Neil Aubrey Gamido JD2-D Corporation Law

Victor Africa vs. PCGG,

G.R. No. 83831, January 9, 1992
FACTS:

ETPI was sequestered by the PCGG. A partial lifting of the sequestration was granted wherein
40% of the shares of stock owned by Cable and Wireless, Ltd were freed from the effects of
sequestration. The PCGG then called for an annual SH meeting wherein the PCGG nominee and
the Cable and Wireless ‘ nominee and Jose Africa were elected as members of the BOD.
Petitioners in their capacity as erstwhile members of the Board of Directors of ETPI instituted
before the Sandiganbayan on September 23, 1988 Civil Case No. 0050, another action for
injunction and damages perpetually restraining the PCGG from electing, designating and
supporting the defendants in their ETPI roles. During the pendency of the case the Clerk issued 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.
The PCGG moved to quash but it was denied.

ISSUE/S:

May the shareholders inspect the books of EPTI?

RULING:

The issue raised in the original petition in G.R. No. 85594 relating to the validity of the issuance
by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or
its representative to testify and produce the stock and transfer book was laid to rest by the joint
resolution in two cases, both entitled Republic vs. Sandiganbayanand Eduardo Cojuangco, Jr.,
which applies squarely in the instant petitions. In those cases, the SC ruled that sequestration
does not deprive a stockholder’s right to inspect the books of the corporation. In upholding
therein 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 (4) purpose.

1
Neil Aubrey Gamido JD2-D Corporation Law

PNB vs. Andrada Electric & Engineering Company,

G.R. No. 142936, April 17, 2002
FACTS:

Andrada Electric and Engineering Company (AEEC) is a partnership duly organized, existing
and operating under the laws of the Philippines. PNB acquired the assets of Pampanga Sugar
Mills Inc. (PASUMIL) that were earlier foreclosed by the Development Bank of the Philippines
under LOI No. 13. That PNB organized the NASUDECO in September 1975, to take ownership
and possession of assets and ultimately nationalize and consolidate its interest in other PNB
controlled sugar mills. Prior to October 29, 1971, PASUMIL engaged the service of AEEC for
electrical rewinding and repair most of which were partially paid by the defendant PASUMIL,
leaving several unpaid accounts with the AEEC, that finally on October 29, 1971 AEEC and
PASUMIL entered into a contract to be performed by AEEC. Total obligation was P777, 263.80,
PASUMIL paid only P250, 000.00 leaving a balance of P527, 263.80 and another payment of
P14, 000.00, thus total balance of P513, 263.80. The defendant PNB, PASUMIL and now
NASUDECO failed and refused to pay; that the President of the NASUDECO is also the
Vice-President of the PNB, and this official holds office at the 10th Floor of the PNB, Escolta,
Manila, and plaintiff besought this official to pay the outstanding obligation of the defendant
PASUMIL, inasmuch as the defendant PNB and NASUDECO now owned and possessed the
assets of the defendant PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by the plaintiff; that because of the
failure and refusal of the defendants to pay their just, valid, and demandable obligations, plaintiff
suffered actual damages in the total amount of P513,263.80; and that in order to recover these
sums, the plaintiff was compelled to engage the professional services of counsel, to whom the
plaintiff agreed to pay a sum equivalent to 25% of the amount of the obligation due by way of
attorney’s fees. . Accordingly, the plaintiff prayed that judgment be rendered against the
defendants PNB, NASUDECO, and PASUMIL to be jointly and severally liable. PNB and
NASUDECO filed a joint motion to dismiss on the ground that they were not part to the contract,
but the motion was denied and decision was in favor of AEEC. The decision of the lower court
was affirmed by the Court of Appeals.

ISSUE/S:

Whether or not there was a merger or consolidation?

RULING:

NO. Petitioners contend that their takeover of the operations of PASUMIL did not involve any
corporate merger or consolidation, because the latter had never lost its separate identity as a

2
Neil Aubrey Gamido JD2-D Corporation Law

corporation. A consolidation is the union of two or more existing entities to form a new entity
called the consolidated corporation.

A merger, on the other hand, is a union whereby one or more existing corporations are absorbed
by another corporation that survives and continues the combined business. The merger, however,
does not become effective upon the mere agreement of the constituent corporations. Since a
merger or consolidation involves fundamental changes in the corporation, as well as in the rights
of stockholders and creditors, there must be an express provision of law authorizing them. For a
valid merger or consolidation, the approval by the Securities and Exchange Commission (SEC)
of the articles of merger or consolidation is required. These articles must likewise be duly
approved by a majority of the respective stockholders of the constituent corporations. In the case
at bar, we hold that there is no merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code was not followed. In fact,
PASUMIL’s corporate existence, as correctly found by the CA, had not been legally extinguished
or terminated. Further, prior to PNB’s acquisition of the foreclosed assets, PASUMIL had
previously made partial payments to respondent for the former’s obligation in the amount of
P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and, from
January 5, 1974 to May 23, 1974, another P14,000. Neither did petitioner expressly or impliedly
agree to assume the debt of PASUMIL to respondent. LOI No. 11 explicitly provides that PNB
shall study and submit recommendations on the claims of PASUMIL’s creditors. Clearly, the
corporate separateness between PASUMIL and PNB remains, despite respondent’s insistence to
the contrary.

