Corporation Law Case Digests PDF
Corporation Law Case Digests PDF
may violate, still the courts are not authorized to go to the extent
of creating special procedure and special processes for the
WEST COAST LIFE INSURANCE CO. VS. GEO HURD, purpose of carrying out those penal statutes, when the
JUDGE OF COURT OF FIRST INSTANCE legislature itself has neglected to do so. To bring a corporation
March 30, 1914 into court criminally requires many additions to the present
G.R. No. L-8527 criminal procedure. While it may be said to be the duty of courts
to see to it that criminals are punished, it is no less their duty to
Facts: follow prescribed forms of procedure and to go out upon
Petitioner is a foreign life-insurance corporation, duly unauthorized ways or act in an unauthorized manner.
organized under and by virtue of the laws of the State of
California, doing business regularly and legally in the There are many cases cited by counsel for the
Philippine Islands pursuant to its laws. The assistant defendant which show that corporations have been proceeded
prosecuting attorney of the city of Manila filed an information against criminally by indictment and otherwise and have been
in a criminal action in the Court of First Instance of that city punished as malefactors by the courts. Of this, of course, there
against the plaintiff, said corporation, and also against John can be no doubt; but it is clear that, in those cases, the statute,
Northcott and Manuel C. Grey, charging said corporation and by express words or by necessary intendment, included
said individuals with the crime of libel. The defendant in his corporations within the persons who could offend against the
official capacity as judge of the court of First Instance signed criminal laws; and the legislature, at the same time established
and issued a process directed to the plaintiff and the other a procedure applicable to corporations.
accused in said criminal action, summoning them to appear
before him to answer the charges filed. It is adjudged that the Court of First Instance of the
city of Manila be and it is enjoined and prohibited from
However, the plaintiff, together with the other persons proceeding further in the criminal case so far as said
named as accused in said process filed with the clerk of the proceedings relate to the said West Coast Life Insurance
court a motion to quash said summons and the service thereof, Company, a corporation, the plaintiff in the case.
on the ground that the court had no jurisdiction over the said
company, there being no authority in the court for the issuance ABEJO VS. DE LA CRUZ
of the process, the order under which it was issued being void. G.R. No. L-63558
Plaintiffs argue that under the laws of the Philippine Islands, to May 19,1987
proceed against a corporation, as such, criminally, to bring it
into court for the purpose of making it amenable to the criminal Facts:
laws. The plaintiff, further attacking said process, alleges that Pocket Bell Philippines, Inc. is a tone and voice
the process is a mixture of civil and criminal process, that it is paging corporation, with petitioner spouses Jose Abejo and
not properly signed, that it does not direct or require an arrest; Aurora Abejo as its principal stockholders. Telectronic
that it is an order to appear and answer on a date certain without Systems, Inc. purchased their 133,000 minority shareholdings
restraint of the person, and that it is not in the form required by for P5 million and 63,000 shares registered in the name of
law. The court denied the motion and proceeded to hear the Virginia Braga which were covered by five stock certificates
case. endorsed in blank by her for P1,674,450.00. The spouses
Agapito Braga and Virginia Braga were the majority
Issue: Whether or not he court may, of itself and on its own stockholders, but with the said purchases, Telectronics would
motion, create not only a process but a procedure by which the become the majority stockholder, holding 56% of the
process may be made effective. outstanding stock and voting power of Pocket Bell.
Marquez thereafter offered the land to Eduardo B. In this case, the petitioners failed to adduce in evidence
Lintojua, Jr. for PhP 27,000,000.00. Lintonjua counter offered any resolution of the Board of Directors of EC empowering
PhP 20,000,000.00 cash. Marquez apprised Glanville and Marquez, Glanville or Delsaux as its agents, to sell, let alone
Delsaux of the offer. Delsaux sent a telex stating that, based on offer for sale, for and its behalf, the eight parcels of land owned
nthe “Belgian/Swiss decision,” the final offer was by it. Moreover, the evidence of petitioners shows that Adams
“US$1,000,000.00 and PhP 2,500,000.00. The Lintonjua and Glanville acted on the authority of Delsaux, who, in turn,
brothers deposited US$1,000,000.00 with the Security Bank & acted on authority of ESAC, through its Committee for Asia,
Trust Company, and drafted an Escrow Agreement to expedite and the Belgian/Swiss component of the management of ESAC.
the sale. The offer of Delsaux emanated only form the “Belgian/Swiss
Decision,” and not the entire management of Board of Directors
Meanwhile, with the assumption of Corazon C. of ESAC. While it is true that petitioners accepted the counter-
Aquino as President, the political situation improved. Marquez offer of ESAC was not a party to the transaction between them;
received a leet from Delsaux that the ESAC Regional Office hence, EC was not bount by such acceptance.
decided not to proceed with the sale. When informed of this, the
Lintonjuas, filed a complaint for specific performance and
payment of damages on account of the aborted sale. Both the SULO NG BAYAN vs. ARANETA
trial court and appellate court rendered a judgement in favor of GR L-31061
defendants and dismissed the complaint. August 17, 1976
Issue: Facts:
On April 26, 19966, Sulo ng Bayan, Inc. filed an where it is used as a cloak or cover for fraud or illegality, or to
accion de revindicacion with the Court of First Instance of work an injustice, or where necessary to achieve equity. It has
Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms not been claimed that the members have assigned or transferred
Inc., Nationa Waterworks & Sewage Authority (NAWASA), whatever rights they may have on the land in question to the
Hacienda Caretas Inc., and the Register of Deeds of Bulacan to corporation. Absent any showing of interest, therefore, a
recover the ownership and possession of a large tract of land in corporation, has no personality to bring the action for and in
San Jose del Monte, Bulacan containing an area of 27,982,250 behalf of its stockholders or members for the purpose of
sq.ms., more or less, registered under the Torrens System in the recovering property which belongs to said stockholders or
name of GAI, et. Al’s predecessors-in-interest (who are members in their personal capacities.
members of the corporation). On September 2, 1966, GAI filed
a motion to dismiss the amended complaint on the grounds that
(1) the complaint states no cause of action; and (2) the cause of WOODCHILD HOLDINGS, INC. VS.
action, if any, is barred by prescription and laches. Paradise ROXAS ELECTRIC AND CONSTRUCTION
Farms Inc. and Hacienda Caretas Inc. filed motions to dismiss COMPANY, INC.
on the same grounds. NAWASA did not file any motion to G.R. No. 140667
dismiss. However, it pleaded in its answer as special and August 12, 2004
affirmative defense lack of cause of action by Sulo ng Bayan
Innc. And the barring of such action by prescription and laches. Facts:
Facts:
Loreta stated that she used to be employed by Manmen
Held: Services Co., Ltd. (Manmen) where Xu was a client. Xu was
A corporation is a juridical person separate and apparently impressed by Loreta’s performance. After he
distinct from its stockholders or members. Accordingly, the established Wensha, he convinced Loreta to transfer and work
property of the corporation is not the property of its at Wensha. . Enticed, Loreta resigned from Manmen and
stockholders or members and may not be sold by the transferred to Wensha. Loreta was later on asked to resign from
stockholders or members without express authorization from Wensha because according to the Feng Shui master, her aura
the corporation's board of directors. Section 23 of BP 68, did not match that of Xu. Loreta refused but was informed that
otherwise known as the Corporation Code of the Philippines.\ she could no longer continue working at Wensha. That same
afternoon, Loreta went to the NLRC and filed a case for illegal
Generally, the acts of the corporate officers within the dismissal against Xu and Wensha.
scope of their authority are binding on the corporation.
However, under Article 1910 of the New Civil Code, acts done The Labor Arbiter dismissed Loreta’s complaint for
by such officers beyond the scope of their authority cannot bind lack of merit. He found it more probable that Loreta was
the corporation unless it has ratified such acts expressly or dismissed from her employment due to Wensha’s loss of trust
tacitly, or is estopped from denying them. and confidence in her. This ruling was affirmed by the NLRC.
The CA reversed the decision and orered Wensha Spa Center,
Evidently, Roxas was not specifically authorized Inc. and Xu Zhi Jie to, jointly and severally, pay Loreta T. Yung
under the said resolution to grant a right of way in favor of the her full backwages, other privileges, and benefits.
petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas, Issue: Whether Xu Zhi Jie should be held jointly and severally
under the resolution, to sell Lot No. 491-A-3-B-2did not include liable with Wensha Spa Center.
the authority to sell a portion of the adjacent lot, Lot No. 491-
A-3-B-1, or to create or convey real rights thereon. Neither may Held:
such authority be implied from the authority granted to Roxas Elementary is the rule that a corporation is invested
to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and by law with a personality separate and distinct from those of the
conditions which he deems most reasonable and advantageous." persons composing it and from that of any other legal entity to
Under paragraph 12, Article 1878 of the New Civil Code, a which it may be related. "Mere ownership by a single
special power of attorney is required to convey real rights over stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground certificates cannot be declared or considered as lost and that hat
for disregarding the separate corporate personality." there was a failure to observe certain requirements of its by-
laws before new stock certificates could be issued
In labor cases, corporate directors and officers may be
held solidarily liable with the corporation for the termination of Held:
employment only if done with malice or in bad faith. Bad faith A corporation is an artificial being created by
does not connote bad judgment or negligence; it imports a operation of law....It owes its life to the state, its birth being
dishonest purpose or some moral obliquity and conscious doing purely dependent on its will. As Berle so aptly stated:
of wrong. In the subject decision, the CA concluded that Classically, a corporation was conceived as an artificial person,
petitioner Xu and Wensha are jointly and severally liable to owing its existence through creation by a sovereign power."As
Loreta. However there is no evidence proving bad faith or a matter of fact, the statutory language employed owes much to
malice on the part of Xu. There is, therefore, no justification for Chief Justice Marshall, who in the Dartmouth College decision
such a ruling. To sustain such a finding, there should be an defined a corporation precisely as "an artificial being, invisible,
evidence on record that an officer or director acted maliciously intangible, and existing only in contemplation of law." The
or in bad faith in terminating the services of an employee. well-known authority Fletcher could summarize the matter
Moreover, the finding or indication that the dismissal was thus: "A corporation is not in fact and in reality a person, but
effected with malice or bad faith should be stated in the decision the law treats it as though it were a person by process of fiction,
itself. or by regarding it as an artificial person distinct and separate
from its individual stockholders.... It owes its existence to law.
It is an artificial person created by law for certain specific
purposes, the extent of whose existence, powers and liberties is
fixed by its charter." Dean Pound's terse summary, a juristic
TAYAG VS. BENGUET CONSOLIDATED INC. person, resulting from an association of human beings granted
GR NO. L-23145 legal personality by the state, puts the matter neatly.
NOVEMBER 29, 1968
MMIC was having a difficult time meeting its DOCTRINE OF PIERCING THE VEIL OF
financial obligations. MMIC had an outstanding loan with DBP CORPORATE ENTITY
in the amount of P13.7 billion and with PNB in the amount of
P8.7 billion. Thus, a financial restructuring plan (FRP was HI-CEMENT CORPORATION VS. INSULAR BANK OF
drafted by the Sycip Gorres Velayo accounting firm. ASIA AND AMERICA
G.R. No. 132403
The various loans and advances made by DBP and September 28, 2007
PNB to MMIC had become overdue. DBP and PNB as
mortgagees of MMIC assets, decided to exercise their right to Facts:
extrajudicially foreclose the mortgages in accordance with the Petitioners Enrique Tan and Lilia Tan were the
Mortgage Trust Agreement. controlling stockholders of E.T. Henry & Co., Inc., a company
engaged in the business of processing and distributing bunker
Jesus S. Cabarrus, Sr., together with the other fuel. Among E.T. Henry's customers were petitioner Hi-Cement
stockholders of MMIC, filed a derivative suit against DBP and Corporation, Riverside Mills Corporation and Kanebo
PNB before the RTC of Makati, Branch 62, for Annulment of Cosmetics Philippines, Inc. For their purchases, these
Foreclosures, Specific Performance and Damages. APT, as corporations issued postdated checks to E.T. Henry.
successor of the DBP and the PNB's interest in MMIC, mutually Respondent Insular Bank of Asia and America (later PCIB and
agreed to submit the case to arbitration. The issues to be now Equitable PCI-Bank) granted E.T. Henry a credit facility
submitted for the Committee's resolution shall be (a) Whether known as “Purchase of Short Term Receivables.” Through this
plaintiffs have the capacity or the personality to institute this arrangement, E.T. Henry was able to encash, with pre-deducted
derivative suit in behalf of the MMIC or its directors, (b) interest, the postdated checks of its clients (re-discounting of
Whether or not the actions leading to, and including,. the PNB- checks). For every transaction, respondent required E.T. Henry
DBP foreclosure of the MMIC assets were proper, valid and in to execute a promissory note and a deed of assignment bearing
good. the conformity of the client to the re-discounting.
