of the five year period, the parties have renewed the contract for another five years with modifications made by Lepanto
on the management fee.

On its modified contract Nielson will receive (1) 10% of the dividends declared and paid, when and as paid during the
period of the contract and at the end of each year, (2) 10% of any depletion reserve that may set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital account.

In January, 1942 operation of the mining properties was disrupted on account of the war. The Japanese forces
thereafter occupied the mining properties, operated the mines during the continuance of the war, and who were ousted
from the mining properties only in August of 1945.

After the mining properties were liberated from the Japanese forces, Lepanto took possession thereof and
embarked in rebuilding and reconstructing the mines and mill. The restoration lasted for nearly three years and the mines
have resumed its operation under the exclusive management of Lepanto.

Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between
NIELSON and LEPANTO over the status of the operating contract in question which as renewed expired in 1947.

ISSUE: Whether or not Nielson is entitled to his share in the stock dividends.

HELD:

Stock dividends cannot be issued to a person who is not a stockholder in payment of services rendered.
Section 16 of the Corporation Law, in part, provides a follows:

No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for circulation
as money, and no corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for:
(1) property actually received by it at a fair valuation equal to the par or issued value of the stock or bonds so issued; and
in case of disagreement as to their value, the same shall be presumed to be the assessed value or the value appearing in
invoices or other commercial documents, as the case may be; and the burden or proof that the real present value of the
property is greater than the assessed value or value appearing in invoices or other commercial documents, as the case
may be, shall be upon the corporation, or for (2) profits earned by it but not distributed among its stockholders or
members; Provided, however, That no stock or bond dividend shall be issued without the approval of stockholders
representing not less than two-thirds of all stock then outstanding and entitled to vote at a general meeting of the
corporation or at a special meeting duly called for the purpose.

In the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for
services it rendered under the management contract. We sustain the contention of Lepanto that the understanding
between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for
determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the
stock dividends declared. In other words, Nielson must still be paid his 10% fee using as the basis for computation the
cash value of the stock dividends declared.

Moreover, from the above-quoted provision of Section 16 of the Corporation Law, the consideration for which
shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the
special name “stock dividends” only if they are issued in lieu of undistributed profits. If shares of stocks are issued in
exchange of cash or property then those shares do not fall under the category of “stock dividends”. A corporation may
legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of
property, because services is equivalent to property.14 Likewise a share of stock issued in payment of indebtedness is
equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital
stock of the corporation upon its organization, or part of the stocks issued when the increase of the capitalization of a
corporation is properly authorized. In other words, it is the shares of stock that are originally issued by the corporation and
forming part of the capital that can be exchanged for cash or services rendered, or property; that is, if the corporation has
original shares of stock unsold or unsubscribed, either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person already a
stockholder in exchange for services rendered or for cash or property. But a share of stock coming from stock dividends
declared cannot be issued to one who is not a stockholder of a corporation.

A “stock dividend” is any dividend payable in shares of stock of the corporation declaring or authorizing such
dividend.

So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced use of the dividend money to
purchase additional shares of stock at par.16 When a corporation issues stock dividends, it shows that the corporation’s
accumulated profits have been capitalized instead of distributed to the stockholders or retained as surplus available for
distribution, in money or kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends
rather to postpone said realization, in that the fund represented by the new stock has been transferred from surplus to
assets and no longer available for actual distribution.17 Thus, it is apparent that stock dividends are issued only to
stockholders. This is so because only stockholders are entitled to dividends. They are the only ones who have a right to a
proportional share in that part of the surplus which is declared as dividends. A stock dividend really adds nothing to the
interest of the stockholder; the proportional interest of each stockholder remains the same.18If a stockholder is deprived
of his stock dividends – and this happens if the shares of stock forming part of the stock dividends are issued to a non-
stockholder — then the proportion of the stockholder’s interest changes radically. Stock dividends are civil fruits of the
original investment, and to the owners of the shares belong the civil fruits.

FIL-ESTATE GOLF AND DEVELOPMENT, INC. and FILESTATE LAND, INC.v. VERTEX SALES AND TRADING, INC.

BRION, J.:

FACTS:

FEGDI is a stock corporation whose primary business is the development of golf courses. FELI is also a stock
corporation engaged in real estate development. FEGDI was the developer of the Forest Hills Golf and Country Club
(Forest Hills) and, in consideration for its financing support and construction efforts, was issued several shares of stock of
Forest Hills.

Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion Construction Corporation (RSACC) one
Class "C" Common Share of Forest Hills for ₱1,100,000.00. Prior to the full payment of the purchase price, RSACC sold,
on February 11, 1999, the Class "C" Common Share to respondent Vertex Sales and Trading, Inc. (Vertex). RSACC
advised FEGDI of the sale to Vertex and FEGDI, in turn, instructed Forest Hills to recognize Vertex as a shareholder. For
this reason, Vertex enjoyed membership privileges in Forest Hills.

Despite Vertex’s full payment, the share remained in the name of FEGDI. Seventeen (17) months after the sale
(or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance of a stock certificate in its name. FELI replied,
initially requested Vertex to first pay the necessary fees for the transfer. Although Vertex complied with the request, no
certificate was issued.

As the demand went unheeded, Vertex filed on January 7, 2002 a Complaint for Rescission with Damages and
Attachment against FEGDI, FELI and Forest Hills. It averred that the petitioners defaulted in their obligation as sellers
when they failed and refused to issue the stock certificate covering the subject share despite repeated demands. On the
basis of its rights under Article 1191 of the Civil Code, Vertex prayed for the rescission of the sale and demanded the
reimbursement of the amount it paid (or ₱1,100,000.00), plus interest. During the pendency of the rescission action (or on
January 23, 2002), a certificate of stock was issued in Vertex’s name, but Vertex refused to accept it.

The RTC dismissed the complaint for insufficiency of evidence. It ruled that delay in the issuance of stock
certificates does not warrant rescission of the contract as this constituted a mere casual or slight breach. It also observed
that notwithstanding the delay in the issuance of the stock certificate, the sale had already been consummated; the
issuance of the stock certificate is just a collateral matter to the sale and the stock certificate is not essential to "the
creation of the relation of shareholder.

In its decision, the CA reversed the RTC and rescinded the sale of the share. Citing Section 63 of the
Corporation Code, the CA held that there can be no valid transfer of shares where there is no delivery of the stock
certificate. It considered the prolonged issuance of the stock certificate a substantial breach that served as basis for
Vertex to rescind the sale. Thus, this petition.

ISSUE:

WON the delay in the issuance of a stock certificate can be considered a substantial breach as to warrant rescission of
the contract of sale? YES.

HELD:

Section 63 of the Corporation Code provides:

“SEC. 63.Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the
corporation.”

In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only
delivered on January 23, 2002 after Vertex filed an action for rescission against FEGDI.

Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock purchased by Vertex, within a reasonable time from the point the
shares should have been delivered. This was a substantial breach of their contract that entitles Vertex the right to
rescind the sale under Article 1191 of the Civil Code. It is not entirely correct to say that a sale had already been
consummated as Vertex already enjoyed the rights a shareholder can exercise. The enjoyment of these rights cannot
suffice where the law, by its express terms, requires a specific form to transfer ownership.

"Mutual restitution is required in cases involving rescission under Article 1191" of the Civil Code; such restitution
is necessary to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the
amount paid to FEGDI by reason of the sale should be returned to Vertex.
 In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller, and Vertex, as buyer. As can
be seen from the records, FELl was only dragged into the action when its staff used the wrong letterhead in replying to
Vertex and issued the wrong receipt for the payment of transfer taxes. Thus FELl should be absolved from any liability.

WHEREFORE, we hereby DENY the petition.

Repubic vs Estate of Hans Manzi

Facts:

The Republic, in G.R. No. 152758, assails the afore-quoted Decision insofar as it declared as not ill-gotten wealth of the
Marcos spouses the 154,472 shares (154 block) sold by Menzi to U.S. Automotive Co., Inc. (US Automotive) and
dismissed the Republics claim for damages.

In 1957, Menzi purchased the entire interest in Bulletin from its founder and owner, Mr. Carson Taylor. In 1961, Yap, oner
of US Automotive, purchased Bulletin shares from Menzi and became one of the corporations major stockholders.

On April 2, 1968, a stock option was executed by and between Menzi and Menzi and Co. on the one hand, and Yap and
US Automotive on the other, whereby the parties gave the each other preferential right to buy the others Bulletin shares.

On April 22, 1968, the stockholders of Bulletin approved certain amendments to Bulletins Articles of Incorporation,
consisting of some restrictions on the transfer of Bulletin shares to non-stockholders.[8] The amendments were approved
by the Board of Directors of Bulletin and by the Securities and Exchange Commission (SEC).

Several years later, on June 5, 1984, Atty. Amorsolo V. Mendoza (Atty. Mendoza), Vice President of US Automotive,
executed a promissory note with his personal guarantee in favor of Menzi, promising to pay the latter the sum of
P21,304,921.16 with interest at 18% per annum as consideration for Menzis sale of his 154 block on or before December
31, 1984.

One day after Menzis death on June 27, 1984, a petition for the probate of his last will and testament was filed in the
Regional Trial Court (RTC) of Manila, Branch 29, by the named executor, Atty. Montecillo, and docketed as Special
Proceeding No. 84-25244.

On January 10, 1985, Atty. Montecillo filed a motion praying for the confirmation of the sale to US Automotive of Menzis
154 block. The probate court confirmed the sale in its Order dated February 1, 1985.

Accordingly, on May 15, 1985, Atty. Montecillo received from US Automotive two (2) checks in the amounts of
P21,304,778.24 and P3,664,421.85 in full payment of the agreed purchase price and interest for the sale of the 154 block.
On the same day, Atty. Montecillo signed a company voucher acknowledging receipt of the payment for the shares,
indicating on the dorsal portion thereof the certificate numbers of the 12 stock certificates covering the 154 block, the
number of shares covered by each certificate and the date of issuance thereof.
Atty. Montecillo also wrote on the lower portion of the promissory note executed by Atty. Mendoza the words Paid May 15,
1985 (signed) M.G. Montecillo, Executor of the Estate of Hans M. Menzi.

Upon these facts, the Sandiganbayan ruled that the sale of the 154 block to US Automotive is valid and legal. According
to the Sandiganbayan, the sale was made pursuant to the stock option executed in 1968 between the parties to the sale.
Negotiations took place and were concluded before Menzis death, and full payment was made only after the probate court
had judicially confirmed the sale.

The Sandiganbayan dismissed the Republics claim, based on the affidavit of Mariano B. Quimson, Jr. (Quimson) dated
October 9, 1986, that the sale should be nullified because US Automotive only acted as a dummy of Marcos who was the
real buyer of the shares. According to the court, the Republic failed to overcome its burden of proof since Quimsons
affidavit was not corroborated by other evidence and was, in fact, refuted by Atty. Montecillo.

In its Memorandum[9] dated July 7, 2003 in G.R. No. 152578, the Republic argues that the Sandiganbayan failed to take
into account the fact that despite Menzis claim that he acquired Bulletin in 1957, he did not include any Bulletin shares in
his Last Will and Testament executed in 1977. Atty. Montecillo, the executor of Menzis estate, likewise did not include any
Bulletin share in the initial inventory of Menzis properties filed on May 15, 1985. Neither were any Bulletin shares declared
by Atty. Montecillo even after the probate court issued an Order dated November 17, 1992 for the submission of an
updated inventory of Menzis assets.

The Republic claims that despite these circumstances, coupled with Quimsons affidavit detailing how Marcos used his
dummies to conceal his control over Bulletin, as well as the letters and correspondence between Marcos and Menzi
indicating that Menzi consistently updated Marcos on the affairs of Bulletin, the Sandiganbayan ruled that the 154 block
was not ill-gotten wealth of the Marcoses. The Sandiganbayans erroneous inference allegedly warrants a review of its
findings.

Moreover, the Republic disputes the Sandiganbayans ruling that it heavily leaned on the affidavit of Quimson without
presenting any other corroborating evidence.[10] It argues that in the proceedings before the PCGG, Quimson was
subjected to cross-examination by the lawyers of Bulletin which is controlled by Yap. Further, the evidence it presented
before the PCGG purportedly showing that the transfer of Bulletin shares from Menzi to US Automotive was undertaken
due to pressure exerted by Marcos on Menzi should have been taken into account.

Issue: WON sale of the 154 block to the US Automotive is valid

Held:

Yes. it is valid

The absence of a deed of sale evidencing the sale is allegedly not irregular because the law itself does
not require any deed for the validity of the transfer of shares of stock, it being sufficient that such transfer be
effected by delivery of the stock certificates duly indorsed. At any rate, a duly notarized Receipt covering the sale
was executed.[13]
Moreover, the BIR certified that the Estate of Menzi paid the final tax on capital gains derived from the sale of the
154 block and authorized the Corporate Secretary to register the transfer of the said shares in the name of US
Automotive. Further, a stock certificate covering the 154 block was issued to US Automotive by Quimson himself as
Corporate Secretary.

Sec. 63 of the Corporation Code provides the requisites for a valid transfer of shares:

Sec. 63. Certificate of stock and transfer of shares.The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the
names of the parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation. [Emphasis supplied]

The Corporation Code acknowledges that the delivery of a duly indorsed stock certificate is sufficient to transfer
ownership of shares of stock in stock corporations. Such mode of transfer is valid between the parties. In order to bind
third persons, however, the transfer must be recorded in the books of the corporation.

Clearly then, the absence of a deed of assignment is not a fatal flaw which renders the transfer invalid as the
Republic posits. In fact, as has been held in Rural Bank of Lipa City, Inc. v. Court of Appeals,[14] the execution of a deed of
sale does not necessarily make the transfer effective.

In that case, petitioners argued that by virtue of the deed of assignment, private respondents had relinquished to
them all their rights as stockholders of the bank. This Court, however, ruled that the delivery of the stock certificate duly
indorsed by the owner is the operative act that transfers the shares. The absence of delivery is a fatal defect which is not
cured by mere execution of a deed of assignment. Consequently, petitioners, as mere assignees, cannot enjoy the status
of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are
concerned.

There appears to be no dispute in this case that the stock certificates covering the 154 block were duly indorsed
and delivered to the buyer, US Automotive. The parties to the sale, in fact, do not question the validity and legality of the
transfer.

The objection raised by the Republic actually concerns the authority of Atty. Montecillo, the executor of Menzis
estate, to indorse the said certificates. However, Atty. Montecillos authority to negotiate the transfer and execute the
necessary documents for the sale of the 154 block is found in the General Power of Attorney executed by Menzi on May
23, 1984, which specifically authorizes Atty. Montecillo [T]o sell, assign, transfer, convey and set over upon such
consideration and under such terms and conditions as he may deem proper, any and all stocks or shares of stock, now
standing or which may thereafter stand in my name on the books of any and all company or corporation, and for that
purpose to make, sign and execute all necessary instruments, contracts, documents or acts of assignment or transfer. [15]

Atty. Montecillos authority to accept payment of the purchase price for the 154 block sold to US
Automotive after Menzis death springs from the latters Last Will and Testament and the Order of the probate
court confirming the sale and authorizing Atty. Montecillo to accept payment therefor. Hence, before and after
Menzis death, Atty. Montecillo was vested with ample authority to effect the sale of the 154 block to US
Automotive.

That the 154 block was not included in the inventory is plausibly explained by the fact that at the time the
inventory of the assets of Menzis estate was taken, the sale of the 154 block had already been consummated.
Besides, the non-inclusion of the proceeds of the sale in the inventory does not affect the validity and legality of
the sale itself.

At any rate, the Sandiganbayans factual findings that the 154 block was sold to US Automotive while Menzi was
still alive, and that Atty. Montecillo merely accepted payment by virtue of the authority conferred upon him by Menzi
himself are conclusive upon this Court, supported, as they are, by the evidence on record.[16] As held by the
Sandiganbayan:

The sale was made pursuant to the Stock Option executed in 1968 between the parties to the sale,
considering the restrictions contained in Bulletins Articles of Incorporation as amended in 1968 limiting
the transferability of its shares. Negotiations for the sale took place and were concluded before the death
of Menzi. After his death, full payment of the entire consideration of the sale, principal and interest, was
made only after judicial confirmation thereof in the Probate Case. The transaction was duly supported by
the corresponding receipt, voucher, cancelled checks, cancelled promissory note, and BIR certification of
payment of the corresponding taxes due thereon.[17]

The Supreme Court is not a trier of facts. It is not our function to examine and weigh all over again the evidence
presented by the parties in the proceedings before the Sandiganbayan. [18]

It is also significant that even Quimsons affidavit does not state, in a categorical manner, that Yap was a Marcos
dummy used by the latter to conceal his Bulletin shareholdings. In contrast, Quimson unqualifiedly declared that Campos,
Cojuangco and Zalamea were the former dictators nominees to Bulletin.[19]

We, therefore, agree with the Sandiganbayan that the sale of the 154 block to US Automotive was valid and legal.

Rural Bank of Lipa City, Inc. v. CAG.R. No. 124535September 28, 2001

Doctrine:

For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or
his attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid against third parties, the
transfer must be recorded in the books of the corporation.

While it may be true that there was an assignment of private respondents' shares to the petitioners, said assignment was
not sufficient to effect the transfer of shares since there was no endorsement of the certificates of stock by the owners,
their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners admit that the
assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is that the delivery of
the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the
transferee. Title may be vested in the transferee only by delivery of the duly indorsed certificate of stock.

Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for,
and will not be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the private
respondents cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.

J. Ynares-Santiago

Facts:

Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of
Assignment, wherein he assigned his shares, as well as those of eight (8) other shareholders under his control with a total
of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio
and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an
Agreement wherein they acknowledged their indebtedness to the Bank in the amount of Four Million Pesos
(P4,000,000.00), and stipulated that said debt will be paid out of the proceeds of the sale of their real property described
in the Agreement.

At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva spouses assured the Board that
their debt would be paid on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate
their shareholdings, including those under their control. In such an event, should the proceeds of the sale of said shares
fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor.

When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a
letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to
secure the balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the bank's demands, whereupon
their shares of stock were converted into Treasury Stocks.

On January 15, 1994, the stockholders of the Bank met to elect the new directors and set of officers for the year 1994.
The Villanuevas were not notified of said meeting. On 19 January 1994, Atty. Amado Ignacio, counsel for the Villanueva
spouses, questioned the legality of the said stockholders' meeting and the validity of all the proceedings therein. In reply,
the new set of officers of the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said
meeting since they had relinquished their rights as stockholders in favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange Commission (SEC), a petition for annulment
of the stockholders' meeting and election of directors and officers.

The Villanuevas' main contention was that the stockholders' meeting and election of officers and directors held on January
15, 1994 were invalid because: (1) they were conducted in violation of the by-laws of the Rural Bank; (2) they were not
given due notice of said meeting and election notwithstanding the fact that they had not waived their right to notice; (3)
they were deprived of their right to vote despite their being holders of common stock with corresponding voting rights; (4)
their names were irregularly excluded from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva
for directorship was arbitrarily disregarded by respondent Bernardo Bautista and company during the said meeting.

Issue:

W/N private respondents had relinquished to the petitioner Bank any and all rights they may have had as stockholders of
the Bank

Ruling:

NO. Sec. 63 of the Corporation Code specifically provides that:

“x x x Shares of stocks so issued are personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show
the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the
number of shares transferred.”

