Topic: Stockholders and Members, Fundamental Rights of a Stockholder, Remedial Rights, Derivative

Suit
Case No. 394

ALFREDO L. VILLAMOR, JR.

v.
JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F. BALMORES
G.R. No. 172843 September 24, 2014

RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M. PANGILINAN

v.
HERNANDO F. BALMORES
G.R. NO. 172881

FACTS:

MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of
the area owned by Mid-Pasig Development Corporation (Mid-Pasig). PPC obtained an option to
lease portions of Mid-Pasig's property, including the Rockland area. PPC's board of directors issued a
resolution waiving all its rights, interests, and participation in the option to lease contract in favor
o£ the law firm of Atty. Alfredo Villamor, Jr. (Villamor).PPC received no consideration for this waiver
in favor of Villamor's law firm.

PPC, represented by Villamor, entered into a memorandum of agreement (MOA) with MC Home
Depot. Under the MO A, MC Home Depot would continue to occupy the area as PPC's sublessee for
four (4) years, renewable for another four (4) years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00. In compliance with the terms of the MOA, MC Home Depot issued 20
post-dated checks representing rental payments for one year and the goodwill money. The checks
were given to Villamor who did not turn these or the equivalent amount over to PPC, upon
encashment. Hernando Balmores, wrote a letter addressed to PPJC's directors. He informed them
that Villamor should be made to deliver to PPC and account for MC Home Depot's checks or their
equivalent value.wlawlibrary

Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial
Court an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for
Intra-Corporate Controversies (Interim Rules) against petitioners for their alleged devices or
schemes amounting to fraud or misrepresentation "detrimental to the interest of the Corporation
and its stockholders." The Regional Trial Court denied respondent Balmores' prayer for the
appointment of a receiver or the creation of a management committee. The Court of Appeals
reversed the trial court's decision, and issued a new order placing PPC under receivership and
creating an interim management committee.

ISSUE:
Whether the Court of Appeals correctly characterized respondent Balmores' action as a
derivative suit
RULING:
No. Respondent Balmores' action in the trial court is not a derivative suit. A derivative suit is an
action filed by stockholders to enforce a corporate action. It is an exception to the general rule that
the corporation's power to sue is exercised only by the board of directors or
trustees.ralawlawlibrary

Individual stockholders may be allowed to sue on behalf of the corporation whenever the
directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or are
the ones to be sued and are in control of the corporation. It is allowed when the "directors [or
officers] are guilty of breach of . . . trust, [and] not of mere error of judgment." In derivative suits,
the real party in interest is the corporation, and the suing stockholder is a mere nominal party. Thus,
this court noted:chanRoblesvirtualLawlibrary

The Court has recognized that a stockholder's right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. In effect, the
suit is an action for specific performance of an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures for its
protection.chanrobleslaw

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim
Rules) provides the five (5) requisites for filing derivative suits:chanRoblesvirtualLawlibrary

SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:chanRoblesvirtualLawlibrary
He was a stockholder or member at the time the acts or transactions subject of the action
(1)
occurred and at the time the action was filed;
He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
(2) exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in
the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder
or member must be "in the name of [the] corporation or association. ..." This requirement has
already been settled in jurisprudence.
 Respondent Balmores' action in the trial court failed to satisfy all the requisites of a derivative
suit. Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for.
Though he tried to communicate with PPC's directors about the checks in Villamor's possession
before he filed an action with the trial court, respondent Balmores was not able to show that this
comprised -all the remedies available under the articles of incorporation, bylaws, laws, or rules
governing PPC.

An allegation that appraisal rights were not available for the acts complained of is another
requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules. Section 82 of the
Corporation Code provides that the stockholder may exercise the right if he or she voted against the
proposed corporate action and if he made a written demand for payment on the corporation within
thirty (30) days after the date of voting. Respondent Balmores complained about the alleged
inaction of PPC's directors in his letter informing them that Villamor should be made to deliver to
PPC and account for MC Home Depot's checks or their equivalent value. He alleged that these are
devices or schemes amounting to fraud or misrepresentation detrimental to the corporation's and
the stockholders' interests. He also alleged that the directors' inaction placed PPC's assets in
imminent and/or actual dissipation, loss, wastage, and destruction.

Granting that (a) respondent Balmores' attempt to communicate with the other PPC directors
already comprised all the available remedies that he could have exhausted and (b) the corporation
was under full- control of petitioners that exhaustion of remedies became impossible or
futile, respondent Balmores failed to allege that appraisal rights were not available for the acts
complained of here.

Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was
filing on behalf of the corporation. The non-derivative character of respondent Balmores' action may
also be gleaned from his allegations in the trial court complaint. In the complaint, he described the
nature of his action as an action under Rule 1, Section l(a)(l) of the Interim Rules, and not an action
under Rule 1, Section l(a)(4) of the Interim Rules, which refers to derivative suits.

In this case, respondent Balmores filed an individual suit. His intent was very clear from his
manner of describing the nature of his action. Respondent Balmores did not bring the action for the
benefit of the corporation. Instead, he was alleging that the acts of PPC's directors, specifically the
waiver of rights in favor of Villamor's law firm and their failure to take back the MC Home Depot
checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action,
therefore, his intention was to vindicate his individual interest and not PPC's or a group of
stockholders'. The essence of a derivative suit is that it must be filed on behalf of the corporation.
This is because the cause of action belongs, primarily, to the corporation. The stockholder who sues
on behalf of a corporation is merely a nominal party. Respondent Balmores' intent to file an
individual suit removes it from the coverage of derivative suits.
Topic: Stockholders and Members, Meetings, Voting, Who May Exercise
Case No. 413

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG)
vs.
COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN
(First Division)
G.R. No. 147062-64 December 14, 2001

FACTS:
Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued
Executive Order (EO) Nos. 1, 2 and 14.
"On the explicit premise that 'vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad,' the Presidential Commission on Good Government (PCGG) was created by Executive Order
No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether
located in the Philippines or abroad."

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 United
Coconut Planters Bank (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 Eduardo Cojuangco Jr. (hereinafter "Cojuangco"). In connection with the sequestration
of the said UCPB shares, the PCGG, instituted an action for reconveyance, reversion, accounting,
restitution and damages in the Sandiganbayan.

Upon Motion11 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 in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution
and damages. The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission
was automatically lifted for PCGG's failure to commence the corresponding judicial action within the
six-month period ending on August 2, 1987 provided under Section 26, Article XVIII of the 1987
Constitution. The anti-graft court noted that though these entities were listed in an annex appended
to the Complaint, they had not been named as parties-respondents.

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. The victory
of the registered shareholders was fleeting because the Court, acting on the solicitor general's
Motion for Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that "the
right of petitioners [herein private respondents] to vote stock in their names at the meetings of the
UCPB cannot be conceded at this time. That right still has to be established by them before the
Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock and
cannot be accorded the right to vote them."1

ISSUE:
Who May Vote the Sequestered Shares of Stock

RULING:
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?

From the foregoing general principle, the Court in Baseco v. PCGG (hereinafter "Baseco")
and Cojuangco Jr. v. Roxas ("Cojuangco-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." Given this factual background, the
Court discussed PCGG's right over BASECO in the following manner:
"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over
by the government of the Marcos Administration or by entities or persons close to former President
Marcos,' the PCGG is given power and authority, as already adverted to, to 'provisionally take (it)
over in the public interest or to prevent * * (its) disposal or dissipation;' and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something
more than mere physical custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself."

The exception was cited again by the Court in Cojuangco-Roxas in this wise:
"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 "public character" test was reiterated in many subsequent cases; most recently,
in Antiporda v. Sandiganbayan.37 Expressly citing Conjuangco-Roxas,38 this Court said that in
determining the issue of whether the PCGG should be allowed to vote sequestered shares, it was
crucial to find out first whether these were purchased with public funds, as follows:
"It is thus important to determine first if the sequestered corporate shares came from public funds
that landed in private hands."