The Committee finds, there is no foreclosure at all as E.T. Henry was able to re-discount its clients' checks
it was not legally and validly done. APT was ordered to pay (with deeds of assignment) with respondent. However, when 20
Marinduque Mining and Industrial Corporation the sum of checks of Hi-Cement (which were crossed and which bore the
P13,000.000.00, as and for moral and exemplary damages. restriction “deposit to payee’s account only”), Riverside, and
Kanebo were dishonoured, respondent filed a complaint for
On appeal, the Court of Appeals denied due course and sum of money in the then Court of First Instance of Rizal
dismissed the petition for certiorari. against E.T. Henry, the spouses Tan, Hi-Cement (including its
general manager and its treasurer as signatories of the postdated
Issues: Whether MMIC was entitled to moral damages. crossed checks), Riverside and Kanebo. Respondent sought for
the payment of actual damages and for the collection from E.T.
Henry and the spouses Tan other loan obligations (amounting discounting of the checks when the general manager did not
to P1,661,266.51 and P4,900,805, respectively) as deficiencies acquiesce to it as only the treasurer's signature appeared on the
resulting from the foreclosure of the real estate mortgage on deed of assignment. As a banking institution, it behooved
E.T. Henry's property in Sucat, Parañaque. respondent to act with extraordinary diligence
inevery transaction. Its business is impressed with public
Hi-Cement filed its answer alleging, among others, interest, thus, it was not expected to be careless and negligent,
that: (1) its general manager and treasurer were not authorized specially so where the checks it dealt with were crossed.
to issue the postdated crossed checks in E.T. Henry's favor; (2)
the deed of assignment purportedly executed by Hi-Cement Here, there was no doubt that it was E.T. Henry that
assigning them to respondent only bore the conformity of its re-discounted Hi-Cement's checks and received their value
treasurer and (3) respondent was not a holder in due course as from respondent. Since E.T. Henry had no justification to
it should not have discounted them for being “crossed checks.” refuse payment, it should pay respondent. Hi-Cement could not
In their answer (with counterclaim against respondent and also be made solidarily liable with Riverside and Kanebo for
cross-claims against Hi-Cement, Riverside and Kanebo), E.T. the face value of their checks. Hi-Cement had nothing to do
Henry and the spouses Tan claimed that: (1) the drawers of the with the checks of these two corporations. However, although
postdated checks failed to honor them due to the adverse the language of the trial court decision's dispositive portion
economic conditions prevailing at the time respondent seemed confusing, a reading of the decision in its entirety
presented them for payment; (2) the extra-judicial sale of the reveals that the fallo was for each corporation to be liable
mortgaged Sucat property was void due to gross inadequacy of solidarily with E.T. Henry and/or the spouses Tan for the
the bid price and (3) their loans were subjected to a usurious respective values of their checks. At any rate, the issue has
interest rate of 21% p.a. For their part, Riverside and Kanebo become moot in view of our ruling that Hi-Cement is not liable
sought the dismissal of the case against them, arguing that they for the checks.
were not privy to the re-discounting arrangement between
respondent and E.T. Henry. The trial court rendered judgment (2) The general rule is that the corporation will be
in favor of respondent and against E.T. Henry, spouses Tan, Hi- looked upon as a legal entity until sufficient reasons to the
Cement, Riverside and Kanebo. Only petitioners appealed the contrary appear. It is only when the fiction or notion of legal
decision to the CA which affirmed it in toto. entity is used to defeat public convenience, justify wrong,
perpetuate fraud or defend crime that the law will shred the
Issues: (1) Whether or not petitioners may be held liable for corporate legal veil and regard it as a mere association of
the dishonoured postdated cross checks. persons. This is referred to as the doctrine of piercing the veil
(2) Whether or not the doctrine of piercing the veil of of corporate entity.
corporate entity is applicable herein.
However, said doctrine may not be applied herein.
Held: (1) Both the general manager and treasurer of Hi- First, the trial court failed to provide a clear ground why the
Cement were authorized to issue the subjects checks. Hi- doctrine was used. It merely stated that it agreed with
Cement was already estopped from denying such authority respondent’s arguments but did not explain why the doctrine
since it never objected to the signatories' issuance of all was relevant to petitioner E.T. Henry's and the spouses Tan’s
previous checks to E.T. Henry which the latter, in turn, was able case. Similarly, the CA left a gaping hole by failing to provide
to re-discount with respondent. However, notwithstanding such the basis for its ruling that E.T. Henry and the spouses Tan
fact, respondent could not be considered a holder in due course. defrauded respondent. It did not also state what act
Absent any of the elements set forth in Section 52, the holder is constituted the fraud. Fraud is an allegation of fact that
not a holder in due course. In the case at bar, the last two demands clear and convincing evidence. It is never presumed.
requirements were not met.
Second, the mere ownership by a single stockholder or
The respondent's claim that it acted in good faith when by another corporation of all or nearly all of the capital stock of
it accepted and discounted Hi-Cement’s postdated crossed a corporation is not of itself sufficient ground for disregarding
checks from E.T. Henry (as payee therein) is unconvincing. the separate corporate personality. For this ground to stand in
Good faith becomes inconsequential amidst proof of this case, there must be proof that the spouses Tan: (1) had
respondent's grossly negligent conduct in dealing with the control or complete domination of E.T. Henry’s finances and
subject checks. Respondent was all too aware that subject that the latter had no separate existence with respect to the act
checks were crossed and bore restrictions that they were for complained of; (2) used such control to commit fraud or wrong
deposit to payee's account only; hence, they could not be further and (3) the control was the proximate cause of the loss or injury
negotiated to it. The records likewise reveal that respondent complained of by respondent. The records of this case do not
completely disregarded a telling sign of irregularity in the re- show that these elements were present.
personality is merely a fiction created by law for convenience
Third, mere inadequacy of the price obtained at the and to promote justice. Accordingly, this separate personality
sheriff’s sale, unless shocking to the conscience, was not of the corporation may be disregarded, or the veil of corporate
sufficient to set aside the sale if there was no fiction pierced, in cases where it is used as a cloak or cover for
showing that, in the event of a regular sale, a better pri fraud or illegality, or to work an injustice, or where necessary
ce could be obtained.” Furthermore, in the absence of any to achieve equity or when necessary for the protection of
irregularity in the foreclosure proceeding or proof that it was creditors. Corporations are composed of natural persons and the
carried out without strict observance of the procedure, an legal fiction of a separate corporate personality is not a shield
assumption as to its regularity shall stay. for the commission of injustice and inequity. Likewise, this is
true when the corporation is merely an adjunct, business
conduit or alter ego of another corporation. In such case, the
TAN BOON BEE VS. JARENCIO fiction of separate and distinct corporation entities should be
163 SCRA 205 disregarded.
Held: (1) In deference to the CA (where Redmont currently The case is thus remanded to the CED for further
has an appeal pending therein regarding the same matter, proceedings and the CRMD is directed to assist the CED. The
originating from the POA and MAB of the DENR which both CED Letter-Resolution is thus set aside.
declared the corporations to be Filipino nationals) the ruling of
the CED that McArthur, Tesoro and Narra are Philippine
nationals, are set aside and thus the complaint for revocation *Note:
against said corporations is dismissed. CONTROL TEST:
(2) Under DOJ Opinion No. 020, Series of 2005, 60% (Filipino equity in Corp. A) x 60% (Corp. A’s
which adopted the 1967 SEC Rules, the requirement of the equity in Corp. C) = 36% Filipino
__________________________________________
Constitution and other laws that the controlling interests in
enterprises engaged in the exploitation of natural resources 100
shall be owned by Filipino citizens is implemented. It is
provided therein that there are two cases in determining the
nationality of the Investee Corporation. The first case is the 40% (Filipino equity in Corp. A) x 60% (Corp. A’s
“liberal rule,” later coined by the SEC as the Control Test, and equity in Corp. C) = 24% Filipino
pertains to “the shares belonging to corporations or partnerships __________________________________________
Held:
BY LAWS As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into effect
FLEISCHER VS. BOTICA NOLASCO the objects of the corporation, and are not contradictory to the
Facts: general policy of the laws of the land. (Supreme Commandery
The plaintiff filed an amended complaint against the of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436;
Botica Nolasco, Inc., alleging that he became the owner of five 46 Am. Rep., 332.)
shares of stock of said corporation, by purchase from their
original owner, one Manuel Gonzalez; that the said shares were On the other hand, it is equally well settled that by-
fully paid; and that the defendant refused to register said shares laws of a corporation must be reasonable and for a corporate
in his name in the books of the corporation in spite of repeated purpose, and always within the charter limits. They must always
demands to that effect made by him upon said corporation, be strictly subordinate to the constitution and the general laws
which refusal caused him damages amounting to P500. Plaintiff of the land. They must not infringe the policy of the state, nor
prayed for a judgment ordering the Botica Nolasco, Inc. to be hostile to public welfare. (46 Am. Rep., 332.) They must not
register in his name in the books of the corporation the five disturb vested rights or impair the obligation of a contract, take
shares of stock recorded in said books in the name of Manuel away or abridge the substantial rights of stockholder or
Gonzalez, and to indemnify him in the sum of P500 as damages, member, affect rights of property or create obligations unknown
and to pay the costs. The defendant again filed a demurrer on to the law. (People's Home Savings Bank vs. Superior Court,
the ground that the amended complaint did not state facts 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling
sufficient to constitute a cause of action, and that said amended Co., 79 Am. St. Rep., 769.)
complaint was ambiguous, unintelligible, uncertain, which
demurrer was overruled by the court. The validity of the by-law of a corporation is purely a
question of law. (South Florida Railroad Co. vs. Rhodes, 25
The defendant answered the amended complaint Fla., 40.)
denying generally and specifically each and every one of the
material allegations thereof, and, as a special defense, alleged The power to enact by-laws restraining the sale and
that the defendant, pursuant to article 12 of its by-laws, had transfer of stock must be found in the governing statute or the
preferential right to buy from the plaintiff said shares at the par charter. Restrictions upon the traffic in stock must have their
value of P100 a share, plus P90 as dividends corresponding to source in legislative enactment, as the corporation itself cannot
the year 1922, and that said offer was refused by the plaintiff. create such impediments. By-law are intended merely for the
The defendant prayed for a judgment absolving it from all protection of the corporation, and prescribe regulation and not
liability under the complaint and directing the plaintiff to restriction; they are always subject to the charter of the
deliver to the defendant the five shares of stock in question, and corporation. The corporation, in the absence of such a power,
to pay damages in the sum of P500, and the costs. cannot ordinarily inquire into or pass upon the legality of the
transaction by which its stock passes from one person to
Upon the issue presented by the pleadings above another, nor can it question the consideration upon which a sale
stated, the cause was brought on for trial, at the conclusion of is based. A by-law cannot take away or abridge the substantial
which, and on August 21, 1924, the Honorable N. Capistrano, rights of stockholder. Under a statute authorizing by- laws for
judge, held that, in his opinion, article 12 of the by-laws of the the transfer of stock, a corporation can do no more than
prescribe a general mode of transfer on the corporate books and only PCGG has the authority to approve the proposed
cannot justify an unreasonable restriction upon the right of sale. conversion and seek the necessary Court approval.
(4 Thompson on Corporations, sec. 4137, p. 674.