While it may be true that there was an assignment of private respondents' shares to the petitioners, said assignment was
not sufficient to effect the transfer of shares since there was no endorsement of the certificates of stock by the owners,
their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover, petitioners admit that the
assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is that the delivery of
the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the
transferee. Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock.

For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or
his attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid against third parties, the
transfer must be recorded in the books of the corporation. As it is, compliance with any of these requisites has not been
clearly and sufficiently shown.

It may be argued that despite non-compliance with the requisite endorsement and delivery, the assignment was valid
between the parties, meaning the private respondents as assignors and the petitioners as assignees. While the
assignment may be valid and binding on the petitioners and private respondents, it does not necessarily make the transfer
effective. Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be
voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the private
respondents cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.
Thomson v CA

DOCTRINE: Authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the right
of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and
procedure to be followed in effecting transfer.

FACTS: Marsh Thomson was the Executive Vice-President of the American Chamber of Commerce of the Philippines,
Inc. (AmCham). His superior, A. Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his
home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through
the intercession of Burridge, private respondent paid for the share but had it listed in petitioner's name. Petitioner was
informed in an employment advice that:” If the membership is acquired in your name, you would execute such documents
as necessary to acknowledge beneficial ownership thereof by the Chamber”.

Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00 from his own funds; but
private respondent subsequently reimbursed this amount.

Private respondent, through counsel sent a letter to the petitioner demanding the return and delivery of the MPC share
which "it (AmCham) owns and placed in your (Thomson's) name.''

RTC: awarded the MPC share to petitioner on the ground that the Articles of Incorporation and By-laws of Manila Polo
Club prohibit artificial persons, such as corporations, to be club members.

CA: reversed RTC; respondent purchased the MPC share for the use of the petitioner and the latter expressly conformed
thereto

Petitioner contends that the Articles of Incorporation and By-laws of Manila Polo Club prohibit corporate membership.

HELD: The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The Club
only restricts membership to deserving applicants in accordance with its rules, when the amended Articles of
Incorporation states that: "No transfer shall be valid except between the parties, and shall be registered in the
Membership Book unless made in accordance with these Articles and the By-Laws". Thus, as between parties herein,
there is no question that a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its
stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of
regulations as to the formalities and procedure to be followed in effecting transfer. In this case, the petitioner was the
nominee of the private respondent to hold the share and enjoy the privileges of the club. But upon the expiration of
petitioner's employment as officer and consultant of AmCham, the incentives that go with the position, including use of the
MPC share, also ceased to exist. It now behooves petitioner to surrender said share to private respondent's next
nominee, another natural person.

BATONG BUHAY GOLD MINES, INC. vs. THE COURT OF APPEALS and INCO MINING CORPORATION
G.R. No.L-45048, January 7, 1987; Paras, J.

Facts:

The defendant Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering 62,495 shares with a
par value of P0.01 per share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses
had lived separately for more than (14) years prior to the said date. Francisco Aguac sold his 62,495 shares covered by
Stock Certificate No. 16807 for the sum of P9,374.70 in favor of the plaintiff (respondent herein), the said transaction
being evidenced by a deed of sale. The said sale was made by Francisco Aguac without the knowledge or consent of his
wife Paula G. Aguac.

On the same date of the sale, Paula G. Aguac wrote a letter to the president of defendant Batong Buhay Gold
Mines, Inc. asking that the transfer of the shares sold by her husband be withheld, inasmuch as the same constituted
conjugal property and her share of proceeds of the sale was not given to her.

Under a covering letter, plaintiff's counsel presented Stock Certificate No. 16807 duly endorsed by Francisco
Aguac for registration and transfer of the said stock certificate in the name of the plaintiff (respondent herein). The said
letter was addressed to defendant Del Rosario and Company which was the transfer agent of Batong Buhay at that time.

In a letter, also addressed to Del Rosario and Company, plaintiff's counsel requested information as to the action taken
on the transfer of Stock Certificate No. 16807 in favor of the plaintiff, nothing about which having heard despite the lapse
of over a month. In a reply letter, Del Rosario and Company informed plaintiff's counsel that Batong Buhay has referred
the matter to their attorneys, inasmuch as there was a "technical problem that has developed in the transfer of stock,"

Meanwhile, Francisco Aguac was charged in a criminal complaint for concubinage filed by Paula G. Aguac before
the Municipal Court.

The defendants justify their refusal to transfer the shares of stock of Francisco Aguac in the name of the plaintiff in
view of their apprehension that they might he held liable for damages.

In view of the defendant's inaction on the request for the transfer of the stock certificate in its name, the plaintiff
commenced this action before the Court of First Instance of Manila, praying that the defendants be ordered to issue and
release the transfer stock certificate covering 62,495 shares of defendant Batong Buhay, formerly registered in the name
of Francisco Aguac, in favor of the plaintiff.

The trial court handed down its judgment ordering the defendant (herein petitioner) to effect the transfer of the shares
covered by Stock Certificate No. 16807 in the name of herein respondent Inco Mining Corporation and declaring
permanent the writ of preliminary mandatory injunction.

Private respondent seasonably appealed the aforesaid decision to the Court of Appeals anchored on the lower court's
alleged failure to award damages for the wrongful refusal of petitioner to transfer the subject shares of stock and alleged
failure to award attorney's fees, cost of injunction bond and expenses of litigation.

Issue: Whether the Court of Appeals award damages by way of unrealized profits despite the absence of
supporting evidence, or merely on the basis of pure assumption, speculation or conjecture; or can the
respondent recover damages by way of unrealized profits when it has not shown that it was damaged in any
manner by the act of petitioner.

Held: NO.

The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or
would have sold the stocks in question on specified dates, While it is true that shares of stock may go up or down in value
(as in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos
per share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely
SPECULATIVE, for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus
this Court has ruled that speculative damages cannot be recovered.

It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and
reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's
name at the time demand was made, but then it is also true that human nature, being what it is, private respondent's
officials could also have refused to sell and instead wait for expected further increases in value.

Santamaria vs The Hongkong and Shanghai Banking Corporation

GR No. L-2808 August 31, 1951

Facts :

Sometime in February, 1937, Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc.,
through the offices of Woo, Uy-Tioco & Naftaly, a stock brokerage firm and pay therefore the sum of P8,041.20 as shown
by receipt Exh. B. The buyer received Stock Certificate No. 517, Exh. "F", issued in the name of Woo, Uy-Tioco & Naftaly
and indorsed in bank by this firm.

On March 9, 1937, Mrs. Santamaria placed an order for the purchase of 10,000 shares of the Crown Mines, Inc.
with R.J. Campos & Co., a brokerage firm, and delivered Certificate No. 517 to the latter as security therefor with the
understanding that said certificate would be returned to her upon payment of the 10,000 Crown Mines, Inc. shares. Exh.
D. is the receipt of the certificate in question signed by one Mr. Cosculluela, Manager of the R.J. Campos & Co., Inc.
According to certificate Exh. E, R. J. Campos & Co., Inc. bought for Mrs. Josefa Santamaria 10,000 shares of the Crown
Mines, Inc. at .225 a share, or the total amount of P2,250.

At the time of the delivery of a stock Certificate No. 517 to R.J. Campos & Co., Inc. her name was later written in lead
pencil on the upper right hand corner thereof. Two days later, on March 11, Mrs. Santamaria went to R.J. Campos & Co.,
Inc. to pay for her order of 10,000 Crown Mines shares and to get back Certificate No. 517. Cosculluela then informed her
that R.J. Campos & Co., Inc. was no longer allowed to transact business due to a prohibition order from Securities and
Exchange Commission.

Certificate No. 517 came into possession of the Hongkong and Shanghai Banking Corporation because R.J.
Campos & Co., Inc. had opened an overdraft account with this bank. On March 11, 1937, Certificate No. 517, was sent by
the HSBC to the office of the Batangas Minerals, Inc. with the request that the same be cancelled and a new certificate be
issued in the name of R.W. Taplin as trustee and nominee of the banking corporation. Robert W. Taplin was an officer of
this institution in charge of the securities belonging to or claimed by the bank.

R.J. Campos, the president of R.J. Campos & Co., Inc., was prosecuted for estafa and found guilty of this crime
and was sentenced by the Manila Court of First Instance in Criminal Case No. 54428, to an imprisonment and to
indemnify the offended party, Mrs. Josefa Santamaria, in the amount of P8,041.20 representing the value of the 10,000
shares of Batangas Minerals, Inc. The decision was later confirmed by the Court of Appeals.

Issue : Whether or not the plaintiff-appelle was chargeable with negligence in the transaction which gave rise to
this case

Held : Yes.

Plaintiff, in failing to take the necessary precautions upon delivering the certificate of stock to her broker, was
chargeable with negligence in the transaction which resulted to her own prejudice, and as such, she is estopped from
asserting title to it as against the defendant Bank.

Was the defendants Bank obligated to inquire who was the real owner of the shares represented by the
certificate of stock, and could it be charged with negligence for having failed to do so?

It should be noted that the certificate of stock in question was issued in the name of the brokerage firm-Woo, Uy-
Tioco & Naftaly and that it was duly indorsed in blank by said firm, and that said indorsement was guaranteed by R.J.
Campos & Co., Inc., which in turn indorsed it in blank. This certificate is what it is known as street certificate. Upon its
face, the holder was entitled to demand its transfer into his name from the issuing corporation. The Bank was not
obligated to look beyond the certificate to ascertain the ownership of the stock at the time it received the same from R.J.
Campos & Co., Inc., for it was given to the Bank pursuant to their letter of hypothecation. Even if said certificate had been
in the name of the plaintiff but indorsed in blank, the Bank would still have been justified in believing that R.J. Campos &
Co., Inc. had title thereto for the reason that it is a well-known practice that a certificate of stock, indorsed in blank, is
deemed quasi negotiable, and as such the transferee thereof is justified in believing that it belongs to the holder and
transferor.

The Court has noticed that the defendant Bank was willing from the very beginning to compromise this case by
delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the issuer corporation in lieu of the
original as alleged and prayed for in its amended answer to the complaint dated April 2, 1941. Considering that in the light
of the law and precedents applicable in this case, the most that plaintiff could claim is the return to her of the said
certificate of stock (Howson vs. Mechanics Sav. Bank, 183 Atl., p. 697), the Court, regardless of the conclusions arrived at
as above stated, is inclined to grant the formal tender made by the defendant to the plaintiff of said certificate.

NEUGENE MARKETING INC., LEONCIO TAN, NICANOR MARTIN, SONNY MORENO, JOHNSON LEE and
SECURITIES AND EXCHANGE COMMISSION vs. COURT OF APPEALS

[G.R. No. 112941. February 18, 1999]

PURISIMA, J.:
FACTS:On January 27, 1978, NEUGENE was duly registered with this Commission to engage in trading business for a
term of fifty (50) years with the following as incorporators/directors, namely:

1. Johnson Lee (one of the petitioners);

2. Lok Chun Suen (one of the respondents);

3. Charles O. Sy (one of the respondents);

4. Eugenio Flores, Jr. (husband of respondent Ban Hua U. Flores)

5. Arsenio Yang, Jr. (one of the respondents)

The authorized capital stock of NEUGENE is THREE MILLION PESOS (P3,000,000.00) divided into THIRTY
THOUSAND (30,000) shares with a par value of ONE HUNDRED PESOS (P100.00) each. Out of this authorized capital
stock, SIX HUNDRED THOUSAND PESOS (P600,000.00) had been subscribed. Out of the aforesaid subscription, ONE
HUNDRED FIFTY THOUSAND PESOS (P150,000.00) had been paid.

The original shareholdings of the incorporators/stockholders of NEUGENE were increased by ten percent (10%) each by
virtue of stock dividend declaration in the amount of SIXTY THOUSAND PESOS (P60,000.00) made by its board of
directors in a special meeting held on June 7, 1980. x x x

Again, on May 2, 1981, the Board of directors of NEUGENE declared a stock dividend in the amount of FORTY
THOUSAND PESOS (P40,000.00) in proportion to the shareholdings of the stockholders of record of NEUGENE as of
April 30, 1981.

On May 15, 1986, Eugenio Flores, Jr. assigned, transferred and conveyed his entire shareholdings of TWO THOUSAND
FOUR HUNDRED FIFTY (2,450) shares in NEUGENE to the following, to wit:

Pet. Sonny Moreno 1,050

Resp. Arsenio Yang, Jr.. 700

Resp. Charles O. Sy 700

Thus, immediately after the assignment of the entire shareholdings of Eugenio Flores, Jr. to petitioner Sonny Moreno and
respondents Arsenio Yang, Jr., and Charles O. Sy, the stockholders of record of NEUGENE, as appearing in the Stock
and Transfer Book.

On October 24, 1987, the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen, holders of
5,250 shares of NEUGENE (representing at least two-thirds (2/3) of the outstanding capital stock of 7,000 shares) sent
notice to the directors of NEUGENE for a board meeting to be held on November 30, 1987. They also sent notice for a
special stockholders meeting on the same day, November 30, 1987, to consider the dissolution of NEUGENE.

At the said meetings held on November 30, 1987, the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok
Chun Suen, the directors and stockholders then present, voted for and approved a resolution dissolving NEUGENE.
 On March 1, 1988, acting upon private respondents Petition for Dissolution, SEC issued a Certificate of Dissolution of
NEUGENE.

On March 22, 1988, the petitioners brought an action to annul or set aside the said SEC Certification on the
Dissolution of Neugene. In their Amended Petition, petitioners stated, among others, that they are the majority
stockholders of NEUGENE, owning eighty percent (80%) of its outstanding capital stock, at the time of the adoption and
approval of the Resolution for the Dissolution of NEUGENE, on November 30, 1987; that prior thereto or on July 1, 1987,
to be precise, the private respondents had divested themselves of their stockholdings when they endorsed their stock
certificates in blank and delivered the same to the Uy Family, the beneficial owners of NEUGENE; that at the meetings
held on February 11, 12 and 13, 1987, in order to settle family squabbles, the Uy family agreed to award NEUGENEs
stock certificates to Johnny K. H. Uy, who, in turn, authorized Johnson Lee to dispose of the same; and that Johnson Lee
sold the said shares of stock to the petitioners, Leoncio Tan and Nicanor Martin, such that, as reflected in the Stock and
Transfer Book of NEUGENE, respondent Lok Chun Suen had assigned all of his 1,400 shares of stock to petitioner
Nicanor Martin, respondents Charles O. Sy assigned 2,100 shares out of his 2,800 shares of stock to petitioner Leoncio
Tan, and respondent Arsenio Yang, Jr. assigned 350 shares of his 1,050 shares of stock to petitioner Leoncio Tan; that in
view of the said transfers of shares of stock, private respondents Arsenio Yang, Jr., and Charles O. Sy and Lok Chun
Suen could no longer validly vote for the dissolution of NEUGENE on November 30, 1987, under Section 118 of the
Corporation Code, and all the proceedings of the meetings held on November 30, 1987, which were improperly called and
held without a quorum, are null and void.

On the other hand, the private respondents, Charles O. Sy, Arsenio Yang, Jr. and Lok Chun Suen, theorized that the
alleged assignments of shares of stock in favor of petitioners were simulated and fraudulently effected, as there never
was any agreement entered into by the Uy family to award NEUGENES stock certificates to Johnny K.H. Uy, because
subject stock certificates of the private respondents covering their shares of stock were endorsed in blank by them and
delivered to the Uy family, who were the beneficial owners of NEUGENE, for safe keeping and the said certificates of
stock were kept inside the confidential vault of the Uy family at 225 D. Tuazon St., Quezon City, but the same were stolen
by the spouses, Johnny K. H. Uy and Magdalena Go-Uy, without the knowledge and authority of the Uy family; that
petitioner Sonny Moreno, a co-conspirator in such fraudulent transfer of stocks in question, recorded the simulated and
fraudulent assignments in the Stock and Transfer Book of the corporation, which book he obtained from Johnny K.H. Uy
and Magdalena Go-Uy, together with other corporate records of NEUGENE, including the stock certificates endorsed in
blank by petitioner Johnson Lee and respondents Arsenio Yang, Jr., Charles O. Sy and Lok Chun Suen; that the
petitioners, Nicanor Martin and Leoncio Tan, are co-conspirators of Johnson Lee and Sonny Moreno in effecting the said
simulated and fraudulent transfer of sharesof stock; that the private respondents never sold their shares of stock in
NEUGENE to any of the petitioners or other stockholders of record, prior to the dissolution of the corporation, so that they
(private respondents) represented at least two-thirds (2/3) of the outstanding capital stock of NEUGENE when they voted
to dissolve NEUGENE, on November 30, 1987.

In its decision of June 19, 1990, the SEC Panel of Hearing Officers nullified the Certification on the Dissolution of
NEUGENE issued by SEC, holding that the private respondents were no longer holders of at least two-thirds (2/3) of the
outstanding capital stock of NEUGENE at the time they presented the petition for dissolution, as required under Section
118 of the Corporation Code.
ISSUE: W/N the alleged assignments of shares of stock in favor of petitioners were simulated and fraudulently
effected making the dissolution valid?

HELD: YES.

The transfers of stock in question could not be valid and effective for the simple reason that there is a complete
absence of proof that the alleged transfers were recorded in the books of the corporation. It relied on Section 63 of the
Corporation Code of the Philippines which provides that no transfers shall be valid except as between the parties, until the
transfer is recorded in the books of the corporation. Entries in the Stock and Transfer Book of NEUGENE support the
disquisition and conclusion arrived at by the Court of Appeals that at the time of dissolution of NEUGENE on November
30, 1987, the private respondents, Lok Chun Suen, Charles O. Sy and Arsenio Yang, Jr., owned at least two-thirds (2/3)
of NEUGENEs outstanding capital stock, in sufficient compliance with the germane provision of Section 118 of the
Corporation Code of the Philippines.

As shown in the Stock and Transfer Book of NEUGENE, the right hand portion of Exhibit A-9, under the column
Certificates Issued, private respondents Lok Chun Suen is the holder of a total of 1,400 shares of stock, issued on
February 23, 1979, October 1, 1980 and May 2, 1981, respectivelyon its right hand portion and under the column
Certificates Issued reflects private respondents Charles O. Sy as the holder of a total of 2,800 shares of stock, issued on
the abovementioned dates except those acquired from Eugenio Flores, Jr. which were issued on May 15, 1986. While the
right hand portion of Exhibit A-12, under the column Certificates Issued, shows that private respondent Arsenio Yang, Jr.
is the holder of 1,050 shares, issued on the abovementioned dates, except those acquired from Eugenio Flores, Jr. which
were issued on May 15, 1986.

Therefore, the entries on the right hand portion of NEUGENES Stock and Transfer Book, under the column
Certificates Issued, indubitably record the private respondents as the holders of 5,250 shares, constituting at least two-
thirds (2/3) of NEUGENEs outstanding capital stock of 7,000 shares.

It should be noted, however, that on the left hand portion of the said exhibits, under the column Certificates
Cancelled, entries on July 1, 1987 disclose that all of Lok Chun Suens 1,400 certificates of stock were cancelled, Charles
O. Sys 2, 100 shares out of 2, 800 shares were cancelled, and Arsenio Yang, Jr.s 350 shares out of his 1, 050 shares
were likewise cancelled, thereby leaving Arsenio Yang, Jr. and Charles O. Sy the holders of only 700 shares each or 10
% of the outstanding capital stock of NEUGENE when its dissolution was approved and voted for.