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.
Topic: Capital Affairs, Certificate of Stock, Nature
Case No. 432

LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE INSURANCE CO.
INC.)
vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE
G.R. No. 118043. July 23, 1998

FACTS:
Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic corporation
engaged in the life insurance business. In 1984, it issued 50,000 shares of stock as stock dividends,
with a par value of P100 or a total of P5 million. Petitioner paid documentary stamp taxes on each
certificate on the basis of its par value. The pertinent provision of law, as it stood at the time of the
questioned transaction, reads as follows:
SEC. 224. Stamp tax on original issues of certificates of stock. -- On every original issue, whether on
organization, reorganization or for any lawful purpose, of certificates of stock by any association,
company or corporation, there shall be collected a documentary stamp tax of one peso and ten
centavos on each two hundred pesos, or fractional part thereof, of the par value of such
certificates: Provided, That in the case of the original issue of stock without par value the amount of
the documentary stamp tax herein prescribed shall be based upon the actual consideration received
by the association, company, or corporation for the issuance of such stock, and in the case of stock
dividends on the actual value represented by each share.
The Commissioner of Internal Revenue took the view that the book value of the shares,
amounting to P19,307,500.00, should be used as basis for determining the amount of the
documentary stamp tax. Accordingly, respondent Internal Revenue Commissioner issued a
deficiency documentary stamp tax assessment in the amount of P78,991.25 in excess of the par
value of the stock dividends. Together with another documentary stamp tax assessment which it
also questioned, petitioner appealed the Commissioners ruling to the Court of Tax Appeals. On
March 30, 1993, the CTA rendered its decision holding that the amount of the documentary stamp
tax should be based on the par value stated on each certificate of stock. In turn, respondent
Commissioner of Internal Revenue appealed to the Court of Appeals which, on November 18, 1994,
reversed the CTAs decision and held that, in assessing the tax in question, the basis should be the
actual value represented by the subject shares on the assumption that stock dividends, being a
distinct class of shares, are not subject to the qualification in the law as to the type of certificate of
stock used (with or without par value).

ISSUE:
What is the nature of a stock certificate

RULING:
A reading of the then 224 of the NIRC as quoted earlier, starting from its heading, will show that
the documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege
of issuing certificates of stock.
A stock certificate is merely evidence of a share of stock and not the share itself. This distinction
is clear in the Corporation Code, to wit:
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. No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the books of the corporation.

Stock dividends are in the nature of shares of stock, the consideration for which is the amount
of unrestricted retained earnings converted into equity in the corporations books. Thus,
A stock dividend is any dividend payable in shares of stock of the corporation declaring or
authorizing such dividend. It is, what the term itself implies, a distribution of the shares of stock of
the corporation among the stockholders as dividends. A stock dividend of a corporation is a
dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits.
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...[7]

From the foregoing, it is clear that stock dividends are shares of stock and not certificates of
stock which merely represent them. There is, therefore, no reason for determining the actual value
of such dividends for purposes of the documentary stamp tax if the certificates representing them
indicate a par value.
Topic: Capital Affairs, Certificate of Stock, Right to Transfer Shares
Case No. 413

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:
Respondent-Appellee Sy Guiok secured a loan from the petitioner in the amount of P40,000
payable within six (6) months. To secure the payment of the aforesaid loan and interest thereon,
Respondent Guiok executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his
three hundred (300) shares of stock in the Go Fay & Company Inc., Respondent Corporation, for
brevitys sake. Respondent Guiok obliged himself to pay interest on said loan at the rate of 10% per
annum from the date of said contract of pledge. On the same date, Alfonso Sy Lim secured a loan
from the [p]etitioner in the amount of P40,000 payable in six (6) months. To secure the payment of
his loan, Sy Lim executed a Contract of Pledge covering his three hundred (300) shares of stock in
Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest on his loan at
the rate of 10% per annum from the date of the execution of said contract.
Under said Contracts of Pledge, Respondent[s] Guiok and Sy Lim covenanted, inter alia, that:
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;
4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus
remaining in the hands of the PLEDGEE after the payment of the said sum and interest, and the
expenses, if any, connected with the foreclosure sale, shall be paid by the PLEDGEE to the
PLEDGOR;
5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the
PLEDGOR, redeliver to him the said shares of stock by surrendering the certificate delivered to him
by the PLEDGOR or by retransferring each share to the PLEDGOR, in the event that the PLEDGEE,
under the option hereby granted, shall have caused such shares to be transferred to him upon the
books of the issuing company. (

Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered
the same to the [p]etitioner. However, Respondent Guiok and Sy Lim failed to pay their respective
loans and the accrued interests thereon to the petitioner. In October, 1990, the petitioner filed a
Petition for Mandamus against Respondent Corporation, with the SEC .

ISSUE:
Whether or not the petitioner has acquired ownership of the shares

RULING:
 At the outset, it must be underscored that petitioner did not acquire ownership of the shares by
virtue of the contracts of pledge. Article 2112 of the Civil Code states:
The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary
Public to the sale of the thing pledged. This sale shall be made at a public auction, and with
notification to the debtor and the owner of the thing pledged in a proper case, stating the amount
for which the public sale is to be held. If at the first auction the thing is not sold, a second one with
the same formalities shall be held; and if at the second auction there is no sale either, the creditor
may appropriate the thing pledged. In this case he shall be obliged to give an acquaintance for his
entire claim.

There is no showing that petitioner made any attempt to foreclose or sell the shares through
public or private auction, as stipulated in the contracts of pledge and as required by Article 2112 of
the Civil Code. Therefore, ownership of the shares could not have passed to him. The pledgor
remains the owner during the pendency of the pledge and prior to foreclosure and sale, as explicitly
provided by Article 2103 of the same Code.

Neither did petitioner acquire the shares by virtue of a novation of the contract of
pledge. 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. ]Novation of a
contract must not be presumed. In the absence of an express agreement, novation takes place only
when the old and the new obligations are incompatible on every point.

In the present case, novation cannot be presumed by (a) respondents indorsement and delivery
of the certificates of stock covering the 600 shares, (b) petitioners receipt of dividends from 1980 to
1983, and (c) the fact that respondents have not instituted any action to recover the shares since
1980. Respondents indorsement and delivery of the certificates of stock were pursuant to
paragraph 2 of the contract of pledge which reads:
2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be held by the
PLEDGEE under the pledge as security for the payment of the aforementioned sum and interest
thereon accruing.
This stipulation did not effect the transfer of ownership to petitioner. It 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.
Topic: Capital Affairs, Certificate of Stock, Transfer of Shares of Stock and Registration
Case No. 470

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN S.
JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY &
DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T. CARLOS, MA.
LUISA T. MORALES, and DANTE D. MORALES
G.R. No. 120138. September 5, 1997

FACTS:
The late Manuel A. Torres, Jr. (Judge) was the majority stockholder of Tormil Realty &
Development Corporation while private respondents who are the children of Judge Torres deceased
brother Antonio A. Torres, constituted the minority stockholders. In 1984, Judge Torres, in order to
make substantial savings in taxes, adopted an estate planning scheme under which he assigned to
Tormil Realty & Development Corporation (Tormil) various real properties he owned and his shares
of stock in other corporations in exchange for 225,972 Tormil Realty shares. Hence, on various dates
in July and August of 1984, ten (10) deeds of assignment were executed by the late Judge Torres.