Jovito R. Salonga and four others sought leave to
The right of unrestrained transfer of shares inheres in intervene asserting that the government bears the burden of
the very nature of a corporation, and courts will carefully showing that the conversion is indubitably advantageous to the
scrutinize any attempt to impose restrictions or limitations upon public interest or will result in clear and material benefit.
the right of stockholders to sell and assign their stock. The right Failure of the government to carry the burden means that the
to impose any restraint in this respect must be conferred upon current status of the sequestered stocks should be maintained
the corporation either by the governing statute or by the articles pending final disposition of G.R. Nos. 177857-58. They further
of the corporation. It cannot be done by a by-law without postulate that “even assuming that the proposal to convert the
statutory or charter authority. SMC shares is beneficial to the government, it cannot pursue
the exchange offer because it is without power to exercise acts
of strict dominion over the sequestered shares. Lastly, they
argue that “the proposed conversion x x x is not only not
advantageous to the public interest but is in fact positively
disadvantageous.
Issue: Held[2]:
Whether the corporation has the power to provide for Although in the strict and technical sense, directors of
the (additional) qualifications of its directors. a private corporation are not regarded as trustees, there cannot
be any doubt that their character is that of a fiduciary insofar as
Held: the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation for
It is recognized by all authorities that "every the collective benefit of the stockholders, "they occupy a
corporation has the inherent power to adopt by-laws 'for its fiduciary relation, and in this sense the relation is one of trust."
internal government, and to regulate the conduct and prescribe "The ordinary trust relationship of directors of a corporation and
the rights and duties of its members towards itself and among stockholders is not a matter of statutory or technical law. It
themselves in reference to the management of its affairs.'" In springs from the fact that directors have the control and
this jurisdiction under section 21 of the Corporation Law, a guidance of corporate affairs and property and hence of the
corporation may prescribe in its by-laws "the qualifications, property interests of the stockholders. Equity recognizes that
duties and compensation of directors, officers and employees." stockholders are the proprietors of the corporate interests and
This must necessarily refer to a qualification in addition to that are ultimately the only beneficiaries thereof." A director is a
specified by section 30 of the Corporation Law, which provides fiduciary. Their powers are powers in trust. He who is in such
that "every director must own in his right at least one share of fiduciary position cannot serve himself first and his cestuis
the capital stock of the stock corporation of which he is a second. He cannot manipulate the affairs of his corporation to
director." Any person "who buys stock in a corporation does so their detriment and in disregard of the standards of common
with the knowledge that its affairs are dominated by a majority decency. He cannot by the intervention of a corporate entity
of the stockholders and that he impliedly contracts that the will violate the ancient precept against serving two masters. He
of the majority shall govern in all matters within the limits of cannot utilize his inside information and strategic position for
the act of incorporation and lawfully enacted by-laws and not his own preferment. He cannot violate rules of fair play by
forbidden by law." To this extent, therefore, the stockholder doing indirectly through the corporation what he could not do
may be considered to have "parted with his personal right or so directly. He cannot violate rules of fair play by doing
privilege to regulate the disposition of his property which he indirectly through the corporation what he could not do so
has invested in the capital stock of the corporation, and directly. He cannot use his power for his personal advantage
surrendered it to the will of the majority of his fellow and to the detriment of the stockholders and creditors no matter
incorporators. It can not therefore be justly said that the how absolute in terms that power may be and no matter how
contract, express or implied, between the corporation and the meticulous he is to satisfy technical requirements. For that
stockholders is infringed by any act of the former which is power is at all times subject to the equitable limitation that it
authorized by a majority." Pursuant to section 18 of the may not be exercised for the aggrandizement, preference, or
Corporation Law, any corporation may amend its articles of advantage of the fiduciary to the exclusion or detriment of the
incorporation by a vote or written assent of the stockholders cestuis. The doctrine of "corporate opportunity" is precisely a
representing at least two-thirds of the subscribed capital stock recognition by the courts that the fiduciary standards could not
of the corporation. If the amendment changes, diminishes or be upheld where the fiduciary was acting for two entities with
restricts the rights of the existing shareholders, then the competing interests. This doctrine rests fundamentally on the
dissenting minority has only one right, viz.: "to object thereto unfairness, in particular circumstances, of an officer or director
in writing and demand payment for his share." Under section taking advantage of an opportunity for his own personal profit
22 of the same law, the owners of the majority of the subscribed when the interest of the corporation justly calls for protection.
capital stock may amend or repeal any by-law or adopt new by- It is not denied that a member of the Board of Directors of the
laws. It cannot be said, therefore, that Gokongwei has a vested San Miguel Corporation has access to sensitive and highly
right to be elected director, in the face of the fact that the law at confidential information, such as: (a) marketing strategies and
the time such right as stockholder was acquired contained the pricing structure; (b) budget for expansion and diversification;
(c) research and development; and (d) sources of funding, be germane to the petitioner's interest as a stockholder, and has
availability of personnel, proposals of mergers or tie-ups with to be proper and lawful in character and not inimical to the
other firms. It is obviously to prevent the creation of an interest of the corporation. The "general rule that stockholders
opportunity for an officer or director of San Miguel are entitled to full information as to the management of the
Corporation, who is also the officer or owner of a competing corporation and the manner of expenditure of its funds, and to
corporation, from taking advantage of the information which he inspection to obtain such information, especially where it
acquires as director to promote his individual or corporate appears that the company is being mismanaged or that it is
interests to the prejudice of San Miguel Corporation and its being managed for the personal benefit of officers or directors
stockholders, that the questioned amendment of the by-laws or certain of the stockholders to the exclusion of others." While
was made. Certainly, where two corporations are competitive the right of a stockholder to examine the books and records of
in a substantial sense, it would seem improbable, if not a corporation for a lawful purpose is a matter of law, the right
impossible, for the director, if he were to discharge effectively of such stockholder to examine the books and records of a
his duty, to satisfy his loyalty to both corporations and place the wholly-owned subsidiary of the corporation in which he is a
performance of his corporation duties above his personal stockholder is a different thing. Stockholders are entitled to
concerns. The offer and assurance of Gokongwei that to avoid inspect the books and records of a corporation in order to
any possibility of his taking unfair advantage of his position as investigate the conduct of the management, determine the
director of San Miguel Corporation, he would absent himself financial condition of the corporation, and generally take an
from meetings at which confidential matters would be account of the stewardship of the officers and directors. herein,
discussed, would not detract from the validity and considering that the foreign subsidiary is wholly owned by San
reasonableness of the by-laws involved. Apart from the Miguel Corporation and, therefore, under Its control, it would
impractical results that would ensue from such arrangement, it be more in accord with equity, good faith and fair dealing to
would be inconsistent with Gokongwei's primary motive in construe the statutory right of petitioner as stockholder to
running for board membership — which is to protect his inspect the books and records of the corporation as extending to
investments in San Miguel Corporation. More important, such books and records of such wholly owned subsidiary which are
a proposed norm of conduct would be against all accepted in the corporation's possession and control.
principles underlying a director's duty of fidelity to the
corporation, for the policy of the law is to encourage and
enforce responsible corporate management.
Issue [4]:
Issue [3]:
Whether the SEC gravely abused its discretion in
Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel Corporation to ratify
denying Gokongwei's request for an examination of the records the investment of corporate funds in a foreign corporation.
of San Miguel International, Inc., a fully owned subsidiary of
San Miguel Corporation. Held [4]:
Section 17-1/2 of the Corporation Law allows a
Held [3]: corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for
Pursuant to the second paragraph of section 51 of the which it was organized" provided that its Board of Directors has
Corporation Law, "(t)he record of all business transactions of been so authorized by the affirmative vote of stockholders
the corporation and minutes of any meeting shall be open to the holding shares entitling them to exercise at least two-thirds of
inspection of any director, member or stockholder of the the voting power. If the investment is made in pursuance of the
corporation at reasonable hours." The stockholder's right of corporate purpose, it does not need the approval of the
inspection of the corporation's books and records is based upon stockholders. It is only when the purchase of shares is done
their ownership of the assets and property of the corporation. It solely for investment and not to accomplish the purpose of its
is, therefore, an incident of ownership of the corporate property, incorporation that the vote of approval of the stockholders
whether this ownership or interest be termed an equitable holding shares entitling them to exercise at least two-thirds of
ownership, a beneficial ownership, or a quasi-ownership. This the voting power is necessary. As stated by the corporation, the
right is predicated upon the necessity of self-protection. It is purchase of beer manufacturing facilities by SMC was an
generally held by majority of the courts that where the right is investment in the same business stated as its main purpose in its
granted by statute to the stockholder, it is given to him as such Articles of Incorporation, which is to manufacture and market
and must be exercised by him with respect to his interest as a beer. It appears that the original investment was made in 1947-
stockholder and for some purpose germane thereto or in the 1948, when SMC, then San Miguel Brewery, Inc., purchased a
interest of the corporation. In other words, the inspection has to beer brewery in Hongkong (Hongkong Brewery & Distillery,
Ltd.) for the manufacture and marketing of San Miguel beer Commissioner Datu Mama Sinsuat and Mayor Aminkadra
thereat. Restructuring of the investment was made in 1970-1971 Abubakar. In 1972, after the purchase of the land by the Libyan
thru the organization of SMI in Bermuda as a tax free government in the name of IDP, Martial Law was declared by
reorganization. Assuming arguendo that the Board of Directors the late President Ferdinand Marcos. Most of the members of
of SMC had no authority to make the assailed investment, there the 1971 Board of Trustees like Senators Mamintal Tamano,
is no question that a corporation, like an individual, may ratify Salipada Pendatun, Ahmad Alonto, and Congressman Al-
and thereby render binding upon it the originally unauthorized Rashid Lucman flew to the Middle East to escape political
acts of its officers or other agents. This is true because the persecution. Thereafter, two Muslim groups sprung, the
questioned investment is neither contrary to law, morals, public Carpizo Group, headed by Engineer Farouk Carpizo, and the
order or public policy. It is a corporate transaction or contract Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi
which is within the corporate powers, but which is defective Abbas. Both groups claimed to be the legitimate IDP.
from a purported failure to observe in its execution the Significantly, on 3 October 1986, the SEC, in a suit between
requirement of the law that the investment must be authorized these two contending groups, came out with a Decision in SEC
by the affirmative vote of the stockholders holding two-thirds Case 2687 declaring the election of both the Carpizo Group and
of the voting power. This requirement is for the benefit of the the Abbas Group as IDP board members to be null and void.
stockholders. The stockholders for whose benefit the Neither group, however, took the necessary steps prescribed by
requirement was enacted may, therefore, ratify the investment the SEC in its 3 October 1986 Decision, and no valid election
and its ratification by said stockholders obliterates any defect of the members of the Board of Trustees of IDP was ever called.
which it may have had at the outset. Besides, the investment Although the Carpizo Group attempted to submit a set of by-
was for the purchase of beer manufacturing and marketing laws, the SEC found that, aside from that Engineer Farouk
facilities which is apparently relevant to the corporate purpose. Carpizo and Atty. Musib Buat, those who prepared and adopted
The mere fact that the corporation submitted the assailed the by-laws were not bona fide members of the IDP, thus
investment to the stockholders for ratification at the annual rendering the adoption of the by-laws likewise null and void.