In light of the foregoing and after a careful examination of the evidence on record, and a judicious study of the
provisions of law and jurisprudence in point, we are with the Court of Appeals on the finding and conclusion that the
certificates of stock of the private respondents were stolen and therefore not validly transferred, and the transfers of stock
relied upon by petitioners were fraudulently recorded in the Stock and Transfer Book of NEUGENE under the column
Certificates Cancelled.

BATANGAS LAGUNA TAYABAS BUS COMPANY, INC et al., vs. BENJAMIN M. BITANGA et., al
G.R. No. 137934. August 10, 2001

Facts:
Batangas Laguna Tayabas Bus Company, Inc., has been owned by four generations of the Potenciano family.
Immediately prior to the events leading to this controversy, the Potencianos owned 87.5% of the outstanding capital stock
of BLTB.

Dolores A. Potenciano, Max Joseph A. Potenciano, Mercedelin A. Potenciano, Delfin C. 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. Barely a month after the Agreement was executed, at a meeting of the stockholders of BLTB,
Benjamin Bitanga and Monina Grace Lim were elected as directors of the corporation, replacing Dolores and Max Joseph
Potenciano. Subsequently, another stockholders meeting was held, wherein the Board of Directors of BLTB elected new
officers (bitanga group). During a meeting of the Board of Directors on April 14, 1998, the newly elected directors of BLTB
scheduled the annual stockholders meeting on May 19, 1998, to be held at the principal office of BLTB in San Pablo,
Laguna. Before the scheduled meeting, on May 16, 1998, Michael Potenciano wrote Benjamin Bitanga, requesting for a
postponement of the stockholders meeting due to the absence of a thirty-day advance notice. However, there was no
response from Bitanga on whether or not the request for postponement was favorably acted upon.

On the scheduled date of the meeting, May 19, 1998, a notice of postponement of the stockholders meeting was
published in the Manila Bulletin. Inasmuch as there was no notice of postponementprior to that, a total of two hundred
eighty six stockholders, representing 87% of the shares of stock of BLTB, arrived and attended the meeting. The majority
of the stockholders present rejected the postponement and voted to proceed with the meeting. The Potenciano group was
re-elected to the Board of Directors

However, the Bitanga group refused to relinquish their positions and continued to act as directors and officers of BLTB.
The conflict between the Potencianos and the Bitanga group escalated to levels of unrest and even violence among
laborers and employees of the bus company.

The Bitanga group filed with the Securities and Exchange Commission a Complaint for Damages and Injunction before
the SEC. Likewise, the Potenciano group filed on May 25, 1998, a Complaint for Injunction and Damages with Preliminary
Injunction and Temporary Restraining Order with the SEC. A Hearing Panel of the SEC conducted joint hearings of SEC
Cases 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 BLTBs shares having purchased the same from the
Potenciano group, was not present at the said meeting. The Hearing Panel further held that the Bitanga Board remains
the legitimate Board in a hold-over capacity.

ISSUE: W/N the May 19, 1998 stockholders meeting wherein the Potenciano group was re-elected valid?

HELD: Yes. The transfer of shares is not valid unless recorded in the books of the corporation. It is not disputed that the
transfer of the shares of the group of Dolores Potenciano to the Bitanga group has not yet been recorded in the books of
the corporation. Hence, the group of Dolores Potenciano, in whose names those shares still stand, were the ones entitled
to attend and vote at the stockholders meeting of the BLTB on 19 May 1998. Until registration is accomplished, the
transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded
transferee, the Bitanga group in this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold:
to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted for, and to
inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and
subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to
participate in any meeting; his vote can be properly counted to determine whether a stockholders resolution was
approved, despite the claim of the alleged transferee. On the other hand, a person who has purchased stock, and who
desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer
recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder but an outsider.

FUA CUN (alias Tua Cun), plaintiff-appellee, vs. RICARDO SUMMERS, in his capacity as Sheriff ex-oficio of the City of
Manila, and the CHINA BANKING CORPORATION, defendants-appellants.

G.R. No. 19441. March 27, 1923

Facts:

It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for five hundred shares of stock of the
defendant Banking Corporation at a par value of P100 per share, paying the sum of P25,000, one-half of the subscription
price, in cash, for which a receipt was issued.

Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of P25,000 securing with a chattel
mortgage on the formers stock in China Banking Corporation. The plaintiff thereupon took the receipt to the manager of
the defendant Bank and informed him of the transaction with Chua Soco, but was told to await action upon the matter
by the Board of Directors.

In the meantime Chua Soco appears to have become indebted to the China Banking Corporation for dishonored
acceptances of commercial paper and in an action brought against him to recover this amount, Chua Soco's interest in
the five hundred shares subscribed for the attached and the receipt seized by the sheriff. The attachment was levied
after the defendant bank had received notice of the fact that the receipt had been endorsed over to the plaintiff.

Fua Cun thereupon brought the present action maintaining that by virtue of the payment of the one-half of the
subscription price of five hundred shares Chua Soco in effect became the owner of two hundred and fifty shares and
praying that his, the plaintiff's, lien on said shares, by virtue of the chattel mortgage, be declared to hold priority over
the claim of the defendant Banking Corporation.

Issue: W/N Fua Cun’s lien is superior that of China Banking Corporation?

Held:

Yes.

An equity in shares of stock may be assigned, the assignment becoming effective as between the parties and as to third
parties with notice. Equity in shares of stock may be a subject of chattel mortgage but such will operate as a conditional
equitable assignment.

The claim of China Banking Corporation was for the non-payment of drafts accepted by Chua Soco and had no direct
connection with the shares of stock in question. A corporation has no lien upon the shares of stockholders for any
indebtedness to the corporation.
If banking institutions were given a lien on their own stock for the indebtedness of the stockholders, the prohibition
against granting loans or discounts upon the security of the stock would become largely ineffective.

Moreover, the attachment was levied after China Banking Corporation had received the notice of assignment of Chua
Soco’s interests to Fua Cun and was therefore subject to the rights of the latter.

Hence, as against these rights, China Banking Corporation, hold no lien.

NEMESIO GARCIA, petitioner, vs . NICOLAS JOMOUAD, Ex-Officio Provincial Sheriff of Cebu, and SPOUSES
JOSE ATINON & SALLY ATINON, respondents.

FACTS:

Petitioner filed with the Regional Trial Court, Branch 23 of Cebu, an action for injunction with prayer for
preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad, ex-oficio sheriff of Cebu.
Said action stemmed from an earlier case for collection of sum of money, docketed as Civil Case No. CEB-10433, before
the RTC, Branch 10 of Cebu, led by the spouses Atinon against Jaime Dico. In that case (collection of sum of money),
the trial court rendered judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After
said judgment became final and executory, respondent sheriff proceeded with its execution. In the course thereof, the
Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club, which was in the name of Dico, was levied
on and scheduled for public auction. Claiming ownership over the subject certificate, petitioner led the aforesaid action for
injunction with prayer for preliminary injunction to enjoin respondents from proceeding with the auction.

After trial, the lower court rendered its Decision, dated 28 July 1995, dismissing petitioner's complaint for
injunction for lack of merit. On appeal, the CA affirmed in toto the decision of the RTC upon finding that it committed no
reversible error in rendering the same. Hence, this petition.

In assailing the decision of the CA, petitioner mainly argues that the appellate court erroneously relied on Section
63 of the Corporation Code in upholding the levy on the subject certificate to satisfy the judgment debt of Dico in Civil
Case No. CEB-14033. Petitioner contends that the subject stock certificate, albeit in the name of Dico, cannot be levied
upon on execution to satisfy his judgment debt because even prior to the institution of the case for collection of sum of
money against him:

1. The spouses Atinon had knowledge that Dico already conveyed back the ownership of the subject certificate to
petitioner;

2. Dico executed a deed of transfer, dated 18 November 1992, covering the subject certificate in favor of petitioner and
the Club was furnished with a copy thereof; and

3. Dico resigned as a proprietary member of the Club and his resignation was accepted by the board of directors at their
meeting on 4 May 1993.

ISSUE: Whether a bona de transfer of the shares of a corporation, not registered or noted in the books of the
corporation, is valid as against a subsequent lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not

RULING:

Section 63 of the Corporation Code reads:

"SECTION 63.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 by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney- in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the
corporation.”

In Uson vs. Diosomito, we held that the attachment prevails over the unrecorded transfer stating thus "[w]e think
that the true meaning of the language is, and the obvious intention of the legislature in using it was, that all transfers of
shares should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers
of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation
and to subsequent purchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers.
All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or
fraudulent in law or fact, but because they are made so void by statute.”

Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate made by Dico
to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same still stood in the name of Dico,
the judgment debtor, at the time of the levy on execution. In addition, as correctly ruled by the CA, the entry in the minutes
of the meeting of the Club's board of directors noting the resignation of Dico as proprietary member thereof does not
constitute compliance with Section 63 of the Corporation Code. Said provision of law strictly requires the recording of the
transfer in the books of the corporation, and not elsewhere, to be valid as against third parties. Accordingly, the CA
committed no reversible error in rendering the assailed decision.

15. Chemphil Export vs CA

Torres v CA

Facts: Judge Torres, was the majority stockholder of Tormil Realty & Development Corporation (Tormil), while private
respondents, relatives, were the minority stockholders. To make substantial savings in taxes, Judge Torres adopted an
"estate planning" scheme assigning to Tormil several of his personal and real properties. In turn, Tormil issued 225,000 of
its unissued shares in exchange for his properties in the cities of Manila, Quezon, Makati and Pasay. However, Judge
Torres unilaterally revoked two deeds of assignment covering the properties in Makati and Pasay for failure of Tormil to
issue the remaining balance of 972 shares. Due to the disappearance of the Makati and Pasay properties from the
corporation's inventory of assets and financial records, Tormil filed a complaint with the SEC to compel Judge Torres to
deliver to the corporation the two deeds of assignment.
Another controversy involving the parties was the election of the 1987 corporate board of directors. During the
stockholders meeting, petitioner Pabalan and company were nominated and elected members of the Board after Judge
Torres made an assignment of one share to each of them from his own shares. Said assignments were recorded in the
stock and transfer book (STB) of the corporation but the STB was not within the custody of the corporate secretary.
Private respondents, claiming they were denied their right to pre-emption, filed a complaint with the SEC. The Panel of
Hearing Officers of the SEC ruled in favor of private respondents and declared null and void the election and appointment
of the members of the board. During the pendency of the appeal to the SEC en banc, Judge Torres died. Notice of his
death was brought to the attention of the SEC by private respondents. Petitioners then filed a motion to suspend
proceedings on the ground that there was no administrator or legal representative of Judge Torres' estate appointed by
the court. The SEC En Banc denied said motion, and thereafter rendered judgment affirming the assailed decision. On
appeal, the Court of Appeals, without requiring the transmission of the original records of the proceedings before the SEC,
dismissed the appeal. Hence, this present recourse

ISSUE:W/N it was erroneous that the recording by the late Judge Torres of the questioned assignment of qualifying
shares to his nominees, was affirmed in the stock and transfer book by an acting corporate secretary?

HELD: YES.Petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent
corporate secretary to register the afore stated assignments in the stock and transfer book because the latter belonged
to the opposite faction. It is the corporate secretary's duty and obligation to register valid transfers of stocks and if
said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel
performance. In other words, there are remedies within the law that petitioners could have availed of, instead of
taking the law in their own hands, as the cliche goes.

In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate records.
Corollarily, he keeps the stock and transfer book and makes proper and necessary entries therein.

Contrary to the generally accepted corporate practice, the stock and transfer book of TORMIL, was not kept by Ms. Maria
Cristina T. Carlos, the corporate secretary but by Judge Torres, the President and Chairman of the Board of Directors of
TORMIL. In contravention to the above cited provision, the stock and transfer book was not kept at the principal office of
the corporation either but at the place of respondent Torres.

An alleged transfer of nominal shares to Pabalan and Co. cannot therefore be given any valid effect. Where the entries
made are not valid, Pabalan and Co. cannot therefore be considered stockholders of record of TORMIL and consequently
cannot be elected as director.

17. Magsaysay Labrador vs CA

BITONG v. CA

Bitong, Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. &
Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares
of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by
Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the
name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into
by Mr. & Ms. with PDI were not supported by any bond and/or stockholders resolution. And, upon instructions of Eugenia
D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of
these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were
booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document
which could legally authorize the creation of and support to an affiliate.

Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr.
& Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda
subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for
by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from
respondents, Magsanoc and Nuyda.

The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as
president-director and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of
salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin
respondents Apostol spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names;
(c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as
a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey
to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents
Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by
reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of
the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and,
(g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other
third parties.

The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be
virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms. would be
operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.;
and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that
transfers would be limited to and only among the original stockholders.

Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her
actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either
expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as
shown in a statement prepared by the accounting firm Punongbayan and Araullo, there were increases from 1976 to 1988
in the total assets of Mr. & Ms.
Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented
and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management
until mid-1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the
other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with
respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the
latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the
books of the corporation.

Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired
through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms.had been fully paid with 20%
interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and
Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party
being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to
initiate and prosecute the derivative suit which, consequently, must be dismissed.

On 6 December 1990, the SEC Hearing Panel[3] issued a writ of preliminary injunction enjoining private respondents from
disbursing any money except for the payment of salaries and other similar expenses in the regular course of
business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of
their PDI shares, and further ruled -

x x x respondents contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real
party in interest x x x x is bereft of any merit. No less than respondents Amended Answer, specifically paragraph V, No. 8
on Affirmative Allegations/Defenses states that `The petitioner being herself a minor stockholder and holder-in-trust
of JAKA shares represented and continues to represent JAKA in the Board. This statement refers to petitioner sitting in
the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the
shares of JAKA in Mr. & Ms. Such reference alluded to by the respondents indicates an admission on respondents part of
the petitioners legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc.

The Hearing Panel however denied petitioners prayer for the constitution of a management committee.

Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out
of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983
and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out
that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the
sale to her of JAKAs interest and holdings in that publishing firm.

Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as
respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July
1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987
and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date
25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the
SEC, the entries therein includingCertificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed
that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner
herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr.
& Ms. board meeting of 22 September 1988, seven (7) times no less.

The SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction
barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that
there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave credence to
the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like a close corporation where important
matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also
concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or
Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of
respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real
issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest.

On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company,
JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En
Banc.

On 24 January 1994 the SEC En Banc[4] reversed the decision of the Hearing Panel and, among others, ordered private
respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the
coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a
result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D.
Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts
irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr.
& Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest.

The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to
Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner
of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent
transferees of such shares as trustees for the benefit of Mr. & Ms. and ordered them to forthwith deliver said shares to Mr.
& Ms.

Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before
respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition
for certiorari and prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8 December
1994 the two (2) petitions were consolidated.

On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the
evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-
interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by
herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-in-interest,
petitioners complaint did not state a cause of action, a defense which was never waived; hence, her petition should have
been dismissed. Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of
jurisdiction, or want of it, and thus were null and void. [5] On 18 January 1996, petitioner's motion for reconsideration was
denied for lack of merit.
Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of her Amended Petition before
the SEC, she stated that she was a stockholder and director of Mr. & Ms. In par. 1 under the caption "II. The Facts" she
declared that she "is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding
shares" and that she was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception until 11 April
1989. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they
are conclusively bound by this judicial admission. Consequently, private respondents admission that petitioner has 1,000
shares of stock registered in her name in the books of Mr. & Ms. forecloses any question on her status and right to bring a
derivative suit on behalf of Mr. & Ms.

Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence
the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the
statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single
clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the
admission in the paragraph offered by the adversary.[6]

ISSUE: WHETHER PETITIONER IS THE REAL PARTY IN INTEREST?

HELD: NO.The answer of private respondents shows that there was no judicial admission that petitioner was a
stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the
private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the
truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and
certain enough, cannot be construed as judicial admissions.[7]

More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true
and genuine stockholder of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA
which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for
was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the
same.

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition
alone, clearly raises an issue as to the legal personality of petitioner to file the complaint.Every alleged admission is taken
as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the
other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court
should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is
against interest.

In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole
statement and others intimately related or connected therewith as an integrated unit.Although acts or facts admitted do
not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission
was made through palpable mistake.[8] The rule is always in favor of liberality in construction of pleadings so that the real
matter in dispute may be submitted to the judgment of the court.[9]
TAYAG vs BENGUET CONOLIDATED, INC.
FACTS:

In March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property
she left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc
(BCI). Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY).
CTC-NY was the domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in 1963,
Renato Tayag was appointed as the ancillary administrator (of the properties of Perkins she left behind in the
Philippines).

A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the stock
certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock certificates to
Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock certificates be declared
lost and to compel BCI to issue new stock certificates in replacement thereof. The trial court granted Tayag’s
petition.

BCI assailed said order as it averred that it cannot possibly issue new stock certificates because the two stock
certificates declared lost are not actually lost; that the trial court as well Tayag acknowledged that the stock
certificates exists and that they are with CTC-NY; that according to BCI’s by laws, it can only issue new stock
certificates, in lieu of lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final
and executory order as to who really owns a certificate of stock.

ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.

HELD:
No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given rights
and privileges under the law. Corollary, it also has obligations under the law and one of those is to follow valid
legal court orders. It is not immune from judicial control because it is domiciled here in the Philippines. BCI is a
Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares
of stock cannot therefore be considered in any wise as immune from lawful court orders. Further, to allow BCI’s
opposition is to render the court order against CTC-NY a mere scrap of paper. It will leave Tayag without any
remedy simply because CTC-NY, a foreign entity refuses to comply with a valid court order. The final recourse
then is for our local courts to create a legal fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held time and again, fictions which the law
may rely upon in the pursuit of legitimate ends have played an important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in accordance with its
bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to
turn over the stock certificates hence ownership can be said to have been settled in favor of estate of Perkins
here. Also, assuming that there really is a conflict between BCI’s bylaws and the court order, what should
prevail is the lawful court order. It would be highly irregular if court orders would yield to the bylaws of a
corporation. Again, a corporation is not immune from judicial orders.
Makati Sports Club vs. Cecile Cheng

Facts: plaintiffs Board of Directors adopted a resolution (Exhibit 7) authorizing the sale of 19 unissued shares
at a floor price of P400,000 and P450,000 per share for Class A and B, respectively.

