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Topic: Fundamental Rights of a Stockholder (Right to Vote)

Case number 386

BERNAS vs. CINCO

G.R. Nos. 163356-57, July 10, 2015

FACTS:

Makati Sports Club (MSC) is a domestic corporation for the primary purpose of establishing,
maintaining, and providing social, cultural, recreational and athletic activities among its members. Jose
A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T.
Macrohon and Paulino T. Lim (Bernas Group) were among the Members of the Board of Directors and
Officers of the corporation whose terms were to expire either in 1998 or 1999.

Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC) demanded from the Bernas Group to resign from their respective positions to pave the way
for the election of new set of officers. Bernas Group failed to secure an injunction before the Securities
Commission (SEC) the new officers were elected. Aggrieved, the Bernas Group initiated an action
before the Securities Investigation and Clearing Department (SICD) of the SEC seeking for the
nullification of the election. Citing Section 28 of the Corporation Code, the Bernas Group argued that
the authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which
functions merely as an oversight body and is not vested with the power to call corporate meetings.

ISSUE:

Is the removal of Bernas group valid under the corporation code?

RULING:

The Supreme Court ruled in the negative. It held that the removal of Bernas group is invalid. In
the instant case, there is no dispute that the Special Stockholders' Meeting was called neither by the
President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is
created for the purpose of overseeing the affairs of the corporation, nowhere in the by-laws does it
state that it is authorized to exercise corporate powers, such as the power to call a special meeting,
solely vested by law and the MSC bylaws on the President or the Board of Directors.

Moreover, the board of directors is the directing and controlling body of the corporation. It is
a creation of the stockholders and derives its power to control and direct the affairs of the corporation
from them. The board of directors, in drawing to itself the power of the corporation, occupies a
position of trusteeship in relation to the stockholders, in the sense that the board should exercise not
only care and diligence, but utmost good faith in the management of the corporate affairs. The
underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. Only in that way can the continued accountability to
shareholders, and the legitimacy of their decisions that bind the corporation's stockholders, be
assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the
directors or officers over the properties that they do not own.
Lastly, a distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which are contrary to
law, morals or public policy or public duty, and are, like similar transactions between individuals, void:
They cannot serve as basis of a court action nor acquire validity by performance, ratification or
estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but
are not merely within the scope of the articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the stockholders. The Meeting belongs to the category of
the latter, that is, it is void ab initio and cannot be validated.

Topic: Fundamental Rights of a Stockholder (Who may call meetings)

Case number 405

YUJUICO vs. QUIAMBAO

G.R. No. 168639, January 29, 2007

FACTS:

On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment of
Strategic Alliance Development Corporation’s (STRADEC) Articles of Incorporation authorizing the
change of its principal office from Pasig City Pangasinan.

On March 1, 2004, STRADEC held its annual stockholders meeting in Pasig City its office as
indicated in the notices sent to the stockholders. Herein petitioners and respondents were elected
members of the Board of Directors.

Five months thereafter, respondents filed with the RTC in Pangasinan a complaint against
STRADEC. The complaint seeks for the nullification of the election on the ground of improper venue,
pursuant to Section 51 of the Corporation Code, next is the nullification of all subsequent transactions
conducted by the elected directors and lastly that a special stockholder’s meeting be held once again.
The RTC under pairing Judge Emuslan issued an Order for granting respondents application for
preliminary injunction ordering (1) the holding of a special stockholders meeting of STRADEC on
December 10, 2004 in the principal office of the corporation in Bayambang, Pangasinan; and (2) the
turn-over by petitioner Bonifacio Sumbilla to the court of the duplicate key of the safety deposit box
in Export Industry Bank, Shaw Boulevard, Pasig City where the original Stock and Transfer Book of
STRADEC was deposited. The plaintiff filed with the Court of Appeals (CA) a Petition for Certiorari. CA
dismissed such petition and upheld the jurisdiction of the RTC.

ISSUE:

Does the RTC has the power to call a special stockholder’s meeting involving an intra-corporate
controversy?

RULING:

The Supreme Court ruled in the affirmative. In ruling so, the Court held that upon the
enactment of R.A. No. 8799, otherwise known as The Securities Regulation Code which took effect on
August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction,
or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides: 5.2. The Commissions jurisdiction over
all cases enumerated in Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts
of general jurisdiction or the appropriate Regional Trial Court, Provided, That the Supreme Court in the
exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving intracorporate
disputes submitted for final resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. The RTC has the power
to hear and decide the intra-corporate controversy of the parties herein. Concomitant to said power
is the authority to issue orders necessary or incidental to the carrying out of the powers expressly
granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special meeting of
stockholders or members of a corporation involving an intra-corporate dispute under its supervision.

Topic: Capital Affairs (Acquisition and ownership of shares in a Corporation; Extent of Propriety
Right)

Case number 426

NICOLAS VS. CA

G.R. No. 122857. March 27, 1998

FACTS:

On February 19, 1987, petitioner Roy Nicolas and private respondent Blesito Buan entered into
a Portfolio Management Agreement, wherein the former was to manage the stock transactions of the
latter for a period of three months with an automatic renewal clause. However, upon the initiative of
the private respondent the agreement was terminated on August 19, 1987, and thereafter he
requested for an accounting of all transactions made by the petitioner.

Three weeks after the termination of the agreement, petitioner demanded from the private
respondent the amount of P68,263.67 representing his alleged management fees covering the periods
of June 30, July 31 and August 19, 1987 as provided for in the Portfolio Management Agreement. But
the demands went unheeded, much to the chagrin of the petitioner.

Rebuffed, petitioner filed a complaint for collection of sum of money against the private respondent
before the trial court. In his answer, private respondent contended that petitioner mismanaged his
transactions resulting in losses, thus, he was not entitled to any management fees.

ISSUE:

Can the broker may sell securities in the absence of registration or license from the SEC.

RULING:
The Supreme Court ruled that petitioner has not proven the amounts indicated adequately.
His testimony explaining the bases for the management fees demanded by him are nothing more than
a self-serving exercise which lacks probative value. There was no credible documentary evidence (e.g.
receipts of the transactions, order ticket, certificate of deposit; whether the stock certificates were
deposited in a bank or professional custodian, and others) to support his claim that profits were
indeed realized. At best, his assertions are founded on mere inferences and generalities. There must
be more convincing proof which in this case is wanting.

Moreover, petitioner’s complaint is similar to an action for damages, wherein the general rule
is that for the same to be recoverable it must not only be capable of proof but must actually be proved
with a reasonable degree of certainty, and courts, in making the awards, must posit specific facts
which could afford sufficient basis for measuring compensatory or actual damages. Since petitioner
could not present any credible evidence to substantiate his claims, the Court of Appeals was correct
in ordering the dismissal of his complaint.

Further, the futility of petitioner’s action became more pronounced by the fact that he traded
securities for the account of others without the necessary license from the Securities and Exchange
Commission (SEC). Clearly, such omission was in violation of Section 19 of the Revised Securities Act
which provides that no broker shall sell any securities unless he is registered with the SEC. The purpose
of the statute requiring the registration of brokers selling securities and the filing of data regarding
securities which they propose to sell, is to protect the public and strengthen the securities mechanism.

American jurisprudence emphasizes the principle that:

“an unlicensed person may not recover compensation for services as a broker where
a statute or ordinance requiring a license is applicable and such statute or ordinance is of a
regulatory nature, was enacted in the exercise of the police power for the purpose of
protecting the public, requires a license as evidence of qualification and fitness, and expressly
precludes an unlicensed person from recovering compensation by suit, or at least manifests
an intent to prohibit and render unlawful the transaction of business by an unlicensed person.”

We see no reason not to apply the same rule in our jurisdiction. Stock market trading, a technical and
highly specialized institution in the Philippines, must be entrusted to individuals with proven integrity,
competence and knowledge, who have due regard to the requirements of the law.