meeting of 10 May 1977 cannot be construed as an admission On 20 April 1989, without having been properly elected as new
that the corporation had committed an ultra vires act, members of the Board of Trustees of IDP, the Carpizo Group
considering the common practice of corporations of caused to be signed an alleged Board Resolution of the IDP,
periodically submitting for the ratification of their stockholders authorizing the sale of the subject two parcels of land to the
the acts of their directors, officers and managers. Iglesia ni Cristo (INC) for a consideration of P22,343,400.00,
which sale was evidenced by a Deed of Absolute Sale 12 dated
20 April 1989. On 30 May 1991, the 1971 IDP Board of
ISLAMIC DIRECTORATE OF THE PHILIPPINES VS. Trustees headed by former Senator Mamintal Tamano, or the
COURT OF APPEALS Tamano Group, filed a petition before the SEC (SEC Case
GR 117897 4012) seeking to declare null and void the Deed of Absolute
14 May 1997 Sale signed by the Carpizo Group and the INC since the group
of Engineer Carpizo was not the legitimate Board of Trustees
Facts: of the IDP. Meanwhile, INC, pursuant to the Deed of Absolute
Sometime in 1971, Islamic leaders of all Muslim Sale executed in its favor, filed an action for Specific
major tribal groups in the Philippines headed by Dean Cesar Performance with Damages against the vendor, Carpizo Group,
Adib Majul organized and incorporated the ISLAMIC before Branch 81 of the Regional Trial Court of Quezon City
DIRECTORATE OF THE PHILIPPINES (IDP), the primary (Civil Case Q-90-6937) to compel said group to clear the
purpose of which is to establish an Islamic Center in Quezon property of squatters and deliver complete and full physical
City for, the construction of a "Mosque (prayer place, Madrasah possession thereof to INC. Likewise, INC filed a motion in the
(Arabic School), and other religious infrastructures" so as to same case to compel one Mrs. Leticia P. Ligon to produce and
facilitate the effective practice of Islamic faith in the area. surrender to the Register of Deeds of Quezon City the owner's
Towards this end, that is, in the same year, the Libyan duplicate copy of TCTs RT-26521 and RT-26520 covering the
government donated money to the IDP to purchase land at two parcels of land, so that the sale in INC's favor may be
Culiat, Tandang Sora, Quezon City, to be used as a Center for registered and new titles issued in the name of INC. Mrs. Ligon
the Islamic populace. The land, with an area of 49,652 square was alleged to be the mortgagee of the two parcels of land
meters, we covered by two titles: TCTs RT-26520 (176616) and executed in her favor by certain Abdulrahman R.T. Linzag and
RT-26521 (170567), both registered in the name of IDP. In Rowaida Busran-Sampaco claimed to be in behalf of the
1971, the Board of Trustees of the IDP was composed of Carpizo Group. Judge Celia Lipana-Reyes of Branch 81,
Senator Mamintal Tamano, Congressman Ali Dimaporo, Regional Trial Court of Quezon City, denied IDP's motion to
Congressman Salipada Pendatun, Dean Cesar Adib Majul, intervene on the ground of lack of juridical personality of the
Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto, IDP-Tamano Group and that the issues being raised by way of
intervention are intra-corporate in nature, jurisdiction thereto Whether the Tandang Sora property was legitimately
properly pertaining to the SEC. Apprised of the pendency of sold to the INC.
SEC Case 4012 involving the controverted status of the IDP-
Carpizo Group but without waiting for the outcome of said case, Held:
Judge Reyes, on 12 September 1991, rendered Partial Judgment As far back as 3 October 1986, the SEC, in Case 2687,
in Civil Case Q-90-6937 ordering the IDP-Carpizo Group to in a suit between the Carpizo Group and the Abbas Group,
comply with its obligation under the Deed of Sale of clearing already declared the election of the Carpizo Group (as well as
the subject lots of squatters and of delivering the actual the Abbas Group) to the IDP Board as null and void for being
possession thereof to INC. Thereupon Judge Reyes in another violative of the Articles of Incorporation. Nothing thus becomes
Order, dated 2 March 1992, pertaining also to Civil Case Q-90- more settled than that the IDP-Carpizo Group with whom INC
6937, treated INC as the rightful owner of the real properties contracted is a fake Board. Premises considered, all acts carried
and disposed. On 6 April 1992, the Order was amended by out by the Carpizo Board, particularly the sale of the Tandang
Judge Reyes directing Ligon "to deliver the owner's duplicate Sora property, allegedly in the name of the IDP, have to be
copies of TCT Nos. RT-26521 (170567) and RT-26520 struck down for having been done without the consent of the
(176616) to the Register of Deeds of Quezon City for the IDP thru a legitimate Board of Trustees. Article 1318 of the
purposes stated in the Order of March 2, 1992." Mortgagee New Civil Code lays down the essential requisites of contracts,
Ligon went to the Court of Appeals, thru a petition for certiorari and where all these elements must be present to constitute a
(CA-GR SP-27973), assailing the Orders of Judge Reyes. The valid contract. For, where even one is absent, the contract is
appellate court dismissed her petition on 28 October 1992. void. Specifically, consent is essential for the existence of a
Undaunted, Ligon filed a petition for review before the contract, and where it is wanting, the contract is non-existent.
Supreme Court (GR 107751). In the meantime, the SEC, on 5 Herein, the IDP, owner of the subject parcels of land, never
July 1993, finally came out with a Decision in SEC Case 4012, gave its consent, thru a legitimate Board of Trustees, to the
Declaring the by-laws submitted by the IDP-Caprizo group as disputed Deed of Absolute Sale executed in favor of INC. This
unauthorized, and hence, null and void; declaring the sale of the is, therefore, a case not only of vitiated consent, but one where
two (2) parcels of land in Quezon City covered by the Deed of consent on the part of one of the supposed contracting parties is
Absolute Sale entered into by Iglesia ni Kristo and the Islamic totally wanting. Ineluctably, the subject sale is void and
Directorate of the Philippines, Inc. null and void; declaring the produces no effect whatsoever. The Carpizo Group-INC sale is
election of the Board of Directors 23 of the corporation from further deemed null and void ab initio because of the Carpizo
1986 to 1991 as null and void; and Declaring the acceptance of Group's failure to comply with Section 40 of the Corporation
the respondents, except Farouk Carpizo and Musnib Buat, as Code pertaining to the disposition of all or substantially all
members of the IDP null and void. The INC filed a Motion for assets of the corporation. The Tandang Sora property, it appears
Intervention, dated 7 September 1993, in SEC Case 4012, but from the records, constitutes the only property of the IDP.
the same was denied on account of the fact that the decision of Hence, its sale to a third-party is a sale or disposition of all the
the case had become final and executory, no appeal having been corporate property and assets of IDP falling squarely within the
taken therefrom. INC elevated SEC Case 4012 to the Court of contemplation of the foregoing section. For the sale to be valid,
Appeals by way of a special civil action for certiorari (CA-GR the majority vote of the legitimate Board of Trustees, concurred
SP 33295). On 28 October 1994, the appeallate court in by the vote of at least 2/3 of the bona fide members of the
promulgated a Decision granting INC's petition. The portion of corporation should have been obtained. These twin
the SEC Decision in SEC Case 4012 which declared the sale of requirements were no met as the Carpizo Group which voted to
the two (2) lots in question to INC as void was ordered set aside sell the Tandang Sora property was a fake Board of Trustees,
by the Court of Appeals. Thus, the IDP-Tamano Group brought and those whose names and signatures were affixed by the
the petition for review, dated 21 December 1994, to the Carpizo Group together with the sham Board Resolution
Supreme Court. While the petition was pending, however, the authorizing the negotiation for the sale were, from all
Supreme Court rendered judgment in GR 107751 on the indications, not bona fide members of the IDP as they were
petition filed by Mrs. Leticia P. Ligon. The Decision, dated 1 made to appear to be. Apparently, there are only 15 official
June 1995, denied the Ligon petition and affirmed the 28 members of the IDP including the 8 members of the Board of
October 1992 Decision of the Court of Appeals in CA-GR SP- Trustees. All told, the disputed Deed of Absolute Sale executed
27973 which sustained the Order of Judge Reyes compelling by the fake Carpizo Board and INC was intrinsically void ab
mortgagee Ligon to surrender the owner's duplicate copies of initio.
TCTs RT-26521 (170567) and RT-26520 (176616) to the
Register of Deeds of Quezon City so that the Deed of Absolute
Sale in INC's favor may be properly registered. LIABILITY OF CORPORATION
The construction of the Masagana Citimall was Granting that the Tius possess the legal standing to sue
threatened with stoppage and incompletion when its owner, the for rescission based on breach of contract, said action will still
First Landlink Asia Development Corporation (FLADC), not prosper since rescission will violate the Trust Fund Doctrine
which was owned by the Tius, encountered dire financial and the procedures for the valid distribution of assets and
difficulties. To prevent foreclosure of the mortgage on the two property under the Corporation Code. In the instant case, the
lots where the mall was being built, the Tius invited the Ongs, rescission of the Pre-Subscription Agreement will effectively
to invest in FLADC through a Pre-Subscription Agrrement. result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund
Tius committed to contribute a four-storey building Doctrine and the Corporation Code, since rescission of a
and two parcels of land to cover their additional stock subscription agreement is not one of the instances when
subscription. The Tuis subsequently rescinded the Pre- distribution of capital assets and property of the corporation is
Subscription Agreement.and alleged that the Ongs refused to allowed.
give them the shares corresponding to their property
contributions of a four-story building, a 1,902.30 square-meter
lot and a 151 square-meter lot. Hence, they felt they were PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
justified in setting aside their Pre-Subscription Agreement with DEVELOPMENT CORPORATION VS. ANDRADA
the Ongs who allegedly refused to comply with their ELECTRIC & ENGINEERING COMPANY
undertakings. G.R. No. 142936
April 17, 2002 225 SCRA 678
Facts: FACTS:
Pampanga Sugar Mills (PASUMIL) hired the services Manuel Dulay Enterprises, Inc. (Dulay Corporation,
of respondent, since the latter is engaged in the business of for brevity) obtained several loans for the construction of its
general construction for repairs of buildings and machineries. hotel project. Dulay Corporation borrowed money from Atty.
The Development Bank of the Philippines (DBP) has Virgilio Dulay, its vice-president for the continuance of said
foreclosed the assets of PASUMIL. At the foreclosure sale, project. As a result of the said loan, Virgilio occupied one of the
Philippine National Bank (PNB) was the highest bidder, hence unit apartments of the subject property. Thereafter, by virtue of
it acquired the assets of PASUMIL. PNB organized the a board resolution, Dulay Corporation, through its president
National Sugar Development Corporation (NASUDECO) to Manuel Dulay, sold the subject property in favor of spouses
take ownership and possession of the assets of the PASUMIL. Maria Theresa and Castrense Veloso in the amount of
The latter failed to pay the balance of its total obligation to the P300,000.00 as evidenced by the Deed of Absolute Sale. The
respondent when PASUMIL hired the services of the parties executed a Memorandum to the Absolute Deed of Sale
respondent. Consequently, the respondent filed a case against giving Manuel Dulay two years within which to repurchase the
PNB, NASUDECO and PASUMIL. property from Spouses Veloso. However, a day after the
property was sold to the spouses, the spouses, in order to obtain
Issue: Whether or not PNB is liable for corporate a loan, mortgaged the same to Manuel Torres without the
debts. knowledge of Manuel Dulay.
When said corporation failed to remit the SSS Private respondents proceeded against petitioner and
premium contributions falls exactly under the fourth situation. filed a Complaint anchored on private respondents’ alleged
Section 28(f) of the Social Security Law imposes a civil liability rights to collect dividends under the preferred shares in question
for any act or omission pertaining to the violation of the Social and to have petitioner redeem the same under the terms and
Security Law against its managing head, directors or partners conditions of the stock certificates. Private respondents
shall be liable to the penalties provided in this Act for the attached to their complaint, a letter-demand dated January 5,
offense. 1979 which, significantly, was not formally offered in evidence.