Consequently, the properties were duly recorded in the inventory of assets of Tormil Realty
and the revenues generated by the said properties were correspondingly entered in the
corporations books of account and financial records. At the time of the assignments and exchange,
however, only 225,000 Tormil Realty shares remained unsubscribed, all of which were duly issued to
and received by Judge Torres. Due to the insufficient number of shares of stock issued to Judge
Torres and the alleged refusal of private respondents to approve the needed increase in the
corporations authorized capital stock (to cover the shortage of 972 shares due to Judge Torres
under the estate planning scheme), on 11 September 1986, Judge Torres revoked the two (2) deeds
of assignment covering the properties in Makati and Pasay City.

Noting the disappearance of the Makati and Pasay City properties from the corporations
inventory of assets and financial records private respondents, on 31 March 1987, were constrained to
file a complaint with the Securities and Exchange Commission (SEC) to compel Judge Torres to
deliver to Tormil Corporation the two (2) deeds of assignment covering the aforementioned Makati
and Pasay City properties which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that following the
disappearance of the properties from the corporations inventory of assets, they found that on
October 24, 1986, Judge Torres, together with Edgardo Pabalan and Graciano Tobias, then General
Manager and legal counsel, respectively, of Tormil, formed and organized a corporation named
Torres-Pabalan Realty and Development Corporation and that as part of Judge Torres contribution
to the new corporation, he executed in its favor a Deed of Assignment conveying the same Makati
and Pasay City properties he had earlier transferred to Tormil.

ISSUE:
Whether or not the Deed of Assignment can be revoked

RULING:
 The shortage of 972 shares would not be valid ground for respondent Torres to unilaterally
revoke the deeds of assignment he had executed on July 13, 1984 and July 24, 1984 wherein he
voluntarily assigned to TORMIL real properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively. A comparison of the number of shares that respondent
Torres received from TORMIL by virtue of the deeds of assignment and the stock certificates issued
by the latter to the former readily shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in satisfaction to the properties being revoked by
respondent Torres. Hence, the shortage of 972 shares would never be a valid ground for the
revocation of the deeds covering Pasay and Quezon City properties.

In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in
making the agreement.

`The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the
very object of the parties in entering into contract. Art. 1355 of the Civil Code also provides: Except in
cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has
been fraud, mistake or undue influences. There being no fraud, mistake or undue influence exerted
on respondent Torres by TORMIL and the latter having already issued to the former of its 225,000
unissued shares, the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres.
The shortage of shares should not have affected the assignment of the Makati and Pasay City
properties which were executed in 13 and 24 July 1984 and the consideration for which have been
duly paid or fulfilled but should have been applied logically to the last assignment of property --
Judge Torres Ayala Fund shares--which was executed on 29 August 1984.
Topic: Capital Affairs, Sales of Delinquent Shares, Effect of Delinquency
Case No. 489

CALATAGAN GOLF CLUB, INC.

v
SIXTO CLEMENTE, JR.,
G.R. No. 165443 April 16, 2009

FACTS:
Clemente applied to purchase one share of stock of Calatagan, indicating in his application
for membership his mailing address at Phimco Industries, Inc. P.O. Box 240, MCC, complete
residential address, office and residence telephone numbers, as well as the company (Phimco) with
which he was connected, Calatagan issued to him Certificate of Stock. Calatagan charges monthly
dues on its members to meet expenses for general operations, as well as costs for upkeep and
improvement of the grounds and facilities. The provision on monthly dues is incorporated in
Calatagans Articles of Incorporation and By-Laws. It is also reproduced at the back of each
certificate of stock. When Clemente became a member the monthly charge stood at P400.00. He
paid P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9 December 1991.
Then he ceased paying the dues. At that point, his balance amounted to P400.00.

Ten (10) months later, Calatagan made the initial step to collect Clementes back accounts by
sending a demand letter. It was followed by a second letter. Both letters were sent to Clementes
mailing address as indicated in his membership application but were sent back to sender with the
postal note that the address had been closed. Calatagan declared Clemente delinquent for having
failed to pay his monthly dues for more than sixty (60) days, specifically P5,600.00 as of 31 October
1992. Calatagan also included Clementes name in the list of delinquent members posted on the clubs
bulletin board. On 1 December 1992, Calatagans board of directors adopted a resolution authorizing
the foreclosure of shares of delinquent members, including Clementes; and the public auction of
these shares. Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent shares to be sold at public
auction. The auction sale took place as scheduled on 15 January 1993, and Clementes share sold
for P64,000. Clemente learned of the sale of his share only in November of 1997. He filed a claim
with the Securities and Exchange Commission (SEC) seeking the restoration of his shareholding in
Calatagan with damages.

The SEC rendered a decision dismissing Clementes complaint. Citing Section 69 of the
Corporation Code which provides that the sale of shares at an auction sale can only be questioned
within six (6) months from the date of sale, the SEC concluded that Clementes claim, filed four (4)
years after the sale, had already prescribed. The SEC further held that Calatagan had complied with
all the requirements for a valid sale of the subject share, Clemente having failed to inform Calatagan
that the address he had earlier supplied was no longer his address. Clemente, the SEC ruled, had
acted in bad faith in assuming as he claimed that his non-payment of monthly dues would merely
render his share inactive. On appeal, the Court of Appeals promulgated a decision reversing the SEC.

ISSUE:
Whether or not the action of Clemente had prescribed pursuant to Section 69 of the
Corporation Code

RULING:
Section 69 of the Code provides that an action to recover delinquent stock sold must be
commenced by the filing of a complaint within six (6) months from the date of sale. As correctly
pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled Stocks and
Stockholders and refers specifically to unpaid subscriptions to capital stock, the sale of which is
governed by the immediately preceding Section 68.

There are fundamental differences that defy equivalence or even analogy between the sale of
delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of
delinquent stock is the non-payment of the subscription price for the share of stock itself. The
stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In this
case, Clemente had already fully paid for the share in Calatagan and no longer had any outstanding
obligation to deprive him of full title to his share. Perhaps the analogy could have been made if
Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to an article or
by-law provision designed to address that situation, decided to sell such share as a consequence.
But that is not the case here, and there is no purpose for us to apply Section 69 to the case at bar.

Calatagans advertence to the fact that the constitution of a lien on the members share by virtue of
the explicit provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no
help to its cause. Calatagans Articles of Incorporation states that the dues, together with all other
obligations of members to the club, shall constitute a first lien on the shares, second only to any lien
in favor of the national or local government, and in the event of delinquency such shares may be
ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or
other obligations of the stockholders. In turn, there are several provisions in the By-laws that govern
the payment of dues, the lapse into delinquency of the member, and the constitution and execution
on the lien.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to
govern the payment of monthly dues, the declaration of a member as delinquent, and the
constitution of a lien on the shares and its eventual public sale to answer for the members debts.
Under Section 91 of the Corporation Code, membership in a non-stock corporation shall
be terminated in the manner and for the causes provided in the articles of incorporation or the
by-laws. The By-law provisions are elaborate in explaining the manner and the causes for the
termination of membership in Calatagan, through the execution on the lien of the share. The Court
is satisfied that the By-Laws, as written, affords due protection to the member by assuring that
the member should be notified by the Secretary of the looming execution sale that would terminate
membership in the club. In addition, the By-Laws guarantees that after the execution sale, the
proceeds of the sale would be returned to the former member after deducting the outstanding
obligations. If followed to the letter, the termination of membership under this procedure outlined
in the By-Laws would accord with substantial justice.
Topic: Merger and Consolidation, Cases
Case No. 508

PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT CORPORATION

vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936. April 17, 2002

FACTS:
In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and principal place
of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant [herein petitioner]
Philippine National Bank (herein referred to as PNB), is a semi-government corporation duly
organized, existing and operating under the laws of the Philippines, with office and principal place
of business at Escolta Street, Sta. Cruz, Manila; whereas, the other defendant, the National Sugar
Development Corporation (NASUDECO in brief), is also a semi-government corporation and the
sugar arm of the PNB, with office and principal place of business at the 2nd Floor, Sampaguita
Building, Cubao, Quezon City; and the defendant Pampanga Sugar Mills (PASUMIL in short), is a
corporation organized, existing and operating under the 1975 laws of the Philippines, and had its
business office before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in
the business of general construction for the repairs and/or construction of different kinds of
machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets of the
defendant PASUMIL that were earlier foreclosed by the Development Bank of the Philippines (DBP)
under LOI No. 311; that the defendant PNB organized the defendant NASUDECO in September, 1975,
to take ownership and possession of the assets and ultimately to nationalize and consolidate its
interest in other PNB controlled sugar mills; that prior to October 29, 1971, the defendant PASUMIL
engaged the services of plaintiff for electrical rewinding and repair, most of which were partially
paid by the defendant PASUMIL, leaving several unpaid accounts with the plaintiff; that finally, on
October 29, 1971, the plaintiff and the defendant PASUMIL entered into a contract, that aside from
the work contract mentioned-above, the defendant PASUMIL required the plaintiff to perform extra
work, and provide electrical equipment and spare parts, that out of the total obligation
of P777,263.80, the defendant PASUMIL had paid only P250,000.00, leaving an unpaid balance, as of
June 27, 1973, amounting to P527,263.80, as shown in the Certification of the chief accountant of the
PNB, a machine copy of which is appended as Annex C of the complaint; that out of said unpaid
balance of P527,263.80, the defendant PASUMIL made a partial payment to the plaintiff
of P14,000.00, in broken amounts, covering the period from January 5, 1974 up to May 23, 1974,
leaving an unpaid balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and
now the defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and
demandable obligation; 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 attorneys fees.
ISSUE:
Whether or not PNB should be held liable for the corporate debts of PASUMIL

RULING:
As a rule, a corporation that purchases the assets of another will not be liable for the debts of
the selling corporation, provided the former acted in good faith and paid adequate consideration for
such assets, except when any of the following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in

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, 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, PASUMILs
corporate existence, as correctly found by the CA, had not been legally extinguished or terminated.
Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to respondent for the formers 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 PASUMILs creditors. Clearly, the corporate separateness between PASUMIL and PNB
remains, despite respondents insistence to the contrary.
Topic: Dissolution and Liquidation, Modes, Involuntary
Case No. 527

JAMES REBURIANO and URBANO REBURIANO

vs.
HONORABLE COURT OF APPEALS, and PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.
G.R. No. 102965. January 21, 1999

FACTS:
In a Civil Case entitled Pepsi Cola Bottling Company of the Philippines, Inc. v. Urbano (Ben)
Reburiano and James Reburiano, the Regional Trial Court, rendered a decision, ordering the
defendants Urbano (Ben) Reburiano and James Reburiano to pay jointly and severally the plaintiff
the sum of P55,000.00, less whatever empties (cases and bottles) may be returned by said
defendants valued at the rate of P55.00 per empty case with bottles. Private respondent Pepsi Cola
Bottling Company of the Philippines, Inc. appealed to the Court of Appeals seeking the modification
of the portion of the decision, which stated the value of the cases with empty bottles as P55.00 per
case, and obtained a favorable decision. Such judgment was set aside by the court.

After the case had been remanded to it and the judgment had become final and executory, the
trial court issued on February 5, 1991 a writ of execution. It appears that prior to the promulgation of
the decision of the trial court, private respondent amended its articles of incorporation to shorten
its term of existence to July 8, 1983. The amended articles of incorporation was approved by the
Securities and Exchange Commission on March 2, 1984. The trial court was not notified of this fact.
On February 13, 1991, petitioners moved to quash the writ of execution.

ISSUE:
Whether or not a dissolved and non-existing corporation could no longer be represented by a
lawyer

RULING:
Section 122 of the Corporation Code provides in part:
122. Corporate Liquidation. - Every Corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated
in any other manner, shall nevertheless be continued as a body corporate for three (3) years after
the time when it would have been so dissolved, for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for which it was
established.

At any time during said three (3) years, said corporation is authorized and empowered to
convey all of its property to trustees for the benefit of stockholders, members, creditors, and other
persons in interest.From and after any such conveyance by the corporation of its property in trust
for the benefit of its stockholders, members, creditors and others in interests, all interests which the
corporation had in the property terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other persons in interest.
 Indeed, in Gelano vs. Court of Appeals, a case having substantially similar facts as the instant
case, this Court held:
However, a corporation that has a pending action and which cannot be terminated within the
three-year period after its dissolution is authorized under Sec. 78 [now 122] of the Corporation Law
to convey all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the three-year period. Although private respondent did not appoint any trustee,
yet the counsel who prosecuted and defended the interest of the corporation in the instant case
and who in fact appeared in behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation only. Said counsel had been handling the
case when the same was pending before the trial court until it was appealed before the Court of
Appeals and finally to this Court. We therefore hold that there was substantial compliance with Sec.
78 [now 122] of the Corporation Law and such private respondent Insular Sawmill, Inc. could still
continue prosecuting the present case even beyond the period of three (3) years from the time of
dissolution. The trustee may commence a suit which can proceed to final judgment even beyond the
three-year period. No reason can be conceived why a suit already commenced by the corporation
itself during its existence, not by a mere trustee who, by fiction, merely continues the legal
personality of the dissolved corporation should not be accorded similar treatment allowed to
proceed to final judgment and execution thereof.

It is to be noted that the time during which the corporation, through its own officers, may
conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years
from the time the period of dissolution commences; but there is no time limit within which the
trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to
the trustees must be made within the three-year period. It may be found impossible to complete the
work of liquidation within the three-year period or to reduce disputed claims to judgment.The
authorities are to the effect that suits by or against a corporation abate when it ceased to be an
entity capable of suing or being sued; but trustees to whom the corporate assets have been
conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all
matters connected with the liquidation. There is, therefore, no reason why the suit filed by private
respondent should not be allowed to proceed to execution.
Topic: Dissolution and Liquidation, Liquidation, Conveyance
Case No. 546

REPUBLIC PLANTERS BANK

vs.
COURT OF APPEALS and FERMIN CANLAS
G.R. No. 93073 December 21, 1992

FACTS:
Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue
of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters
Bank in the forms of export advances and letters of credit/trust receipts accommodations.
Petitioner bank issued nine promissory notes. On the right bottom margin of the promissory notes
appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the
phrase "and (in) his personal capacity" typewritten below.

In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private
respondent. On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its
corporate name to Pinch Manufacturing Corporation. On February 5, 1982, petitioner bank filed a
complaint for the recovery of sums of money covered among others, by the nine promissory notes
with interest thereon, plus attorney's fees and penalty charges. The complainant was originally
brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop
Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its
place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended
Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private
respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the
promissory notes in question since according to him, he was not an officer of Pinch Manufacturing
Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the time he affixed his signature.

ISSUE:
Whether or not the amendment in a corporation’s Articles of Incorporation effecting a change
in the corporate name extinguished the personality of the original corporation

RULING:
The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and its
character is in no respect changed. A change in the corporate name does not make a new
corporation, and whether effected by special act or under a general law, has no affect on the
identity of the corporation, or on its property, rights, or liabilities. The corporation continues, as
before, responsible in its new name for all debts or other liabilities which it had previously
contracted or incurred.
 As a general rule, officers or directors under the old corporate name bear no personal liability
for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch
as such officers acted in their capacity as agent of the old corporation and the change of name
meant only the continuation of the old juridical entity, the corporation bearing the same name is still
bound by the acts of its agents if authorized by the Board.
Topic: Other Corporations, Religious Corporation, Corporation Sole, Nationality
Case No. 565

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (Corporation Sole), INC., REV.
NESTOR PINEDA, REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR., DANILO SAUR, RICHARD
PONTI, ALFREDO MATABANG and all the other members of the IEMELIF TONDO CONGREGATION
of the IEMELIF CORPORATION SOLE,

v.

BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL MADUCDOC, FERDINAND

MERCADO, ARCADIO CABILDO, DOMINGO GONZALES, ARTURO LAPUZ, ADORABLE

MANGALINDAN, DANIEL VICTORIA and DAKILA CRUZ, and LAY LEADER LINGKOD MADUCDOC and
CESAR DOMINGO, acting individually and as members of the Supreme Consistory of Elders and
those claiming under the Corporation Aggregate

G.R. No. 184088 July 6, 2010

FACTS:

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En
Las Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its General
Superintendent. Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that
established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who were
to serve for four years. The by-laws empowered the Consistory to elect a General Superintendent, a
General Secretary, a General Evangelist, and a Treasurer General who would manage the affairs of
the organization. For all intents and purposes, the Consistory served as the IEMELIFs board of
directors.

Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate
powers theoretically lodged in the hands of one member, the General Superintendent), it had
always acted like a corporation aggregate. The Consistory exercised IEMELIFs decision-making
powers without ever being challenged. Subsequently, during its 1973 General Conference, the
general membership voted to put things right by changing IEMELIFs organizational structure from a
corporation sole to a corporation aggregate. On May 7, 1973 the Securities and Exchange
Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the
IEMELIF remained unaltered as a corporation sole.
 Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the
IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object
to the conversion of the IEMELIF into a corporation aggregate, that conversion was not properly
carried out and documented. The SEC said that the IEMELIF needed to amend its articles of
incorporation for that purpose.

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation
aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their
congregations to take up the matter with their respective members for resolution. Subsequently,
the general membership approved the conversion, prompting the IEMELIF to file amended articles
of incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the
conversion.

ISSUE:

Whether or not a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

RULING:

The Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the general provisions governing non-stock
corporations. For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an amendment.

Although a non-stock corporation has a personality that is distinct from those of its
members who established it, its articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the concurrence of at least two-thirds of its
membership. If such approval mechanism is made to operate in a corporation sole, its one member
in whom all the powers of the corporation technically belongs, needs to get the concurrence of
two-thirds of its membership. The one member, here the General Superintendent, is but a trustee,
according to Section 110 of the Corporation Code, of its membership.
 There is no point to dissolving the corporation sole of one member to enable the
corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation
sole, the corporate being remains distinct from its members, whatever be their number. The
increase in the number of its corporate membership does not change the complexion of its
corporate responsibility to third parties. The one member, with the concurrence of two-thirds of the
membership of the organization for whom he acts as trustee, can self-will the amendment. He can,
with membership concurrence, increase the technical number of the members of the corporation
from sole or one to the greater number authorized by its amended articles.

Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop
Lazaro, who embodied the corporation sole, had obtained, not only the approval of the Consistory
that drew up corporate policies, but also that of the required two-thirds vote of its membership.
Topic: Other Corporations, Foreign Corporation, Doctrine of Doing Business, Jurisprudential Tests
Case No. 584

WANG LABORATORIES, INC.

vs.
THE HONORABLE RAFAEL T. MENDOZA, then Presiding Judge, Regional Trial Court, Branch CXXXIV,
Makati, Metro Manila, THE HONORABLE BERNARDO ABESAMIS, incumbent Presiding Judge,
Regional Trial Court, Branch CXX-XIV, Makati, Metro Manila, Public Respondents and ANGARA
CONCEPCION REGALA & CRUZ LAW OFFICES Private Respondents
G.R. No. 72147 December 1, 1987

FACTS:
Petitioner is a corporation duly organized under the laws of the United States with principal
address at One Industrial Avenue, Lowell, Massachusetts, U.S.A., engaged in the business of
manufacturing and selling computers worldwide. In the Philippines, petitioner sells its products to
EXXBYTE TECHNOLOGIES CORPORATION, hereinafter referred to as EXXBYTE, its exclusive
distributor. EXXBYTE is a domestic corporation engaged in the business of selling computer
products to the public in its own name for its own account. Angara, Concepcion, Regala & Cruz Law
Offices is a duly registered professional partnership.

On September 10, 1980, respondent ACCRALAW entered into a contract with EXXBYTE for
acquisition and installation of a Wang 2200 US Integrated Information System at the former's office.
As stipulated in the above-said contract, a letter of credit for US$ 86,142.55 was thereafter opened
by ACCRALAW in favor of petitioner herein to pay for the Wang 2200 US System. Sometime in May
1981, the hardware was delivered and installed by EXXBYTE in ACCRALAW's office. On June 10, 1981,
ACCRALAW and EXXBYTE entered into another contract for the development of a data processing
software program needed to computerize the ACCRALAW office.

Subsequent thereto and for one reason or the other, the contract for the development of a
data processing software program or ISLA was not implemented. On May 7, 1984, ACCRALAW filed a
complaint for breach of contract with damages, replevin and attachment against herein petitioner.

ISSUE:
Whether or not respondent Court has acquired jurisdiction over the person of the petitioner, a
foreign corporation.

RULING:
In the cases of Mentholatum Co., Inc. v. Mangaliman, it was held that no general rule or
governing principle can be laid down as to what constitutes doing or "engaging" or "trading" in
business. Indeed each case must be judged in the light of its peculiar environmental circumstances;
upon peculiar facts and upon the language of the Statute applicable.

Under the circumstances; petitioner cannot unilaterally declare that it is not doing business in
the Philippines. In fact, it has installed, at least 26 different products in several corporations in the
Philippines since 1976 . It has registered its trade name with the Philippine Patents Office (ibid) and
Mr. Yeoh who is petitioner's controller in Asia has visited the office of its distributor for at least four
times where he conducted training programs in the Philippines. Wang has allowed its registered
logo and trademark to be used by EXXBYTE (Pran Deposition, p. 23, Rollo, p. 342) and made it known
that there exists a designated distributor in the Philippines as published in its advertisements.
Indeed it has been held that "where a single act or transaction of a foreign corporation is not merely
incidental or casual but is of such character as distinctly to indicate a purpose to do other business in
the State, such act constitutes doing business within the meaning of statutes prescribing the
conditions under which a foreign corporation may be served with summons. Be that as it may, the
issue on the suability of foreign corporation whether or not doing business in the Philippines has
already been laid to rest. The Court has categorically stated that although a foreign corporation is
not doing business in the Philippines, it may be sued for acts done against persons in the Philippines.

In fact, it is well settled that "A voluntary appearance is a waiver of the necessity of formal
notice." Thus, it has been held that when the appearance is by motion for the purpose of objecting
to the jurisdiction of the court over the person it must be for the sole and separate purpose of
objecting to the jurisdiction of the Court. If the appearance is for any other purpose, the defendant
is deemed to have submitted himself to the jurisdiction of the court. Such an appearance gives the
court jurisdiction over the person. Clarifying further, the Court has likewise ruled that even though
the defendant objects to the jurisdiction of the Court, if at the same time he alleges any
non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction over him.
Topic: Other Corporations, Foreign Corporation, Doctrine of Doing Business, Personality to Sue
Case No. 602

LORENZO SHIPPING CORP.

vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC.
G.R. No. 147724. June 8, 2004

FACTS:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of
ERW black steel pipes worth US$137,912.84 on board the vessel M/V Lorcon IV, owned by petitioner
Lorenzo Shipping, for shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of
lading designated as Bill of Lading No. T-3 for the account of the consignee, Sumitomo Corporation
of San Francisco, California, USA, which in turn, insured the goods with respondent Chubb and Sons,
Inc.

Respondent Transmarine Carriers received the subject shipment which was discharged
on December 4, 1987, evidenced by Delivery Cargo Receipt No. 115090. It discovered seawater in the
hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then
hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to
discharge. After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San
Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to
7, covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos.
DAV/SEA 1 to 6, covering 217 bundles of steel pipes to be discharged
at Vancouver,Washington, U.S.A. All bills of lading were marked ALL UNITS HEAVILY RUSTED.

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a
letter of intent dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received
on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim
based on the damaged cargo once such damage had been ascertained.

Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes
and declared them unfit for the purpose they were intended. It then filed a marine insurance claim
with respondent Chubb and Sons, Inc. which the latter settled in the amount of US$104,151.00.
Chubb and Sons, Inc. filed a complaint for collection of a sum of money, against respondents
Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and Sons, Inc. alleged that it is
not doing business in the Philippines, and that it is suing under an isolated transaction.

ISSUE:
Whether respondent Chubb and Sons has capacity to sue before the Philippine courts

RULING:
Yes. Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. The principle covers the situation under which an
insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means which the creditor could employ to enforce payment. The rights to which
the subrogee succeeds are the same as, but not greater than, those of the person for whom he is
substituted he cannot acquire any claim, security, or remedy the subrogor did not have. In other
words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only if insured likewise could have recovered.

However, when the insurer succeeds to the rights of the insured, he does so only in relation to
the debt. The person substituted (the insurer) will succeed to all the rights of the creditor (the
insured), having reference to the debt due the latter. In the instant case, the rights inherited by the
insurer, respondent Chubb and Sons, pertain only to the payment it made to the insured Sumitomo
as stipulated in the insurance contract between them, and which amount it now seeks to recover
from petitioner Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The
capacity to sue of respondent Chubb and Sons could not perchance belong to the group of rights,
remedies or securities pertaining to the payment respondent insurer made for the loss which was
sustained by the insured Sumitomo and covered by the contract of insurance. Capacity to sue is a
right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to sue
means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary
qualification to appear in the case, or does not have the character or representation he claims. It
refers to a plaintiffs general disability to sue, such as on account of minority, insanity, incompetence,
lack of juridical personality, or any other disqualifications of a party. Respondent Chubb and Sons
who was plaintiff in the trial court does not possess any of these disabilities. On the contrary,
respondent Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it
is not doing business in the Philippines, but is suing only under an isolated transaction, i.e., under the
one (1) marine insurance policy issued in favor of the consignee Sumitomo covering the damaged
steel pipes.

The law on corporations is clear in depriving foreign corporations which are doing business in
the Philippines without a license from bringing or maintaining actions before, or intervening in
Philippine courts. Art. 133 of the Corporation Code states:
Doing business without a license. No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws. The law does not prohibit foreign
corporations from performing single acts of business. A foreign corporation needs no license to sue
before Philippine courts on an isolated transaction.

What is determinative of "doing business" is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in
the country. The number and quantity are merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart
from the common business of a foreign enterprise in the sense that there is no intention to engage
in a progressive pursuit of the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the frequency of its transactions,
but more upon the nature and character of the transactions. In the case at bar, it is clear that
respondent insurer was suing on its own behalf in order to enforce its right of subrogation.
Topic: Other Corporations, Foreign Corporation, Doctrine of Doing Business, Other Cases
Case No. 621

SUBIC BAY METROPOLITAN AUTHORITY, RICHARD J. GORDON, FERDINAND M. ARISTORENAS,

MANUEL W. QUIJANO and RAYMOND P. VENTURA
vs.
UNIVERSAL INTERNATIONAL GROUP OF TAIWAN, UIG INTERNATIONAL DEVELOPMENT
CORPORATION and SUBIC BAY GOLF AND COUNTRY CLUB, Inc.
G.R. No. 131680. September 14, 2000

FACTS:
On 25 May 1995, a Lease and Development Agreement was executed by respondent UIG and
petitioner SBMA under which respondent UIG shall lease from petitioner SBMA the Binictican Golf
Course and appurtenant facilities thereto to be transformed into a world class 18-hole golf course,
golf club/resort, commercial tourism and residential center. The contract in pertinent part contains
pre-termination clauses.

On 4 February 1997, Petitioner SBMA sent a letter to private respondent UIG calling its attention
to its alleged several contractual violations in view of private respondent UIGs failure to deliver its
various contractual obligations, primarily its failure to complete the rehabilitation of the Golf Course
in time for the APEC Leaders Summit, and to pay accumulated lease rentals and utilities, and to post
the required performance bond. Respondent UIG, in its letter of 7 February 1997, interposed as an
excuse the alleged default of its main contractor FF Cruz, resulting in their filing of suit against the
latter, and committed itself to comply with its obligations within a few days. Private respondent UIG,
however, failed to comply with its undertakings. On 7 March 1997, petitioner SBMA sent a letter to
private respondent UIG declaring the latter in default of its contractual obligations to SBMA under
Section 22.1 of the Lease and Development Agreement and required it to show cause why petitioner
SBMA should not pre-terminate the agreement. Private respondents paid the rental arrearages but
the other obligations remained unsatisfied.

On 8 September 1997, a letter of pre-termination was served by petitioner SBMA requiring

private respondent UIG to vacate the premises. On 12 September 1997, petitioner served the formal
notice of closure of Subic Bay Golf Course and took over possession of the subject premises. On
even date, private respondent filed a complaint against petitioner SBMA for Injunction and Damages
with prayer for a writ of temporary restraining order and writ of preliminary injunction. On 3
October 1997, respondent court issued the two assailed orders subject of the petition.

ISSUE:
Whether Respondent UIG has the capacity to sue

RULING:
As a general rule, unlicensed foreign non-resident corporations cannot file suits in the
Philippines. Section 133 of the Corporation Code specifically provides:
Sec. 133. No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines, but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
 A corporation has legal status only within the state or territory in which it was organized. For
this reason, a corporation organized in another country has no personality to file suits in the
Philippines. In order to subject a foreign corporation doing business in the country to the jurisdiction
of our courts, it must acquire a license from the SEC and appoint an agent for service of process.
Without such license, it cannot institute a suit in the Philippines.

It should be stressed, however, that the licensing requirement was never intended to favor
domestic corporations who enter into solitary transactions with unwary foreign firms and then
repudiate their obligations simply because the latter are not licensed to do business in this
country.[16] After contracting with a foreign corporation, a domestic firm is estopped from denying
the formers capacity to sue. Hence, in Merril Lynch Futures v. CA, the Court ruled:
The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations; one who has dealt with a
corporation of foreign origin as a corporate entity is estopped to deny its existence and capacity.
The principle will be applied to prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes, chiefly in cases where such person has
received the benefits of the contract x x x.

In this case, SBMA is estopped from questioning the capacity to sue of UIG. In entering into the
LDA with UIG, SBMA effectively recognized its personality and capacity to institute the suit before
the trial court.
Topic: Securities and Exchange Commission Law, Devices and Schemes Amounting to Fraud or
Misrepresentation
Case No. 639

RAMON GIL ABAD and CONSUELO R. ABAD

vs.
COURT OF FIRST INSTANCE OF PANGASINAN, BRANCH VIII, Presided over by HONORABLE JUDGE
MODESTO S. BASCOS, and DIMENSIONAL CONSTRUCTION, TRADE AND DEVELOPMENT
CORPORATION
G.R. Nos. L-58507-08 February 26, 1992

FACTS:
Respondent corporation, hereinafter referred to as DIMCONTRAD, is a domestic corporation
duly organized and existing under and by virtue of the laws of the Philippines with principal office in
Baguio City. In response to a call for investors, petitioner Ramon Gil Abad invested various sums
with DIMCONTRAD on different dates. Upon receipt of the amount for each investment,
DIMCONTRAD delivered to Ramon an official receipt, an instruction slip and a promissory
note. Upon the other hand, Consuelo R. Abad, wife of Ramon, also invested money in
DIMCONTRAD. The said investments, totalling P17,000.00, were subject to the same terms and
conditions as those of her husband's. Upon receipt of every investment, DIMCONTRAD delivered to
Consuelo an official receipt, instruction slip and a promissory note.

As for the investment of Ramon, DIMCONTRAD was only able to pay Ramon his share in the
profits for the months of January, February, March and April 1980. For the 15 January 1980
investment, it likewise failed to pay the shares in profit for the months of May, June and July 1980. It
completely failed to pay Ramon's shares in the profits for his March and May 1980 investments.
Upon maturity of his P21,000.00 investment, Ramon tried to collect the said amount together with
the corresponding unpaid monthly shares in profit but DIMCONTRAD prevailed upon him to extend
the date of maturity to 5 July 1980. He agreed thereto. When again he attempted to collect the
matured investment together with the unpaid monthly shares in the profit as agreed upon on 5 July
1980, DIMCONTRAD refused. On 15 July 1980, upon maturity of the 15 January investment, Ramon
tried to collect the same together with the unpaid guaranteed monthly shares, but respondent
corporation again failed and refused to repay the investment. The latter also refused to return the
sums invested in March and May. Subsequently, due to loss of confidence and in the exercise of his
contractual rights, Ramon tried to collect all his investments in the total sum of' P24,000.00
together with all the unpaid monthly shares in the profits amounting to P2,850.00, but
DIMCONTRAD refused to pay the same.

As for Consuelo's monthly shares in the profits, DIMCONTRAD was able to pay her only for the
months of March, April and May for her 8 February 1980 investment; for the months of April and
May 1980 for her 8 March 1980 investment; and for the month of May 1980 insofar as her 8 April
1980 investment is concerned. DIMCONTRAD failed to pay any share in profits on her 8 May 1980
investment. She then demanded the return of all her matured investments amounting to P17,200.00.
Notwithstanding repeated demands, DIMCONTRAD failed and refused to return the same together
with the guaranteed shares in the profits amounting to P2,975.00. Thus, on 4 September 1980,
Ramon filed a complaint for "Sum of Money and Damages" against DIMCONTRAD.
ISSUE:
Whether or not the acts committed constitutes fraud

RULING:
Section 5, Rule 8 of the Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity. In the case at bar,
while there are allegations of fraud in the above quoted complaints, the same are not particular
enough to bring the controversy within the SEC's jurisdiction. The said allegations are not statement
of ultimate facts but are mere conclusions of law. A pleading should state the ultimate facts
essential to the rights of action or defense asserted, as distinguished from mere conclusions of fact,
or conclusions of law. General allegations that a contract is valid or legal, or is just, fair and
reasonable, are mere conclusions of law. Likewise, allegations that a contract is void, voidable,
invalid, illegal, ultra vires, or against public policy, without stating facts showing its invalidity, are
mere conclusions of law.

Clearly, therefore, the allegations in the complaint do not bring the cases within the jurisdiction
of the SEC. Shorn of unnecessary details, it is evident that the actions are simple money claims. It is
in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly
specified and delimited its jurisdiction to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with the internal affairs of such
corporations, partnerships or associations. Otherwise stated, in order that the SEC can take
cognizance of a case, the controversy must pertain to any of the following relationships: [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 state in so far as its franchise, permit or license to
operate is concerned; and [d] among the stockholders, partners or associates themselves.
Topic: Securities and Exchange Commission Law, Controversies in the election or appointment
Case No. 657

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE

SPENCER, AND ALEX MANCILLA,
vs.
RICARDO R. COROS
G.R. No. 157802 October 13, 2010

FACTS:
After his dismissal by Matling as its Vice President for Finance and Administration, the
respondent filed on August 10, 2000 a complaint for illegal suspension and illegal dismissal against
Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration
Branch XII, Iligan City. The petitioners moved to dismiss the complaint, raising the ground, among
others, that the complaint pertained to the jurisdiction of the Securities and Exchange Commission
(SEC) due to the controversy being intra-corporate inasmuch as the respondent was a member of
Matlings Board of Directors aside from being its Vice-President for Finance and Administration prior
to his termination.

The respondent opposed the petitioners motion to dismiss, insisting that his status as a member
of Matlings Board of Directors was doubtful, considering that he had not been formally elected as
such; that he did not own a single share of stock in Matling, considering that he had been made to
sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that
Matling had taken back and retained the certificate of stock in its custody; and that even assuming
that he had been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000
showed.

ISSUE:
Whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

RULING:
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. Guerrea v. Lezama,[19] the first
ruling on the matter, held that the 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. In this case, respondent was appointed vice
president for nationwide expansion by Malonzo, petitioner's general manager, not by the board of
directors of petitioner. It was also Malonzo who determined the compensation package of
respondent. Thus, respondent was an employee, not a corporate officer. The CA was therefore
correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC (now the
RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which
plainly states that the corporate officers are the President, Secretary, Treasurer and such other
officers as may be provided for in the By-Laws. Accordingly, the corporate officers in the context of
PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by
the corporations By-Laws. A different interpretation can easily leave the way open for the Board of
Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the
expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer
position.

It is relevant to state in this connection that the SEC, the primary agency administering
the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993, to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever 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, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create
a corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the 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 Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office. To emphasize, the power to create new offices and the power to appoint the
officers to occupy them vested by By-Law No. V merely allowed Matlings President to create
non-corporate offices to be occupied by ordinary employees of Matling. Such powers were
incidental to the Presidents duties as the executive head of Matling to assist him in the daily
operations of the business.
Topic: Securities and Exchange Commission Law, Petition for declaration of suspension
Case No. 676

PHILIPPINE NATIONAL BANK and EQUITABLE PCI BANK,

vs
HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION EN BANC, ASB
HOLDINGS, INC., ASB REALTY CORPORATION, ASB DEVELOPMENT CORPORATION (formerly
TIFFANY TOWER REALTY CORPORATION), ASB LAND INC., ASB FINANCE, INC., MAKATI HOPE
CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORPORATION, WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORPORATION, GERICK HOLDINGS CORPORATION, and NEIGHBORHOOD
HOLDINGS, INC.,
G.R. No. 165571 January 20, 2009

FACTS:
Petitioners Philippine National Bank (PNB) and Equitable PCI Bank are members of the
consortium of creditor banks constituted pursuant to the Mortgage Trust Indenture (MTI) dated
May 29, 1989, as amended, by and between Rizal Commercial Banking Corporation-Trust and
Investments Division, acting as trustee for the consortium, and ASB Development Corporation
(ASBDC, formerly Tiffany Tower Realty Corporation). Other members of the consortium include
Metropolitan Bank and Trust Company (Metrobank), Prudential Bank, Union Bank of the Philippines,
and United Coconut Planters Bank. Private respondents ASB Holdings, Inc., ASBDC, ASB Land, Inc.,
ASB Finance, Inc., Makati Hope Christian School, Inc., Bel-Air Holdings Corporation, Winchester
Trading, Inc., VYL Holdings Corporation, and Neighborhood Holdings, Inc. (ASB Group) are
corporations engaged in real estate development. The ASB Group is owned by Luke C.
Roxas.[7] Under the MTI, petitioners granted a loan of PhP 1,081,000,000 to ASBDC secured by a
mortgage of five parcels of land with improvements.

On May 2, 2000, private respondents filed with the SEC a verified petition for rehabilitation
with prayer for suspension of actions and proceedings pending rehabilitation pursuant to
Presidential Decree No. (PD) 902-A, as amended. The case was docketed as SEC Case No.
05-00-6609. Private respondents stated that they possess sufficient properties to cover their
obligations but foresee inability to pay them within a period of one year. They cited the sudden
non-renewal and/or massive withdrawal by creditors of their loans to ASB Holdings, the glut in the
real estate market, severe drop in the sale of real properties, peso devaluation, and decreased
investor confidence in the economy which resulted in the non-completion of and failure to sell their
projects and default in the servicing of their credits as they fell due. The ASB Group had assets worth
PhP 19,410,000,000 and liabilities worth PhP 12,700,000,000. Faced with at least 712 creditors, 317
contractors/suppliers, and 492 condominium unit buyers, and the prospect of having secured and
non-secured creditors press for payments and threaten to initiate foreclosure proceedings, the ASB
Group pleaded for suspension of payments while working for rehabilitation with the help of the SEC.
 Private respondents mentioned that in March 2000 and immediately after ASB Holdings
incurred financial problems, they agreed to constitute a Creditors Committee composed of
representatives of individual creditors, and to appoint a Comptroller. Private respondents stated
that the Comptroller, upon instruction from the Creditors Committee, withheld approval of
payments of obligations in the ordinary course of business such as those due to contractors, unless
Roxas agrees to the payment of interest and other arrangements. Private respondents believed that
said conditions would eventually harm the general body of their creditors. Private respondents
prayed for the suspension of payments to creditors while working out the final terms of a
rehabilitation plan with all the parties concerned. Private respondents petition to the SEC was
accompanied by documentary requirements in accordance with Section 4-2 in relation to Sec. 3-2 of
the Rules of Procedure on Corporate Recovery

ISSUE:
Whether or not a solvent corporation or debtor may file a petition for rehabilitation instead of
just a petition for suspension of payments

RULING:
A reading of Sec. 4-1 shows that there are two kinds of insolvency contemplated in it: (1)
actual insolvency, i.e., the corporations assets are not enough to cover its liabilities; and (2) technical
insolvency defined under Sec. 3-12, i.e., the corporation has enough assets but it foresees its inability
to pay its obligations for more than one year.

In the case at bar, the ASB Group filed with the SEC a petition for rehabilitation with prayer
for suspension of actions and proceedings pending rehabilitation. Contrary to petitioners arguments,
the mere fact that the ASB Group averred that it has sufficient assets to cover its obligations does
not make it solvent enough to prevent it from filing a petition for rehabilitation. A corporation may
have considerable assets but if it foresees the impossibility of meeting its obligations for more than
one year, it is considered as technically insolvent. Thus, at the first instance, a corporation may file a
petition for rehabilitationa remedy provided under Sec. 4-1. When Sec. 4-1 mentioned technical
insolvency under Sec. 3-12, it was referring to the definition of technical insolvency in the said section;
it was not requiring a previous filing of a petition for suspension of payments which petitioners
would have us believe.

The period mentioned under Sec. 3-12, longer than one year from the filing of the petition, does
not refer to a year-long waiting period when the SEC can finally say that the ailing corporation is
technically insolvent to qualify for rehabilitation. The period referred to the corporations inability to
pay its obligations; when such inability extends beyond one year, the corporation is considered
technically insolvent. Said inability may be established from the start by way of a petition for
rehabilitation, or it may be proved during the proceedings for suspension of payments, if the latter
was the first remedy chosen by the ailing corporation. If the corporation opts for a direct petition for
rehabilitation on the ground of technical insolvency, it should show in its petition and later prove
during the proceedings that it will not be able to meet its obligations for longer than one year from
the filing of the petition.

As regards the status of the Repayment Schedule required to be attached to the petition for
rehabilitation (Sec. 4-2[g]), this requirement is conditioned on whether one was approved by the
SEC in the first place. If there is none, as in the case of a petition for rehabilitation due to technical
insolvency directly filed under Rule IV, Sec. 4-1, then there is no status report to submit with the
petition.
Topic: Securities and Regulation Code, Registration of Securities,Investment Contract
Case No. 695

POWER HOMES UNLIMITED CORPORATION

vs
SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO
G.R. No. 164182 February 26, 2008

FACTS:
On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate
petitioners business. He claimed that he attended a seminar conducted by petitioner where the
latter claimed to sell properties that were inexistent and without any brokers license. On November
21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioners
business involves legitimate network marketing.

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC
held a conference on December 13, 2000 that was attended by petitioners incorporators John Lim,
Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioners
marketing scheme and list of its members with addresses. The following day or on December 14,
2000, petitioner submitted to public respondent SEC copies of its marketing course module and
letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer
29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner
wherein it gathered documents such as certificates of accreditation to several real estate companies,
list of members with web sites, sample of member mail box, webpages of two (2) members, and
lists of Business Center Owners who are qualified to acquire real estate properties and materials on
computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or offer for sale or
distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic
Act (R.A.) No. 8799 (The Securities Regulation Code),[5] but failed to register them in violation of Sec.
8.1 of the same Act, public respondent SEC issued a CDO.

ISSUE:
Whether the business of petitioner involves an investment contract that is considered
security and thus, must be registered prior to sale or offer for sale or distribution to the public
RULING:
An investment contract is defined in the Amended Implementing Rules and Regulations of
R.A. No. 8799 as a contract, transaction or scheme (collectively contract) whereby a person invests
his money in a common enterprise and is led to expect profits primarily from the efforts of others.

In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a
company offering to sell to the public contracts characterized as self-improvement courses. On
appeal from a grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held that
self-improvement contracts which primarily offered the buyer the opportunity of earning
commissions on the sale of contracts to others were investment contracts and thus were securities
within the meaning of the federal securities laws. This is regardless of the fact that buyers, in
addition to investing money needed to purchase the contract, were obliged to contribute their own
efforts in finding prospects and bringing them to sales meetings. The appellate court held: It is
apparent from the record that what is sold is not of the usual business motivation type of
courses. Rather, the purchaser is really buying the possibility of deriving money from the sale of
the plans by Dare to individuals whom the purchaser has brought to Dare. The promotional aspects
of the plan, such as seminars, films, and records, are aimed at interesting others in the Plans. Their
value for any other purpose is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing others into
the organization, for which he will receive a part of what they pay. His task is to bring prospective
purchasers to Adventure Meetings. The business scheme of petitioner in the case at bar is
essentially similar. An investor enrolls in petitioners program by paying US$234. This entitles him to
recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. A
minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2)
each, entitles the principal investor to US$184 and the pyramid goes on.
Topic: Securities and Regulation Code, trading, insiders duty
Case No. 713

UNION BANK OF THE PHILIPPINES,

vs.
SECURITIES and EXCHANGE COMMISSION
G.R. No. 138949. June 6, 2001

FACTS:
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. In reply thereto, 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. Not satisfied,
petitioner, per letter dated April 30, 1997, informed Chairman Yasay that they will refer the matter to
the Philippine Stock Exchange for clarification.

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. On July 17, 1997, respondent Commission wrote petitioner,
enjoining the latter to show cause why it should not be penalized for its failure to submit a
Proxy/Information Statement in connection with its annual meeting held on May 23, 1997, in
violation of respondent Commissions Full Material Disclosure Rule.

Failing to respond to the aforesaid communication, petitioner was given a 2 nd Show Cause with
Assessment by respondent Commission on July 21, 1997. Petitioner was then assessed a fine
of P50,000.00 plus P500.00 for every day that the report was not filed, or a total of P91, 000.00 as of
July 21, 1997. Petitioner was likewise advised by respondent Commission to submit the required
reports and settle the assessment, or submit the case to a formal hearing. On August 18, 1997,
petitioner wrote respondent Commission disputing the assessment.

ISSUE:
Is the RSA Implementing Rules 11(a)-1, 34(a)-1 and 34(c)-1 applicable in this case

RULING:
It must be emphasized that petitioner is a commercial banking corporation listed in the 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 with 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
and accurate disclosure of information for the protection of the investing public. These Rules were
issued by 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 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. There is no over-supervision 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 from 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 petitioner opted to trade its shares
in the exchange, then it must abide by the reasonable rules imposed by the SEC.