Topic: Capital Affairs (Issuance of the Certificate of Shares of Stocks)

Case Number 443

TAN vs. SEC

G.R. No. 95696, March 3, 1992

FACTS:

Alfonso Tan was the president of Visayan Educational Supply Corporation when it was
incorporated. Initially, 400 shares of stock was in his name, represented by Stock Certificate Number
2. But when two other incorporators, Young and Ong assigned to the corporation their shares, Alfonso
sold 50 shares to his brother Angelo, and another incorporator, Alfredo Uy, sold 50 shares to Teodora
S. Tan. The above sale was necessary in order to complete the membership requirement of the Board
of Directors.

Because of the mentioned transactions, Stock Certificate Number 2 was cancelled, and the
corresponding stock certificates 6 and 8 were issued, with certificate 6 representing 50 shares sold to
Angelo, and certificate 8 representing the 350 shares for the petitioner Alfonso Tan.

A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask that Alfonso Tan endorse the
cancelled Stock Certificate Number 2. However, Alfonso did not sign Stock Certificate Number 2 and
only returned Stock Certificate Number 8.

Later on, Alfonso Tan withdrew from the corporation because he was dislodged by
respondent Tan Su Ching as president. Part of the condition of his withdrawal was that he be paid with
stocks-in-trade equivalent to 33% in lieu of stock value of his shares in the amount of P35,000.00. Due
to the withdrawal, the cancellation of Stock Certificate 2 and 8 was effected and recorded in the stock
and transfer book. Alfonso then filed a case with Cebu SEC, questioning the cancellation of his
aforesaid Stock Certificates 2 and 8.

Petitioner argues that he was deprived of his shares despite the non-endorsement or
surrender of Stock Certificates 2 and 8 which is contrary to Section 63 of the Corporation Code which
requires:

“No transfer, however, shall be valid, except as between the parties, until the transfer
is recorded to the books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, and the number of the certificates and the number of
shares transferred.”

ISSUE:

Is the cancellation of Stock Certificate and the subsequent issuance of Stock Certificate
Number 8 was null and void because of the non-endorsement of Stock Certificate Number 2 by Alfonso
Tan.

RULING:

The Supreme Court ruled in the negative. The Court held that the cancellation and the transfers
of stock were valid. There was a delivery of Stock Certificate No. 2 made by Alfonso Tan to the
corporation before it was replaced with Stock Certificate No. 6 for 50 shares to Angel Tan and Stock
Certificate No. 8 for 350 shares to the Alfonso.

From the facts deduced in the case, there was already delivery of the unendorsed Stock
Certificate No. 2, which made the issuance of Stock Certificate Nos. 6 and 8 valid. All the acts required
for the transferee to exercise its rights over the acquired stocks were attendant and even the
corporation was protected from other parties, considering that the said transfer was earlier recorded
or registered in the corporate stock and transfer book.

Furthermore, it is necessary to delineate the function of the stock itself form the actual
delivery or endorsement of the certificate of stock itself because a certificate of stock is not necessary
to render one a stockholder in a corporation. The certificate is not stock in the corporation but is
merely evidence of the holder’s interest and status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share in stock
or the nation of the relation of the shareholder to the corporation.

Lastly, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights
and prerogatives as stockholder and was even elected as member of the board of directors in the
respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer
of 50 shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent
corporation when he was elected as officer thereof.

Topic: Capital Affairs (Transfer of Shares of Stocks and Registration)

Case Number 462

DELOS SANTOS vs. REPUBLIC

G.R. No. L-4818 February 28, 1955

FACTS:

Six Hundred Thousand (600,000) shares of stock of the Lepanto Consolidated Mining Co., Inc.,
(Lepanto), a corporation duly organized and existing under the laws of the Philippines. Originally, 1/2
shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo Astraquillo.
During the pendency of this case, the Astraquillo has allegedly conveyed and assigned his interest in
and to de los Santos. Vicente Madrigal is registered in the books of the Lepanto as owner of said stocks
and whose indorsement in blank appears on the back of said certificates contend that De los Santos
bought: a.) 55,000 shares from Juan Campos; b.) 300,000 shares from Carl Hess; and c. )800,000
shares from Carl Hess for the benefit of Astraquill delivered to stock broker Leonardo Recio stock
certificate No. 2279 55,000 shares to see Mr. DeWitt, who, probably, would be interested in purchasing
the shares. DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned
at Recio's dwelling.

By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in
dispute was, however, vested in the Alien Property Custodian of the U. S. Plaintiffs filed their
respective claims with the Property Custodian. Defendant Attorney General of the U. S., successor to
the Administrator contends, substantially, that, prior to the outbreak of the war in the Pacific, shares
of stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha
a corporation organized in accordance with the laws of Japan, the true owner thereof, with branch
office in the Philippines.

On March, 1942, Madrigal delivered stock certificates, with his blank indorsement thereon, to
the Mitsuis, which kept said certificates, in the files of its office in Manila, until the liberation of the
latter by the American forces early in 1945; that the Mitsuis had never sold, or otherwise disposed of,
said shares of stock; and that the stock certificates aforementioned must have been stolen or looted,
therefore, during the emergency resulting from said liberation.
Hess, on appeal, operate as broker, for being American, he was under Japanese surveillance,
and that Hess had made, during the occupation, no transaction involving mining shares, except when
he sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime in 1943.

ISSUE:

Are the plaintiffs are entitled to the shares

RULING:

The Supreme Court ruled in the negative. In ruling so, the Court held that the burden of proof
is upon the plaintiff.

Section 35 of the Corporation Law reads:

The capital stock corporations shall be divided into shares for which certificates signed
by the president or the vice-president, countersigned by the secretary or clerk 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 endorsed 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 entered
and noted upon 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, and the number of shares
transferred.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.

Moreover, certificates of stock are not negotiable instruments (post, Par. 102), consequently,
a transferee under a forged assignment acquires no title which can be asserted against the true owner,
unless his own negligence has been such as to create an estoppel against him (Clarke on Corporations,
Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and it is stolen from him, no
title is acquired by an innocent purchaser for value.

Further, neither the absence of blame on the part of the officers of the company in allowing
an unauthorized transfer of stock, nor the good faith of the purchaser of stolen property, will avail as
an answer to the demand of the true owner.

The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer
acquires no title as against the true owner does not apply where the circumstances are such as to
estop the latter from asserting his title. One of two innocent parties must suffer by reason of a
wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put
in his hands the means of inflicting such loss. Negligence which will work an estoppel of this kind must
be a proximate cause of the purchase or advancement of money by the holder of the property and
must enter into the transaction itself. The negligence must be in or immediately connected with the
transfer itself. to establish this estoppel it must appear that the true owner had conferred upon the
person who has diverted the security the indicia of ownership, or an apparent title or authority to
transfer the title. So, the owner is not guilty of negligence in merely entrusting another with the
possession of his certificate of stock, if he does not, by assignment or otherwise, clothe him with the
apparent title.

Nor is he deprived of his title or his remedy against the corporation because he intrusts a third
person with the key of a box in which the certificate is kept, where the latter takes them from the box
and by forging the owner's name to a power of attorney procures their transfer on the corporate
books.

Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate
of stock, which is afterwards lost or stolen, such negligence as will estopped the owner from asserting
his title as against a bona fide purchaser from the finder or thief, or from holding the corporation liable
for allowing a transfer on its books, where the loss or theft of the certificate was not due to any
negligence on the part of the owner.

Stock pledged to a bank is endorsed in blank by the owner does not estopped him from
asserting title thereto as against a bona fide purchaser for value who derives his title from one who
stole the certificate from the pledgee. And this has also been held to be true though the thief was an
officer of the pledgee, since his act in wrongfully appropriating the certificate cannot be regarded as
a misappropriation by the bank to whose custody the certificate was entrusted by the owner, even
though the bank may be liable to the pledgor.

Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the
Mitsuis may claim his rights, which cannot be exercised by the plaintiffs, not only because their alleged
title is not derived either from madrigal or from the Mitsuis, but, also, because it is in derogation, of
said rights. madrigal and the Mitsuis are notprivies to the alleged sales by Campos and Hess to the
plaintiffs, contrary to the latter's pretense.