Criminal actions for violations of the Social Security Petitioner filed a Motion to Dismiss but was denied by
Law are also provided under the Revised Penal Code. The the trial court in an Order. The trial court rendered the herein
Social Security Law provides, in Section 28, that any employer assailed decision in favor of private respondents ordering
who, after deducting the monthly contributions or loan petitioner to pay private respondents the face value of the stock
amortizations from his employees’ compensation, fails to remit certificates as redemption price, plus 1% quarterly interest
the said deductions to the SSS within thirty (30) days from the thereon until full payment.
date they became due shall be presumed to have
misappropriated such contributions or loan amortizations and Issue: Whether or not redemption of shares should be allowed
shall suffer the penalties provided in Article Three hundred
fifteen of the Revised Penal Code. Held:
Preferred share of stock, on one hand, is one which
The personal liability for the unremitted SSS premium entitles the holder thereof to certain preferences over the
contributions and the late penalty thereof attaches to the holders of common stock. The preferences are designed to
petitioner as a director of Impact Corporation during the period induce persons to subscribe for shares of a corporation.
the amounts became due and demandable by virtue of a direct Preferred shares take a multiplicity of forms. The most common
provision of law. Although a corporation once formed is forms may be classified into two: (1) preferred shares as to
conferred a judicial personality separate and distinct from the assets; and (2) preferred shares as to dividends. The former is a
persons comprising it, it is but a legal fiction introduced for share which gives the holder thereof preference in the
purposes of convenience and to subserve the ends of justice – distribution of the assets of the corporation in case of
the concept cannot be extended to a point beyond its reasons liquidation; the latter is a share the holder of which is entitled
and policy. to receive dividends on said share to the extent agreed upon
before any dividends at all are paid to the holders of common Code was then in force. Under Article VII of its Articles of
stock. There is no guaranty, however, that the share will receive Incorporation, only holders of class “A” shares have the right
any dividends. The present Corporation Code provides that the to vote and be voted for during their annual stockholders
board of directors of a stock corporation may declare dividends election. The said Articles of Incorporation was amended three
only out of unrestricted retained earnings. The Code, in Section times, however, only holders of class “B” shares are still
43, adopting the change made in accounting terminology, deprived to vote and be voted for. The petitioners protested
substituted the phrase “unrestricted retained earnings,” which claiming that Article VII was null and void for depriving them,
may be a more precise term, in place of “surplus profits arising as holders of class “B” shares, of their right to vote and be voted
from its business” in the former law. Thus, the declaration of upon, in violation of the New Corporation Code. They alleged
dividends is dependent upon the availability of surplus profit or that the phrase, under Artice VII, “except when otherwise
unrestricted retained earnings, as the case may be. Preferences provided by law” grants them the right to vote under the New
granted to preferred stockholders, moreover, do not give them Corporation Code.
a lien upon the property of the corporation nor make them
creditors of the corporation, the right of the former being always Issue: Whether or not the law referred to in the amendment to
subordinate to the latter. Dividends are thus payable only when Article VII refers to the New Corporation Code and as such
there are profits earned by the corporation and as a general rule, holders of class “B” shares have the right to vote and be voted
even if there are existing profits, the board of directors has the upon
discretion to determine whether or not dividends are to be
declared. 15 Shareholders, both common and preferred, are Held:
considered risk takers who invest capital in the business and The Supreme Court found and so held that the law
who can look only to what is left after corporate debts and referred to in the amendment to Article VII refers to the
liabilities are fully paid. Corporation Code and no other law. At the time of the
incorporation of MCPI in 1977, the right of a corporation to
Redeemable shares, on the other hand, are shares classify its shares of stock was sanctioned by Section 5 of Act
usually preferred, which by their terms are redeemable at a No. 1459. The law repealing Act No. 1459, B.P. Blg. 68,
fixed date, or at the option of either issuing corporation, or the retained the same grant of right of classification of stock shares
stockholder, or both at a certain redemption price. A redemption to corporations, but with a significant change. Under Section 6
by the corporation of its stock is, in a sense, a repurchase of it of B.P. Blg. 68, the requirements and restrictions on voting
for cancellation. The present Code allows redemption of shares rights were explicitly provided for, such that "no share may be
even if there are no unrestricted retained earnings on the books deprived of voting rights except those classified and issued as
of the corporation. This is a new provision which in effect "preferred" or "redeemable" shares, unless otherwise provided
qualifies the general rule that the corporation cannot purchase in this Code" and that "there shall always be a class or series of
its own shares except out of current retained earnings. However, shares which have complete voting rights." One of the rights of
while redeemable shares may be redeemed regardless of the a stockholder is the right to participate in the control and
existence of unrestricted retained earnings, this is subject to the management of the corporation that is exercised through his
condition that the corporation has, after such redemption, assets vote. The right to vote is a right inherent in and incidental to the
in its books to cover debts and liabilities inclusive of capital ownership of corporate stock, and as such is a property right.
stock. Redemption, therefore, may not be made where the The stockholder cannot be deprived of the right to vote his stock
corporation is insolvent or if such redemption will cause nor may the right be essentially impaired, either by the
insolvency or inability of the corporation to meet its debts as legislature or by the corporation, without his consent, through
they mature. amending the charter, or the by-laws.
ANG-ABAYA vs ANG
CECILIA CASTILLO, ET AL. VS. ANGELES G.R. No. 178511
BALINGHASAY, ET AL. December 4, 2008
G.R. No. 150976
October 18, 2004 Facts:
Vibelle Manufacturing Corporation and Genato
Facts: Investments, Inc. are family-owned corporations, where
Petitioners and respondents are stockholders of petitioners Ma. Belen Flordeliza C. Ang-Abaya , Jason A. Ang,
Medical Center Paranaque, Inc. (MCPI, for brevity) with the Vincent G. Genato, Hanna Ang and private respondent Eduardo
former holding class “B” shares while the latter owning class G. Ang (Eduardo) are shareholders, officers and members of
“A” shares. MCPI was incorporated when the Old Corporation the board of directors.
books/records as provided for under Section 74 of the
Prior to the instant controversy, VMC, Genato, and Corporation Code, the following elements must be present:
Oriana Manufacturing Corporation (Oriana) filed a case for
damages with prayer for issuance of a TRO and/or writ of First. A director, trustee, stockholder or member has
preliminary injunction against Eduardo for allegedly conniving made a prior demand in writing for a copy of excerpts from the
to fraudulently wrest control/management of the corporations. corporation’s records or minutes;
Eduardo allegedly borrowed substantial amounts of money
from the said corporations without any intention to repay; that Second. Any officer or agent of the concerned
he repeatedly demanded for increases in his monthly allowance corporation shall refuse to allow the said director, trustee,
and for more cash advances contrary to existing corporate stockholder or member of the corporation to examine and copy
policies; that he harassed petitioner Flordeliza to transfer and/or said excerpts;
sell certain corporate and personal properties in order to pay off
his personal obligations etc. Third. If such refusal is made pursuant to a resolution
or order of the board of directors or trustees, the liability under
Eduardo sought permission to inspect the corporate this section for such action shall be imposed upon the directors
books of VMC and Genato on account of petitioners’ alleged or trustees who voted for such refusal; and,
failure and/or refusal to update him on the financial and
business activities of these family corporations. Petitioners Fourth. Where the officer or agent of the corporation
denied the request claiming that Eduardo would use the sets up the defense that the person demanding to examine and
information obtained from said inspection for purposes inimical copy excerpts from the corporation’s records and minutes has
to the corporations’ interests, considering that: a) he is improperly used any information secured through any prior
harassing the corporation into writing off his advances; b) he is examination of the records or minutes of such corporation or of
unjustly demanding that he be given an office/position already any other corporation, or was not acting in good faith or for a
occupied and usurping corporate powers as well as making legitimate purpose in making his demand, the contrary must be
demands with regard to corporate properties. shown or proved.
On April 11, 1996, PALI wrote a letter to the SEC In reaching its decision to deny the application for
addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., listing of PALI, the PSE considered important facts, which, in
bringing to the SEC's attention the action taken by the PSE in the general scheme, brings to serious question the qualification
the application of PALI for the listing of its shares with the PSE, of PALI to sell its shares to the public through the stock
and requesting that the SEC, in the exercise of its supervisory exchange. During the time for receiving objections to the
and regulatory powers over stock exchanges under Section 6(j) application, the PSE heard from the representative of the late
of P.D. No. 902-A, review the PSE's action on PALI's listing President Ferdinand E. Marcos and his family who claim the
application and institute such measures as are just and proper properties of the private respondent to be part of the Marcos
under the circumstances. On the same date, or on April 11, estate. In time, the PCGG confirmed this claim. In fact, an order
1996, the SEC wrote to the PSE, attaching thereto the letter of of sequestration has been issued covering the properties of
PALI and directing the PSE to file its comments thereto within PALI, and suit for reconveyance to the state has been filed in
five days from its receipt and for its authorized representative the Sandiganbayan Court. How the properties were effectively
to appear for an "inquiry" on the matter. On April 22, 1996, the transferred, despite the sequestration order, from the TDC and
PSE submitted a letter to the SEC containing its comments to MSDC to Rebecco Panlilio, and to the private respondent PALI,
the April 11, 1996 letter of PALI. On April 24, 1996, the SEC in only a short span of time, are not yet explained to the Court,
rendered its Order, reversing the PSE's decision. but it is clear that such circumstances give rise to serious doubt
as to the integrity of PALI as a stock issuer. The petitioner was
Issue: Whether or not SEC has the power or jurisdiction to in the right when it refused application of PALI, for a contrary
reverse the ruling of Philippine Stock Exchange in this case. ruling was not to the best interest of the general public. The
purpose of the Revised Securities Act, after all, is to give
Held: No. The role of the SEC in our national economy cannot adequate and effective protection to the investing public against
be minimized. The legislature, through the Revised Securities fraudulent representations, or false promises, and the
Act, Presidential Decree No. 902-A, and other pertinent laws, imposition of worthless ventures.
has entrusted to it the serious responsibility of enforcing all
laws affecting corporations and other forms of associations not Also, as the primary market for securities, the PSE has
otherwise vested in some other government office. This is not established its name and goodwill, and it has the right to protect
to say, however, that the PSE's management prerogatives are such goodwill by maintaining a reasonable standard of
under the absolute control of the SEC. The PSE is, alter all, a propriety in the entities who choose to transact through its
corporation authorized by its corporate franchise to engage in facilities. It was reasonable for the PSE, therefore, to exercise
its proposed and duly approved business. One of the PSE's main its judgment in the manner it deems appropriate for its business
concerns, as such, is still the generation of profit for its identity, as long as no rights are trampled upon, and public
stockholders. Moreover, the PSE has all the rights pertaining to welfare is safeguarded. In this connection, it is proper to
corporations, including the right to sue and be sued, to hold observe that the concept of government absolutism is a thing of
property in its own name, to enter (or not to enter) into contracts the past, and should remain so.
with third persons, and to perform all other legal acts within its
allocated express or implied powers. In any case, for the purpose of determining whether
PSE acted correctly in refusing the application of PALI, the true
A corporation is but an association of individuals, allowed to ownership of the properties of PALI need not be determined as
transact under an assumed corporate name, and with a distinct an absolute fact. What is material is that the uncertainty of the
legal personality. In organizing itself as a collective body, it properties' ownership and alienability exists, and this puts to
waives no constitutional immunities and perquisites appropriate question the qualification of PALI's public offering. In sum, the
to such a body. 11 As to its corporate and management decisions, Court finds that the SEC had acted arbitrarily in arrogating unto
therefore, the state will generally not interfere with the same. itself the discretion of approving the application for listing in
Questions of policy and of management are left to the honest the PSE of the private respondent PALI, since this is a matter
decision of the officers and directors of a corporation, and the addressed to the sound discretion of the PSE, a corporation
courts are without authority to substitute their judgment for the
entity, whose business judgments are respected in the absence of arbitrariness and whimsical animation on its part. Its action
of bad faith. in refusing to allow the listing of PALI in the stock exchange is
justified by the law and by the circumstances attendant to this
The question as to what policy is, or should be relied case.