3
Neil Aubrey Gamido JD2-D Corporation Law

Timeshare Realty Corporation vs. Cesar Lao and Cynthia Cortez,

G.R. No. 158941, February 11, 2008
FACTS:

Petitioner sold to Cesar M. Lao and Cynthia V. Cortez (respondents), one timeshare of Laguna de
Boracay for US$7,500.00 under Contract No. 135000998 payable in eight months and fully paid
by the respondents. Subsequently, SEC issued a resolution to the effect that petitioner was
without authority to sell securities, like timeshares, prior to February 11, 1998. It further stated in
the resolution/order that the Registration Statement of petitioner became effective only on
February 11, 1998. It also held that the 30 days within which a purchaser may exercise the option
to unilaterally rescind the purchase agreement and receive the refund of money paid applies to all
purchase agreements entered into by petitioner prior to the effectivity of the Registration
Statement. Petitioner sought a reconsideration of the aforesaid order but the SEC denied the
same. Respondents wrote petitioner demanding their right and option to cancel their Contract, as
it appears that Laguna de Boracay is selling said shares without license or authority from the
SEC. But despite repeated demands, petitioner failed and refused to refund or pay respondents.
Respondents directly filed with SEC En Banca Complaint against petitioner and the Members of
its Board of Directors for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178. The
SEC En Banc rendered a Decision in favor of respondents, ordering petitioner, together with
Julius S. Strachan, Angel G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the amount of
US$7,500.00.

ISSUE/S:

What securities are required to be registered?

RULING:

The provisions of B.P. Blg. 178 does not support the contention of petitioner that its mere
registration as a corporation already authorizes it to deal with unregistered timeshares. Corporate
registration is just one of several requirements before it may deal with timeshares: Section 8.
Procedure for registration. - (a) All securities required to be registered under subsection (a) of
Section four of this Act shall be registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the Commission, of a sworn registration
statement with respect to such securities, containing or having attached thereto, the following:
(36) Unless previously filed and registered with the Commission and brought up to date: “A
copy of its articles of incorporation with all amendments thereof and its existing by-laws or
instruments corresponding thereto, whatever the name, if the issuer be a corporation.”

4
Neil Aubrey Gamido JD2-D Corporation Law

Union Bank of the Philippines vs. SEC,

G.R. No. 138949, June 6, 2001
FACTS:

On April 4, 1997, petitioner, through its General Counsel and Corporate Secretary, sought the
opinion of Chairman Perfecto Yasay, Jr. of respondent Commission as to the applicability and
coverage of the Full Material Disclosure Rule on banks, contending that said rules, in effect,
amend Section 5 (a) (3) of the Revised Securities Act which exempts securities issued or
guaranteed by banking institutions from the registration requirement provided by Section 4 of the
same Act. Chairman Yasay, in a letter dated April 8, 1997, informed petitioner that while the
requirements of registration do not apply to securities of banks which are exempt under Section 5
(a) (3) of the Revised Securities Act, however, banks with a class of securities listed for trading
on the Philippine Stock Exchange, Inc. are covered by certain Revised Securities Act Rules
governing the filing of various reports with respondent Commission, i.e., (1) Rule 11 (a)-1
requiring the filing of Annual, Quarterly, Current, Predecessor and Successor Reports; (2) Rule
34-(a)-1 requiring submission of Proxy Statements; and (3) Rule 34-(c)-1 requiring submission
of Information Statements, among others. On May 9, 1997, respondent Commission, through its
Money Market Operations Department Director, wrote petitioner, reiterating its previous position
that petitioner is not exempt from the filing of certain reports. The letter further stated that the
Revised Securities Act Rule 11 (a) requires the submission of reports necessary for full, fair and
accurate disclosure to the investing public, and not the registration of its shares.

ISSUE/S:

Whether or not petitioner is required to comply with the respondent SEC's full disclosure rules.

RULING:

It must be emphasized that petitioner is a commercial banking corporation listed in a stock

exchange. Thus, it must adhere not only to banking and other allied special laws, but also to the
rules promulgated by Respondent SEC, the government entity tasked not only with the
enforcement of the Revised Securities Act, but also the supervision of all corporations,
partnerships or associations which are grantees of government issued primary franchises and/or
licenses or permits to operate in the Philippines. RSA Rules 11 (a)-1, 34 (a)-1 and 34 (c)-1
require the submission of certain reports to ensure full, fair, accurate disclosure of information
for the protection of the investing public. These Rules were issued by the respondent pursuant to
the authority conferred upon it by Section 3 of the RSA. The said Rules do not amend Section
5(a)(3) of the Revised Securities Act, because they do not revoke or amend the exemption from
registration of the securities enumerated thereunder. They are reasonable regulations imposed
upon petitioner as a banking corporation trading its securities in the stock market. That petitioner

5
Neil Aubrey Gamido JD2-D Corporation Law

is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Stock
Exchange (PSE) does not exempt it from complying with the continuing disclosure requirements
embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control of the
BSP; and as a corporation trading its securities in the stock market, it is under the supervision of
the SEC. It must be pointed out that even the PSE is under the control and supervision of
respondent.14 There is no oversupervision here. Each regulating authority operates within the
sphere of its powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public. Otherwise stated, the mere
fact that in regard to its banking functions, petitioner is already subject to the supervision of the
BSP does not exempt the former reasonable disclosure regulations issued by the SEC. These
regulations are meant to assure full, fair and accurate disclosure of information for the protection
of investors in the stock market. Imposing such regulations is a function within the jurisdiction of
the SEC. Since the petitioner opted to trade its shares in the exchange, then it must abide by the
reasonable rules imposed by the SEC.