Topic: Capital Affairs (Payment of Balance of Subscription)

Case Number 481

IRINEO S. BALTAZAR vs. LINGAYEN GULF ELECTRIC POWER, CO.

G.R. No. L-16236 June 30, 1965

FACTS:

Plaintiffs Baltazar and Rose were among the incorporators of Lingayen Gulf, the corporation.
It is alleged that it has always been the practice and procedure of the Corporation to issue certificates
of stock to its individual subscribers for unpaid shares of stock. Of the 600 shares of capital stock
subscribed by Baltazar, he had fully paid 535 shares of stock, and the Corporation issued to him several
fully paid up and non-assessable certificates of stock, corresponding to the 535 shares.

Defendants Ungson, Estrada, Fernandez and Yuzon, constituted the majority of the holdover
seven-member Board of Directors of the Corporation. Let the first group be called the Ungson group
and the second, the Baltazar group.
Annual stockholders' meeting of the Corporation had been fixed, principally for the purpose
of electing new officers and Board of Directors for the calendar year 1955. the fight for control of the
management and property of the corporation was close and keen.

The Ungson group (specially defendant Acena), in order to continue retaining control
management and property of the corp, in the regular meeting of the Board of Directors, held on
January 30, 1955, passed three (3) resolutions (Exhs. A, B, C).

Resolution No. 2 (Exh. A), declared all watered stocks issued to Acena, Baltazar, Rose and
Jubenville, "of no value and consequently cancelled from the books of the Corporation.

Resolution No. 3 (Exh. B) resolved that "... all unpaid subscriptions should bear interest
annually from the year of subscription..

Resolution No. 4 (Exh. C) resolved that "any and all shares of stock of the Lingayen Gulf Electric
Power Co., Inc., issued as fully paid-up to stockholders whose subscription to a number of shares have
been declared are hereby incapacitated to utilize or avail of the voting power until such delinquency
interest is fully paid up.

On the authority of these resolutions, the Ungson group was threatening and procuring to
expel and oust the plaintiffs and their companion stockholders, for the ultimate purpose of depriving
them of their right to vote in the said annual stockholders' meeting scheduled for May 1, 1955. Baltazar
and Rose prayed that a writ of preliminary injunction be issued, which was granted. Defendants set up
counterclaims. praying that the resolutions be declared legal and valid. Plaintiffs filed their answer to
defendants' counterclaims. On August 8, 1955, the lower dismissed plaintiffs' counterclaims.

The following tentative amicable settlement, dated September 13, 1958, formulated and
entered into by some of the parties:

1. As to the so-called water stocks P30,000.00 each of the holders of said stock, namely, Irineo Baltazar,
Marvin Rose, and Bernardo Acena, will return to the corporation P3,500 each, thereby retaining P6,500
worth of stocks;

2. With respect to Dr. Bernardo Acena, of the certificates of stock allegedly representing, his profit, he
will return to the corporation P3,500 of said share of stock and retain P7,500 worth thereof.

On February 20, 1959, the lower court rendered a decision, approving the agreement and
dissolved the writ of preliminary injunction, with costs. Defendants on March 14, 1959 filed a motion
for reconsideration, asking that the agreement be amended in the sense that delinquent stocks cannot
be voted until fully paid in accordance with the agreement.

On March 18, 1959, plaintiffs, in cases Nos. 13211 and 13212, filed a petition for immediate
execution and for preliminary injunction and/or mandamus, praying that a writ be issued, ordering the
defendants, as controlling majority of hold-over board of directors, to hold immediately the long
delayed stockholders' meeting, and to allow the plaintiffs and all the stockholders, with still unpaid
subscriptions, to vote all their stocks and subscriptions at said stockholders' meeting, as directed in
the decision.
On March 25, 1959, the Court issued an amending decision, pertinent portions of which are
hereunder reproduced regarding the right to vote, this Court likewise agrees that the facts considered
during the negotiations do not warrant repeal of the declaration of delinquency and complete
restoration of voting rights until full payment of the unpaid stock subscriptions and.

ISSUE:

Does a stockholder, in a stock corporation, who subscribes to a certain number of shares of


stock, and he pays only partially, for which he is issued certificates of stock, is entitled to vote,
notwithstanding the fact that he has not paid the balance of his subscription, which has been declared
delinquent

RULING:

The Supreme Court held that defendants-appellants claim that resolution No. 4 (Exh. C-2),
withdrawing or nullifying the voting power of all the aforesaid shares of stock is valid, notwithstanding
the existence of partial payments, evidenced by certificates duly issued therefor. They invoke the
ruling laid down by the Court in the Fua Cun v. Summers case.

The cases at bar do not come under the aegis of the principle enunciated in the Fua Cun v.
Summers case, because it was the practice and procedure, since the inception of the corporation, to
issue certificates of stock to its individual subscribers for unpaid shares of stock and gave voting power
to shares of stock fully paid. And even though no agreement existed, the ruling in said case, does not
now reflect the correct view on the matter, for better than an agreement or practice, there is the law,
which renders the said case of Fua Cun-Summers, obsolescent.

Section 37 of the Corporation Law, as amended by Act No. 3518, approved on March 1, 1929,
six (6) years afterthe promulgation of the Fua-Summers case (decided in 1923), provides:

No certificate of stock shall be issued to a subscriber as fully paid up until the full par
value thereof, or the full subscription in the case of no par stock, has been paid by him to the
corporation. Subscribed shares not fully paid up may be voted provided no subscription is
unpaid and delinquent.

Stated in another way, the present law requires as a condition before a shareholder can vote
his shares, that his full subscription be paid in the case of no par value stock; and in case of stock
corporation with par value, the stockholder can vote the shares fully paid by him only, irrespective of
the unpaid delinquent shares. As well-observed by the trial court, a corporation may now, in the
absence of provisions in their by-laws to the contrary, apply payment made by , subscribers-
stockholders, either as: "(a) full payment for the corresponding number of shares of stock, the par
value of each of which is covered by such payment; or (b) as payment pro-rata to each and all the
entire number of shares subscribed for" (amended decision). In the cases at bar, the defendant-
corporation had chosen to apply payments by its stockholders to definite shares of the capital stock
of the corporation and had fully paid capital stock shares certificates for said payments; its call for
payment of unpaid subscription and its declaration of delinquency for non-payment of said call
affecting only the remaining number of shares of its capital stock for which no fully paid capital stock
shares certificates have been issued, "and only these have been legally shorn of their voting rights by
said declaration of delinquency."
It is finally argued by defendants-appellants that the plaintiffs-appellees waived, under the
agreement heretofore quoted, the right to enforce the voting power they were claiming to exercise,
and upon the principle of estoppel, they are now prohibited from insisting on the existence of such
power, ending with the exhortation, that "they should lie upon the bed they helped built, for a lasting
peace in the interest of the corporation." It should, however, be stated as heretofore exposed, that
certain clauses of the agreement are contrary to law and public policy and would cause injury to
plaintiffs-appellees and other stockholders similarly situated. Estoppel cannot be predicated on acts
which are prohibited by law or are against public policy.

Topic: Corporate books and records

Case Number 500

PROVIDENT INTERNATIONAL RESOURCES CORPORATION vs. VENUS

554 SCRA 540

FACTS:

Petitioner Provident International Resources Corporation (PIRC) registered with the Securities
and Exchange Commission (SEC) in 1979. Edward T. Marcelo, Constancio D. Francisco, Lydia J.
Chuanico, Daniel T. Pascual, and Jose A.Lazaro (Marcelo Group) were its incorporators, original
stockholders, and directors. The Asistio group (composed of Luis A. Asistio, and respondents Joaquin
T. Venus, Lazaro L. Madara, Alfredo D. Roa III, and Jose Ma. Carlos L. Zumel), claiming that the
members of the Marcelo group were mere trustees of the Asistio Group, registered PIRC’s stock and
transfer book (STB) on August 2002.

Marcelo group’s assistant corporate secretary petitioner Celedonio Escano, Jr., showed the
SEC that the group’s STB was issued in 1979. The SEC decided that the STB registered on September
1979 by the Marcelo group was valid. On appeal, the SEC ruling was annulled and set aside on the
ground that the STB in issue is intra-corporate and is, thus, within the Regional Trial Court’s decision.
Hence, this petition.