upon in approving the registration and sale of securities in the
SEC is not for the Court to determine, but is left to the sound
discretion of the Securities and Exchange Commission. In LITTON MILLS INC. vs COURT of APPEALS
mandating the SEC to administer the Revised Securities Act, GR NO. 9488
and in performing its other functions under pertinent laws, the May 15,1996
Revised Securities Act, under Section 3 thereof, gives the SEC
the power to promulgate such rules and regulations as it may Facts: Petitioner Litton Mills, Inc. (Litton) entered into an
consider appropriate in the public interest for the enforcement agreement with Empire Sales Philippines Corporation
of the said laws. The second paragraph of Section 4 of the said (Empire), as local agent of private respondent Gelhaar Uniform
law, on the other hand, provides that no security, unless exempt Company (Gelhaar), a corporation organized under the laws of
by law, shall be issued, endorsed, sold, transferred or in any the United States, whereby Litton agreed to supply Gelhaar
other manner conveyed to the public, unless registered in 7,770 dozens of soccer jerseys. The agreement stipulated that
accordance with the rules and regulations that shall be before it could collect from the bank on the letter of credit,
promulgated in the public interest and for the protection of Litton must present an inspection certificate issued by Gelhaar's
investors by the Commission. Presidential Decree No. 902-A, agent in the Philippines, Empire Sales, that the goods were in
on the other hand, provides that the SEC, as regulatory agency, satisfactory condition. Litton sent four shipments totalling
has supervision and control over all corporations and over the 4,770 dozens of the soccer jerseys between December 2 and
securities market as a whole, and as such, is given ample December 30, 1983. A fifth shipment, consisting of 2,110
authority in determining appropriate policies. Pursuant to this dozens of the jerseys, was inspected by Empire from January 9
regulatory authority, the SEC has manifested that it has adopted to January 19, 1984, but Empire refused to issue the required
the policy of "full material disclosure" where all companies, certificate of inspection. Alleging that Empire's refusal to issue
listed or applying for listing, are required to divulge truthfully a certificate was without valid reason, Litton filed a complaint
and accurately, all material information about themselves and with the Regional Trial Court of Pasig (Branch 158) on January
the securities they sell, for the protection of the investing public, 23, 1984, for specific performance and prayed for the issuance
and under pain of administrative, criminal and civil sanctions. of writ of preliminary injunction to compel Empire to issue the
In connection with this, a fact is deemed material if it tends to inspection certificate covering the 2,110 dozens of jerseys and
induce or otherwise effect the sale or purchase of its securities. for damages. The trial court issued the writ which compelled
15
While the employment of this policy is recognized and Empire to issue the inspection certificate. Atty. Noval filed on
sanctioned by the laws, nonetheless, the Revised Securities Act behalf of Gelhaar Company a motion for extension of time to
sets substantial and procedural standards which a proposed file an answer/responsive pleading.
issuer of securities must satisfy.
Afterwards, the law firm of Sycip, Salazar, Feliciano and
A reading of the foregoing grounds reveals the Hernandez entered a special appearance for the purpose of
intention of the lawmakers to make the registration and issuance objecting to the jurisdiction of the court over Gelhaar. On
of securities dependent, to a certain extent, on the merits of the February 4, 1985, it moved to dismiss the case and to quash the
securities themselves, and of the issuer, to be determined by the summons on the ground that Gelhaar was a foreign corporation
Securities and Exchange Commission. This measure was meant not doing business in the Philippines, and as such, was beyond
to protect the interests of the investing public against fraudulent the reach of the local courts. It contended that Litton failed to
and worthless securities, and the SEC is mandated by law to allege and prove that Gelhaar was doing business in the
safeguard these interests, following the policies and rules Philippines, which they argued was required by the ruling in
therefore provided. The absolute reliance on the full disclosure Pacific Micronisian Lines, Inc., v. Del Rosario, 1 before
method in the registration of securities is, therefore, untenable. summons could be served under Rule 14, §14. It likewise
As it is, the Court finds that the private respondent PALI, on at denied the authority of Atty. Noval to appear for Gelhaar and
least two points (nos. 1 and 5) has failed to support the propriety contended that the answer filed by Atty. Noval on June 15, 1984
of the issue of its shares with unfailing clarity, thereby lending could not bind Gelhaar and its filing did not amount to Gelhaar's
support to the conclusion that the PSE acted correctly in submission to the jurisdiction of the court. Litton opposed the
refusing the listing of PALI in its stock exchange. This does not motion. On the other hand, Empire moved to dismiss on the
discount the effectivity of whatever method the SEC, in the ground of failure of the complaint to state a cause of action since
exercise of its vested authority, chooses in setting the standard the complaint alleged that Empire only acted as agent of
for public offerings of corporations wishing to do so. However, Gelhaar; that it was made party-defendant only for the purpose
the SEC must recognize and implement the mandate of the law, of securing the issuance of an inspection certificate; and that it
particularly the Revised Securities Act, the provisions of which had already issued such certificate and the shipment had already
cannot be amended or supplanted by mere administrative been shipped on time. the trial court issued an order denying for
issuance. lack of merit Gelhaar's motion to dismiss and to quash the
summons. It held that Gelhaar was doing business in the
In resume, the Court finds that the PSE has acted with Philippines, and that the service of summons on Gelhaar was
justified circumspection, discounting, therefore, any imputation therefore valid. Gelhaar filed a motion for reconsideration, but
its motion was denied. On appeal, the Court of Appeals irrevocable letter of credit in favor of Litton is a sufficient
reversed the ruling of trial court. The appellate court held that allegation that Gelhaar was doing business in the Philippines.
neither did the trial court acquire jurisdiction over Gelhaar
through voluntary submission because the authority of Atty. Second. Gelhaar contends that the contract with Litton was a
Noval to represent Gelhaar had been questioned. Hence, this single, isolated transaction and that it did not constitute "doing
appeal. business." Reference is made to Pacific Micronisian in which
the only act done by the foreign company was to employ a
Issue: Whether or not respondent Gelhaar Uniform Company Filipino as a member of the crew on one of its ships. This court
is doing business for the purpose of applying Rule 14, Section held that the act was an isolated, incidental or casual
14 of Rules of Court? transaction, not sufficient to indicate a purpose to engage in
business.
Held: Yes. The trial court acquired jurisdiction over Gelhaar by
service of summons upon its agent pursuant to Rule 14, §14. It is not really the fact that there is only a single act done that is
First. The appellate court invoked the ruling in Pacific material. The other circumstances of the case must be
Micronisian, in which it was stated that the fact of doing considered. Thus, in Wang Laboratories, Inc. v. Mendoza, 4 it
business must first be established before summons can be was held that where a single act or transaction of a foreign
served in accordance with Rule 14, §14. The Court of Appeals corporation is not merely incidental or casual but is of such
quoted the following portion of the opinion in that case: character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act
The above section [referring to Rule 14, Section 14] provides will be considered as constituting doing business. 5 This Court
for three modes of effecting service upon a private corporation, referred to acts which were in the ordinary course of business
namely: [enumerates the three modes of service of summons]. of the foreign corporation.
But, it should be noted, in order that service may be effected in
the manner above stated said section also requires that the In the case at bar, the trial court was certainly correct in holding
foreign corporation be one which is doing business in the that Gelhaar' s act in purchasing soccer jerseys to be within the
Philippines. This is a sine qua non requirement. This fact must ordinary course of business of the company considering that it
first be established in order that summons can made and was engaged in the manufacture of uniforms. The acts noted
jurisdiction acquired. (Emphasis by the Court of Appeals) above are of such a character as to indicate a purpose to do
business.
In the later case of Signetics Corporation v. Court of Appeals, 3
however, we clarified the holding in Pacific Micronisian, thus: In accordance with Rule 14, §14, service upon Gelhaar could
be made in three ways: (1) by serving upon the agent designated
The petitioner opines that the phrase, "(the) fact (of doing in accordance with law to accept service of summons; (2) if
business in the Philippines) must first be established in order there is no resident agent, by service on the government official
that summons be made and jurisdiction acquired," used in the designated by law to that effect; and (3) by serving on any
above pronouncement, would indicate that a mere allegation to officer or agent of said corporation within the Philippines. 6
that effect in the complaint is not enough — there must instead Here, service was made through Gelhaar's agent, the Empire
be proof of doing business. In any case, the petitioner points Sales Philippines Corp. There was, therefore, a valid service of
out, the allegations themselves did not sufficiently show the fact summons on Gelhaar, sufficient to confer on the trial court
of its doing business in the Philippines. jurisdiction over the person of Gelhaar.
It should be recalled that jurisdiction and venue of actions are, MR HOLDINGS INC. vs. BAJAR
as they should so be, initially determined by the allegations of GR No. 138104
the complaint. Jurisdiction cannot be made to depend on April 11,2002
independent pleas set up in a mere motion to dismiss, otherwise
jurisdiction would become dependent almost entirely upon the Facts: Marcopper Mining Corporation, a domestic corporation
defendant. The fact of doing business must then, in the first whose 40% share capital are owned by Placer Dome Inc.,
place, be established by appropriate allegations in the obtained a loan from Asian Development Bank through the
complaint. This is what the Court should be seen to have meant support of Place Dome Inc. Placer Dome Inc. and its subsidiary
in the Pacific Micronisian case. The complaint, it is true, may MR Holdings Inc. are both foreign corporations. To secure the
have been vaguely structured but, taken correlatively, not loan, Marcopper executed in favor of ADB a deed of real estate
disjunctively as the petitioner would rather suggest, it is not and chattel mortgage. Upon default of payment by Marcopper,
really so weak as to be fatally deficient in the above Placer Dome in fulfillment of its undertaking to support the loan
requirement. agreed to have its subsidiary MR Holdings assumed
Marcopper’s obligation. Consequently, in an "Assignment
Hence, a court need not go beyond the allegations in the Agreement"7 dated March 20, 1997, ADB assigned to petitioner
complaint to determine whether or not a defendant foreign all its rights, interests and obligations under the principal and
corporation is doing business for the purpose of Rule 14, §14. complementary loan agreements. Meanwhile, it appeared that
In the case at bar, the allegation that Empire, for and in behalf Solidbank Corporation obtained partial judgment against
of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton Marcopper from another RTC and moved for the issuance of
and for this purpose Gelhaar caused the opening of an writ of execution pending appeal. Thereafter, respondent Bajar
issued two notices of levy on Marcopper’s personal and real principles governing the jurisdictional authority of the state
properties, and over all its stocks of scrap iron and over such corporations.
unserviceable mining equipment. Together with sheriff
Ferdinand M. Jandusay (also a respondent) of the RTC, Branch Batas Pambansa Blg. 68, otherwise known as "The
94, Boac, Marinduque, respondent Bajar issued two notices Corporation Code of the Philippines," is silent as to what
setting the public auction sale of the levied properties on August constitutes doing" or "transacting" business in the Philippines.
27, 1998 at the Marcopper mine site. Having learned of the Fortunately, jurisprudence has supplied the deficiency and has
scheduled auction sale, petitioner MR Holdings Inc. served an held that the term "implies a continuity of commercial dealings
"Affidavit of Third-Party Claim" upon respondent sheriffs on and arrangements, and contemplates, to that extent, the
August 26, 1998, asserting its ownership over all Marcopper’s performance of acts or works or the exercise of some of the
mining properties, equipment and facilities by virtue of the functions normally incident to, and in progressive prosecution
"Deed of Assignment." Upon the denial of its "Affidavit of of, the purpose and object for which the corporation was
Third–Party Claim" by the RTC of Manila, petitioner organized."23 In Mentholatum Co. Inc., vs. Mangaliman,24 this
commenced with the RTC of Boac, Marinduque, presided by Court laid down the test to determine whether a foreign
Judge Leonardo P. Ansaldo, a complaint for reivindication of company is "doing business," thus:
properties, etc., with prayer for preliminary injunction and
temporary restraining order against respondents Solidbank,
" x x x The true test, however, seems to be whether the
Marcopper, and sheriffs Bajar and Jandusay. In an Order dated
foreign corporation is continuing the body or substance of
October 6, 1998, Judge Ansaldo denied petitioner’s application
the business or enterprise for which it was organized or
for a writ of preliminary injunction on the ground that a)
whether it has substantially retired from it and turned it
petitioner has no legal capacity to sue, it being a foreign over to another. (Traction Cos. vs. Collectors of Int. Revenue
corporation doing business in the Philippines without license;
[C.C.A., Ohio], 223 F. 984,987.) x x x."
b) an injunction will amount "to staying the execution of a final
judgment by a court of co-equal and concurrent jurisdiction;"
and c) the validity of the "Assignment Agreement" and the The traditional case law definition has metamorphosed into a
"Deed of Assignment" has been "put into serious question by statutory definition, having been adopted with some
the timing of their execution and registration." Unsatisfied, qualifications in various pieces of legislation in our jurisdiction.