Defendant Cheng was a Treasurer and Director of plaintiff in 1985. On July 7, 1995, Hodreal expressed his
interest to buy a share, for this purpose he sent the letter, Exhibit 13.In said letter, he requested that his name
be included in the waiting list.
It appears that sometime in November 1995, McFoods expressed interest in acquiring a share of the plaintiff,
and one was acquired with the payment to the plaintiff by McFoods of P1,800,000 through Urban Bank (Exhibit
3). On December 15, 1995, the Deed of Absolute Sale, Exhibit 1, was executed by the plaintiff and McFoods
Stock Certificate No. A 2243 was issued to McFoods on January 5, 1996. On December 27, 1995, McFoods
sent a letter to the plaintiff giving advise (sic) of its offer to resell the share.
It appears that while the sale between the plaintiff and McFoods was still under negotiations, there were
negotiations between McFoods and Hodreal for the purchase by the latter of a share of the plaintiff. On
November 24, 1995, Hodreal paid McFoods P1,400,000. Another payment of P1,400,000 was made by
Hodreal to McFoods on December 27, 1995, to complete the purchase price of P2,800,000.
plaintiff was advised of the sale by McFoods to Hodreal of the share evidenced by Certificate No. 2243 for P2.8
Million.Upon request, a new certificate was issued. In 1997, an investigation was conducted and the committee
held that there is prima facie evidence to show that defendant Cheng profited from the transaction because of
her knowledge.
Thus, petitioner sought judgment that would order respondents to pay the sum of P1,000,000.00, representing
the amount allegedly defrauded, together with interest and damages.
After trial on the merits, the RTC rendered its August 20, 2003 decision, dismissing the complaint, including all
counterclaims.
Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to the CA, arguing that the RTC erred in finding neither
direct nor circumstantial evidence that Cecile H. Cheng (Cheng) had any fraudulent participation in the
transaction between MSCI and Mc Foods, Inc. (Mc Foods), while it allegedly ignored MSCIs overwhelming
evidence that Cheng and Mc Foods confabulated with one another at the expense of MSCI.
Issue: W/N MSCI was defrauded by Cheng's collaboration with Mc Foods

Held: It is MSCI's stance that Mc Foods violated Section 30 (e) of MSCI's Amended By-Laws on its pre-
emptive rights, which provides —
SEC. 30. . . . .
(e) Sale of Shares of Stockholder. Where the registered owner of share of stock desires to sell his share of
stock, he shall first offer the same in writing to the Club at fair market value and the club shall have thirty (30)
days from receipt of written offer within which to purchase such share, and only if the club has excess
revenues over expenses (unrestricted retained earning) and with the approval of two-thirds (2/3) vote of the
Board of Directors. If the Club fails to purchase the share, the stockholder may dispose of the same to other
persons who are qualified to own and hold shares in the club. If the share is not purchased at the price quoted
by the stockholder and he reduces said price, then the Club shall have the same pre-emptive right subject to
the same conditions for the same period of thirty (30) days. Any transfer of share, except by hereditary
succession, made in violation of these conditions shall be null and void and shall not be recorded in the books
of the Club.
The share of stock so acquired shall be offered and sold by the Club to those in the Waiting List in the order
that their names appear in such list, or in the absence of a Waiting List, to any applicant. 27
We disagree.
Undeniably, on December 27, 1995, when Mc Foods offered for sale one Class "A" share of stock to MSCI for
the price of P2,800,000.00 for the latter to exercise its pre-emptive right as required by Section 30 (e) of
MSCI's Amended By-Laws, it legally had the right to do so since it was already an owner of a Class "A" share
by virtue of its payment on November 28, 1995, and the Deed of Absolute Share dated December 15, 1995,
notwithstanding the fact that the stock certificate was issued only on January 5, 1996. 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 a stock in the corporation but is merely evidence of the holder's interest and status in the
corporation, his ownership of the share represented thereby. It 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 of stock or the nature of the relation of shareholder to the corporation.
Therefore, Mc Foods properly complied with the requirement of Section 30 (e) of the Amended By-Laws on
MSCI's pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods' Class "A" share within the
thirty (30) day pre-emptive period as provided by the Amended By-Laws. It was only on January 29, 1996, or
32 days after December 28, 1995, when MSCI received Mc Foods' letter of offer to sell the share, that Mc
Foods and Hodreal executed the Deed of Absolute Sale over the said share of stock. While Hodreal had the
right to demand the immediate execution of the Deed of Absolute Sale after his full payment of Mc Foods'
Class "A" share, he did not do so. Perhaps, he wanted to wait for Mc Foods to first comply with the pre-emptive
requirement as set forth in the Amended By-Laws. Neither can MSCI argue that Mc Foods was not yet a
registered owner of the share of stock when the latter offered it for resale, in order to void the transfer from Mc
Foods to Hodreal. The corporation's obligation to register is ministerial upon the buyer's acquisition of
ownership of the share of stock. The corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers.
Moreover, MSCI's ardent position that Cheng was in cahoots with Mc Foods in depriving it of selling an
original, unissued Class "A" share of stock for P2,800,000.00 is not supported by the evidence on record. The
mere fact that she performed acts upon authority of Mc Foods, i.e., receiving the payments of Hodreal in her
office and claiming the stock certificate on behalf of Mc Foods, do not by themselves, individually or taken
together, show badges of fraud, since Mc Foods did acts well within its rights and there is no proof that Cheng
personally profited from the assailed transaction. Even the statement of MSCI that Cheng doctored the books
to give a semblance of regularity to the transfers involving the share of stock covered by Certificate A 2243
remains merely a plain statement not buttressed by convincing proof.
Fraud is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to
another or by which an undue and unconscionable advantage is taken of another. 30 It is a question of fact
that must be alleged and proved. It cannot be presumed and must be established by clear and convincing
evidence, not by mere preponderance of evidence. The party alleging the existence of fraud has the burden of
proof. On the basis of the above disquisitions, this Court finds that petitioner has failed to discharge this
burden. No matter how strong the suspicion is on the part of petitioner, such suspicion does not translate into
tangible evidence sufficient to nullify the assailed transactions involving the subject MSCI Class "A" share of
stock.

Lao vs Lao GR 170585 (2008)

Facts:

On October 15, 1998, petitioners David and Jose Lao filed a petition with the Securities and Exchange
Commission (SEC) against respondent Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC). Petitioners
prayed for a declaration as stockholders and directors of PFSC, issuance of certificates of shares in their name and to be
allowed to examine the corporate books of PFSC.

Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with
the SEC, in which they are named as stockholders and directors of the corporation. Petitioner David Lao alleged that he
acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously purchased from a certain
Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he acquired 333 shares from respondent Dionisio Lao
himself.

Respondent denied petitioners claim. He alleged that the inclusion of their names in the corporations General
Information Sheet was inadvertently made. He also claimed that petitioners did not acquire any shares in PFSC by any of
the modes recognized by law, namely subscription, purchase, or transfer. Since they were neither stockholders nor
directors of PFSC, petitioners had no right to be issued certificates or stocks or to inspect its corporate books.

On June 19, 2000, Republic Act 8799, otherwise known as the Securities Regulation Code, was enacted,
transferring jurisdiction over all intra-corporate disputes from the SEC to the RTC. Pursuant to the law, the petition with
the SEC was transferred to the RTC in Cebu City and docketed as Civil Case No. CEB-25916-SRC. The case was
consolidated with another intra-corporate dispute, Civil Case No. CEB-25910-SRC, filed by the Heirs of Uy Lam Tiong
against respondent Dionisio Lao.
 During pre-trial, the parties agreed to submit the case for resolution based on the evidence on record.
RTC: Denying the petition of David C. Lao and Jose C. Lao to be recognized as stockholders and directors of
Pacific Foundry Shop Corporation, to be issued certificates of stock of said corporation and to be allowed to exercise
rights of stockholders of the same corporation.

CA: On May 27, 2005, the CA rendered a Decision modifying that of the RTC, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered modifying the Joint Decision
dated December 19, 2001 of the trial court in so far as it relates to Civil Case No. CEB-25916-SRC by:

(a) Declaring that petitioners have owned since 1987 shares of stock in Pacific Foundry
Shop Corporation, numbering 446 for petitioner-appellant David C. Lao and 333 for petitioner-appellant
Jose C. Lao;

(b) Ordering respondent-appellee through the corporate secretary to issue to petitioners-

appellants the certificates of stock for the aforementioned number of shares;

(c) Ordering respondent-appellee, as President of Pacific Foundry Shop Corporation, to

allow petitioners-appellants to exercise their rights as stock holders;

(d) Ordering respondent-appellee to call a stockholders meeting every fourth Saturday of January
in accordance with the By-Laws of Pacific Foundry shop Corporation.

Issue:

whether or not petitioners are indeed stockholders of PFSC.

Held:

We deny the petition.

etitioners failed to prove that they are shareholders of PSFC.

Petitioners insist that they are shareholders of PFSC. They claim purchasing shares in PFSC. Petitioner David
Lao alleges that he acquired 446 shares in the corporation from his father, Lao Pong Bao, which shares were previously
purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleges that he acquired 333 shares from
respondent Dionisio Lao.

Records, however, disclose that petitioners have no certificates of shares in their name. A certificate of stock is
the evidence of a holders interest and status in a corporation. It 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.

Nor is there any written document that there was a sale of shares, as claimed by petitioners. Petitioners did not
present any deed of assignment, or any similar instrument, between Lao Pong Bao and Hipolito Lao; or between Lao
Pong Bao and petitioner David Lao. There is likewise no deed of assignment between petitioner Jose Lao and private
respondent Dionisio Lao.

Absent a written document, petitioners must prove, at the very least, possession of the certificates of shares in the
name of the alleged seller. Again, they failed to prove possession. They failed to prove the due delivery of the certificates
of shares of the sellers to them. Section 63 of the Corporation Code provides:

Sec. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance
with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of
the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares
transferred.

In contrast, respondent was able to prove that he is the owner of the disputed shares. He had in his possession
the certificates of stocks of Hipolito Lao. The certificates of stocks were also properly endorsed to him. More importantly,
the transfer was duly registered in the stock and transfer book of the corporation. Thus, as between the parties,
respondent has proven his right over the disputed shares.
The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient
proof that they are shareholders of the company.

Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in which they were
named as shareholders of PFSC. They claim that respondent is now estopped from contesting the General Information
Sheet.

While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to
the SEC, that document alone does not conclusively prove that they are shareholders of PFSC. The information in the
document will still have to be correlated with the corporate books of PFSC. As between the General Information Sheet
and the corporate books, it is the latter that is controlling.
It should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. This is so
because they do not have any certificates of shares in their name. Moreover, they do not appear in the corporate books
as registered shareholders. If they had certificates of shares, the burden would have been with PFSC to prove that they
are not shareholders of the corporation.
ALFONSO S. TAN, Petitioner, vs.SECURITIES AND EXCHANGE COMMISSION, VISAYAN EDUCATIONAL SUPPLY
CORP., TAN SU CHING, ALFREDO B. UY, ANGEL S. TAN and PATRICIA AGUILAR, Respondents.

Facts:

October 1, 1979: Visayan Educational Supply Corp. As incorporator, Alfonso S. Tan had 400 shares of the capital stock
at the par value of P100/share, evidenced by Certificate of Stock No. 2

elected as President until 1982 Board of Directors as director until April 19, 1983

January 31, 1981: incorporators Antonia Y. Young and Teresita Y. Ong, withdrew by assigning to the corp. their shares,
represented by certificate of stock No. 4 and 5, they were paid 40% corporate stock-in-trade

Certificate of stock No. 2 was cancelled by the corporate secretary and Patricia Aguilar by virtue of Resolution No. 1981
which was passed and approved while he was still a member of the BOD

Due to the withdrawal of the 2 incorporators and in order to complete the membership of the 5 directors of the board, he
sold 50 shares out of his 400 shares of capital stock to his brother Angel S. Tan

Another incorporator, Alfredo B. Uy, also sold 50 of his 400 shares of capital stock to Teodora S. Tan

March 27, 1981: Angel Tan was elected director and on March 27, 1981

Certificate of Stock No. 2 was cancelled and the Certificates Nos. 6 in the name of Angel S. Tan and 8 in the name of
Alfonso S. Tan, Mr. Buzon were issued and delivered (stock split), signed by the newly elected fifth member of the Board,
Angel S. Tan as VP, upon instruction of Alfonso S. Tan who was then the president

Alfonso S. Tan was given back Stock Certificate No. 2 for him to endorse and he deliberately withheld it for reasons of his
own - so as if no delivery

Certificate of Stock No. 8 was delivered to Tan Su Ching

January 29, 1983: Tan Su Ching was elected as President, Tan as VP but did not sign the minutes

February 27, 1983: dislodged from his position as president, he withdrew from the corporation paid with stock-in-trade
corresponding to 33.3% par value of P35,000.00

April 19, 1983: Board meeting cancelled Stock Certificate Nos. 2 and 8 and minutes submitted to SEC

December 3, 1983: Alfonso S. Tan filed the SEC case questioning for the first time, the cancellation of Stock Certificates
Nos. 2 and 8

No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to the books of the
corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate
or certificates and the number of shares transferred.

SEC. 63.Certificate of stock and transfer of shares. — The capital stock and stock and corporations shall be divided into
shares for which certificates signed by the president and vice president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so
issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to
the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

No shares of stocks against which the corporation holds any unpaid claim shall be transferable in the

books of the corporations.

SEC: held cancellation of the shares of stock - void

SEC en banc: overturned - nullity of the sale of 350 shares represented under stock certification No. 8, pursuant to the "in
pari delicto" doctrine.

ISSUE: W/N transfer is valid w/o delivery

HELD: YES.Affirmed.

Alfonso S. Tan devised the scheme of not returning the cancelled Stock Certificate No. 2 which was returned to him for
his endorsement, to skim off the largesse of the corporation as shown by the trading of his Stock Certificate No. 8 for
goods of the corporation valued at P2M when the par value of the same was only worth P35K

He also used this scheme to renege on his indebtedness to respondent Tan Su Ching in the amount of P1 million valid
transfer even if no deliverycertificate 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.

negotiable instrumenteither indorsement + delivery or delivery = holder in due course = better right than real owner

certificate of stock = owner better right

transfer valid between parties

recorded in the books - to bind others including the corporation

NOTE: Although there are 4 types of transactions, only transfer is recorded in the stocks and transfer books.

paper representative or tangible evidence of the stock itself and of the various interests therein

not necessary to render one a stockholder in corporation

since stocks were already cancelled and reported to the respondent Commission, there was no necessity to endorse

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
GOKONGWEI JR. VS. SEC

FACTS:

Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with
the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of
certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the
majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a first cause
of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio
Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation,
basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding
capital stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and
150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares
totalled 30,127,043, with a total par value of P301,270,430.00.

It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the
power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative
vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which
2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment
was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of
the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already
been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action,
Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in 1961,
there being 6 new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment,
Gokogwei had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a
stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon
in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. As
additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M.
Soriano, while representing other corporations, entered into contracts (specifically a management contract) with the
corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of determining
whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended by-
laws which states that in determining whether or not a person is engaged in competitive business, the Board may
consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that
the portion of the amended by-laws which requires that "all nominations for election of directors shall be submitted in
writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise
unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the
certificate of filing thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified amounts, to
Gokongwei. On 28 October 1976, in connection with the same case, Gokongwei filed with the Securities and Exchange
Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of the
corporation refused to allow him to inspect its records despite request made by Gokongwei for production of certain
documents enumerated in the request, and that the corporation had been attempting to suppress information from its
stockholders despite a negative reply by the SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and their opposition to the
petition, respectively. Meanwhile, on 10 December 1976, while the petition was yet to be heard, the corporation issued a
notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws",
setting such meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary judgment insofar as
the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the
aforesaid purpose, Soriano, et. al. admitted the invalidity of the amendments of 18 September 1976. The motion for
summary judgment was opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for
the Issuance of a Temporary Restraining Order", praying that pending the determination of Gokongwei's application for
the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a temporary restraining order
be issued, restraining Soriano, et. al. from holding the special stockholders' meeting as scheduled. This motion was duly
opposed by Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for issuance of
temporary restraining order. After receipt of the order of denial, Soriano, et. al. conducted the special stockholders'
meeting wherein the amendments to the by-laws were ratified. On 14 February 1977, Gokongwei filed a consolidated
motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order
denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC on 10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing corporate funds in
other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-1/2
of the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and
Jose M. Soriano, as well as the corporation declared guilty of such violation, and ordered to account for such investments
and to answer for damages. On 4 February 1977, motions to dismiss were filed by Soriano, et. al., to which a consolidated
motion to strike and to declare Soriano, et. al. in default and an opposition ad abundantiorem cautelam were filed by
Gokongwei. Despite the fact that said motions were filed as early as 4 February 1977, the Commission acted thereon only
on 25 April 1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to file their
answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual
stockholders' meeting, including in the Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by
the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for
purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments
thereafter made pursuant thereto." By reason of the foregoing, on 28 April 1977, Gokongwei filed with the SEC an urgent
motion for the issuance of a writ of preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at
the annual stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the date set for the second
hearing of the case on the merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the
same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the
Commission to act, Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action has been
taken up to the date of the filing of the instant petition.
Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concerted inability on the part
of the SEC to act.

ISSUE: Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of the
records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation.

HELD: Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions
of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of
the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based
upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the
corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a
quasi-ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts
that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with
respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. In
other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and
lawful in character and not inimical to the interest of the corporation. The "general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to
obtain such information, especially where it appears that the company is being mismanaged or that it is being managed
for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." While the right of a
stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such
stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a
stockholder is a different thing. Stockholders are entitled to inspect the books and records of a corporation in order to
investigate the conduct of the management, determine the financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors. herein, considering that the foreign subsidiary is wholly owned by
San Miguel Corporation and, therefore, under Its control, it would be more in accord with equity, good faith and fair
dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as
extending to books and records of such wholly owned subsidiary which are in the corporation's possession and control.

ADERITO Z. YUJUICO and BONIFACIO C. SUMBILLAv.CEZAR T. QUIAMBAO and ERIC C. PILAPIL

FACTS:

Strategic Alliance Development Corporation (STRADEC) is a domestic corporation operating as a business

development and investment company.

On 1 March 2004, during the annual stockholder's meeting of STRADEC, petitioner Aderito Z. Yujuico (Yujuico)
was elected as president and chairman of the company. Yujuico replaced respondent Cezar T. Quiambao (Quiambao),
who had been the president and chairman of STRADEC since 1994.
 With Yujuico at the helm, STRADEC appointed petitioner Bonifacio C. Sumbilla (Sumbilla) as treasurer and one
Joselito John G. Blando (Blando) as corporate secretary. Blando replaced respondent Eric C. Pilapil (Pilapil), the previous
corporate secretary of STRADEC.

Two (2) informations were filed against the respondents before the Metropolitan Trial Court (MeTC) of Pasig City.
Criminal Case No. 89723 is for the offense of removing the stock and transfer book of STRADEC from its principal office
and Criminal Case No. 89724, on the other hand, covers the offense of refusing access to, and examination of, the
corporate records and the stock and transfer book of STRADEC at its principal office.

The MeTC dismissed Criminal Case No. 89723 but ordered the issuance of a warrant of arrest against
respondents in Criminal Case No. 89724.

In dismissing Criminal Case No. 89723, the MeTC held that Section 74, in relation to Section 144, of the
Corporation Code only penalizes the act of "refus[ing] to allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from the records or minutes of the corporation" and that act is already the
subject matter of Criminal Case No. 89724. Hence, the MeTC opined, Criminal Case No. 89723 – which seeks to try
respondents for merely removing the stock and transfer book of STRADEC from its principal office – actually charges no
offense and, therefore, cannot be sustained.

Unsatisfied, the respondents filed a motion for partial Reconsideration insofar as the disposition in Criminal Case
No. 89724 is concerned. The MeTC, however, denied such motion on 16 August 2006.

Respondents filed a certiorari petition, with prayer for the issuance of a temporary restraining order (TRO), before
the RTC of Pasig City on 27 September 2006. The RTC issued a TRO enjoining the MeTC from conducting further
proceedings in Criminal Case No. 89724 for twenty (20) days. On 4 June 2007, the RTC issued an Order granting
respondents' certiorari petition and directing the dismissal of Criminal Case No. 89724. According to the RTC, the MeTC
committed grave abuse of discretion in issuing a warrant of arrest against respondents in Criminal Case No. 89724.

The RTC found that the finding of probable cause against the respondents in Criminal Case No. 89724 was not
supported by the evidence presented during the preliminary investigation but was, in fact, contradicted by them.

The RTC further pointed out that, at most, the evidence on record only supports probable cause that the
respondents were withholding the stock and transfer book of STRADEC. The RTC, however, opined that refusing to allow
inspection of the stock and transfer book, as opposed to refusing examination of other corporate records, is not
punishable as an offense under the Corporation Code. Hence, the directive of the RTC dismissing Criminal Case No.
89724.

ISSUE: WON Criminal Case No. 89724 should be sustained? NO.

HELD:
 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-such as Criminal Case No. 89724--can only be maintained against corporate officers or any other persons acting on
behalf of such corporation. The submissions of the petitioners during the preliminary investigation, however, clearly
suggest that respondents are neither in relation to STRADEC.

Criminal Case No. 89724 accuses respondents of denying petitioners' right to examine or inspect the corporate
records and the stock and transfer book of STRADEC. It is thus a criminal action that is based on the violation of the
second and fourth paragraphs of Section 7 4 of the Corporation Code.

A perusal of the second and fourth paragraphs of Section 74, as well as the first paragraph of the same section,
reveal that they are provisions that obligates a corporation: they prescribe what books or records a corporation is required
to keep; where the corporation shall keep them; and what are the other obligations of the corporation to its stockholders or
members in relation to such books and records.

Hence, by parity of reasoning, the second and fourth paragraphs of Section 74, including the first paragraph of the
same section, can only be violated by a corporation.

It is clear then that a criminal action based on the violation of the second or fourth paragraphs of Section 74 can
only be maintained against corporate officers or such other persons that are acting on behalf of the corporation. Violations
of the second and fourth paragraphs of Section 74 contemplates a situation wherein a corporation, acting thru one of its
officers or agents, denies the right of any of its stockholders to inspect the records, minutes and the stock and transfer
book of such corporation.

The problem with the petitioners' complaint and the evidence that they submitted during preliminary investigation
is that they do not establish that respondents were acting on behalf of STRADEC. Quite the contrary, the scenario painted
by the complaint is that the respondents are merely outgoing officers of STRADEC who, for some reason, withheld and
refused to turn-over the company records of STRADEC; that it is the petitioners who are actually acting on behalf of
STRADEC; and that STRADEC is actually merely trying to recover custody of the withheld records.

In other words, petitioners are not actually invoking their right to inspect the records and the stock and transfer
book of STRADEC under the second and fourth paragraphs of Section 74. What they seek to enforce is the proprietary
right of STRADEC to be in possession of such records and book. Such right, though certainly legally enforceable by other
means, cannot be enforced by a criminal prosecution based on a violation of the second and fourth paragraphs of Section
74. That is simply not the situation contemplated by the second and fourth paragraphs of Section 74 of the Corporation
Code.

For this reason, we affirm the dismissal of Criminal Case No. 89724 for lack of probable cause.
Nautica Canning Corp vs Yumul

Facts:

The facts of the case show that Nautica Canning Corporation (Nautica) was organized and incorporated on May
11, 1994 with an authorized capital stock of P40,000,000 divided into 400,000 shares with a par value of P100.00 per
share. It had a subscribed capital stock of P10,000,000 with paid-in subscriptions from its incorporators

On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager
of Nautica with a monthly compensation of P85,000 and an additional compensation equal to 5% of the companys
operating profit for the calendar year.[4] On the same date, First Dominion Prime Holdings, Inc., Nauticas parent company,
through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase[5] up to 15% of the total stocks it subscribed
from Nautica.
On June 22, 1995, a Deed of Trust and Assignment[6] was executed between First Dominion Prime Holdings, Inc.
and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the
14,999 shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in
behalf of and in trust for the ASSIGNEE.

In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul
representing his 15% share.

After Yumuls resignation from Nautica on August 5, 1996, he wrote a letter[7] to Dee requesting the latter to
formalize his offer to buy Yumuls 15% share in Nautica on or before August 20, 1996; and demanding the issuance of the
corresponding certificate of shares in his name should Dee refuse to buy the same. Dee, through Atty. Fernando R.
Arguelles, Jr., Nauticas corporate secretary, denied the request claiming that Yumul was not a stockholder of Nautica.

On September 6, 1996[8] and September 9, 1996,[9] Yumul requested that the Deed of Trust and Assignment be
recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and
records.

Yumuls requests were denied allegedly because he neither exercised the option to purchase the shares nor paid
for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is held
by him only in trust for First Dominion Prime Holdings, Inc.

Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer that
the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the certificate of stocks
corresponding thereto be issued in his name.

SEC En Banc: Ruled in Favor of Petitioner

CA: Ruled in favor of Petitioner

Issue: won Yumul is a stockholder of Nautica Canning?

Held:

Yes. Yumul is a Stockholder

Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the
beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They presented China
Banking Corporation Check No. A2620636 and Citibank Check No. B82642 as proof of payment by Dee; a letter by Dee
dated July 15, 1994 requesting the corporate secretary of Nautica to issue a certificate of stock in Yumuls name but in
trust for Dee; and Stock Certificate No. 6 with annotation ITF Alvin Y. Dee which means that respondent held said stock In
Trust For Alvin Y. Dee.

We are not persuaded.

Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation is not
affected when such individual gives nominal ownership of only one share of stock to each of the other four incorporators.
This is not necessarily illegal.[14] But, this is valid only between or among the incorporators privy to the agreement. It does
bind the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be
stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to
the real parties in interest. 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. [15]

In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of one share
of stock recorded in Yumuls name, although allegedly held in trust for Dee. Nauticas Articles of Incorporation and By-laws,
as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of
one share.[16] Even granting that there was an agreement between Yumul and Dee whereby the former is holding the
share in trust for Dee, the same is binding only as between them. From the corporations vantage point, Yumul is its
stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee, the
alleged real owner of the share, after Nauticas incorporation.

We held in Ponce v. Alsons Cement Corp.[17] that:

... [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 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[.]
 Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its contents
cannot be disregarded considering that it was the basic document which legally triggered the creation of the corporation.

Besides, other than petitioners self-serving assertion that the beneficial ownership belongs to Dee, they failed to
show that the subscription was transferred to Dee after Nauticas incorporation. The conduct of the parties also
constitute sufficient proof of Yumuls status as a stockholder. On April 4, 1995, Yumul was elected during the
regular annual stockholders meeting as a Director of Nauticas Board of Directors. [21] Thereafter, he was elected
as president of Nautica.[22] Thus, Nautica and its stockholders knowingly held respondent out to the public as an
officer and a stockholder of the corporation.

Section 23 of Batas Pambansa (BP) Blg. 68 or The Corporation Code of the Philippines requires that every
director must own at least one share of the capital stock of the corporation of which he is a director. Before one may be
elected president of the corporation, he must be a director. [23] Since Yumul was elected as Nauticas Director and as
President thereof, it follows that he must have owned at least one share of the corporations capital stock.

Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the SEC
correctly ruled that he has the right to inspect the books and records of Nautica, [24] pursuant to Section 74 of BP Blg. 68
which states that the records of all business transactions of the corporation and the minutes of any meetings shall 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.

Lanuza v. CA
G.R. No. 131394
March 28, 2005

Doctrine:
A stock and transfer book is the book which records the names and addresses of all stockholders
arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been
made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made,
the date thereof and by and to whom made; and such other entries as may be prescribed by law. A stock
and transfer book is necessary as a measure of precaution, expediency and convenience since it provides
the only certain and accurate method of establishing the various corporate acts and transactions and of
showing the ownership of stock and like matters. However, a stock and transfer book, like other
corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the
matters and things which ordinarily are or should be written therein.
J. Tinga

Facts:
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with 700 founders' shares
and 76 common shares as its initial capital stock subscription reflected in the articles of incorporation.
However, private respondents and their predecessors who were in control of PMMSI registered the
company's stock and transfer book for the first time in 1978, 33 common shares as the only issued and
outstanding shares of PMMSI. Sometime in 1979, a special stockholders' meeting was called and held on
the basis of what was considered as a quorum of 27 common shares, representing more than 2/3 of the
common shares issued and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the SEC for the
registration of their property rights over 120 founders' shares and 12 common shares owned by their
father. The SEC hearing officer held that the heirs of Acayan were entitled to the claimed shares and
called for a special stockholders' meeting to elect a new set of officers. The SEC En Banc affirmed the
decision. As a result, the shares of Acayan were recorded in the stock and transfer book.
On 06 May 1992, a special stockholders' meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders' meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of 776 shares, as reflected in the 1952 Articles of Incorporation.
CA Ruling:For purposes of transacting business, the quorum should be based on the outstanding capital
stock as found in the articles of incorporation.
Issue:
What should be the basis of quorum for a stockholders' meeting — the outstanding capital stock as
indicated in the articles of incorporation or that contained in the company's stock and transfer book?

Ruling:
- THE ARTICLES OF INCORPORATION. The contents of the articles of incorporation are binding, not
only on the corporation, but also on its shareholders. In the instant case, the articles of incorporation
indicate that at the time of incorporation, the incorporators were bona fide stockholders of 700 founders'
shares and 76 common shares. Hence, at that time, the corporation had 776 issued and outstanding
shares.
On the other hand, a stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of
stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by
law. A stock and transfer book is necessary as a measure of precaution, expediency and convenience
since it provides the only certain and accurate method of establishing the various corporate acts and
transactions and of showing the ownership of stock and like matters. However, a stock and transfer book,
like other corporate books and records, is not in any sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily are or should be written therein.
To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer
book, and completely disregarding the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary. The
stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does
not reflect the totality of shares which have been subscribed, more so when the articles of incorporation
show a significantly larger amount of shares issued and outstanding as compared to that listed in the
stock and transfer book.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely because
the corporate officers failed to keep its records accurately. A corporation's records are not the only
evidence of the ownership of stock in a corporation. In an American case, persons claiming shareholders
status in a professional corporation were listed as stockholders in the amendment to the articles of
incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts and
conduct of the parties may even constitute sufficient evidence of one's status as a shareholder or
member. In the instant case, no less than the articles of incorporation declare the incorporators to have in
their name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of the
corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and
their heirs.
AFRICA v PCGG

DOCTRINE: The only express limitation on the right of inspection, according to the Court, is that (1) the right of inspection
should be exercised at reasonable hours on business days; (2) the person demanding the right to examine and copy
excerpts from the corporate records and minutes has not improperly used any information secured through any previous
examination of the records of such corporation, and (3) the demand is made in good faith or for a legitimate purpose.

FACTS: 60% of the shares of Eastern Telecommunications Philippines, Inc. (ETPI) remained under sequestration by
PCGG. An annual stockholders meeting was conducted and election of members of the board of directors was held.

Sandiganbayan issued, upon request of the counsel for Jose L. Africa, et al. dated October 18, 1988, a subpoena duces
tecum and ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan
during the hearing on November 3, 1988 at 2:00 P.M. and to produce the stock and transfer book and all stubs of the
outstanding stock certificates of ETPI.

PCGG and its nominee/designee, Ramon Desuasido, moved to quash both subpoena, but the motion was denied by the
Sandiganbayan

ISSUE: Whether or not the issuance of the subpoena was valid

HELD: YES. In upholding the right of a stockholder of a sequestered company to inspect and/or examine the records of a
corporation pursuant to Section 74 of the

Corporation Code, the Court found nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO, to indicate an
implied amendment of the Corporation

Code, much less an implied modification of a stockholder's right of inspection as guaranteed by Section 74 thereof. The
only express limitation on the right of inspection, according to the Court, is that (1) the right of inspection should be
exercised at reasonable hours on business days; (2) the person demanding the right to examine and copy excerpts from
the corporate records and minutes has not improperly used any information secured through any previous examination of
the records of such corporation, and (3) the demand is made in good faith or for a legitimate purpose.

W. G. PHILPOTTS vs. PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY

G.R. No. 15568, November 8, 1919; Street, J.
Facts:
The petitioner, W. G.' Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents
herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in
person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by said
company.
the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything
relating to the affairs of the company, and the petition prays for a peremptory order commanding the respondents to
place the records of all business transactions of the company, during a specified period, at the disposal of the plaintiff or
his duly authorized agent or attorney, it being evident that the Petitioner desires to exercise said right through an agent
or attorney. In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a
right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this right
must be exercised in person.

Issue: Whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper
agent or attorney of the stockholder as well as by the stockholder in person.

Held: YES.
The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads
as follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to
the inspection of and director, member, or stockholder of the corporation at reasonable hours."
The right of inspection given to a stockholder in the provision above quoted can be exercised either by himself
or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder. This is
in conformity with the general rule that what a man may do in person he may do through another; and we find nothing
in the statute that would justify us in qualifying the right in the manner suggested by the respondents. This conclusion is
supported by the undoubted weight of authority in the United States, where it is generally held that the provisions of
law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right
may be exercised through any other properly authorized person.
"The right may be regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and
examination may be made by another. Otherwise it would be unavailing in many instances."
"The possession of the right in question would be futile if the possessor of it, through lack of knowledge
necessary to exercise it, were debarred the right of procuring in his behalf the services of one who could exercise it."
In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that
there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given
by law to the stockholder; as, for instance, where a corporation, engaged in the business of manufacture, has acquired a
formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not our
intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not
adopt measures for the protection of such process from publicity.

Veraguth vs Isabela Sugar Co.GR No. L-37064 October 4, 1932

Facts :

The parties to this action are Eugenio Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., who is the
petitioner, and the Isabela Sugar Company, Inc., Gil Montilla, acting president of the company, and Agustin B. Montilla,
secretary of the company, who are the respondents. The petitioner prays: (a) That the respondents be required within five
days from receipt of notice of this petition to show cause why they refuse to notify the petitioner, as director, of the regular
and special meetings of the board of directors, and to place at his disposal at reasonable hours, the minutes, and
documents, and books of the aforesaid corporation, for his inspection as director and stockholder, and to issue, upon
payment of the fees, certified copies of any documentation in connection with said minutes, documents, and books of the
corporation; and (b) that, in view of the memoranda and hearing of the parties, a final and absolute writ of mandamus be
issued to each and all of the respondents to notify immediately the petitioner within the reglamentary period, of all regular
and special meetings of the board of directors of the Isabela Sugar Central Company, Inc., and to place at his disposal at
reasonable hours the minutes, documents, and books of said corporation for his inspection as director and stockholder,
and to issue immediately, upon payment of the fees, certified copies of any documentation in connection with said
minutes, documents, and the books of the aforesaid corporation.

Speaking to the first point, the meeting in question is in the past and, therefore, now merely presents an academic
question; that no damage was caused to Veraguth by the action taken at the special meeting which he did not attend,
since his interests were fully protected by the Philippine National Bank; and that as to meetings in the future it is to be
presumed that the secretary of the company will fulfill the requirements of the resolutions of the company pertaining to
regular and special meetings. It will, of course, be incumbent upon Veraguth to give formal notice to the secretary of his
post-office address if he desires notice sent to a particular residence.

On the second question, the secretary made answer by letter stating that, since the minutes of the meeting in question
had not been signed by the directors present, a certified copy could not be furnished and that as to other proceedings of
the stockholders a request should be made to the president of the Isabela Sugar Company, Inc. It further appears that the
board of directors adopted a resolution providing for inspection of the books and the taking of copies "by authority of the
President of the corporation previously obtained in each case."

The Corporation Law, section 51, provides that:

All business corporations shall keep and carefully preserve a record of all business transactions, and a minute of all
meetings of directors, members, or stockholders, in which shall be set forth in detail the time and place of holding the
meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the
meeting. . . .

The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection
of any director, member, or stockholder of the corporation at reasonable hours.

The above puts in statutory form the general principles of Corporation Law. Directors of a corporation have the unqualified
right to inspect the books and records of the corporation at all reasonable times. Pretexts may not be put forward by
officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation, and
the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the
officers of the corporation whose records are sought to be inspected. A director or stockholder can not of course make
copies, abstracts, and memoranda of documents, books, and papers as an incident to the right of inspection, but cannot,
without an order of a court, be permitted to take books from the office of the corporation. We do not conceive, however,
that a director or stockholder has any absolute right to secure certified copies of the minutes of the corporation until these
minutes have been written up and approved by the directors.

Combining the facts and the law, we do not think that anything improper occurred when the secretary declined to furnish
certified copies of minutes which had not been approved by the board of directors, and that while so much of the last
resolution of the board of directors as provides for prior approval of the president of the corporation before the books of
the corporation can be inspected puts an illegal obstacle in the way of a stockholder or director, that resolution, so far as
we are aware, has not been enforced to the detriment of anyone. In addition, it should be said that this is a family dispute,
the petitioner and the individual respondents belonging to the same family; that a test case between the petitioner and the
respondents has not been begun in the Court of First Instance of Occidental Negros involving hundreds of thousands of
pesos, and that the appellate court should not intrude its views to give an advantage to either party. We rule that the
petitioner has not made out a case for relief by mandamus.
Petition denied with costs.

ANTONIO PARDO vs.THE HERCULES LUMBER CO., INC., and IGNACIO FERRER

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

STREET, J.:

FACTS:

It is admitted that the petitioner is in fact a stockholder in the Hercules Lumber Company, Inc., and that the respondent,
Ignacio Ferrer, as acting secretary of the said company, has refused to permit the petitioner or his agent to inspect the
records and business transactions of the said Hercules Lumber Company, Inc., at times desired by the petitioner. No
serious question is of course made as to the right of the petitioner, by himself or proper representative, to exercise the
right of inspection conferred by section 51 of Act No. 1459. Said provision was under the consideration of this court in the
case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), where we held that the right of examination
there conceded to the stockholder may be exercised either by a stockholder in person or by any duly authorized agent or
representative.

The main ground upon which the defense appears to be rested has reference to the time, or times, within which the right
of inspection may be exercised. In this connection the answer asserts that in article 10 of the By-laws of the respondent
corporation it is declared that "Every shareholder may examine the books of the company and other documents pertaining
to the same upon the days which the board of directors shall annually fix." It is further averred that at the directors'
meeting of the respondent corporation held on February 16, 1924, the board passed a resolution to the following effect:

“The board also resolved to call the usual general (meeting of shareholders) for March 30 of the present year, with notice
to the shareholders that the books of the company are at their disposition from the 15th to 25th of the same month for
examination, in appropriate hours.”

The contention for the respondent is that this resolution of the board constitutes a lawful restriction on the right conferred
by statute; and it is insisted that as the petitioner has not availed himself of the permission to inspect the books and
transactions of the company within the ten days thus defined, his right to inspection and examination is lost, at least for
this year.

ISSUE: W/N the resolution of the board constitutes a lawful restriction on the right conferred by the statute?

HELD: NO. The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution. It
may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or under
other improper conditions; but neither the executive officers nor the board of directors have the power to deprive a
stockholder of the right altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. This is based
on section 51 of Act No. 1459 where we held that the right of examination there conceded to the stockholder may be
exercised either by a stockholder in person or by any duly authorized agent or representative.

It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours." This means at
reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days
chosen by the directors.
REPUBLIC OF THE PHILIPPINES, (PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT),vs.

THE HONORABLE SANDIGANBAYAN. G.R. No. 88809, July 10, 1991

FACTS: (consolidated petitions by Eduardo Cojuangco)

In G.R. No. 88809: Private respondent-stockholderEduardo Cojuangco, Jr. requested the San Miguel Corporation (SMC)
and its corporate secretary the production, inspection, examination/verification and/or photocopying of the SMC corporate
records to inform him of the decisions, policies, acts and performance of the management of the SMC under the PCGG-
Board. Since the shares of private respondent in the SMC have been sequestered by the PCGG, SMC sought advice
from the latter on the effect of such sequestration. Subsequently, private respondent was informed by the SMC that all
requests for the examination, inspection and photocopying of its corporate records should be coursed through the PCGG.

In G.R. No. 88858: private respondent as stockholder of record seeks authority to inspect and examine the corporate
records of United Coconut Planters Bank.

The request of private respondent for the inspection/examination of SMC's corporate records was denied by the PCGG.
As regards the corporate records of URPB, private respondent was likewise advised to course his request through the
PCGG. Thereafter, private respondent filed two separate petitions for prohibition and mandamus before the
Sandiganbayan. The Sandiganbayan allowed private respondent to inspect the corporate records of UCPB and SMC.

Hence, the instant petitions for certiorari with prayer for the issuance of temporary restraining orders.

ISSUE: W/N sequestration automatically deprive a stockholder of his right of inspection?

HELD: No. The right of a stockholder to inspect and/or examine the records of a corporation is explicitly provided in
Section 74 of the Corporation Code. The PCGG does not become, ipso facto, the owner of the shares just because the
same have been sequestered; nor does it become the stockholder of record by virtue of such sequestration.

Being a stockholder beyond doubt, there is therefore no reason why private respondent may not exercise his statutory
right of inspection in accordance with Sec. 74 of the Corporation Code, the only express limitation being that 1) the right of
inspection should be exercised at reasonable hours on business days; 2) the person demanding to examine and copy
excerpts from the corporation's records and minutes has not improperly used any information secured through any
previous examination of the records of such corporation; and 3) the demand is made in good faith or for a legitimate
purpose. The latter two limitations, however, must be set up as a defense by the corporation if it is to merit judicial
cognizance. As such, and in the absence of evidence, the PCGG cannot unilaterally deny a stockholder from exercising
his statutory right of inspection based on an unsupported and naked assertion that private respondent's motive is
improper or merely for curiosity or on the ground that the stockholder is not in friendly terms with the corporation's officers.
RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL BANK, respondent.

G.R. No.L-33320. May 30, 1983

Facts:

Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance (CFI) of Manila a special civil action for
mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and
records of the respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has
guaranteed the obligation of another corporation in the purchase of a million sugar-mill to be financed by Japanese
suppliers and financiers and that the respondent financed the construction of a bridge a sugar mill.

When the respondent denied his request, the petitioner sought mandamus from the CFI of Manila, adding that he
acquired one (1) 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: W/N herein petitioner could examine the records of respondents

Held:

No.

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 Gonzales 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 PNB 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 Bilang 68.

Although Gonzales has claimed that he has justifiable motives in seeking the inspection of the books of the PNB, 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 PNB 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 PNB even before he became a stockholder. His obvious purpose was to arm himself with
materials which he can use against the PNB for acts done by the latter when Gonzales 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.
- ALFREDO P. PASCUAL and LORETA S. PASCUAL , petitioners, vs. COURT OF APPEALS (former Seventh
Division), ERNESTO P. PASCUAL and HON. ADORACION ANGELES, in her capacity as Presiding Judge, RTC,
Kaloocan City, Branch 121, respondents.
-
- FACTS:
- On February 7, 1996, private respondent Ernesto P. Pascual filed a complaint in the Regional Trial Court
for "accounting, reconveyance of real property based on implied trust resulting from fraud, declaration of nullity of TCT,
recovery of sums of money, and damages" against his brother, petitioner Alfredo, and the latter's wife Loreta Pascual.
-
- Plaintiff Ernesto and defendant Alfredo Pascual are full blood brothers. They, along with Araceli P.
Castro, Ester P. Abad, Edgardo P. Pascual, Sr. (now deceased), Corazon P. Montenegro, Leonor P. Rivera, Luciano
Pascual, Jr., and Teresita P. Manuel, are legitimate children of Luciano Pascual, Sr. and Consolacion Pascual. Defendant
Loreta Pascual is the wife of defendant Alfredo. Between 1963 to 1975, Luciano R. Pascual, Sr. acquired substantial
shares in Phillens Manufacturing Corp. Luciano, Sr. parceled out and assigned a good number of these shares in the
names of his children. With Luciano's substantial shareholdings, his eldest son, defendant Alfredo became President,
General Manager, and Vice-Chairman of the Board of Phillens. Plaintiff was only 20 years old then. Defendant Alfredo
was also president of L.R. Pascual & Sons, Inc. which held substantial shares in Phillens. (Plaintiff is a stockholder of L.
R. Pascual & Sons, Inc.) Defendant Alfredo held family property in trust for Luciano Sr. and Consolacion, and for his
brothers and sisters, defendant Alfredo gave the latter no accounting at any point in time contrary to what their father
intended. Because from 1969 to 1990, defendant Alfredo turned over zero pro t to plaintiff Ernesto as far as his share was
concerned, plaintiff tried to arrange a meeting between them about the matter of accounting — without any success
during a 5-year period (1990-1995). Since defendant Alfredo was President of L.R. Pascual & Sons, Inc. which held family
properties in Quezon City, Manila, and Baguio, plaintiff wanted this matter taken up in a meeting he requested with
defendant Alfredo. In addition, plaintiff asked defendant Alfredo for an accounting in L.R. Pascual & Co., a registered
partnership distinct from L.R. Pascual & Sons, Inc. which would be discussed in that requested meeting. Because of
defendant Alfredo's icy silence and unmistakable attempts to claim the lid on plaintiff Ernesto Pascual, plaintiff conducted
an inquiry. As a result, he discovered that when defendant Alfredo caused the dissolution of Phillens Manufacturing
Corporation by asking for a shortening of its term, defendant Alfredo represented in an affidavit of undertaking that
- (a) he is the owner of the majority of the outstanding capital stock of the corporation;
- (b) that the corporation has no obligation, whether existing or contingent, direct or indirect, due or payable
to any person whomsoever, natural or juridical;
- (c) he is assuming and will pay any and all valid claims or demands by creditors, stockholders, or any
third person or persons, presented after the dissolution of the corporation.
-
- On March 21, 1996, petitioners filed a motion to dismiss on the ground that the complaint raises an intra-
corporate controversy between the parties over which original and exclusive jurisdiction is vested in the Securities and
Exchange Commission (SEC). At first, the trial court granted petitioners' motion and dismissed the complaint on the
ground that the complaint stemmed from alleged fraudulent acts and misrepresentations of petitioner Alfredo P. Pascual
as a corporate officer of Phillens Manufacturing Corp. (Phillens) and thus the SEC had jurisdiction over the case.
However, on respondent's motion, the trial court reconsidered its order and reinstated respondent's action. In an order,
dated September 29, 1997, the trial court held that, since the corporation had been dissolved in 1990 and its corporate
affairs terminated in 1993, there were no more corporate affairs to speak of at the time of the filing of the complaint. The
court also allowed the amendment of the complaint.
-
- ISSUE:Whether an action for reconveyance of a piece of land and for accounting and damages which
private respondent Ernesto P. Pascual brought against his brother, petitioner Alfredo P. Pascual, and the latter's
wife involves an intra-corporate dispute
-
- RULING:
- P.D. 902-A, §5 provides:
- In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of association registered with it as expressly granted under existing
laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: ATaDHC
- xxx xxx xxx
- b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members, or associates; between any or all of them and the corporation, partnership or association of which they
are stockholders, members or associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such entity;
-
- Sec. 5(b) does not define what an intra-corporate controversy is, but case law has fashioned out two tests
for determining what suit is cognizable by the SEC or the regular courts, and sometimes by the National Labor Relations
Commission. The first test uses the enumeration in §5(b) of the relationships to determine jurisdiction, to wit:
- (1) Those between and among stockholders and members;
- (2) Those between and among stockholders and members, on one hands and the corporation, on the
other hand; and
- (3) Those between the corporation and the State but only insofar as its franchise or right to exist as an
entity is concerned.
- The second test, on the other hand, focuses on the nature of the controversy itself. Recent decisions of this Court
consider not only the subject of their controversy but also the status of the parties.
-
- We hold that the Court of Appeals correctly ruled that the regular courts, not the SEC, have jurisdiction
over this case. Petitioners and private respondent never had any corporate relations in Phillens. It appears that private
respondent was never a stockholder in Phillens, of which the parties' predecessor-in-interest, Luciano Pascual, Sr. was a
stockholder and whose properties are being litigated. Private respondent's allegation is that, upon the death of their father,
he became co-owner in the estate left by him, and part of this estate includes the corporate interests in Phillens. He also
alleges that petitioners repudiated the trust relationship created between them and appropriated to themselves even the
property that should have belonged to respondent. It is thus clear that there is no corporate relationship involved here.
That petitioner Alfredo Pascual was a corporate officer holding in trust for his brother their father's corporate interests did
not create an intra-corporate relationship between them.
-
- Nor is the controversy corporate in nature. As we have stated before, the grant of jurisdiction must be
viewed in the light of the nature and function of the SEC under the law. P.D. No. 902-A, §3 gives the SEC jurisdiction,
supervision, and control over all corporations, partnerships or associations, who are the grantees of primary franchise
and/or a license or permit issued by the government to operate in the Philippines. From this, it can be deduced that the
regulatory and adjudicatory functions of the SEC, insofar as intra-corporate controversies are concerned, comes into play
only if a corporation still exists.
-
- In the case at bar, the corporation whose properties are being contested no longer exists, it having been
completely dissolved in 1993; consequently, the supervisory authority of the SEC over the corporation has likewise come
to an end.
GOVERNMENT SERVICE, INSURANCE SYSTEM, vs. THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY
V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO
L. IBAÑEZ, and FRANCIS GILES PUNO

FACTS:
 The annual stockholders’ meeting of the Manila Electric Company was scheduled on 27 May 2008. In connection
with the annual meeting, proxies were required to be submitted and the proxy validation was slated for five days
later.
 In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco became vacant. The
board of directors of Meralco designated Jose Vitug to act as corporate secretary for the annual meeting.
However, when the proxy validation began, the proceedings were presided over by respondent Anthony Rosete
(Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco. Private respondents
nonetheless argue that Rosete was the acting corporate secretary of Meralco.
 GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting
certification of proxies in favor of the Meralco. GSIS filed an Urgent Petition with the SEC seeking to restrain
Rosete from "recognizing, counting and tabulating, directly or indirectly, notionally or actually or in whatever way,
form, manner or means, or otherwise honoring the shares covered by" the proxies in favor of respondents or any
officer representing MERALCO Management," and to annul and declare invalid said proxies GSIS also prayed for
the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during the annual meeting.
 A CDO to that effect was issued.
 Respondents filed a petition for certiorari with prohibition with the Court of Appeals, praying that the CDO and the
Show Cause Order (SCO) be annulled.
 Court of Appeals Eighth Division promulgated a decision in the case whereby the complaint filed by GSIS in the
SEC is DISMISSED due to SEC’s lack of jurisdiction, due to forum shopping by respondent GSIS, and due to
splitting of causes of action by respondent GSIS.
 Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director of the
Compliance and Enforcement Department of the SEC filed a petition for certiorari under Rule 65, seeking the
"reversal" of the assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over the
petition of GSIS, and the affirmation of the CDO and SCO.
 Private respondents seek the expunction of the petition filed by the SEC

ISSUE:
 Whether or not Commissioner Marquez and Guevarra, are real parties-in-interest.

HELD:
 Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is restricted to "a
party," meaning that only the real parties-in-interest who litigated the petition for certiorari before the Court of
Appeals are entitled to appeal the same under Rule 45.
 The SEC and its two officers may have been designated as respondents in the petition for certiorari filed with the
Court of Appeals, but under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-interest.
 Under the provision, the judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person to whom
grave abuse of discretion is imputed (the SEC and its two officers in this case) are denominated only as public
respondents. The provision further states that "public respondents shall not appear in or file an answer or
comment to the petition or any pleading therein."
 [R]ule 65 involves an original special civil action specifically directed against the person, court, agency or party a
quo which had committed not only a mistake of judgment but an error of jurisdiction, hence should be made public
respondents in that action brought to nullify their invalid acts.
 It shall, however be the duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in
Rule 65, to defend in his behalf and the party whose adjudication is assailed, as he is the one interested in
sustaining the correctness of the disposition or the validity of the proceedings.
 The party interested in sustaining the proceedings in the lower court must be joined as a co-respondent and he
has the duty to defend in his own behalf and in behalf of the court which rendered the questioned order.
 While there is nothing in the Rules that prohibit the presiding judge of the court involved from filing his own
answer and defending his questioned order, the Supreme Court has reminded judges of the lower courts to
refrain from doing so unless ordered by the Supreme Court.
 The judicial norm or mode of conduct to be observed in trial and appellate courts is now prescribed in the second
paragraph of this section.
o A person not a party to the proceedings in the trial court or in the Court of Appeals cannot maintain an
action for certiorari in the Supreme Court to have the judgment reviewed.
  Justice Isagani Cruz added, in a Concurring Opinion in Santiago: "The judge is not an active combatant in such
proceeding and must leave it to the parties themselves to argue their respective positions and for the appellate
court to rule on the matter without his participation."
 The SEC could have similarly felt in good faith that the assailed Court of Appeals decision had unduly impaired its
prerogatives or caused some degree of hurt to it. Yet assuming that there are rights or prerogatives peculiar to the
SEC itself that the appellate court had countermanded, these can be vindicated in the petition for certiorari filed by
GSIS, whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no
plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our judicial and
quasi-judicial offices to accommodate the SEC’s distrust and resentment of the appellate court’s decision.

SEC et al v Anthony Rosete

[consolidated case with GSIS v CA]

Facts: Similar to GSIS v CA, this case was prompted due to a controversy regarding the Acting Coprorate
Secretary of the Annual Stockholder’s Meeting of Meralco. The designated acting corporate secretary was
supposed to be Jose Vitug, howerver when the proxy validation proceedings began, Anthony Rosete, the Asst.
Corporate Secretary and in-house legal counsel presided over it. GSIS, as major shareholder was distressed on
the matter since the proceedings resulted in the certification of proxies in favor of Meralco Management. The
pertinent topic however, revolves, on the topic on who has jurisdiction over cases involving intra-corporate
disputes because initially GSIS filed it with the SEC later filed Notice manifesting the dismissal of its
complaint. On the same day, it filed an urgent pertion with the SEC to restrain Rosete from “counting,
tabulating, recognizing,..etc. the shares covered by proxies” in favor of Officers representing Meralco
management. When the matter reached the CA, the CA dismissed the complaint GSIS filed with the SEC for
lack of jurisdiction and forum-shopping due to slitting of the cause of action.The Complaint filed by GSIS in
the SEC was barred from being considered, out of equitable considerations, as an election contest in the RTC,
because the prescriptive period of 15 days from the May 27, 2008 Meralco choice to file an election contest in
the RTC had already run its course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure
Governing Intra-Corporate Controversies under R.A. No. 8799, due to deliberate act of GSIS in filing a
complaint in the SEC instead of the RTC.

ISSUE: W/N SEC had jurisdiction over the petition filed by GSIS.

HELD: Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act
No. 8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that either
the SEC or the trial courts has exclusive original jurisdiction over the dispute.

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, 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.

Conferment of original and exclusive jurisdiction on the regular courts over such controversies in the
election of corporate directors must be seen as intended to confine to one body the adjudication of all
related claims and controversy arising from the election of such directors. For that reason, the aforequoted
Section 2, Rule 6 of the Interim Rules broadly defines the term "election contest" as encompassing all plausible
incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving
title or claim to any elective office in a stock or nonstock corporation, (2) the validation of proxies, (3) the
manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners.
If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy
solicitation process, are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of
overlapping and competing jurisdictions between that body and the regular courts becomes frighteningly real.

In this case, however, from the Resolution of Meralco Board of Directors,|| “The Solicitor is soliciting proxies
from stockholders of the Company for the purpose of electing the directors named under the subject
headed 'Directors' in this Statement as well as to vote the matters in the agenda of the meeting as provided
for in the Information Statement of the Company.”GSIS very well knew that the controversy falls within the
contemplation of an election controversy properly within the jurisdiction of the regular courts.
Otherwise, it would have never filed its original petition with the RTC of Pasay. GSIS may have withdrawn
its petition with the RTC on a new assessment made in good faith that the controversy falls within the
jurisdiction of the SEC, yet the reality is that the reassessment is precisely wrong as a matter of law.
|

17. Reyes vs RTC

Consuelo Metal Corporation v. Planters Development Bank

On 1 April 1996, CMC filed before the SEC a petition to be declared in a state of suspension of payment, for rehabilitation,
and for the appointment of a rehabilitation receiver or management committee under Section 5(d) of Presidential Decree
No. 902-A.[5] On 2 April 1996, the SEC, finding the petition sufficient in form and substance, declared that all actions for
claims against CMC pending before any court, tribunal, office, board, body and/or commission are deemed suspended
immediately until further order from the SEC.[6]

In an Order dated 13 September 1999, the SEC directed the creation of a management committee to undertake CMCs
rehabilitation and reiterated the suspension of all actions for claims against CMC

Thereafter, respondent Planters Development Bank (Planters Bank), one of CMCs creditors, commenced the extra-
judicial foreclosure of CMCs real estate mortgage. Public auctions were scheduled on 30 January 2001 and 6 February
2001.

CMC filed a motion for the issuance of a temporary restraining order and a writ of preliminary injunction with the SEC to
enjoin the foreclosure of the real estate mortgage. On 29 January 2001, the SEC issued a temporary restraining order to
maintain the status quo and ordered the immediate transfer of the case records to the trial court. [11]
The case was then transferred to the trial court. In its 25 April 2001 Order, the trial court denied CMCs motion for
issuance of a temporary restraining order. The trial court ruled that since the SEC had already terminated and decided on
the merits CMCs petition for suspension of payment, the trial court no longer had legal basis to act on CMCs motion.

On 28 May 2001, the trial court denied CMCs motion for reconsideration. [12] The trial court ruled that CMCs petition for
suspension of payment could not be converted into a petition for dissolution and liquidation because they covered
different subject matters and were governed by different rules. The trial court stated that CMCs remedy was to file a new
petition for dissolution and liquidation either with the SEC or the trial court.

CMC filed a petition for certiorari with the Court of Appeals. CMC alleged that the trial court acted with grave abuse of
discretion amounting to lack of jurisdiction when it required CMC to file a new petition for dissolution and liquidation with
either the SEC or the trial court when the SEC clearly retained jurisdiction over the case.

On 13 June 2001, Planters Bank extra-judicially foreclosed the real estate mortgage

The Court of Appeals held that the trial court correctly denied CMCs motion for the issuance of a temporary restraining
order because it was only an ancillary remedy to the petition for suspension of payment which was already
terminated. The Court of Appeals added that, under Section 121 of the Corporation Code,[14] the SEC has jurisdiction to
hear CMCs petition for dissolution and liquidation.

CMC filed a motion for reconsideration. CMC argued that it does not have to file a new petition for dissolution and
liquidation with the SEC but that the case should just be remanded to the SEC as a continuation of its jurisdiction over the
petition for suspension of payment. CMC also asked that Planters Banks foreclosure of the real estate mortgage be
declared void.

In its 6 March 2002 Resolution, the Court of Appeals partially granted CMCs motion for reconsideration and ordered that
the case be remanded to the SEC under Section 121 of the Corporation Code.The Court of Appeals also ruled that since
the SEC already ordered CMCs dissolution and liquidation, Planters Banks foreclosure of the real estate mortgage was in
order.

ISSUE:
1. Whether the present case falls under Section 121 of the Corporation Code, which refers to the SECs jurisdiction over
CMCs dissolution and liquidation, or is only a continuation of the SECs jurisdiction over CMCs petition for suspension of
payment;

HELD:
The SEC has jurisdiction to order CMCs dissolutionbut the trial court has jurisdiction over CMCs liquidation.

While CMC agrees with the ruling of the Court of Appeals that the SEC has jurisdiction over CMCs dissolution and
liquidation, CMC argues that the Court of Appeals remanded the case to the SEC on the wrong premise that the
applicable law is Section 121 of the Corporation Code. CMC maintains that the SEC retained jurisdiction over its
dissolution and liquidation because it is only a continuation of the SECs jurisdiction over CMCs original petition for
suspension of payment which had not been finally disposed of as of 30 June 2000.

On the other hand, Planters Bank insists that the trial court has jurisdiction over CMCs dissolution and
liquidation. Planters Bank argues that dissolution and liquidation are entirely new proceedings for the termination of the
existence of the corporation which are incompatible with a petition for suspension of payment which seeks to preserve
corporate existence.

Republic Act No. 8799 (RA 8799)[15] transferred to the appropriate regional trial courts the SECs jurisdiction defined under
Section 5(d) of Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides:

The Commissions jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these
cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed. (Emphasis supplied)

The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a suspension order on 2 April
1996 after it found CMCs petition to be sufficient in form and substance. While CMCs petition was still pending with the
SEC as of 30 June 2000, it was finally disposed of on 29 November 2000 when the SEC issued its Omnibus Order
directing the dissolution of CMC and the transfer of the liquidation proceedings before the appropriate trial court. The SEC
finally disposed of CMCs petition for suspension of payment when it determined that CMC could no longer be successfully
rehabilitated.

However, the SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order
the dissolution of a corporation,[16] jurisdiction over the liquidation of the corporation now pertains to the appropriate
regional trial courts. This is the reason why the SEC, in its 29 November 2000 Omnibus Order, directed that the
proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to which this
case shall be transferred. This is the correct procedure because the liquidation of a corporation requires the settlement of
claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in
the best position to convene all the creditors of the corporation, ascertain their claims, and determine their preferences.

GULFO vs ANCHETA

FACTS:
The petitioners are the neighbors of Jose Ancheta (respondent). The parties occupy a duplex residential unit on Zodiac
Street, Veraville Homes, Almanza Uno, Las Piñas City. The petitioners live in unit 9-B, while the respondent occupies unit
9-A of the duplex.

Sometime in 1998, respondent’s septic tank overflowed; human wastes and other offensive materials spread throughout
his entire property. As a result, respondent and his family lived through a very unsanitary environment, suffering foul odor
and filthy premises for several months.

The respondent narrated that the petitioners had just recently renovated their duplex unit and, in the process, had made
some diggings in the same portion where the drainage pipe had been cemented. The respondent added that the closing
of the drainage pipe with cement could not have been the result of an accident, but was the malicious act by the
petitioners. On May 19, 1999, the respondent filed a complaint for damages against the petitioners with the RTC, alleging
that the petitioners maliciously closed a portion of the respondent’s drainage pipe and this led to the overflowing of the
respondent’s septic tank.
On June 24, 1999, the petitioners moved to dismiss the complaint on the ground of lack of jurisdiction. The petitioners
argued that since the parties reside in the same subdivision and are also members of the same homeowners’ association
(Veraville Homeowners Association, Inc.), the case falls within the jurisdiction of the Home Insurance and Guaranty
Corporation (HIGC).

The RTC dismissed the complaint on the ground of lack of jurisdiction. CA reversed the judgment of the RTC and
remanded the case to the lower court for trial on the merits. The CA ruled that the factual allegations in the complaint
support the claim for damages. The CA noted that although the case involves a dispute between members of the
homeowners’ association, it is not an intra-corporate matter as it does not concern the right of the corporation to exist as
an entity.

ISSUE:
Whether or not the dispute between petitioners Gulfo and respondent Ancheta is not an intra-corporate matter.

HELD:
Yes. Jurisprudence consistently states that an intra-corporate dispute is one that arises from intra-corporate relations;
relationships between or among stockholders; or the relationships between the stockholders and the corporation. In order
to limit the broad definition of intra-corporate dispute, this Court has applied the relationship test and the controversy test.

These two tests, when applied, have been the guiding principle in determining whether the dispute is an intra-corporate
controversy or a civil case.

The relationship test determines whether the relationship is: “[a] between the corporation, partnership or association and
the public; [b] between the corporation, partnership or association and its stockholders, partners, members, or officers; [c]
between the corporation, partnership or association and the [S]tate [insofar] as its franchise, permit or license to operate is
concerned; and [d] among the stockholders, partners or associates themselves.”

Under the controversy test, the dispute must be rooted in the existence of an intra-corporate relationship, and must refer
to the enforcement of the parties' correlative rights and obligations under the Corporation Code, as well as the internal
and intra-corporate regulatory rules of the corporation,in order to be an intra-corporate dispute. These are essentially
determined through the allegations in the complaint which determine the nature of the action.

The complaint is an ordinary action for damages that is purely civil rather than corporate in character. The respondent
merely seeks to be indemnified for the harm he suffered; no question about the membership of the petitioners in the
association is involved, nor is the existence of the association in any manner under question. In fact, these allegations are
based on either Articles 19,20,21and 2118 of the Civil Code on human relations, and on the provisions on damages under
Title XVIII of the Civil Code. Thus, the CA decision is correct when it held that the acts alleged in the subject complaint
may also give rise to indemnification under Article 2176 of the Civil Code.
Atwel v. Concepcion Progressive Association, Inc.

Facts: In 1948, then Assemblyman Emiliano Melgazo 4 founded and organized Concepcion Progressive Association
(CPA) in Hilongos, Leyte. The organization aimed to provide livelihood to and generate income for his supporters.

In 1968, after his election as CPA president, Emiliano Melgazo bought a parcel of land in behalf of the association. The
property was later on converted into a wet market where agricultural, livestock and other farm products were sold. It also
housed a cockpit and an area for various forms of amusement. The income generated from the property, mostly rentals
from the wet market, was paid to CPA.

When Emiliano Melgazo died, his son, petitioner Manuel Melgazo, succeeded him as CPA president and administrator of
the property. On the other hand, petitioners Atwel and Pilpil were elected as CPA vice-president and treasurer,
respectively.

In 1997, while CPA was in the process of registering as a stock corporation, its other elected officers and members
formed their own group and registered themselves in the Securities and Exchange Commission (SEC) as officers and
members of respondent Concepcion Progressive Association, Inc. (CPAI). Petitioners were not listed either as officers or
members of CPAI. Later, CPAI objected to petitioners' collection of rentals from the wet market vendors.

In 2000, CPAI filed a case in the SEC for mandatory injunction. 5 With the passage of RA 8799, the case was transferred
to Branch 24 of the Southern Leyte RTC and subsequently, to Branch 8 of the Tacloban City RTC. Both were special
commercial courts.

In the complaint, CPAI alleged that it was the owner of the property and petitioners, without authority, were collecting
rentals from the wet market vendors.

In their answer, petitioners refuted CPAI's claim saying that it was preposterous and impossible for the latter to have
acquired ownership over the property in 1968 when it was only in 1997 that it was incorporated and registered with the
SEC. Petitioners added that since the property was purchased using the money of petitioner Manuel Melgazo's father (the
late Emiliano Melgazo), it belonged to the latter.

the special commercial court ruled that the deed of sale covering the property was in the name of CPA, not Emiliano
Melgazo. Aggrieved, petitioners went to the CA and contested the jurisdiction of the special commercial court over the
case. According to them, they were not CPAI members, hence the case did not involve an intra-corporate dispute
"between and among members" so as to warrant the special commercial court's jurisdiction over it. CPAI, on the other
hand, argued that petitioners were already in estoppel as they had participated actively in the court proceedings.

In its assailed decision of March 17, 2005, although the CA found that the special commercial court should not have tried
the case since there was no intra-corporate dispute among CPAI members or officers, it nonetheless held that petitioners
were already barred from questioning the court's jurisdiction based on the doctrine of estoppel.

Issue: Whether or not there is intra-corporate dispute to warrant the jurisdiction of the special commercial court.

Held: Petitioners essentially argue that estoppel cannot apply because a court's jurisdiction is conferred
exclusively by the Constitution or by law, not by the parties' agreement or by estoppel. SDHITE

We agree.
Originally, Section 5 of Presidential Decree (PD) 902-A 13 conferred on the SEC original and exclusive jurisdiction over
the following:

(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders,
partners, or members of any corporation, partnership, or association;

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; or association of which they are stockholders, members, or associates,
respectively;

(3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships,
or associations;

(4) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payment in cases
where the corporation, partnership or association possesses sufficient property to cover all its debts but foresees the
impossibility of meeting them when they fall due or in cases where the corporation, partnership or association has no
sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or management committee
. . . (emphasis supplied)

Upon the enactment of RA 8799 in 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of PD 902-A was transferred to the courts of general jurisdiction. Under this authority, Branch 8
of the Tacloban City RTC, acting as a special commercial court, deemed the mandatory injunction case filed by CPAI an
intra-corporate dispute falling under subparagraph (2) of the aforecited provision as it involved the officers and members
thereof.

To determine whether a case involves an intra-corporate controversy to be heard and decided by the RTC, two elements
must concur:

(1) the status or relationship of the parties and

(2) the nature of the question that is subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations: (a) between any
or all of the parties and the corporation, partnership or association of which they are stockholders, members or
associates; (b) between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates and (c) between such corporation, partnership or association and the State insofar as it concerns
their individual franchises. On the other hand, the second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation. 15 If the nature of the controversy involves matters that are
purely civil in character, necessarily, the case does not involve an intra-corporate controversy.

In the case at bar, these elements are not present. The records reveal that petitioners were never officers nor members of
CPAI. CPAI itself admitted this in its pleadings. In fact, petitioners were the only remaining members of CPA which,
obviously, was not the CPAI that was registered in the SEC.
Moreover, the issue in this case does not concern the regulation of CPAI (or even CPA). The determination as to who is
the true owner of the disputed property entitled to the income generated therefrom is civil in nature and should be
threshed out in a regular court. Cases of this nature are cognizable by the RTC under BP 129. 17 Therefore, the conflict
among the parties here was outside the jurisdiction of the special commercial court.

SOTERO A. PUNONGBAYAN, petitioner, vs. DANILO G. PUNONGBAYAN, respondent.

Facts:

On July 31, 1969, Escolastica Punongbayan-Paguio died intestate leaving behind considerable properties in Misamis
Oriental, Iligan City, and Bulacan. She was survived by her husband, Miguel Paguio; brothers Nicolas (now deceased)
and SOTERO (herein petitioner), sisters Leonila and Leonora (both now deceased), all surnamed Punongbayan;
nephews DANILO (herein respondent), Restituto, Perfecto, and Alfredo, and nieces Brigida, Lilia, Marilou, Adeluisa, and
Grace, who were the children of Escolasticas brother, Perfecto Punongbayan, Sr., who predeceased her. Proceedings for
the settlement of her estate were initiated in the then Court of First Instance of Misamis Oriental, docketed as Special
Proceedings No. 1053.[4] Miguel Paguio was appointed administrator and later, DANILO, as co-administrator to represent
the interests of the Punongbayan family.
On September 30, 1974, the above-mentioned heirs executed a compromise agreement distributing among
themselves the estate of the decedent consisting of forty-one (41) parcels of land in Misamis Oriental, Iligan City, and
Bulacan. They likewise authorized the administrator to sell five (5) parcels of land to pay the liabilities of the estate. The
intestate court approved the agreement on June 7, 1976. Intestate proceedings, however, were left dormant from 1976 to
1993. On August 4, 1994, SOTERO, Leonila and Leonora (both now deceased) moved for the immediate distribution of
the estate in accordance with the Compromise Agreement of 1974. They asked that DANILO be ordered to deposit the
proceeds from the sales of estate properties with the Clerk of Court and to render an accounting of his administration for
the past twenty (20) years. [5]
The intestate court granted the motion in an Order dated February 1, 1995 and directed DANILO to

1. Effect the immediate distribution of the Estate in accordance with the Compromise Agreement dated September 30,
1974 approved by this Honorable Court in its Order of June 7, 1976;

2. Deposit with the Clerk of Court the proceeds of the sale of whatever properties [were] already sold; and

3. Render an accounting of his administration of the estate for the last twenty (20) years or from the time he assumed as
administrator up to the present, within sixty (60) days from receipt of this Order .

DANILO assailed[6] the order in a special civil action for certiorari with the CA[7] which, however, dismissed the same. We
affirmed the dismissal in G. R. No. 128928,[8] there being no reversible error on the part of the CA.[9] After the decision
became final and executory, the corresponding writ of execution was issued by the intestate court on March 30, 1998. The
writ was served upon DANILOs wife but not upon DANILO himself as he was always absent from his residence and place
of work whenever the sheriff came to serve the writ. A warrant of arrest was issued against him. DANILO filed an urgent
motion to recall the warrant which was denied. Consequently, he assailed the order in a petition for certiorari before the
CA, docketed as CA-G.R. SP No. 57754.[10] During the pendency of the petition, DANILO was arrested but was later on
released from custody by the CA upon his manifestation that he will comply with the intestate courts writ of execution,
copy of which was served upon him in open court, and that he will attend the next hearing to submit the certificates of
placement of the proceeds from the sales of a substantial portion of the estate under his administration. Respondent did
not appear during said hearing which prompted the CA to recall his release order and to direct the National Bureau of
Investigation to arrest him. On October 19, 2000, the CA dismissed the petition for utter lack of merit, ruling that DANILOs
clear and contumacious refusal to obey the intestate courts writ of execution for several years should no longer be
countenanced.[11]

Meanwhile, SOTERO moved for his appointment as co-administrator of the estate in June 2000 on the grounds that
DANILO failed to discharge his duties as administrator, to render an accounting of his administration, and to turn over
P25,000,000.00 in proceeds from the sales of a substantial portion of the estate, as required in the Order dated February
1, 1995. The motion was granted and SOTERO took his oath as co-administrator of the estate on August 30, 2000.

On September 1, 2000, DANILO filed a Motion to Order Sotero Punongbayan to Render an Accounting[12] alleging that
SOTERO appropriated five (5) lots of the estate to the exclusion of the other heirs; that two (2) of the five lots were
illegally sold to third persons while two (2) others were illegally transferred in his own name; and, that the fifth lot was
leased to a third person without turning over lease rentals to the estate. DANILO alleged that he encountered difficulties in
rendering an accounting of estate income and properties because of the illegal sales and lease made by SOTERO.
Hence, DANILO alleged that SOTERO should be made to account first for the income derived from such illegal transfers
and lease before he (DANILO) could render the full accounting required by the intestate court.

The motion was denied in an Order dated September 15, 2000[13] as well as a subsequent motion for reconsideration
thereof.[14] DANILO again filed a special civil action for certiorari and mandamus with the CA to assail the order

CA Decision: ruled in favor of Respondent and was granted a writ of certiorari

Issue: WON a writ of certiorari may be granted?

Held:

No.

Be that as it may, we rule that the CA erred in granting the writ of certiorari.
Certiorari under Rule 65 will lie only where a grave abuse of discretion or an act without or in excess of
jurisdiction is clearly shown.[27] The abuse of discretion must be so patent and gross as to amount to an evasion
of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as
where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.[28]
The intestate court correctly denied respondents motion for accounting. It is obvious that the motion was just another
ploy of the respondent to delay his compliance with the courts Order dated February 1, 1995 directing him to render an
accounting of his administration of the estate and to turn over the certificates of placement of the proceeds from the sales
of estate properties amounting to millions of pesos, which has long become final and executory with its affirmance by the
CA in CA-G.R. SP No. 41156[29] and finally by this Court, in G.R. No. 128928.[30] Indeed, the ground resurrected by
respondent in the motion, that petitioner should be made to account first for the alleged illegal transfers of estate
properties made by him before he (respondent) could render his own accounting, was already passed upon and rejected
by the CA in aforesaid CA-G.R. SP No. 41156, viz:

x x x [P]etitioners argument that the intestate court should first declare illegal sales of estate properties made by Sotero Punongbayan
and other heirs, is incorrect for two reasons: (1) the petitioner has already initiated cases for the annulment of the said sales x x x
hence, the intestate court will be barred from entertaining and resolving the same controversies by the principle of lis pendens, and (2)
questions of title to real property cannot be determined in testate or intestate proceedings. [31]

The issue of petitioners alleged illegal transfers are, in fact, pending before the RTC of Malolos, Bulacan where
cases[32] for their annulment have been filed by respondent. Respondent admits that they involve the very same properties
in respect to which the motion for accounting was filed. [33] Thus, there is no more reason for respondent to further delay
the accounting of his administration of the estate for even the petition for certiorari which he filed to question the warrant
of arrest that had to be issued for his non-compliance was dismissed by the CA in CA-G.R. SP No. 57754[34] wherein his
clear and contumacious refusal to obey court processes was condemned.
 Clearly, respondent was not entitled to the writ of certiorari erroneously issued by the CA. Certiorari, being
an equitable remedy, will not issue where the petitioner is in bad faith.[35]

Calleja v Panday

Facts: On May 16, 2005, respondents filed a petition with the Regional Trial Court of San Jose, Camarines Sur for quo
warranto with Damages and Prayer for Mandatory and Prohibitory Injunction, Damages and Issuance of Temporary
Restraining Order against herein petitioners. Respondents alleged that from 1985 up to the filing of the petition with the
trial court, they had been members of the board of directors and officers of St. John Hospital, Incorporated, but sometime
in May 2005, petitioners, who are also among the incorporators and stockholders of said corporation, forcibly and with the
aid of armed men usurped the powers which supposedly belonged to respondents. On May 24, 2005, RTC-Br. 58 issued
an Order transferring the case to the Regional Trial Court in Naga City. According to RTC-Br. 58, since the verified
petition showed petitioners therein (herein respondents) to be residents of Naga City, then pursuant to Section 7, Rule 66
of the 1997 Rules of Civil Procedure, the action for quo warranto should be brought in the Regional Trial Court exercising
jurisdiction over the territorial area where the respondents or any of the respondents resides. However, the Executive
Judge of RTC, Naga City refused to receive the case folder of the subject case for quo warranto, stating that improper
venue is not a ground for transferring a quo warranto case to another administrative jurisdiction. The RTC-Br. 58 then
proceeded to issue and serve summons on herein petitioners (respondents below). Petitioner Tabora filed his Answer
dated June 8, 2005, raising therein the affirmative defenses of (1) improper venue, (2) lack of jurisdiction, and (3) wrong
remedy of quo warranto. Thereafter, the other petitioners also filed their Answer, also raising the same affirmative
defenses. All the parties were then required to submit their respective memoranda. The court denied the motion to
dismiss.

Issue: Whether or not the RTC of San Jose, Camarines Sur has jurisdiction over the said case.

Held: It has no jurisdiction. R.A. 8799 vests jurisdiction over quo warranto proceedings involving intra-corporate disputes
to Special Commercial Courts. The basic issue of which court has jurisdiction over cases previously cognizable by the
SEC under Section 5, Presidential Decree No. 902-A (P.D. No. 902-A), and the propensity of the parties to resort to
violence behoove the Court to look beyond petitioners' technical lapse of filing a petition for review on certiorari instead of
filing a petition for certiorari under Rule 65 with the proper court. Thus, the Court shall proceed to resolve the case on its
merits. It should be noted that allegations in a complaint for quo warranto that certain persons usurped the offices, powers
and functions of duly elected members of the board, trustees and/or officers make out a case for an intra-corporate
controversy. 9 Prior to the enactment of R.A. No. 8799, the Court, adopting Justice Jose Y. Feria's view, declared in
Unilongo v. Court of Appeals 10 that Section 1, Rule 66 of the 1997 Rules of Civil Procedure is "limited to actions of quo
warranto against persons who usurp a public office, position or franchise; public officers who forfeit their office; and
associations which act as corporations without being legally incorporated," while "[a]ctions of quo warranto against
corporations, or against persons who usurp an office in a corporation, fall under the jurisdiction of the Securities and
Exchange Commission and are governed by its rules. (P.D. No. 902-A as amended)”. However, R.A. No. 8799 was
passed and Section 5.2 thereof provides as follows:

5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these
cases. . . .

Therefore, actions of quo warranto against persons who usurp an office in a corporation, which were formerly cognizable
by the Securities and Exchange Commission under PD 902-A, have been transferred to the courts of general jurisdiction.
But, this does not change the fact that Rule 66 of the 1997 Rules of Civil Procedure does not apply to quo warranto cases
against persons who usurp an office in a private corporation.

Section 1(a) of Rule 66 of the present Rules no longer contains the phrase "or an office in a corporation created by
authority of law" which was found in the old Rules. Clearly, the present Rule 66 only applies to actions of quo warranto
against persons who usurp a public office, position or franchise; public officers who forfeit their office; and associations
which act as corporations without being legally incorporated despite the passage of R.A. No. 8799. It is, therefore, The
Interim Rules of Procedure Governing Intra-Corporate Controversies Under R.A. No. 8799 (hereinafter the Interim Rules)
which applies to the petition for quo warranto filed by respondents before the trial court since what is being questioned is
the authority of herein petitioners to assume the office and act as the board of directors and officers of St. John Hospital,
Incorporated. The Interim Rules provide thus:

Section 1. (a) Cases covered. — These Rules shall govern the procedure to be observed in civil cases involving the
following:

xxx xxx xxx

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders,
members, or associates, and between, any or all of them and the corporation, partnership, or association of which they
are stockholders, members, or associates, respectively;

(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships,
or associations;

xxx xxx xxx

SEC. 5.Venue. — All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which has
jurisdiction over the principal office of the corporation, partnership, or association concerned. . . . (Emphasis ours)
DHEaTS

Pursuant to Section 5.2 of R.A. No. 8799, the Supreme Court promulgated A.M. No. 00-11-03-SC (effective December 15,
2000) designating certain branches of the Regional Trial Courts to try and decide cases formerly cognizable by the
Securities and Exchange Commission. For the Fifth Judicial Region, this Court designated the following branches of the
Regional Trial Court, to wit:

Camarines Sur (Naga City) Branch 23, Judge Pablo M. Paqueo, Jr.

Albay (Legaspi City) Branch 4, Judge Gregorio A. Consulta

Sorsogon (Sorsogon) Branch 52, Judge Honesto A. Villamor

Subsequently, the Court promulgated A.M. No. 03-03-03-SC, effective July 1, 2003, which provides that:

1. The Regional Courts previously designated as SEC Courts through the: (a) Resolutions of this Court dated 21
November 2000, 4 July 2001, 12 November 2002, and 9 July 2002, all issued in A.M. No. 00-11-03-SC, (b) Resolution
dated 27 August 2001 in A.M. No. 01-5-298-RTC; and (c) Resolution dated 8 July 2002 in A.M. No. 01-12-656-RTC are
hereby DESIGNATED and shall be CALLED as Special Commercial Courts to try and decide cases involving violations of
Intellectual Property Rights which fall within their jurisdiction and those cases formerly cognizable by the Securities and
Exchange Commission;

xxx xxx xxx

4. The Special Commercial Courts shall have jurisdiction over cases arising within their respective territorial jurisdiction
with respect to the National Capital Judicial Region and within the respective provinces with respect to the First to Twelfth
Judicial Regions. Thus, cases shall be filed in the Office of the Clerk of Court in the official station of the designated
Special Commercial Court;…

Evidently, the RTC-Br. 58 in San Jose, Camarines Sur is bereft of jurisdiction over respondents' petition for quo warranto.
Based on the allegations in the petition, the case was clearly one involving an intra-corporate dispute. The trial court
should have been aware that under R.A. No. 8799 and the aforementioned administrative issuances of this Court, RTC-
Br. 58 was never designated as a Special Commercial Court; hence, it was never vested with jurisdiction over cases
previously cognizable by the SEC.

SY CHIM VS. SY CHIY

FACTS:1. The Sy Siy Ho & Sons, Inc. (hereinafter CORPORATION) is a domestic corporationwhich was organized in the
1940s, engaged primarily in importing, buying and sellinghardware, machineries, spare parts, supplies and other allied
products and merchandiseto be sold exclusively on wholesale basis. It was doing business under the name andstyle
Guan Yiac Hardware.2. The CORPORATION was owned and controlled by Sy Chim and his children. Some-time in
1990, a controversy ensued between Sy Chim’s two sons, Sy Tiong Shiou and SyTiong Bio who was then the Vice
President for Finance. Sy Chim sided with Sy Tiong Sh-iou. The intra-corporate dispute reached the Securities
and Exchange Commission(SEC).3. Sy Chim and Sy Tiong Shiou (Sy Chim Group), on the one hand, and Sy Tiong
Bio, SyTiong Gue, Sy Tiong Sim, Sy Tiong Han and Sy Tiong Yan (Sy Tiong Bio Group), on theother, executed a
Compromise Agreement, where the latter group relinquished theirshares to Sy Chim. The parties also agreed to
divide and distribute the assets and liabili-ties of the corporation.4. Another intra-corporate dispute ensued, this time
between Sy Chim and his wife, onthe one hand, and their son Sy Tiong Shiou, on the other. In a letter addressed to the
cor-poration dated Feb. 3, 2003, Corporate Treasurer Juanita Tan Sy requested that she im-mediately be “removed from
all responsibilities and obligations pertaining to all corporatefunds” of the corporation, considering that Felicidad Chan Sy
(wife of Sy Chim) was theone who handled and managed all deposits and funds while Sy Chim supervised all ex-
penditures. She further reported that Felicidad Chan Sy did not make any cash deposit toany bank from Nov. 1, 2002 to
Jan. 31, 2003, and that the total amount of cash as reflect-ed in the bank statements is far less than that reported in the
corporation’s financial state-ments and other records. She then proposed that the Board call a special meeting to dis-
cuss these matters.5. In two separate resolutions, Juanita Tan Sy was removed as corporate treasurer andrelieved of all
responsibilities; the spouses Sy Chim were held accountable for the unde-posited money; and a new external auditor was
hired to make a complete audit of allbooks and records.6. Spouses Sy Tiong Shiou and Juanita Tan Sy, their three sons
held another meeting onApril 21, 2003, again without written notice to the spouses Sy Chim, and approved a reso-lution
authorizing Romer Tan to file a complaint for and in behalf of the corporation againstthe said spouses in RTC of Manila.
Sy Tiong Shiou was elected President of the corpora-tion.7. In their answer to the complaint, defendants averred, inter
alia, that any unaccountedcash account and irregularities in the management of the corporation, if any, were the
fullresponsibility of Sy Tiong Shiou, Romer Tan’s own father, since he has direct and actualmanagement of the
corporation under the by-laws. Sy Chim, as corporate president, wasa mere figurehead, who only had general
supervision over the corporation’s officers. Juanita Tan Sy, as corporate treasurer, had custody of the corporation’s
funds and shouldhave kept a complete and accurate record of receipts, disbursements, and other commer-cial
transactions of the corporation.8. Feeling aggrieved, the spouses Sy Chim and Felicidad Chan Sy filed a criminal com-
plaint in the Office of the City Prosecutor of Makati against the spouses Sy Tiong Shiouand their children for violation of
Section 74 of the Corporation Code.9. Sy Chim further filed “Motion for the Appointment of a Management Committee”.
Ask-ing the Court that the control and management of the corporation must be transferredpendente lite to an independent
party to ensure the preservation of the corporate assets.10.The RTC granted the Motion of Sy Chim and appointed
Wencita C. Salvador as comp-troller tasked to oversee the maintenance of corporate books of accounts, budget admin-
istration, internal control on disbursements, reporting and interpretation of financial state-ments, tax administration,
protection of assets, financial evaluation and government re-porting. The respondents filed an Motion for reconsideration
on the decision of the RTCbut it was denied. Respondents then decided to file a petition for certiorari with the CA re-

garding the decision of the RTC. The CA reversed the RTC and denied the Motion for theAppointment of A management
Committee. Hence this petition for certiorari by th petiton-ers.

ISSUE:Whether “Appointment of a Management Committee” is valid in this case?

HELD: NO, peti-tioners failed to show an imminent danger of disposition, loss, wastage, or destruction of as -sets
or other properties of a corporation and paralysis of its business operations.

Section 1, Rule 9 of the Interim Rules provides: SECTION 1. Creation of a management committee. – As
anincident to any of the cases filed under these Rules or the InterimRules on Corporate Rehabilitation, a party may apply
for the appoint-ment of a management committee for the corporation, partnership orassociation, when there is imminent
danger of: (1) Dissipation, loss, wastage or destruction ofassets or other properties; and (2) Paralyzation of its
business operations whichmay be prejudicial to the interest of the mi-nority stockholders, parties-litigants or
thegeneral public.In Jacinto v. First Women’s Credit Corporation, ruled that the two requisites shouldbe present before a
management committee may be created and a receiver appointed by theRTC: A reading of the aforecited legal
provision reveals that for aminority stockholder to obtain the appointment of an interim manage-ment committee, he must
do more than merely make a prima facieshowing of a denial of his right to share in the concerns of the corpo-ration; he
must show that the corporate property is in danger of be-ing wasted and destroyed; that the business of the corporation is
be-ing diverted from the purpose for which it has been organized; andthat there is serious paralyzation of operations all to
his detriment. …Indeed, upon the appointment of a receiver, the duly elected/appointed officers of thecorporation are
divested of the management of such corporation in favor of the managementcommittee/receiver. Such transference of
the corporation’s management will certainly have anegative, if not crippling effect, on the operations/affairs of the
corporation not only with banksand other business institutions including those abroad which it deals business with. A wall
ofuncertainty is erected; the short and long-term plans of the management of the corporationare disrupted, if not derailed.
Thus, the creation and appointment of a management committee and a receiver isan extraordinary and drastic remedy to
be exercised with care and caution; and only when therequirements under the Interim Rules are shown. It is a drastic
course for the benefit of theminority stockholders, the parties-litigants or the general public are allowed only under press-
ing circumstances and, when there is inadequacy, ineffectual or exhaustion of legal or otherremedies. The power to
intervene before the legal remedy is exhausted and misused when itis exercised in aid of such a purpose. The power of
the court to continue a business of a cor-poration, partnership or association must be exercised with the greatest care and
caution. There should be a full consideration of all the attendant facts, including the interest of all theparties concerned.

PHILIP TURNER and ELNORA TURNERv. LORENZO SHIPPING CORPORATION

BERSAMIN, J.:

FACTS:
The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged primarily in
cargo shipping activities. In June 1999, the respondent decided to amend its articles of incorporation to remove the
stockholders pre-emptive rights to newly issued shares of stock. Feeling that the corporate move would be prejudicial to
their interest as stockholders, the petitioners voted against the amendment and demanded payment of their shares at
the rate of P2.276/share based on the book value of the shares, or a total of P2,298,760.00.
The respondent found the fair value of the shares demanded by the petitioners unacceptable. It insisted that the
market value on the date before the action to remove the pre-emptive right was taken should be the value, or
P0.41/share (or a total of P414,100.00), considering that its shares were listed in the Philippine Stock Exchange, and that
the payment could be made only if the respondent had unrestricted retained earnings in its books to cover the value of
the shares, which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant
to Section 82 of the Corporation Code, each of them nominating a representative, who together then nominated the
third member who would be chairman of the appraisal committee. Thus, the appraisal committee came to be made up
of Reynaldo Yatco, the petitioners nominee; Atty. Antonio Acyatan, the respondents nominee; and Leo Anoche of the
Asian Appraisal Company, Inc., the third member/chairman.
On October 27, 2000, the appraisal committee reported its valuation of P2.54/share, for an aggregate value of
P2,565,400.00 for the petitioners.
Subsequently, the petitioners demanded payment based on the valuation of the appraisal committee, plus
2%/month penalty from the date of their original demand for payment, as well as the reimbursement of the amounts
advanced as professional fees to the appraisers.
The respondent refused the petitioners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted
retained earnings to cover the fair value of the shares, but that it had no retained earnings at the time of the
petitioners demand, as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00
as of December 31, 1999.
Upon the respondents’ refusal to pay, the petitioners sued the respondent for collection and damages in the
RTC in Makati City on January 22, 2001.
On June 26, 2002, the petitioners filed their motion for partial summary judgment but respondent opposed the
motion for partial summary judgment, stating that the determination of the unrestricted retained earnings should be
made at the end of the fiscal year of the respondent, and that the petitioners did not have a cause of action against the
respondent.
During the pendency of the motion for partial summary judgment, however, the Presiding Judge of Branch 133
transmitted the records to the Clerk of Court for re-raffling to any of the RTCs special commercial courts in Makati City
due to the case being an intra-corporate dispute. Hence, Civil Case No. 01-086 was re-raffled to Branch 142.
Nevertheless, because the principal office of the respondent was in Manila, Civil Case No. 01-086 was ultimately
transferred to Branch 46 of the RTC in Manila, presided by Judge Artemio Tipon. After the conference in Civil Case No.
01-086 set on October 23, 2002, which the petitioners counsel did not attend, Judge Tipon issued an order, granting the
petitioners motion for partial summary judgment, stating: “The law does not say that the unrestricted retained earnings
must exist at the time of the demand. Even if there are no retained earnings at the time the demand is made if there are
retained earnings later, the fair value of such stocks must be paid. The only restriction is that there must be sufficient
funds to cover the creditors after the dissenting stockholder is paid. No such allegations have been made by the
defendant.”
Respondent filed an MR. On the scheduled hearing of the motion for reconsideration on November 22, 2002,
the petitioners filed a motion for immediate execution and a motion to strike out motion for reconsideration; pointing
out that the motion for reconsideration was prohibited by Section 8 of the Interim Rules. Thus, also on November 22,
2002, Judge Tipon denied the motion for reconsideration and granted the petitioners motion for immediate execution. A
writ of execution was issued thereafter.
Aggrieved, the respondent commenced a special civil action for certiorari in the CA. Upon the respondents
application, the CA issued a temporary restraining order (TRO), enjoining the petitioners, and their agents and
representatives from enforcing the writ of execution. By then, however, the writ of execution had been partially
enforced. The TRO lapsed without the CA issuing a writ of preliminary injunction to prevent the execution.
Thereupon, the sheriff resumed the enforcement of the writ of execution.
The CA promulgated its assailed decision dismissing the case; ruling that: The Turners right of action arose only
when petitioner had already retained earnings in the amount of P11,975,490.00 on March 21, 2002; such right of action
was inexistent on January 22, 2001 when they filed the Complaint.Hence, this petition.

ISSUE:
WON CA erred in dismissing the case? NO.

HELD:
A stockholder who dissents from certain corporate actions has the right to demand payment of the fair value of
his or her shares. This right, known as the right of appraisal, is expressly recognized in Section 81 of the Corporation
Code.
Clearly, the right of appraisal may be exercised when there is a fundamental change in the charter or articles
of incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable
corporate action is taken. It serves the purpose of enabling the dissenting stockholder to have his interests purchased
and to retire from the corporation.
A corporation can purchase its own shares, provided payment is made out of surplus profits and the acquisition
is for a legitimate corporate purpose. In the Philippines, this new rule is embodied in Section 41 of the Corporation Code,
to wit:
Section 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its
own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided,
That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency
sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this
Code. (n)

The Corporation Code defines how the right of appraisal is exercised, as well as the implications of the right of
appraisal, as follows:

1. The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by
making a written demand on the corporation within 30 days after the date on which the vote was taken for the
payment of the fair value of his shares. The failure to make the demand within the period is deemed a waiver of the
appraisal right.[19]

2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period of
60 days from the date the stockholders approved the corporate action, the fair value shall be determined and
appraised by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation,
and the third by the two thus chosen. The findings and award of the majority of the appraisers shall be final, and the
corporation shall pay their award within 30 days after the award is made. Upon payment by the corporation of the
agreed or awarded price, the stockholder shall forthwith transfer his or her shares to the corporation.[20]

3. All rights accruing to the withdrawing stockholders shares, including voting and dividend rights, shall be
suspended from the time of demand for the payment of the fair value of the shares until either the abandonment of
the corporate action involved or the purchase of the shares by the corporation, except the right of such stockholder to
receive payment of the fair value of the shares.[21]

4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder shall submit to the
corporation the certificates of stock representing his shares for notation thereon that such shares are dissenting
shares. A failure to do so shall, at the option of the corporation, terminate his rights under this Title X of
the Corporation Code. If shares represented by the certificates bearing such notation are transferred, and the
certificates are consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall cease
and the transferee shall have all the rights of a regular stockholder; and all dividend distributions that would have
accrued on such shares shall be paid to the transferee.[22]

5. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon
the surrender of the certificates of stock representing his shares, the fair value thereof as of the day prior to the date on
which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.

Notwithstanding the foregoing, no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the payment. In case the corporation has no available unrestricted
retained earnings in its books, Section 83 of the Corporation Code provides that if the dissenting stockholder is not
paid the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be
restored.

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the
shares of stocks of the withdrawing stockholders. Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors, who are preferred in the distribution
of corporate assets. The creditors of a corporation have the right to assume that the board of directors will not use the
assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and liabilities.
There can be no distribution of assets among the stockholders without first paying corporate debts. Thus, any
disposition of corporate funds and assets to the prejudice of creditors is null and void.

That the respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced Civil Case No. 01-086 on January 22, 2001 proved that the respondents legal obligation to pay the value
of the petitioners shares did not yet arise. Thus, the CA did not err in holding that the petitioners had no cause of
action, and in ruling that the RTC did not validly render the partial summary judgment.
The RTC concluded that the respondents’ obligation to pay had accrued by its having the unrestricted retained
earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation
Code did not provide that the unrestricted retained earnings must already exist at the time of the demand.
The RTCs construal of the Corporation Code was unsustainable, because it did not take into account the
petitioners lack of a cause of action against the respondent. In order to give rise to any obligation to pay on the part of
the respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having
unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission that
could sustain their action to collect.
Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure
the lack of cause of action in Civil Case No. 01-086. The petitioners’ right of action could only spring from an existing
cause of action. Thus, a complaint whose cause of action has not yet accrued cannot be cured by an amended or
supplemental pleading alleging the existence or accrual of a cause of action during the pendency of the action.
 The argument of the petitioners is baseless. The RTC was guilty of an error of jurisdiction, for it exceeded its
jurisdiction by taking cognizance of the complaint that was not based on an existing cause of action.
WHEREFORE, the petition for review on certiorari is denied for lack of merit.