ISSUE:

Does the SEC have jurisdiction to recall and cancel an STB which it issued in 2002 because of its
mistaken assumption that no STB had been previously issued in 1979?

RULING:

The Supreme Court ruled in the affirmative. In ruling so, the Court held that under the
Securities Regulation Code (Republic Act No. 8799) provides that the Commission shall act with
transparency and shall have the powers and functions provided by this Code, Presidential Decree No.
902-A, the Corporation Code, Pursuant thereto the Commission shall have, among others, the
following powers and functions:

a.) Have jurisdiction and supervision over all corporations, partnerships or association who are
grantees of primary franchises and/or a license or permit issued by the Government;
d.) Regulate, investigate or supervise the activities of persons to ensure compliance;

n.) Exercise such other powers as may be provided by law as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express powers granted the
Commission to achieve the objectives and purposes of these laws.

Form the above, the Court said that SEC’s regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporation’s concerns. This authority
more vividly springs from the fact that a corporation owes its existence to the concession of its
corporate franchise from the state. Under its regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice and hearing), certificates of registration
of corporations, partnerships and associations (excluding cooperatives, homeowners’ association,
and labor unions); compel legal and regulatory compliances; conduct inspections; and impose fines or
other penalties for violations of the Revised Securities Act, as well as implementing rules and directives
of the SEC, such as may be warranted.

Considering that SEC, after due notice and hearing, has the regulatory power to revoke the
corporate franchise from which a corporation owes its legal existence, the SEC must likewise have the
lesser power of merely recalling and cancelling a STB that was erroneously registered.

Going to the particular fact of the instant case, the Court finds that the SEC has the primary
competence and means to determine and verify whether the subject 1979 STB presented by the
incumbent assistant corporate secretary was indeed authentic, and duly registered by SEC as early as
September 1979. As the administrative agency responsible for the registration procedures, and in
possession of the pertinent files, records and specimen signatures of authorized officers relating to
the registration of STBs. The evaluation of whether a STB was authorized by the SEC primarily requires
an examination of the STB itself and the SEC filed. This function necessarily belongs to the SEC as part
of its regulatory jurisdiction. Contrary to the allegations of respondents, the issues involved in this case
can be resolved without going into the intra-corporate controversies brought up by respondents.

As a regulatory body, it is SEC’s duty to ensure that there is only one set of STB for each
corporation. The determination of whether or not the 1979-registered STB is valid and of whether to
cancel or revoke the August 6, 2002 certification and the registration of the 2002 STB on the ground
that there is already an existing STB is impliedly and necessarily within the regulatory jurisdiction of
the SEC

Topic: Merger and Consolidation

Case Number 519

CIR vs RUFINO

G.R. Nos. L-33665-68 February 27, 1987

FACTS:

Private respondents were majority stockholders of the defunct Eastern Theatrical INC Co., a
corporation organized in 1934 for a period of 25 years termination on Ja. 25, 1959. It had an original
capital stock of P 500K which was increased in 1949 to P 2 million and was organized to engage in the
business of operating theaters, opera houses, places of amusement and other related business and
enterprises, more particularly the Lyric and Capitol Theaters in Manila. The president of the
corportation (OLD CORP) during the year in question was Ernesto Rufino.

The same private respondents are also the majority and controlling stockholders of another
corporation, the Eastern Theatrical Co which was organized on Dec. 8, 1958, for a term of 50 years,
with authorized capital stock of P200K. The corporation is engaged in the same kind of business as the
OLD corporation.

In a special meeting of stockholders of the OLD corporation in Dec. 1958, a resolution was
passed authorizing the OLD corporation to merge with NEW corporation by transferring its business,
assets, good will and liabilities to the latter, which in exchange would issue and distribute to
shareholders of the OLD corporation one share for each share held by them in said corporation. It was
expressly declaring that the merger of the OLD CORP and NEW CORP was necessary to continue the
exhibition of moving pictures at the Lyric and Capitol even after expiration of the corporate existence
of the OLD CORP., in view of its pending booking contracts, not to mention its collecting bargaining
agreements with its employees.

Pursuant to said resolution, a deed of assignment providing the conveyance and transfer of
the OLD to the NEW CORP in exchange of the latter’s shares of stock to be distributed among the
shareholders on the basis of one stock for each stockholder held in the OLD corp. Thereafter, the
resolution was duly approved by the stockholders of the NEW CORP in special meeting in 1959. The
deed of assignment has retroactive effect on Jan. 1, 1959.

BIR examined later the series of transactions made by the private respondents. BIR averred
that the merger was not undertaken for a bonafide business purpose but merely to avoid liability for
capital gains tax on the exchange of the OLD CORP for the new shares of stock. Accordingly, CIR
imposed the deficiency assessments against the private respondents. Private respondents requested
for reconsideration, but it was denied.

Petitioner further posited that the deed of assignment concluded was intended merely to
evade the burden of taxation, the petitioner pointed out that the NEW CORP did not actually issue
stocks in exchange of the properties of the OLD CORP and that the exchange was only on the paper.
Consequently, as there was no merger, the automatic dissolution of the OLD CORP on its expiry date
resulted in its liquidation, for which the respondents are now liable in taxes on their capital gains.

ISSUE:

Is the merger valid?

RULING:

The Supreme Court ruled in the affirmative. In ruling so, the Court held that there was a valid
merger although the actual transfer of the properties subject of the deed of assignment was not made
on the date of the merger. In the nature of things, this was not possible. It was necessary for the OLD
Corporation to surrender its net assets first to the NEW CORP before the latter could issue its own
stock to the shareholders of the OLD CORP because the NEW CORP had to increase its capitalization
for this purpose. The required adoption of the resolution to this effect at the special meeting in 1959,
the registration of such issuance with the SEC and approval by the body. All these took place after the
date of the merger, but they were deemed part and parcel of and indispensable to the validity and
enforceability of the deed of assignment. Thus, there was no impediment to the exchange of of
property for stock between the 2 corporations being considered to have been effected on the date of
merger and that in fact, was the intention and the reason why the deed of assignment was made
retroactive on Ja. 1, 1959. Such retroaction provided in effect all transactions set forth in the merger
agreement shall be deemed to be taking place simultaneously on Jan 1, 1959, when the deed of
assignment became operative.

Additionally, there was no indication that the scheme adopted by private respondents was to
evade tax burdens because it is clear that the purpose of the merger was to continue the business of
the OLD corp, whose corporate life was about to expire, thru the NEW corp. to which all assets and
obligations of the former had been transferred. The NEW CORP continues to do so today after taking
over the business of the OLD corp 27 years ago.

Topic: Liquidation

Case Number 538

YAM vs. CA

303 SCRA 1

FACTS:

Petitioners Victor Yam and Yek Sun obtained an IGLF loan from respondent Manphil Invest
Corporation in the amount of Php 300,000 with interest. It was secured by chattel mortgage. On April
2, 1985, respondent was placed under receivership of Central Bank. Petitioners paid on July 31, 1986
which was received by Central Bank. It contained a notation on the voucher that there was already a
full payment of IGLF loan. However, respondent filed a collection case against petitioner after it failed
to pay the remaining balance. Petitioner contended that through respondent’s president, Carlos
Sobrepeñas, it was agreed to condone or waive the penalties and service charges as well as a voucher
showing the full payment of the petitioners. The trial court rendered a decision in favor of respondents
which was sustained by CA.

ISSUE:

Is there condonation on petitioner’s loan?

RULING:

The Supreme Court ruled in the negative. It held that the appointment of a receiver operates
to suspend the authority of a corporation and of its directors and officers over its property and effects,
such authority being reposed in the receiver. Sobrepeñas has no authority to condone the debt. The
notation on the voucher covering the check payment that a “full payment of IGLF loan” was made
does not bind respondent. It would have been different if the notated appeared in the receipt issued
by the corporation through its receiver, which would be an admission against interest. Express
condonation must comply the forms of donation. Where the value exceeds Php 5,000, the donation
and acceptance must be made in writing; otherwise, void.

Topic: Other Corporations (Non-stock corporation)

Case Number 557

FUNA vs. MANILA ECONOMIC AND CULTURAL OFFICE AND COA

G.R. No. 193264, February 4, 2014

FACTS:

After the Chinese civil war, two (2) governments in a stalemate espousing competing
assertions of sovereignty. On one hand is the communist People’s Republic of China (PROC) which
controls the mainland territories, and on the other hand is the nationalist Republic of China (ROC)
which controls the island of Taiwan. For a better part of the past century, both the PROC and ROC
adhered to a policy of “One China.” Subsequently, he Philippines formally ended its official diplomatic
relations with the government in Taiwan on 9 June 1975, when the country and the PROC expressed
mutual recognition thru the Joint Communiqué of the Government of the Republic of the Philippines
and the Government of the People’s Republic of China (Joint Communiqué).

The Philippines’ commitment to the One China policy of the PROC, however, did not preclude
the country from keeping unofficial relations with Taiwan on a “people–to–people” basis.

Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines
maintained an unofficial relationship facilitated by the offices of the Taipei Economic and Cultural
Office, for the former, and the MECO, for the latter. The MECO was organized on 16 December 1997
as a non–stock, non–profit corporation under Batas Pambansa Blg. 68 or the Corporation Code.13 The
purposes underlying the incorporation of MECO, as stated in its articles of incorporation.

From the moment it was incorporated, the MECO became the corporate entity “entrusted” by
the Philippine government with the responsibility of fostering “friendly” and “unofficial” relations
with the people of Taiwan, particularly in the areas of trade, economic cooperation, investment,
cultural, scientific and educational exchanges. To enable it to carry out such responsibility, the MECO
was “authorized” by the government to perform certain “consular and other functions” that relates
to the promotion, protection and facilitation of Philippine interests in Taiwan.

Petitioner sent a letter to the COA requesting for a “copy of the latest financial and audit
report” of the MECO invoking, for that purpose, his “constitutional right to information on matters of
public concern.” The petitioner made the request on the belief that the MECO, being under the
“operational supervision” of the Department of Trade and Industry (DTI), is a government owned and
controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA. Assistant
Commissioner Naranjo revealed that the MECO was “not among the agencies audited by any of the
three Clusters of the Corporate Government Sector.”

Petitioner file a petition for mandamus and posits that by failing to audit the accounts of the
MECO, the COA is neglecting its duty under Section 2(1), Article IX–D of the Constitution to audit the
accounts of an otherwise bona fide GOCC or government instrumentality. It is the adamant claim of
the petitioner that the MECO is a GOCC without an original charter or, at least, a government
instrumentality, the funds of which partake the nature of public funds.2

On the petition’s merits, the MECO denies the petitioner’s claim that it is a GOCC or a
government instrumentality. While performing public functions, the MECO maintains that it is not
owned or controlled by the government, and its funds are private funds.

The COA, on the other hand, advances that the mandamus petition ought to be dismissed on
procedural grounds and on the ground of mootness.

ISSUES:

Is MECO a GOCC or Government Instrumentality?

RULING:

MECO is not a GOCC or government instrumentality. The Supreme Court ruled that
government instrumentalities are agencies of the national government that, by reason of some
“special function or jurisdiction” they perform or exercise, are allotted “operational autonomy” and
are “not integrated within the department framework.” Subsumed under the rubric “government
instrumentality” are the following entities: a.) regulatory agencies, b.) chartered institutions, c.)
government corporate entities or government instrumentalities with corporate powers (GCE/GICP);
and d.) GOCCs

GOCCs, therefore, are “stock or non–stock” corporations “vested with functions relating to
public needs” that are “owned by the Government directly or through its instrumentalities.” By
definition, three attributes thus make an entity a GOCC: first, its organization as stock or non–stock
corporation; second, the public character of its function; and third, government ownership over the
same.

Possession of all three attributes is necessary to deem an entity a GOCC. In this case, there is
not much dispute that the MECO possesses the first and second attributes. It is the third attribute,
which the MECO lacks.

Moreover, the MECO is organized as a non–stock corporation. The purposes for which the
MECO was organized are somewhat analogous to those of a trade, business or industry chamber, but
only on a much larger scale i.e., instead of furthering the interests of a particular line of business or
industry within a local sphere, the MECO seeks to promote the general interests of the Filipino people
in a foreign land. And, it is not disputed that none of the income derived by the MECO is distributable
as dividends to any of its members, directors or officers.

Furthermore, MECO Is Not Owned or Controlled by the Government. Organization as a non–


stock corporation and the mere performance of functions with a public aspect, however, are not by
themselves sufficient to consider the MECO as a GOCC. The fact of the incorporation of the MECO
under the Corporation Code is key. The MECO was correct in postulating that, as a corporation
organized under the Corporation Code, it is governed by the appropriate provisions of the said code,
its articles of incorporation and its by–laws. In this case, it is the by–laws of the MECO that stipulates
that its directors are elected by its members; its officers are elected by its directors; and its members,
other than the original incorporators, are admitted by way of a unanimous board resolution.

It is significant to note that none of the original incorporators of the MECO were shown to be
government officials at the time of the corporation’s organization. Indeed, none of the members,
officers or board of directors of the MECO, from its incorporation up to the present day, were
established as government appointees or public officers designated by reason of their office. There is,
in fact, no law or executive order that authorizes such an appointment or designation. Hence, from a
strictly legal perspective, it appears that the presidential “desire letters” pointed out by petitioner if
such letters even exist outside of the case of Mr. Basilio are, no matter how strong its persuasive effect
may be, merely recommendatory.

Lastly, MECO Is Not a Government Instrumentality, it is a Sui Generis Entity. The categorical
exclusion of the MECO from a GOCC makes it easier to exclude the same from any other class of
government instrumentality. The other government instrumentalities i.e., the regulatory agencies,
chartered institutions and GCE/GICP are all, by explicit or implicit definition, creatures of the law.110
The MECO cannot be any other instrumentality because it was, as mentioned earlier, merely
incorporated under the Corporation Code.

Hence, unless its legality is questioned, and in this case, it was not, the fact that the MECO is
operating under the policy supervision of the DTI is no longer a relevant issue to be reckoned with for
purposes of this case.

Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other
private corporations. From its over–reaching corporate objectives, its special duty and authority to
exercise certain consular functions, up to the oversight by the executive department over its
operations all the while maintaining its legal status as a non–governmental entity the MECO is, for all
intents and purposes, sui generis.

Topic: Foreign Corporation (Bases of Authority over corporation)

Case Number 576

INTERNATIONAL SHOE CO. vs. WASHINGTON

326 U.S. 310

FACTS:

International Shoe Co., Defendant, was a company based in Delaware with an office in St.
Louis, Missouri. Defendant employed salesmen that resided in Washington to sell their product in the
state of Washington. Defendant regularly shipped orders to the salesmen who accepted them, the
salesmen would display the products at places in Washington, and the salesmen were compensated
by commission for sale of the products. The salesmen were also reimbursed for the cost of renting the
places of business in Washington. Washington sued Defendant after Defendant failed to make
contributions to an unemployment compensation fund exacted by state statutes. The Washington
statute said that the commissioner could issue personal service if Defendant was found within the
state, or by mailing it to Defendant if Defendant was not in the state. The notice of assessment was
served upon Defendant’s salesperson and a copy of the notice was mailed to Defendant. Defendant
appeared specially, moving to set aside the order that service upon the salesperson was proper
service. Defendant also argued that it did not “do business” in the state, that there was no agent upon
which service could be made, and that Defendant did not furnish employment within the meaning of
the statute. Defendant also argued that the statute violated the Due Process Clause of the Fourteenth
Amendment and imposed a prohibitive burden of interstate commerce. The trial court found for
Washington and the Supreme Court of Washington affirmed, reasoning that the continuous flow of
Defendant’s product into Washington was sufficient to establish personal jurisdiction. Defendant
appealed.

ISSUE:

Is service of process upon Defendant’s agent sufficient notice when the corporation’s
activities result in a large volume of interstate business so that the corporation receives the protection
of the laws of the state and the suit is related to the activities which make the corporation present?

RULING:

The US Supreme Court ruled in the affirmative. it held that the general rule is that in order to
have jurisdiction with someone outside the state, the person must have certain minimum contacts
with it such that the maintenance of the suit does not offend “traditional notions of fair play and
substantial justice. For a corporation, the “minimum contacts” required are not just continuous and
systematic activities but also those that give rise to the liabilities sued on. Defendant could have sued
someone in Washington. It was afforded the protection of the laws of that state, and therefore it
should be subject to suit.

This decision articulates the rule for determining whether a state has personal jurisdiction over
an absent defendant via the “minimum contacts” test. In general, International Shoe demonstrates
that contacts with a state should be evaluated in terms of how “fair” it would be to exercise
jurisdiction over an absent defendant.

Lastly, in order for a state to exercise personal jurisdiction over a defendant, the defendant
must have such minimum contacts with the state so that exercising jurisdiction over the defendant
would not offend “traditional notions of fair play and substantial justice.”

Topic: Foreign Corporation (Doctrine of “doing business”)

Case Number 595

VAN ZUIDEN BROS., LTD. vs. GTVL MANUFACTURING INDUSTRIES, INC.

G.R. No. 147905, May 28, 2007

FACTS:

Petitioner, B.Van Zuiden (Zuiden, for brevity) is a corporation, incorporated under the laws of
Hong Kong, and engaged in the importation and exportation of several products, including lace
products. On 13 July 1999, petitioner filed a complaint for sum of money against respondent GTVL Mfg.
(GTVL for brevity).

It appears that on several occasions, GTVL purchased lace products from Petitioner. In their
transaction, the agreement was that ZUIDEN delivers the products purchased by GTVL, to a certain
Hong Kong corporation, known as Kenzar Ltd. (KENZAR), and the products are then considered as
sold, upon receipt by KENZAR of the goods purchased by GTVL. Thereafter, KENZAR had the obligation
to deliver the products to the Philippines and/or to follow whatever instructions GTVL had on the
matter.

However, commencing October 31, 1994 until the filing of the complaint, GTVL has failed and
refused to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN,
the obligation amounts to U.S.$32,088.02 inclusive of interest.

Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner
has no legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines
without securing the required license. Accordingly, petitioner cannot sue before Philippine courts.

On 10 November 1999, the trial court dismissed the complaint; the decision which the Court of
Appeals sustained.

The Court of Appeals found that the parties entered into a contract of sale whereby petitioner
sold lace products to respondent in a series of transactions. While petitioner delivered the goods in
Hong Kong to Kenzar, another Hong Kong company, the party with whom petitioner transacted was
actually respondent, a Philippine corporation, and not Kenzar. The Court of Appeals believed Kenzar
is merely a shipping company. The Court of Appeals concluded that the delivery of the goods in Hong
Kong did not exempt petitioner from being considered as doing business in the Philippines.

In the present controversy, petitioner is a foreign corporation which claims that it is not doing
business in the Philippines. As such, it needs no license to institute a collection suit against respondent
before Philippine courts. Respondent argues otherwise.

ISSUE:

Does the petitioner, an unlicensed foreign corporation, has the legal capacity to sue before
the Philippine courts?

RULING:

The Supreme Court ruled in the affirmative. In ruling so, the Court cited Section 133 of the
Corporation Code which provides that:

Doing business without 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 is clear. An unlicensed foreign corporation doing business in the Philippines cannot
sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business
in the Philippines can sue before Philippine courts.

Likewise, under Section 3(d) of Republic Act No. 7042 (RA 7042) or “The Foreign Investments
Act of 1991,” the phrase “doing business” includes:

soliciting orders, service contracts, opening offices, whether called “liaison” offices or
branches; appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase “doing business” shall not be
deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account.

The series of transactions between petitioner and respondent cannot be classified as “doing
business” in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as
“doing business” in the Philippines is the actual performance of specific commercial acts within the
territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial
acts performed in foreign territories.

In this case, there is no showing that petitioner performed within the Philippine territory the
specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an
office here in the Philippines, appoint a representative or distributor, or manage, supervise or control
a local business. While petitioner and respondent entered into a series of transactions implying a
continuity of commercial dealings, the perfection and consummation of these transactions were done
outside the Philippines. Considering the given facts, it is worthy to note that the sale of lace products
was consummated in Hong Kong.

The Court also finds no single activity which petitioner performed here in the Philippines
pursuant to its purpose and object as a business organization. Moreover, petitioner’s desire to do
business within the Philippines is not discernible from the allegations of the complaint or from its
attachments. Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.

The Court of Appeals’ ruling is not proper that the proponents to the transaction determine
whether a foreign corporation is doing business in the Philippines, regardless of the place of delivery
or place where the transaction took place.

For example, in exporting. An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries specific commercial acts that
would constitute doing business in the importing countries. The mere act of exporting from one’s own
country, without doing any specific commercial act within the territory of the importing country,
cannot be deemed as doing business in the importing country. Otherwise exporters, by the mere act
alone of exporting their products, could be considered by the importing countries to be doing business
in those countries and will require them to secure a business license in every foreign country where
they usually export their products. Such a legal concept will have a deleterious effect not only on
Philippine exports, but also on global trade.

Considering that petitioner is not doing business in the Philippines, it does not need a license
in order to initiate and maintain a collection suit against respondent for the unpaid balance of
respondent’s purchases.

Topic: Foreign Corporation (Doctrine of “doing business”)

Case Number 613

MR HOLDINGS LTD. Vs. SHERIFF CARLOS P. BAJAR

G.R. No. 138104 April 11, 2002

FACTS:

ADB extended a loan to Marcopper under a Principal Loan Agreement and Complementary
Loan Agreement. A Support and Standby Credit Agreement was also executed between ADB and
Placer Dome (owner of 40% of Marcopper), whereby the latter agreed to provide with a cash flow
support for the payment of its obligations to ADB. Marcopper also executed a Deed of Real Estate and
Chattel Mortgage in favor of ADB covering all its assets in Marinduque. Marcopper defaulted in its
payment. Thus, MR Holding, LTD (placer Dome’s subsidiary corporation) assumed Marcopper’s
obligation to ADB. Marcopper likewise executed a Deed of assignment in favor of petitioner.

It appeared that SolidBank Corporation obtained a partial judgment against Marcopper in a


case filed with the RTC. A writ of execution was issued and then an auction sale was scheduled. This
event prompted petitioner to serve an "Affidavit of Third-Party Claim" upon respondent sheriffs,
asserting ownership over all the assets of Marcopper by virtue of the Deed of Assignment. The RTC of
Manila denied the affidavit. Petitioner filed with the RTC of Boac, Marinduque a complaint for
reivindication of properties with prayer for preliminary injunction and temporary restraining order
against respondents. The application for writ of preliminary injunction was denied.

ISSUE:

Is the petitioner doing business in the Philippines.

RULING:

The Supreme Court ruled in the negative. It held that there are other statutes defining the term
"doing business" in the same tenor as those above quoted, and as may be observed, one common
denominator among them all is the concept of "continuity." The expression "doing business" should
not be given such a strict and literal construction as to make it apply to any corporate dealing
whatever. At this early stage and with petitioner’s acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to continue the business for which it
was organized. It may not be amiss to point out that the purpose or business for which petitioner was
organized is not discernible in the records. No effort was exerted by the Court of Appeals to establish
the nexus between petitioner’s business and the acts supposed to constitute "doing business." Thus,
whether the assignment contracts were incidental to petitioner’s business or were continuation
thereof is beyond determination. Significantly, a view subscribed upon by many authorities is that the
mere ownership by a foreign corporation of a property in a certain state, unaccompanied by its active
use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing
business.

In the final analysis, we are convinced that petitioner was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical examples of these are the making of a single
contract, sale, sale with the taking of a note and mortgage in the state to secure payment therefor,
purchase, or note, or the mere commission of a tort. In these instances, there is no purpose to do any
other business within the country.

Topic: Securities and Exchange Commission Law (Powers and functions of the SEC)

Case Number 631

PSE vs. CA

GR No. 125469 October 27, 1997

FACTS:

The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its loans with
several banking institutions. In January 1995, PALI was issued a permit to sell its shares to the public
by the Securities and Exchange Commission (SEC). To facilitate the trading of its shares among
investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange Inc.
(PSEi), for which purpose it filed with the said stock exchange an application to list its shares, with
supporting documents attached pending the approval of the PALI’s listing application, a letter was
received by PSE from the heirs of Ferdinand Marcos to which the latter claims to be the legal and
beneficial owner of some of the properties forming part of PALI’s assets. As a result, PSE denied PALI’s
application which caused the latter to file a complaint before the SEC. The SEC issued an order to PSE
to grant listing application of PALI on the ground that PALI have certificate of title over its assets and
properties and that PALI have complied with all the requirements to enlist with PSE.

ISSUE:

Is the denial of PALI’s application proper?

RULING:

The Supreme Court ruled in the affirmative. This is in accord with the “Business Judgement
Rule” whereby the SEC and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule precludes the reversal of the
decision of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to
accept of reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules
and requirements, PSE retains the discretion to accept or reject the issuer’s listing application if the
PSE determines that the listing shall not serve the interests of the investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is
clothed with the markings of a corporate entity, it functions as the primary channel through which the
vessels of capital trade ply. The PSEi’s relevance to the continued operation and filtration of the
securities transaction in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessarily. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys monopoly of securities transactions, and as such it
yields a monopoly of securities transactions, and as such, it yields an immerse influence upon the
country’s economy.

The SEC’s power to look into the subject ruling of the PSE, therefore, may be implied from or
be considered as necessary or incidental to the carrying out of the SEC’s express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange. It is likewise, observed that the principal function of the SEC is the supervision and control
over corporations, partnerships and associations with the end in view that investment in these entities
may be encouraged and protected and their activities for the promotion of economic development.

A corporation is but an association of individuals, allowed to transact under an assumed


corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives
no constitutional immunities and requisites appropriate to such a body as to its corporate and
management decisions, therefore, the state will generally not interfere with the same. Questions of
policy and management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgements for the judgement of the board of
directors. The board is the business manager of the corporation and so long as it acts in good faith, its
orders are not reviewable by the courts.

In matters of application for listing in the market the SEC may exercise such power only if the
PSE’s judgement is attended by bad faith. The petitioner was in the right when it refused application
of PALI, for a contrary ruling was not to the best interest of the general public.

Topic: Securities and Exchange Commission Law (Controversies arising out of intra-corporate or
partnership relations)

Case Number 650

AGUINALDO vs. SEC

163 SCRA 262

FACTS:

Private respondents claim that NADECOR has a total outstanding capital stock of 30,000
shares. Out of these 30,000 shares, 7,000 shares, representing 23% of the outstanding capital stock,
are owned by a U.S. Corporation, the Sawyer Adecor International, Inc. (SAICOR), 42% of which is
owned by NADECOR which in turn is owned and controlled by private respondents to the extent of at
least 93% of the voting stock. Thus, private respondents claim that, together with SAICOR, they
constitute an absolute majority of NADECOR.

Petitioners Dominador Aytona and Daniel Aguinaldo, together with private respondents
Conrado T. Calalang and Jose G. Ricafort, and five others were elected as directors of the NADECOR
by the stockholders at a meeting where petitioners Aytona and Aguinaldo, and one R.H. Borsoto were
elected Chairman of the Board, President, and Corporate Secretary, respectively, of the NADECOR.

Private respondents claim that petitioners did not comply with their fiduciary duties of loyalty,
diligence and care to NADECOR and, worse, committed fraudulent machinations to exclude private
respondents from their rightful participation in the management of the NADECOR, which culminated
in the unlawful and malicious refusal to perform their ministerial duty to issue notices of the annual
stockholders' meeting for the year 1981 in breach of the law as set forth in the Corporation Code and
the Amended By-Laws of the NADECOR.

Subsequently, an election was held and despite the election of the above-named new set of
directors and the appointment of new corporate officers, private respondents claim that petitioners
continued to exclude the former from the valid exercise of their rights by refusing to honor and
respect the said election, and fraudulently continue to represent themselves as officers of the
NADECOR and illegally usurp the functions of the officers of the NADECOR which now rightfully
pertain to herein private respondents and the other new corporate officers.

Private respondents filed a petition for mandamus with prayer for preliminary injunction
and/or restraining order against herein petitioners with the respondent SEC praying that petitioners
herein be directed to respect and recognize the results of the annual stockholders' meeting and
organizational meeting of the newly-elected Board of Directors; to recognize the individual private
respondents as the lawful and duly elected directors and officers of the corporation; to remove all
barriers or impediments to the individual private respondents' free and untrammelled use, enjoyment
and exercise of their respective offices; and to order the surrender and transfer of the corporate books
and records of NADECOR to private respondent Aritao

ISSUE:

Is the issuance of the temporary restraining order by the SEC proper?

RULING:

The Supreme Court ruled that under Section 6 of P.D. No. 902-A, further grants the SEC "in
order to effectively exercise such jurisdiction," the power, inter alia, "to issue preliminary or
permanent injunctions, whether prohibitory or mandatory, in all cases in which it has jurisdiction, and
in which cases the pertinent provisions of the Rules of Court shall apply."

Moreover, the SEC is at least a co-equal body of the Regional Trial Court when it adjudicates
controversies over which it has jurisdiction, it follows that the temporary restraining order issued by
SEC must have the same life-span as that issued by the trial court. It is a well-settled rule that a
temporary restraining order issued by a trial court has a life of only twenty (20) days.
Furthermore, under Section 5, Batas Pambansa Blg. 224, a judge may issue a temporary
restraining order with a limited life of twenty (20) days from date of issue. If before the expiration of
the 20-day period the application for preliminary injunction is denied, the temporarily restraining order
would thereby be deemed automatically vacated. If no action is taken by the judge on the application
for preliminary injunction within the said 20 days, the temporary restraining order would automatically
expire on the 20th day by the sheer force of law, no judicial declaration to that effect being necessary.
A temporary restraining order can no longer exist indefinitely for it has become truly temporary .

To the extent, therefore, that the enforcement of the temporary restraining order issued by
the respondent SEC exceeded twenty (20) days, this Court rules that the said respondent committed
grave abuse of discretion. However, although the questioned order no longer has any force and effect,
the respondent SEC still has the jurisdiction and obligation to proceed with the hearing of the case on
the merits and to issue the appropriate orders pursuant thereto subject to review by the Court of
Appeals and eventually this Court.

As of the filing of the petition and the memoranda by both parties, the petitioners have not
yet finished the presentation of their evidence. The issues raised such as validity of proxy votes,
usurpation of corporate powers, claims of majority status, and regularity in issuance of requisite
notices call for the presentation and evaluation of evidence. It is, therefore, premature at this time for
this Court to pass upon the rights of the petitioners and the private respondents over NADECOR, the
determination of the same being primarily lodged with the public respondent.

Topic: Securities and Exchange Commission Law (Controversies arising out of intra-corporate or
partnership relations)

Case Number 668

TABANG vs. NLRC

266 SCRA 462

FACTS:

The records show that petitioner Purificacion Tabang was a founding member, a member of
the Board of Trustees, and the corporate secretary of private respondent Pamana Golden Care Medical
Center Foundation, Inc., a non-stock corporation engaged in extending medical and surgical services.

The Board issued a memorandum appointing petitioner as Medical Director and Hospital
Administrator of private respondents Pamana Golden Care Medical Center in Calamba, Laguna.
Although the memorandum was silent as to the amount of remuneration for the position, petitioner
claims that she received a monthly retainer fee of five thousand pesos (P5,000.00) from private
respondent, but the payment thereof was allegedly stopped in November 1991.

Petitioner was tasked to run the affairs of the aforesaid medical center and perform all acts of
administration relative to its daily operations. Thereafter, petitioner was allegedly informed personally
by Dr. Ernesto Naval that in a special meeting, the Board passed a resolution relieving her of her
position as Medical Director and Hospital Administrator, and appointing the latter and Dr. Benjamin
Donasco as acting Medical Director and acting Hospital Administrator, respectively.

On June 6, 1993, petitioner filed a complaint for illegal dismissal and non-payment of wages,
allowances and 13th month pay before the labor arbiter. Respondent corporation moved for the
dismissal of the complaint on the ground of lack of jurisdiction over the subject matter. It argued that
petitioners position as Medical Director and Hospital Administrator was interlinked with her position
as member of the Board of Trustees, hence, her dismissal is an intra-corporate controversy which falls
within the exclusive jurisdiction of the Securities and Exchange Commission (SEC).

ISSUE:

Does the SEC have jurisdiction over the compliant for illegal dismissal?

RULING:

The Court ruled in the affirmative. It held that it is the SEC which has jurisdiction over the case
at bar. The charges against herein private respondent partake of the nature of an intra-corporate
controversy. Similarly, the determination of the rights of petitioner and the concomitant liability of
private respondent arising from her ouster as a medical director and/or hospital administrator, which
are corporate offices, is an intra-corporate controversy subject to the jurisdiction of the SEC.

In the case at bar, considering that herein petitioner, unlike an ordinary employee, was
appointed by respondent corporations Board of Trustees in its memorandum of October 30, 1990, she
is deemed an officer of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which
provides that the SEC exercises exclusive jurisdiction over controversies in the election or
appointment of directors, trustees, officers or managers of corporations, partnerships or associations,
applies in the present dispute. Accordingly, jurisdiction over the same is vested in the SEC, and not in
the Labor Arbiter or the NLRC.

A corporate officers dismissal is always a corporate act, or an intra-corporate controversy, and


the nature is not altered by the reason or wisdom with which the Board of Directors may have in taking
such action. Also, an intra-corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and corporations.

On a final note, with regard to the amount of P5,000.00 formerly received by herein petitioner
every month, the same cannot be considered as compensation for her services rendered as Medical
Director and Hospital Administrator. The vouchers submitted by petitioner show that the said amount
was paid to her by PAMANA, Inc., a stock corporation which is separate and distinct from herein
private respondent. Although the payments were considered advances to Pamana Golden Care,
Calamba branch, there is no evidence to show that the Pamana Golden Care stated in the vouchers
refers to herein respondent Pamana Golden Care Medical Center Foundation, Inc.

Topic: Securities and Exchange Commission Law (Petitions for declaration in the state of suspension
of payments)
Case Number 687

RADIOLA TOSHIBA PHILIPPINES INC. vs. IAC

G.R. No. 75222, July 18, 1991

FACTS:

The petitioner obtained a levy on the attachment against the properties of Carlos Gatmaytan
and Teresita Gatmaytan un Civil case o. 35946 for collection of sum of money before the Court of First
Instance of Rizal, Branch II, Pasig, Metro Manila. A few months later three creditors filed another
petition against Gatmaytan and Teresita Gatmaytan for involuntary insolvency, docketed as special
proceedings No. 1548 of the Court of First Instance of Pampanga and Angeles city.

A favorable judgment was obtained of by the petitioner in Civil case No. 35946. The court
ordered for the consolidation of ownership of petitioner over said property but respondent sheriff of
Angeles City refused to issue a final ceritificate of sale because of the pending insolvency proceedings.

The Court of First Instance of Angeles City and Intermediate Appellate Court rules against
petitioner.

ISSUE:

Is the levy on attachment in favor of petitioner in dissolved by the insolvency proceedings against
respondents commenced for months after the said attachment?

RULING:

The Supreme Court ruled that under Section 32 of the Insolvency Law, as soon as an assignee
is elected or appointed and qualified, the clerk of court shall, by an instrument under his hand and seal
of the court, assign and convey to the assignee all the real and personal property, estate and effects
of the debtor with all his deeds, books and papers relating thereto, and such assignment shall relate
back to the commencement of the proceedings in insolvency, and shall relate back to the acts upon
the adjudication was founded, and by operation of law shall vest the title to all such property, estate
and effects in the assignee, although the same is then attached in mesne process, as the property of
debtor. Such assignment shall operate to vest in the assignee all of the estate of the insolvent debtor
not exempt by law from execution. It shall dissolve any attachment levied within one month next
preceding the commencement of the insolvency proceedings and vacate and set aside any judgment
entered in any action commenced within thirty days immediately prior to the commencement of
insolvency proceedings and shall set aside any judgment entered by default or consent of the debtor
within thirty days immediately prior to the commencement of insolvency proceedings.

Moreover, Section 79 of the said law provides that When an attachment has been made and is
not dissolved before the commencement of proceedings in insolvency, or is dissolved by an
undertaking given by the defendant, if the claim upon which attachment suit was commenced is
proved against the estate of the debtor, the plaintiff may prove the legal costs and disbursements of
the suit, and in keeping of the property, and the amount thereof shall be a preferred debt.

There are no conflicts between the two provisions. It is well-settled that where a statute is
susceptible of more than one interpretation, court should adopt such reasonable and beneficial
construction as will render the provision thereof operative and effective and harmonious with each
other. – but even granting that such conflicts exists, it may be stated that in construing a statute,
courts should adopt a construction that will give effect to every part of the statute, if at all possible.
This rule is expressed in the maxim, ut magis valeat quam pereat or that construction is to be sought
which gives effect to the whole of the statute – its every word, hence when a statute is susceptible of
more than one interpretation, the court should adopt such reasonable and beneficial construction as
will render the provision thereof operative and effective and harmonious with each other.

Topic: Securities Regulation Code (Public Companies)

Case Number 706

PHILIPPINE VETERANS BANK vs. JUSTINA CALLANGAN

G.R. No. 191995 August 3, 2011

FACTS:

Respondent Justina F. Callangan, the Director of the Corporation Finance Department of the
Securities and Exchange Commission (SEC), sent Philippine Veterans Bank (the Bank) a letter,
informing it that it qualifies as a "public company" under Section 17.2 of the Securities Regulation Code
(SRC) in relation with Rule 3(1) (m) of the Amended Implementing Rules and Regulations of the SRC.
The Bank is thus required to comply with the reportorial requirements set forth in Section 17.1 of the
SRC and The Bank responded by explaining that it should not be considered a "public company"
because it is a private company whose shares of stock are available only to a limited class or sector,
i.e., to World War II veterans, and not to the general public but Director Callangan rejected the Bank’s
explanation and assessed it a penalty for failing to comply with the SRC reportorial requirements from
2001 to 2003. The Bank moved for the reconsideration of the assessment, but Director Callangan
denied the motion. The Bank then filed a petition for review with the Court of Appeals (CA) but the CA
dismissed the petition and affirmed the assailed SEC ruling. The CA also denied the Bank’s motion for
reconsideration, opening the way for the Bank’s petition for review on certiorari filed with the
Supreme Court but the Supreme Court denied the Bank’s petition for failure to show any reversible
error in the assailed CA decision and resolution. Now the Supreme Court resolves the motion for
reconsideration filed by petitioner Philippine Veterans Bank (the Bank).

ISSUE:

Is the petitioner Philippines Veteran’s Bank a “Public Company” under the Securities
Regulation Code (SRC).

RULING:

The Supreme Court rule in the affirmative. it held that the bank is a public company under the
SRC. Moreover, under the Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the
SRC, which defines a "public company" as "any corporation with a class of equity securities listed on
an Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred
(200) or more holders, at least two hundred (200) of which are holding at least one hundred (100)
shares of a class of its equity securities."

From these provisions, it is clear that a "public company," as contemplated by the SRC, is not
limited to a company whose shares of stock are publicly listed; even companies like the Bank, whose
shares are offered only to a specific group of people, are considered a public company, provided they
meet the requirements enumerated above.

The records establish, and the Bank does not dispute, that the Bank has assets exceeding
P50,000,000.00 and has 395,998 shareholders. It is thus considered a public company that must
comply with the reportorial requirements set forth in Section 17.1 of the SRC.

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