petitioner appealed before the Court of Appeals which affirmed For instance, Republic Act No. 7042, otherwise known as the
the decision of RTC. Hence, this appeal. "Foreign Investment Act of 1991," defines "doing business" as
follows:
Issue: Whether or not petitioner has legal capacity to sue and
seek redress from Philippine courts as it is a non-resident "d) The phrase ‘doing business’ shall include soliciting orders,
foreign corporations not doing business in the Philippines and service contracts, opening offices, whether called ‘liaison’
suing on isolated transactions. 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
Held: Yes. The Court of Appeals ruled that petitioner has no eight(y) (180) days or more; participating in the management,
legal capacity to sue in the Philippine courts because it is a
supervision or control of any domestic business, firm, entity, or
foreign corporation doing business here without license. A
corporation in the Philippines; and any other act or acts that
review of this ruling does not pose much complexity as the
imply a continuity of commercial dealings or arrangements,
principles governing a foreign corporation’s right to sue in local
and contemplate to that extent the performance of acts or
courts have long been settled by our Corporation Law. These
works; or the exercise of some of the functions normally
principles may be condensed in three statements, to wit: a) if a
incident to, and in progressive prosecution of, commercial
foreign corporation does business in the Philippines without a
gain or of the purpose and object of the business
license, it cannot sue before the Philippine courts; b) if a
organization; Provided, however, That the phrase ‘doing
foreign corporation is not doing business in the Philippines, it
business’ shall not be deemed to include mere investment as a
needs no license to sue before Philippine courts on an isolated shareholder by a foreign entity in domestic corporations duly
transaction or on a cause of action entirely independent of any registered to do business, and/or the exercise of rights as such
business transaction; and c) if a foreign corporation does
investor, nor having a nominee director or officer to represent
business in the Philippines with the required license, it can sue
its interests in such corporation, nor appointing a representative
before Philippine courts on any transaction. Apparently, it is not
or distributor domiciled in the Philippines which transacts
the absence of the prescribed license but the "doing (of)
business in its own name and for its own account." (Emphasis
business" in the Philippines without such license which debars supplied)25
the foreign corporation from access to our courts.
Likewise, Section 1 of Republic Act No. 5455,26 provides that:
The task at hand requires us to weigh the facts vis-à-
vis the established principles. The question whether or not a
foreign corporation is doing business is dependent principally "SECTION. 1. Definition and scope of this Act. - (1) x x x the
upon the facts and circumstances of each particular case, phrase ‘doing business’ shall include soliciting orders,
considered in the light of the purposes and language of the purchases, service contracts, opening offices, whether called
pertinent statute or statutes involved and of the general ‘liaison’ offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any
calendar year stay in the Philippines for a period or periods
totaling one hundred eighty days or more; participating in the recover its huge financial investments which it poured into
management, supervision or control of any domestic business Marcopper’s rehabilitation without it (petitioner) continuing
firm, entity or corporation in the Philippines; and any other act Marcopper’s business in the country." 30 This is a mere
or acts that imply a continuity of commercial dealings or presumption. Absent overt acts of petitioner from which we
arrangements, and contemplate to that extent the may directly infer its intention to continue Marcopper’s
performance of acts or works, or the exercise of some of the business, we cannot give our concurrence. Significantly, a view
functions normally incident to, and in progressive subscribed upon by many authorities is that the mere ownership
prosecution of, commercial gain or of the purpose and by a foreign corporation of a property in a certain state,
object of the business organization." unaccompanied by its active use in furtherance of the
business for which it was formed, is insufficient in itself to
There are other statutes27 defining the term "doing business" in constitute doing business.31 In Chittim vs. Belle Fourche
the same tenor as those above-quoted, and as may be observed, Bentonite Products Co.,32 it was held that even if a foreign
one common denominator among them all is the concept of corporation purchased and took conveyances of a mining
"continuity." claim, did some assessment work thereon, and endeavored
to sell it, its acts will not constitute the doing of business so
In the case at bar, the Court of Appeals categorized as "doing as to subject the corporation to the statutory requirements
for the transacting of business. On the same vein, petitioner,
business" petitioner’s participation under the "Assignment
a foreign corporation, which becomes the assignee of mining
Agreement" and the "Deed of Assignment." This is simply
properties, facilities and equipment cannot be automatically
untenable. The expression "doing business" should not be given
such a strict and literal construction as to make it apply to any considered as doing business, nor presumed to have the
corporate dealing whatever.28 At this early stage and with intention of engaging in mining business.
petitioner’s acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended One important point. Long before petitioner assumed
to continue the business for which it was organized. It may not Marcopper’s debt to ADB and became their assignee under the
be amiss to point out that the purpose or business for which two assignment contracts, there already existed a "Support and
petitioner was organized is not discernible in the records. Standby Credit Agreement" between ADB and Placer Dome
No effort was exerted by the Court of Appeals to establish whereby the latter bound itself to provide cash flow support for
the nexus between petitioner’s business and the acts Marcopper’s payment of its obligations to ADB. Plainly,
supposed to constitute "doing business." Thus, whether the petitioner’s payment of US$ 18,453,450.12 to ADB was more
assignment contracts were incidental to petitioner’s of a fulfillment of an obligation under the "Support and Standby
business or were continuation thereof is beyond Credit Agreement" rather than an investment. That petitioner
determination. We cannot apply the case cited by the Court of had to step into the shoes of ADB as Marcopper’s creditor was
Appeals, Far East Int’l Import and Export Corp. vs. Nankai just a necessary legal consequence of the transactions that
Kogyo Co., Ltd.,29 which held that a single act may still transpired. Also, we must hasten to add that the "Support and
constitute "doing business" if "it is not merely incidental or Standby Credit Agreement" was executed four (4) years prior
casual, but is of such character as distinctly to indicate a purpose to Marcopper’s insovency, hence, the alleged "intention of
on the part of the foreign corporation to do other business in the petitioner to continue Marcopper’s business" could have no
state." In said case, there was an express admission from an basis for at that time, Marcopper’s fate cannot yet be
official of the foreign corporation that he was sent to the determined.
Philippines to look into the operation of mines, thereby
revealing the foreign corporation’s desire to continue engaging In the final analysis, we are convinced that petitioner was
in business here. But in the case at bar, there is no evidence of engaged only in isolated acts or transactions. Single or isolated
similar desire or intent. Unarguably, petitioner may, as the acts, contracts, or transactions of foreign corporations are not
Court of Appeals suggested, decide to operate Marcopper’s regarded as a doing or carrying on of business. Typical
mining business, but, of course, at this stage, that is a mere examples of these are the making of a single contract, sale, sale
speculation. Or it may decide to sell the credit secured by the with the taking of a note and mortgage in the state to secure
mining properties to an offshore investor, in which case the acts payment therefor, purchase, or note, or the mere commission of
will still be isolated transactions. To see through the present a tort.33 In these instances, there is no purpose to do any other
facts an intention on the part of petitioner to start a series business within the country.
of business transaction is to rest on assumptions or
probabilities falling short of actual proof. Courts should
never base its judgments on a state of facts so inadequately
developed that it cannot be determined where inference ABACUS SECURITIES CORPORATION VS. RUBEN
ends and conjecture begins.
AMPIL
MLF alleged that: (1) MLF entered into a Futures Customer On appeal to the Court of Appeals, the appellate court the
Agreement with spouses Lara, in virtue of which it agreed to decision of the RTC.
act as the latter's broker for the purchase and sale of futures
contracts in the U.S.; Issue: Whether or not Merrill Lynch Futures, Inc. (MLF), being
a foreign corporation not licensed to do business in the
(2) that pursuant to the contract, orders to buy and sell futures Philippines, has the capacity to maintain an action in the
contracts were transmitted to MLFby the Lara Spouses Philippines against residents thereof (spouses Lara).
"through the facilities of Merrill Lynch Philippines, Inc., a
Philippine corporation and a company servicing plaintiff’s Ruling: Yes. The Court is satisfied that the facts on record
customers;" adequately establish that ML FUTURES, operating in the
United States, had indeed done business with the Lara Spouses
(3) that from the outset, the Lara Spouses "knew and were duly in the Philippines over several years, had done so at all times
advised that Merrill Lynch Philippines, Inc. was not a broker in through Merrill Lynch Philippines, Inc. (MLPI), a corporation
futures contracts," and that it "did not have a license from the organized in this country and had executed all these transactions
Securities and Exchange Commission to operate as a without ML FUTURES being licensed to so transact business
commodity trading advisor (i.e., ‘an entity which, not being a here, and without MLPI being authorized to operate as a
broker, furnishes advice on commodity futures to persons who commodity futures trading advisor.
trade in futures contracts’);
These are the factual findings of both the Trial Court and the
(4) that in line with the above mentioned agreement and through Court of Appeals. These, too, are the conclusions of the
said Merrill Lynch Philippines, Inc., the Lara Spouses actively Securities & Exchange Commission which denied MLPI's
traded in futures contracts, including "stock index futures" for application to operate as a commodity futures trading advisor,
four years or so; a denial subsequently affirmed by the Court of Appeals.
(5) that because of a loss amounting to US$160,749.69 incurred Prescinding from the proposition that factual findings of the
in respect of three (3) transactions involving "index futures," Court of Appeals are generally conclusive, this Court has been
and after setting this off against an amount of US$75,913.42 cited to no circumstance of substance to warrant reversal of said
then owing by ML FUTURES to the Lara Spouses, said spouses Appellate Court's findings or conclusions in this case.
became indebted to ML FUTURES for the ensuing balance of
US$84,836.27, which the latter asked them to pay; and The Court is satisfied, too, that the Laras did transact business
with ML FUTURES through its agent corporation organized in
(6) that the Lara Spouses however refused to pay this balance, the Philippines, it being unnecessary to determine whether this
“alleging that the transactions were null and void because domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or
Merrill Lynch Philippines, Inc., the Philippine company Merrill Lynch Pierce Fenner & Smith, (MLPI's alleged
servicing accounts of plaintiff, ** had no license to operate as a predecessor).
‘commodity and/or financial futures broker.’"
The fact is that ML FUTURES did deal with futures contracts
However, spouses Lara filed a motion to dismiss based on the in exchanges in the United States in behalf and for the account
following grounds: of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with
a) although not licensed to do so, MLF had been doing business those transactions.
in the Philippines "at least for the last 4 years," this being clear
from the very allegations of the complaint; consequently, ML In other words, if it be true that during all the time that they
FUTURES is prohibited by law "to maintain or intervene in any were transacting with ML FUTURES, the Laras were fully
action, suit or proceeding in any court or administrative agency aware of its lack of license to do business in the Philippines,
of the Philippines;" and and in relation to those transactions had made payments to,
and received money from it for several years, the question
b) they had never been informed that Merrill Lynch Philippines, is whether or not the Lara Spouses are now estopped to
Inc. was not licensed to do business in this country; and contrary impugn ML FUTURES’ capacity to sue them in the courts
to the allegations of the complaint, all their transactions had of the forum.
actually been with MERRILL LYNCH PIERCE FENNER &
SMITH, INC., and not with ML FUTURES (Merrill Lynch The rule is that a party is estopped to challenge the personality
Futures, Inc.), in proof of which they attached to their motion of a corporation after having acknowledged the same by
to dismiss copies of 8 agreements, receipts or reminders, etc., entering into a contract with it. And the "doctrine of estoppel to
executed on standard printed forms of said Merrill Lynch Pierce deny corporate existence applies to foreign as well as to
Fenner & Smith Inc. domestic corporations;" “one who has dealt with a corporation
of foreign origin as a corporate entity is estopped to deny its obligated to pay the agreed purchase price. However,
corporate existence and capacity.” commencing October 31, 1994 up to the present, GTVL has
failed and refused to pay the agreed purchase price for several
The principle "will be applied to prevent a person contracting deliveries ordered by it and delivered by ZUIDEN.
with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such Instead of filing an answer, respondent filed a Motion
person has received the benefits of the contract where such to Dismiss on the ground that petitioner has no legal capacity to
person has acted as agent for the corporation and has violated sue. Respondent alleged that petitioner is doing business in the
his fiduciary obligations as such, and where the statute does not Philippines without securing the required license. Accordingly,
provide that the contract shall be void, but merely fixes a special petitioner cannot sue before Philippine courts. The trial court
penalty for violation of the statute. issued an Order on 10 November 1999 dismissing the
complaint. On appeal, the Court of Appeals sustained the trial
court’s dismissal of the complaint.
The general rule that in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a Issue: Whether or not Zuiden is doing business in the
Philippines
corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such contract
or dealing, unless its existence is attacked for causes which have
arisen since making the contract or other dealing relied on as an Held:
estoppel and this applies to foreign as well as domestic
corporations. Section 133 of the Corporation Code is clear. An unlicensed
foreign corporation doing business in the Philippines cannot sue
before Philippine courts. On the other hand, an unlicensed
Considerations of equity dictate that, at the very least, the issue foreign corporation not doing business in the Philippines can
of whether the Laras are in truth liable to ML FUTURES and if sue before Philippine courts. In the present controversy,
so in what amount, and whether they were so far aware of the petitioner is a foreign corporation which claims that it is not
absence of the requisite licenses on the part of ML FUTURES doing business in the Philippines. As such, it needs no license
and its Philippine correspondent, MLPI, as to be estopped from to institute a collection suit against respondent before
alleging that fact as a defense to such liability, should be Philippine courts. The series of transactions between petitioner
ventilated and adjudicated on the merits by the proper trial and respondent cannot be classified as “doing business” in the
court. Philippines under Section 3(d) of RA 7042. An essential
condition to be considered as “doing business” in the
Fallo: WHEREFORE, the decision of the Court of Appeals in Philippines is the actual performance of specific commercial
CA-G.R. CV No. 16478 dated November 27, 1990 and its acts within the territory of the Philippines for the plain reason
Resolution of March 7, 1991 are REVERSED and SET ASIDE, that the Philippines has no jurisdiction over commercial acts
and the Regional Trial Court at Quezon City, Branch 84, is performed in foreign territories. Here, there is no showing that
ORDERED to reinstate Civil Case No. Q-52360 and forthwith petitioner performed within the Philippine territory the specific
conduct a hearing to adjudicate the issues set out in the acts of doing business mentioned in Section 3(d) of RA
preceding paragraph on the merits. 7042. Petitioner did not also open an office here in the
Philippines, appoint a representative or distributor, or manage,
B. VAN ZUIDEN BROS., LTD vs. GTVL supervise or control a local business. While petitioner and
MANUFACTURING INDUSTRIES, INC., respondent entered into a series of transactions implying a
G.R. No. 147905 continuity of commercial dealings, the perfection and
May 28, 2007 consummation of these transactions were done outside the
Philippines.
FACTS: HELD:
Yes. in the first place, petitioner failed to raise the defense The law does not prohibit foreign corporations from performing
that Sumitomo is a foreign corporation doing business in single acts of business. A foreign corporation needs no license
the Philippines without a license. It is therefore estopped from to sue before Philippine courts on an isolated transaction.
litigating the issue on appeal especially because it involves a
question of fact which this Court cannot resolve. Secondly, What is determinative of "doing business" is not really the
assuming arguendo that Sumitomo cannot sue in number or the quantity of the transactions, but more
the Philippines, it does not follow that respondent, as subrogee, importantly, the intention of an entity to continue the body of
has also no capacity to sue in our jurisdiction. Subrogation is its business in the country. The number and quantity are merely
the substitution of one person in the place of another with evidence of such intention. The phrase "isolated
reference to a lawful claim or right, so that he who is substituted transaction" has a definite and fixed meaning, i.e. a transaction
succeeds to the rights of the other in relation to a debt or claim, or series of transactions set apart from the common business of
including its remedies or securities. The principle covers the a foreign enterprise in the sense that there is no intention to
situation under which an insurer that has paid a loss under an engage in a progressive pursuit of the purpose and object of the
insurance policy is entitled to all the rights and remedies business organization. Whether a foreign corporation is "doing
belonging to the insured against a third party with respect to any business" does not necessarily depend upon the frequency of its
loss covered by the policy. It contemplates full substitution transactions, but more upon the nature and character of the
such that it places the party subrogated in the shoes of the transactions.
creditor, and he may use all means which the creditor could
employ to enforce payment
When the insurer succeeds to the rights of the insured, he CEMCO HOLDINGS, INC. VS. NATIONAL LIFE
does so only in relation to the debt. The person substituted (the INSURANCE COMPANY OF THE PHILIPPINES, INC.
insurer) will succeed to all the rights of the creditor (the
insured), having reference to the debt due the latter. In the FACTS:
instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the Union Cement Corporation (UCC), a publicly-listed
insured Sumitomo as stipulated in the insurance contract company, has two principal stockholders – UCHC, a non-listed
between them, and which amount it now seeks to recover from company, with shares amounting to 60.51%, and
petitioner Lorenzo Shipping which caused the loss sustained by petitioner Cemco with 17.03%. Majority of UCHC’s stocks
the insured Sumitomo. The capacity to sue of respondent were owned by BCI with 21.31% and ACC with
Chubb and Sons could not perchance belong to the group of 29.69%. Cemco, on the other hand, owned 9% of UCHC
rights, remedies or securities pertaining to the stocks. In a disclosure letter dated 5 July 2004, BCI informed
payment respondent insurer made for the loss which was the Philippine Stock Exchange (PSE) that it and its subsidiary
sustained by the insured Sumitomo and covered by the contract ACC had passed resolutions to sell to Cemco BCI’s stocks in
of insurance. Capacity to sue is a right personal to its holder. It UCHC equivalent to 21.31% and ACC’s stocks in UCHC
is conferred by law and not by the parties. Lack of legal equivalent to 29.69%. In the PSE Circular for Brokers No.
capacity to sue means that the plaintiff is not in the exercise of 3146-2004 dated 8 July 2004, it was stated that as a result of
his civil rights, or does not have the necessary qualification to petitioner Cemco’s acquisition of BCI and ACC’s shares in
appear in the case, or does not have the character or UCHC, petitioner’s total beneficial ownership, direct and
representation he claims. It refers to a plaintiff’s general indirect, in UCC has increased by 36% and amounted to at least
disability to sue, such as on account of minority, insanity, 53% of the shares of UCC. As a consequence of this disclosure,
incompetence, lack of juridical personality, or any other the PSE, in a letter to the SEC dated 15 July 2004, inquired as
disqualifications of a party. Respondent Chubb and Sons who to whether the Tender Offer Rule under Rule 19 of the
was plaintiff in the trial court does not possess any of these Implementing Rules of the Securities Regulation Code is not
disabilities. On the contrary, respondent Chubb and Sons has applicable to the purchase by petitioner of the majority of shares
satisfactorily proven its capacity to sue, after having shown that of UCC. In a letter dated 16 July 2004,
it is not doing business in the Philippines, but is suing only Director Justina Callangan of the SEC’s Corporate Finance
under an isolated transaction, i.e., under the one (1) marine Department responded to the query of the PSE that while it was
insurance policy issued in favor of the consignee Sumitomo the stance of the department that the tender offer rule was not
covering the damaged steel pipes. applicable, the matter must still have to be confirmed by the
SEC en banc. Director Callangan confirmed that the SEC en
Art. 133 of the Corporation Code states: banc had resolved that the Cemco transaction was not covered
by the tender offer rule. Respondent, a minority stockholder of
Doing business without a license. – No foreign corporation UCC, sent a letter to Cemco demanding the latter to comply
transacting business in the Philippines without a license, or its with the rule on mandatory tender offer. Cemco, however,
successors or assigns, shall be permitted to maintain or refused. A Share Purchase Agreement was executed by ACC
intervene in any action, suit or proceeding in any court or and BCI, as sellers, and Cemco, as buyer. Respondent filed a
administrative agency of the Philippines; but such corporation complaint with the SEC asking it to reverse its 27 July
may be sued or proceeded against before Philippine courts or 2004 Resolution and to declare the purchase agreement
administrative tribunals on any valid cause of action of Cemco void and praying that the mandatory tender offer rule
recognized under Philippine laws. be applied to its UCC shares. Impleaded in the complaint
were Cemco, UCC, UCHC, BCI and ACC, which were then
required by the SEC to file their respective comment on the
complaint. In their comments, they were uniform in arguing activities of persons to ensure compliance with the
that the tender offer rule applied only to a direct acquisition of
Securities Regulation Code, more specifically the
the shares of the listed company and did not extend to an
indirect acquisition arising from the purchase of the shares of a provision on mandatory tender offer under Section 19
holding company of the listed firm. The SEC ruled in favor of thereof.
the respondent by reversing and setting aside its 27 July 2004 Moreover, petitioner is barred from questioning
Resolution and directed petitioner Cemco to make a tender the jurisdiction of the SEC. It must be pointed out
offer for UCC shares to respondent and other holders of UCC that petitioner had participated in all the
shares similar to the class held by UCHC in accordance with proceedings before the SEC and had prayed for
Section 9(E), Rule 19 of the Securities Regulation affirmative relief.
Code. Petitioner filed a petition with the Court of Appeals
challenging the SEC’s jurisdiction to take cognizance of 2. Tender offer is a publicly announced
respondent’s complaint and its authority to require Cemco to intention by a person acting alone or in
make a tender offer for UCC shares, and arguing that the tender concert with other persons to acquire equity
offer rule does not apply, or that the SEC’s re-interpretation of securities of a public company. A public
the rule could not be made to retroactively apply company is defined as a corporation which is
to Cemco’s purchase of UCHC shares. The Court of Appeals listed on an exchange, or a corporation with
rendered a decision affirming the ruling of the SEC. It ruled assets exceeding P50,000,000.00 and with
that the SEC has jurisdiction to render the questioned decision 200 or more stockholders, at least 200 of
and, in any event, Cemco was barred by estoppel from them holding not less than 100 shares of such
questioning the SEC’s jurisdiction. company[ Stated differently, a tender offer
is an offer by the acquiring person to
ISSUE: stockholders of a public company for them to
tender their shares therein on the terms
1. Whether or not the SEC has jurisdiction over specified in the offer. Tender offer is in place
respondent’s complaint and to to protect minority shareholders against any
require Cemco to make a tender offer for scheme that dilutes the share value of their
respondent’s UCC shares. investments. It gives the minority
shareholders the chance to exit the company
2. Whether or not the rule on mandatory tender under reasonable terms, giving them the
offer applies to the indirect acquisition of opportunity to sell their shares at the same
shares in a listed company, in this case, the price as those of the majority shareholders.
indirect acquisition by Cemco of 36% of Under existing SEC Rules, the 15% and 30%
UCC, a publicly-listed company, through its threshold acquisition of shares under the
purchase of the shares in UCHC, a non-listed foregoing provision was increased to thirty-
company. five percent (35%). It is further provided
therein that mandatory tender offer is still
applicable even if the acquisition is less than
HELD: 35% when the purchase would result in
ownership of over 51% of the total
1. YES. In taking cognizance of respondent’s complaint against outstanding equity securities of the public
company.
petitioner and eventually rendering a judgment which ordered
the latter to make a tender offer, the SEC was acting pursuant
to Rule 19(13) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code, to wit:
13. Violation
PHILIPPINE SAVINGS BANK VS. SENATE
IMPEACHMENT COURT
If there shall be violation of this
Rule by pursuing a purchase of equity shares G.R NO. 200238
of a public company at threshold amounts
without the required tender offer, the FACTS: Philippine Savings Bank (PS Bank) and its President,
Commission, upon complaint, may nullify Pascual M. Garcia III, filed before the Supreme Court an
the said acquisition and direct the holding of original civil action for certiorari and prohibition with
a tender offer. This shall be without application for temporary restraining order and/or writ of
prejudice to the imposition of other sanctions preliminary injunction. The TRO was sought to stop the Senate,
under the Code. sitting as impeachment court, from further implementing the
Subpoena Ad Testificandum et Duces Tecum, dated February
6, 2012, that it issued against the Branch Manager of PS Bank,
The foregoing rule emanates from the SEC’s power Katipunan Branch. The subpoena assailed by petitioners covers
and authority to regulate, investigate or supervise the the foreign currency denominated accounts allegedly owned by
the impeached Chief Justice Renato Corona of the Philippine
Supreme Court.
HELD: