CorpFDigest 26OctRevised

Corporation Law Finals Case Digests (Atty.
Quimson)
Bayla v. Silang Traffic Doctrine: Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties. A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at a stipulated price. Facts: Petitioners herein entered into an agreement with Silang Traffic Co entitled Agreement for installment sale of shares in the Silang Traffic Co wherein the petitioners (denominated in the contract as subscribers) promised to pay the company P1,500 for the purchase of 15 shares of capital stock (5% down payment; and the remainder was to be paid by installments). In said agreement, the subscriber agreed that if he fails to pay any of the installment when due, the shares are to revert to the seller and the payments already made are to be forfeited in favor if the seller. Petitioners failed to pay hence, the shares automatically reverted to the Corporation. However, the Board of Directors of Silang issued a resolution, dated August 1, 1937 which released the subscriber of its capital stock from the obligation to pay for shares. In a case filed for the recovery of sum of money initiated by petitioners, it is contended by the seller corporation that the August 1, 1937 resolution was not applicable to the petitioners since according to jurisprudence, a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares and any agreement to this effect is invalid. Furthermore, it is contended that the shares automatically reverted to the corporation, hence, the installments paid by them had already been forfeited. The trial court and court of appeals interpreted, in their decisions, that the said agreement was a contract of subscription. Issue: Whether the contract is one of subscription or a sale of stock. Whether or not the failure to pay one of the installments due gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation. Ratio: It seems clear from the terms of the contract in question that they are contracts of sale and NOT of subscription. The contract was entitled an agreement for installment sale of shares and while the purchaser was designated as a subscriber, the corporation was described as seller. Moreover, the agreement was entered into long after the incorporation and organization of the corporation (1927), and the price of the stock was payable in quarterly installments spread over a period of five years. A subscription to stock in an existing corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale. In some particulars, the rules governing subscriptions and sales of shares are different. For instance, the provisions of the corporation law regarding calls for unpaid subscription and assessment of stock do not apply to a purchase of stock. Likewise, the rule that a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares. The contention that the shares were automatically reverted to the corporation is untenable. The contract did not expressly provide that the failure of the purchaser to pay any installment would give rise to the forfeiture and cancellation without necessity of any demand from the seller. The Civil Code, furthermore, provides that the persons obliged to deliver something or do something are not in default until the moment the creditor demands them, unless the obligation or law expressly provides that demand shall not be necessary in order that default may arise.
Erandio, Athena Louise 2A | Batch 2014 | 1
Corporation Law Finals Case Digests (Atty. Quimson)

Velasco v. Poizat Doctrine: A stock subscription is a contract between the corporation on one side, and the subscriber on the other, and courts will enforce it for or against either. It does not require an express promise to pay the amount subscribed, as the law implies a promise to pay on the part of the subscriber. A corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part. Facts: Poizat, defendant, was a stock holder in the Philippine Chemical Product (PCP) from inception of the enterprise. While serving in his capacity as treasurer and manager, he called in and collected all subscriptions to the capital stock of the company, except the 15 shares subscribed by himself and another 15 shares owned by one Infante. The company, being at the brink of insolvency, held a Board of Directors meeting and raised 2 propositions, 1) that Poizat should be required to pay the amount of his subscription for which he was still indebted to the company; and 2) Infante be released from his obligation . When Poizat was notified of this, he averred that he had been given to understand, by some members of the board of directors, that he was to be relieved from his subscription upon the terms conceded to Infante. He further stated that he preferred to lose the whole of the 25% of what he already paid than to continue investing more money in the company. The company soon went into voluntary insolvency and Velasco was named as the companys assignee. As assignee, Velasco filed a case seeking to recover from Poizat the sum of P1,500 for the subscription made by him to the corporate stock of the company. Issue: Whether or not Poizat is liable upon this subscription. Whether or not Infante and Poizat could be validly relieved from the obligations of paying their subscriptions Ratio: Poizat is liable upon his subscription. A stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. In cases of unpaid subscriptions, there are two remedies for the enforcement given to the corporation. One is the most special remedy given by the statute consisting in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is by action in court. The assignee of the insolvent corporation succeeds to all the corporate rights of action vested in the corporation prior to its insolvency. Therefore, the assignee has the same freedom to sue upon the stock subscription as the directors themselves would have had under the law. When insolvency supervenes, all unpaid subscriptions become payable on demand, and are at once recoverable in an action instituted by the assignee or receiver appointed by court. The receiver or assignee could himself proceed to collect the subscription without the necessity of any prior call whatever. In releasing Infante, the board transcended its powers and he no doubt STILL REMAINED LIABLE on such of his shares are were not taken up and paid for by other persons. The general doctrine is that the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part. Consequently, the contention of Poizat to the effect that he understood that he was relieved upon the same terms as Infante is of no merit even if agreement to that effect had been duly proved. Trillana v. Quezon College Doctrine: If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code Facts: Damasa Crisostomo sent a letter to the Board of Trustees of Quezon College which contained the following terms: Please enter my subscription to 200 shares of your capital stock. Enclosed herein you will find (babayaran kong lahat pagkatapos na ako ay makapang-huli ng isda) pesos as my initial payment and the balance in accordance with the rules and regulations of the Quezon College

When she died, and there being no payments maid, Quezon College presented a claim before the CFI of Bulacan in her testate proceeding for the collection of the sum of P20,000. The administrator opposed said claim on the ground that the subscription was neither registered nor authorized by the SEC. Issue: Whether or not Damasa Crisostomo is liable for the stock subscription. Ratio: No. It appears that the application sent was written on a general form indicating that the applicant will enclose an amount as initial payment and will pay the balance. However, the applicant did not enclose any initial payment. She further indicated that she will pay pagkatapos na ako ay makapanghuli ng isda. There is nothing on record that will show that the College accepted the term of payment suggested by Damasa. The application was obviously in variance with the terms evidenced in the form letter. There is an absolute necessity on the part of the College to express its agreement to the offer. In the absence of the acceptance, the counter offer of Damasa had not ripened into an enforceable contract. The need for express acceptance is further strengthened by the fact that Damasa proposed to pay after she has harvested fish, a condition obviously dependent upon her sole will and therefore, facultative in nature, rendering the obligation void under the Civil Code. National Exchange v. Dexter Doctrine: A corporation has the power to accept subscriptions upon any special terms not prohibited by positive law or contrary to public policy, provided they are not such as to require the performance of acts which are beyond the powers conferred upon the corporation by its character and provided they do not constitute fraud upon other subscribers or stockholders, or upon persons who are or may become creditors of the corporation. No corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued. Facts: Defendant Dexter signed a written subscription to the corporate stock of CS Salmon Co. which stated that the subscription of 300 shares of its capital stock shall be payable from the first dividends declared on any and all shares of said company owned by Dexter at the time the dividends are declared until the full amount has been paid. Pursuant to this, P15,000 was paid from dividends declared. However, beyond this, nothing has been paid and no further dividends were declared. Thus, the company initiated a case for the purpose of recovering the balance of the shares with interests and costs. Issue: Whether the stipulation contained in the subscription to the effect that the subscription is payable from the first dividends declared on the shares has the effect of relieving the subscriber from the personal liability in an action to recover the value of the shares. Ratio: No. In the Organic Act of July 1902, it has already been declared that all franchises, privileges or concessions granted under the act shall forbid the issue of stock or bonds except in exchange for actual cash or for property at a fair valuation equal to the par value of the stock or bonds so issued. Pursuant to such, the Commission inserted in the Corporation Law that no corporation shall issue stock or bonds except in exchange for actual cash to the corporation or for property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued. If it is unlawful to issue otherwise than as stated, it is self evident that a stipulation such as that now under consideration, in a stock subscription, is illegal, for this stipulation obligates the subscriber to pay nothing for the shares except as dividends may accrue upon the stock. In the contingency that dividends are not paid, there is no liability at all. This is a discrimination in favor of the particular subscriber, hence unlawful. Conditions attached to subscriptions which, if valid, lessen the capital of the company, are a fraud upon the grantor of the franchise, and upon those who may become creditors of the corporation, and upon unconditional stockholders.

All like are bound to pay full value in cash or its equivalent, and any attempt to discriminate in favor of one subscriber by relieving him of this liability wholly or in part is forbidden. Escano v. Filipinas Mining Doctrine: The requirement of registration of transfers of shares of stock upon the books of the corporation as a condition precedent to their validity against the corporation and third parties, is also applicable to unissued shares held by the corporation in escrow. Facts: Antonio Escano, plaintiff appellee, obtained a judgment in his favor against one Silverio Salvosa whereby the latter was ordered to transfer and deliver to Escano 116 active shares and an undetermined number of shares in escrow of the Filipinas Mining Corporation with the proviso that the escrow shares shall be transferred and delivered to the plaintiff only after they shall have been released by the company. A writ of garnishment was served by the sheriff to said corporation and on July 29, 1937, the corporation advised the sheriff that according to its books, the judgment debtor, Silverio Salvosa, was the registered owner of 1000 active shares and about 22,139 unissued shares held in escrow by the said corporation. However, it appears that after the complaint in the original case was fled , but before judgment Salvosa already sold to one Bengzon all his rights to said shares of stocks held in escrow. Subsequently, Bengzon sold and transferred said shares held in escrow to Standard Investment of the Philippines. Such sale was not noted or recorded in the books of the corporation. It is the position of the defendants herein that there should be a line drawn between the issued shares evidenced by certificates of stock and unissued shares held in escrow in that while the transfer of the former is subject to the condition that it be registered, that of the latter is not. Issue: Whether or not the issuance of the said shares of stocks held in escrow to the Standard Investment of the Philippines by virtue of the sale made by Escano then Bengzon was valid as against the attaching judgment creditor. Whether or not the attaching creditor is guilty of laches. Ratio: The issuance is invalid. There is o valid reason for treating unissued shares held in escrow differently from issued shares insofar as their sale and transfer is concerned. In both cases, there is a possibility of fictitious or fraudulent transfers. The requirement of registration is for the purpose of: 1. Enabling the corporation to know at all times who its actual stockholders are 2. Affording to the corporation an opportunity to object r refuse its consent to the transfer in case it has any claim against the stock sought to be transferred, or for any other valid reason 3. To avoid fictitious or fraudulent transfers. Moreover, it seems illogical and unreasonable to old that inactive or unissued shares still held by the corporation in escrow pending receipt of authorization from the government to issue them, may be negotiated or transferred unrestrictedly and more freely than active or issued shares evidenced by certificates of stock. Appellees are not guilty of laches. The plaintiff as execution creditor had the right to wait for the release or issuance of said shares before having the same sold at a public auction, so long as the period of 5 years within which to execute his judgment had not yet lapsed. Moreover, the judgment itself provided that the escrow shares shall be transferred only after they have been released by the company. Razon v. IAC Doctrine: For an effective transfer of shares of stock, the mode and manner of transfer as prescribed by law must be followed. It may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock. No transfer shall be valid except as between the parties until the transfer is properly recorded in the books of the corporation. Facts: E. Razon was organized in 1962 by petitioner herein Enrique Razon for the purpose of participating in the bidding for the arrastre services in South Harbor, Manila. According to the petitioner, some incorporators withdrew from the corporation. Thus, he distributed the stocks previously placed in the names of the withdrawing

incorporators to some friends, among them was the late Juan Chuidian to whom he gave 1,500 shares of stock. The shares were registered under the name of Chuidian as a nominal stockholder and with the agreement that the shares of the stock were owned and held by the petitioner (Razon) but Chuidian was given the option to buy the same. Because of this arrangement, Chuidian delivered the certificate of stock to Razon (without indorsement) and since then, Razon has been in possession of the certificate. Upon death of Chiudian, his administrator initiated a complaint which prayed that Razon be ordered to deliver the certificate of stocks back and to restrain Razon from disposing of the said shares of stock. Issue: Whether or not Chiudian is considered as the owner of the 1,500 shares of stock in the company. Ratio: Chiudian is the owner of said shares. There is no dispute in this case that the certificate is in the name of the late Chiudian. Moreover, the records show that during his lifetime, he was elected as the member of the Board of Directors. Such clearly shows that he was a stockholder of the corporation. In view of this, the petitioner must show that the same were transferred to him by proving that all the requirements of the effective transfer of shares of stock in accordance with the corporations b laws, if any, were followed. The law is clear that in order for a transfer to be effective, the certificate must be properly indorsed and that title to such certificate of stock is vested in the transferee by delivery of the duly indorsed certificate of stock. The asservation that he did not require the indorsement because of their intimate friendship cannot overcome the failure to follow the procedure required by law or the proper conduct of business even among friends. Indorsement of the certificate is a mandatory requirement of law for an effective transfer of a certificate of stock. Rural Bank of Salinas v. CA Doctrine: In transferring stock, the secretary of a corporation acts in purely ministerial capacity and does not try to decide the question of ownership. The duty of the corporation to transfer is ministerial and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. Facts: Celemente Guerrero, president of Rural Bank of Salinas, executed a special power of attorney in favor of his wife granting the latter the power to sell or dispose or mortgage 473 shares of stocks of the bank registered in his name. Pursuant to said power of attorney, Melania Guerrero executed deeds of assignment covering said shares of stocks. Subsequently, she presented to the Rural Bank of Salinas the deeds of assignment for registration with a request for the transfer in the banks stock and transfer book of the 473 shares of stock so assigned, the cancellation of the stock certificates in the name of Celemente and the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. The Bank denied the request of the respondent. Melania filed an action for mandamus against the rural bank with the SEC. The bank, in its answer with counterclaim, alleged that upon the death of Clemente, the properties should first be settled and liquidated before any distribution can be effected. The SEC Hearing Officer, the SEC en banc and the CA all ruled in favor of Melania granting the writ of mandamus and directing the cancellation of the certificates and the issuance of new ones in favor of the new owners. Issue: Whether or not the respondent court erred in sustaining the SEC when it compelled by mandamus the registration of the stocks. Ratio: The court did not err. Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock in the books of the corporation. A

corporation, either by its board, its by-laws, or the act of its officers cannot create restrictions in stock transfers. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. In transferring stock, the secretary of a corporation acts in purely ministerial capacity and does not try to decide the question of ownership. The duty of the corporation to transfer is ministerial and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus. For petitioner Rural Bank to refuse the registration of the transferred shares in its stock and transfer book, which duty is ministerial on its part, is to render nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code. China Banking Corporation v. CA Doctrine: The term unpaid claim refers to any unpaid claim arising from unpaid subscription and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction. Facts: Calapatia was a stockholder of Valley Golf and Country Club (VGCCI). He pledged his stock certificate to ChinaBank. Such pledge was recorded in VGCCIs corporate books. Subsequently, Calapatia obtained a loan from ChinaBank, payment of which was to be secured by the aforestated pledge agreement still existing between Calapatia and ChinaBank. Calapatia failed to pay his obligations, hence ChinaBank filed a petition for extrajudicial foreclosure. When VGCCI was informed of this, it wrote to ChinaBank and expressed its inability to accede to the request of transfer of stock since Calaptia has unsettled accounts with the club. Despite the foregoing, the public auction was held and consequently, ChinaBank was issued the corresponding certificate of sale. VGCCI sent Calapatia a notice demanding the payment of his debts to the club. Unheeded, VGCCI published in the newspaper a notice of auction sale of Calapatias stock certificates. Upon knowledge of this, Chinabank advised VGCCI that it is the new owner of the stock certificates and requested that a new certificate be issued in its name. VGCCI, however, replied that for reason of delinquency, Calapatias stock was sold at a public auction. Issue: Whether or not the said shares of stocks fall under Section 63 of the Corporation Code. Ratio: No. Section 63 does not apply. The term unpaid claim refers to any unpaid claim arising from unpaid subscription and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction. In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of the membership certificate. What Calapatia owed the corporation were merely monthly dues. Bitong v. CA Facts: Bitong herein initiated a derivative suit, allegedly, as a stockholder and for the benefit of Mr&Mrs Publishing (Publishing Co) to hold respondent Sps. Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of the Publishing Co. Bitong alleges that she has been the treasurer and member of the Board of Directors of the company at the time it was incorporated in 1976 to 1989 and was the registered owner of 1000 shares of stocks. On the other hand, Spouses Apostol refute the allegations of Bitong and claims that the latter is merely a holder-in-trust of JAKA shares. However, because of their strained relationship due to political differences, Biton refused to speak and became openly critical of the management of Apostol. Bitong claims that by virtue of a deed of sale, she became the registered and beneficial owner of the shares of stocks herein. Said deed was executed and recorded in July 25, 1983. Petitioner further posits that upon the recording in the books, the corporation is bound by it and is stopped to deny the fact of transfer of said shares. She alleges that even in the absence of a stock certificate, a stockholder, solely on the strength of the recording in the stock and transfer book, can exercise all the rights as a stockholder, including the right to file a derivative suit in the name of the corporation.

On the other hand, Spouses Apostol herein refute the statements of petitioner and avers that she was not a stockholder at that time since the certificate of stock was only signed on March 17, 1989. Moreover, since the stock and transfer book presented as evidence was not registered with the SEC, the entries therein including the Certificate of Stock in question were fraudulent. Issue: Whether or not Bitong has personality to file this derivative suit. Ratio: No. Section 63 of the code envisions a formal certificate of stock which can be issued only upon compliance of certain requisites. 1. The certificates must be signed by the president or the vicepresident, countersigned by the secretary or assistant secretary and sealed with the seal of the corporation. 2. Delivery of the certificate (essential element of its issuance) 3. The par value, as to par value shares, or the full subscription as to no par value shares, must be first fully paid. 4. The original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself is at least a prima facie evidence that it was legally issued in the absence of evidence to the contrary. Such may be rebutted. They are not conclusive even against the corporation. Parole evidence may be admitted to supply omissions in the records, explain ambiguities or show what transpired where no records were kept, or in some cases where such records were contradicted. In this case there is overwhelming evidence that despite what appears on the certificate of stock and transfer book, petitioner was not a bona fide stockholder before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholders derivative suit against private respondents. There is no truth to the statement in the certificate of stock that the same was issued and signed on July 25, 1983 by its duly authorized officers specifically, the president and the corporate secretary because the actual date of signing thereof was March 17, 1989. It cannot be considered issued in contemplation of law unless signed by the president, the vice president and countersigned by the secretary or assistant secretary. Hence, the certificate has no evidentiary value for the purpose that Bitong was a stockholder since 1983 to 1989. The real party in interest herein is JAKA, not Bitong. Fua Cun v. Summers Doctrine: In the absence of a special agreement to the contrary, a subscriber for a certain number of shares of stock does not, upon payment of one half of the subscription price, become entitled to the issuance of certificates for onehalf the number of shares subscribed for. Facts: Chua Soco subscribed for 500 shares of stock of the defendant Banking Corporation at a par value of P100 per share, paying one half of the subscription price, in cash, for which a receipt was issued under the following terms: "Upon receipt of the balance of the said subscriptionduly executed certificates for said 500 shares of stock will be issued to the order of the subscriber. It is expressly understood that the total number of shares specified in this receipt is subject to sale by the China Banking Corporation for the payment of any unpaid subscriptions, should the subscriber fail to pay the whole or any part of the balance of his subscription upon 30 days notice issued by the Board of Directors." Subsequently, Chua executed a promissory note in favor of one Fua Cun for the sum of P25,000. Such note was secured with a chattel mortgage on the subject shares of stock subscribed by him who also endorsed the receipt abovementioned and delivered it to Fua Cun. Fua Cun brought the receipt to ChinaBank to inform them about the transaction but was told to await action by the Board of Directors. Meanwhile, Chua became indebted to ChinaBank in an action brought by the latter for dishonored acceptances of commercial paper. As a result of this action, the shares of stocks were attached and the receipt was seized by the sheriff. Thus, Fua Cun instituted an action contending that since Chua has already paid half of the subscription, Chua became the owner of 250

shares and prayed that his lien on the shares be declared to hold priority over the claim of the defendant Banking Corporation. Issue: Whether or not payment of half of the price of the subscription entitles Chua to 250 shares, upon which shares the plaintiff holds a lien superior to that of ChinaBank. Ratio: To hold that the plaintiff is the owner of 250 shares of stock is incorrect. The plaintiff's rights consist in an equity in 500 shares and upon payment of the unpaid portion of the subscription price, he becomes entitled to the issuance of certificate for said 500 shares in his favor. In the absence of a special agreement to the contrary, a subscriber for a certain number of shares of stock does not, upon payment of one half of the subscription price, become entitled to the issuance of certificates for one-half the number of shares subscribed for. The court further held that the banking corporation does not have a lien over the shares of stocks herein attached for if banking corporations were given such lien on their own shares for the indebtedness of stockholders, the prohibition against granting loans or discounts upon the security of stock would become largely ineffective. Lao v. Lao Doctrine: A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. It is a prima facie evidence that the holder is a shareholder of a corporation. Facts: David and Jose Lao claims that they are stockholders (because they prayed that they be issued certificates and to be allowed to examine the corporation books) of PFSC (Pacific Foundry Shop Corporation) based on the General Information Sheet filed with the SEC in which they are named as such. David claims that he acquired 446 shares from his father which shares were previously purchased from Hipolito Law. On the other hand, Jose Lao claims that he acquired 33 shares from one Dionisio Lao. However, respondent denies David and Jose's claim for the reason that their names were allegedly included in the General Information sheet inadvertently. Respondent also posits that they did not acquire any shares in the corporation by any of the modes recognized by law, namely subscription, purchase or transfer. Issue: Whether or not David and Jose can be considered as stockholders based merely on the General Information Sheet filed with the SEC. Ratio: Petitioners David and Jose failed to prove that they are shareholders of PFSC. Records disclose that petitioners have no certificates of shares in their name neither is there any written document that there was a sale of the shares as claimed by the petitioners. A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. It is a prima facie evidence that the holder is a shareholder of a corporation. Absent any written document, petitioners must prove, at the very least, possession of the certificates of shares in the name of their alleged seller. They fail to prove possession. They failed to prove due delivery of the certificates of stocks of the sellers to them as provided for in Section 63 of the Corporation Code (which states that shares of stocks issued may be transferred by delivery of the certificates indorsed by the owner). In contrast, respondent was able to prove that he had in his possession the certificates of stocks of Hipolito Lao, properly endorsed to him. The mere inclusion as a shareholder of the petitioners in the General Information Sheet is insufficient proof that they are shareholders of the company. This document alone does not prove that they are shareholders of the PFSC. As between the General Information Sheet and the corporate books, it is the latter that is controlling. The burden of proof is on the petitioners herein to show that they are the shareholders of the corporation. This is so because they do not have any certificates of shares in their name. Moreover, they do not

appear in the corporate books as registered shareholders. There is no written document evidencing their claimed purchase of shares. Nava v. Peers Marketing Corporation Doctrine: Without the stock certificate, which is the evidence of ownership of the stock, the assignment of corporate shares is effective only between the parties o the transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders. Facts: Teofilo Po, as an incorporator, subscribed to 80 shares of Peers Marketing Corporation (PMC). He paid 25% of the total amount of his subscription and no certificate of stock was issued to him or, for that matter, to any incorporator, subscriber or stockholder. Some time later, Po sold to Nava 20 of his shares of stocks in a deed of sale which represented that Po was the absolute owner and registered owner of said 20 shares. Nava tried to register this said shares in the corporation but he was denied registration since Po has not yet fully paid his subscription. Thus, Nava filed a mandamus action to compel corporation to register the shares under his name. In their answer, the respondent corporation pleaded the defense that no shares of stock against which a corporation holds unpaid claim are transferable in the books of the corporation. Issue: Whether or not the shares of stocks were validly transferred to Nava despite the fact that the corporation has an unpaid claim on Po's subscription and that the 20 share are not covered by any stock certificate. Ratio: There is no clear legal duty on the part of the officers of the corporation to register the shares in the name of Nava since there was no valid transfer of the share. The usual practice is for the stockholder to sign the form on the back of the stock certificate. Thereafter, it may be transferred from one person to another. Then he delivers the certificate to the secretary of the corporation so that it my be entered in the corporation's books. The certificate is then surrendered and a new one is issued to the transferee. The procedure cannot and was not followed in this case since the 20 shares in dispute are not covered by certificates of stocks. Moreover, the corporation has a claim on the said shares for the unpaid balance of Po's subscription. A stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much bound t pay his subscription as he would pay any other debt. Without the stock certificate, which is the evidence of ownership of the stock, the assignment of corporate shares is effective only between the parties o the transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders. Apodaca v. NLRC Facts: Petitioner herein was employed in respondent corporation. He was persuaded to subscribe to 1500 shares of the respondent corporation and he made an initial payment of 37,500. Thereafter, he was appointed as President and General Manager. He later resigned. Some time later, petitioner instituted with the NLRC a complaint against the respondents for the payment of his unpaid wages, cost of living allowance, balance of his gasoline, representation expenses, and bonuses. In their answer, the respondents admit that there are unpaid wages but these were applied to the unpaid balance of petitioners subscription. Petitioner now questions the set off alleging that there was no call or notice for the payment of the unpaid subscription and that accordingly, the alleged obligation is not enforceable. Issue: Whether or not the unpaid wages can be applied to the unpaid subscription of petitioner. Ratio: The unpaid subscription are not due and payable until a call is made by the corporation for payment. Private respondents herein have not presented a resolution of the board of directors of the respondent corporation calling for the payment of the unpaid

subscription. It does not even appear that a notice of such call has been sent to the petitioner by the respondent corporation. The set-off was without lawful basis, if not premature. As there was no notice or call for the payment of unpaid subscription, the same is not yet due and payable. Furthermore, NLRC cannot validly set it off against the wages since set off is allowable only in cases allowable by Art. 113 of the Labor Code. PNB v. Bitulok Sawmill, Inc. Doctrine: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter of the articles of incorporation. Facts: Philippine Lumber Distributing Agency was organized upon the insistence and initiative of President Manuel Roxas who, for the purpose, called several conferences between him and the subscribers and organizers of the said corporation. He convinced the lumber producers to form a lumber cooperative and to pool their resources together in order to wrest the retail trade from aliens who were acting as middlemen in the distribution of lumber. He made it clear that such a cooperative agency would not be successful without a substantial working capital which the lumber producers could not entirely shoulder and as inducement he promised and agreed to finance the agency by making the Government invest P9.00 per peso that the members would invest therein. However, the Philippine Government did not invest the said P9.00 for every peso. The loan extended to the Philippine Lumber Distributing Agency by the PNB was not paid. Thus, the stockholders herein are asked to shoulder the loan as debtors. Issue: Whether or not the plaintiffs herein can be made to pay the balance of their subscriptions to shoulder the loan extended to PNB despite the fact that the government failed to fulfill its commitment to invest in said agency. Ratio: Yes. Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter of the articles of incorporation. It would be unwarranted to ascribe to the late president the view that the payment of the stock subscriptions, as required by law, could be condoned in the event that the counterpart fund to be invested by the government would not be available. It is a well-settled that with all the vast powers lodged in the executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms. Velasco v. Poizat Doctrine: It evidently cannot be permitted that a subscriber should escape his lawful obligation by reason of the failure of the officers of the corporation to perform their duty in making a call and when the original mode of making the call becomes impracticable, the obligation must be treated as due upon demand. When insolvency supervenes all unpaid subscriptions become at one due and enforceable. The corporation has no legal capacity to release an original subscriber to its capital stock from the obligation for paying his shares in whole or in part. Facts: Velasco, as assignee in insolvency of the Philippine Chemical Product (PCP) is seeking to recover from the defendant, Poizat, the sum of the subscription made by him to the corporate stock of the said company.

The defendant subscribed for 20 shares of the stock of the company. The action was brought to recover the amount subscribed upon the remaining shares. Before the company became insolvent the board held a meeting which resolved to release one Infante from his obligations to his unpaid subscriptions. On the other hand, in the same board meeting, Poizat was required to pay the amount of his subscription and in case he should refuse to make such payment, the management of the corporation should be authorized to undertake judicial proceedings against him. Issue: Whether or not the call made by said board of directors for Poizat to pay his unpaid subscriptions is in accordance with the requirements in the Corporation Code. Ratio: Poizat is liable upon his subscription. It s a contract between the corporation and the subscriber and the courts will enforce it against either. It is a subsisting liability from the time the subscription is made since it required the subscriber to pay interests quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. He is bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable. All unpaid stock subscriptions become payable on demand and are at once recoverable in an action instituted by the assignee or receiver appointed by the court. This rule had its origin in a recognition of the principle that a court of equity, having jurisdiction of the insolvency proceedings, could, if necessary, made the call itself, in its capacity as successor to the powers exercised by the board of directors of the defunct company. A court of equity may enforce payment of the stock subscriptions, although there have been no calls for them by the company. When the corporation becomes insolvent with proceedings instituted by the creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balances on subscription. The resolution to release Infante from his obligation to pay is not valid since the corporation has no legal capacity to release an original subscriber to its capital stock from the obligation for paying his shares in whole or in part. Consequentially, Poizat's claim that he, too, is relieved in the same way as Infante is, cannot be sustained. De Silva v. Aboitiz & Co. Doctrine: There are 2 remedies for accomplishing the purpose of having the subscriber pay for unpaid subscriptions. The first and foremost remedy given by the statute consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is by action in court. Facts: Plaintiff subscribed for 650 shares of stock of the defendant corporation of which he paid only the total value of 200 shares. On April 22, he was notified by the secretary of the corporation of a resolution adopted by the board declaring the unpaid subscriptions to the capital stock of the corporation to have become due and payable on May 31st. If the shares shall have not been paid by then, such shares will be declared delinquent, advertised for sale at a public auction and sold on June 16th for the purpose of paying the amount of the subscription and accrued interest. Plaintiff filed a complaint with the court alleging that in the by-laws, if the shares are not paid for, it shall be paid out of the 70% of the profit obtained distributable among the stockholders in equal parts. Hence, in ordering that the unpaid subscription is due and payable and to be subsequently sold in a public auction, the corporation exceeded its authority (it, in effect, violated the operative method of paying contained in the by-laws). Issue: Whether or not the corporation exceeded its authority in declaring the subscription due and payable and to be subsequently sold a public auction if not paid. Ratio: No. There are 2 remedies for accomplishing the purpose of having the subscriber pay for unpaid subscriptions. The first and foremost remedy given by the statute consists in permitting the corporation to

put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is by action in court. In the instant case, the board elected to avail itself of the first of the said 2 remedies. It made use of its discretionary power granted to it by the law and declared that the plaintiff's subscription of 450 shares which have not been paid by him delinquent. It cannot be maintained that the by-laws has prescribed an operative method for the payment of the said subscriptions. It is not the sole and exclusive method for that purpose. The plaintiff has no right to prevent the board of directors from following any other method than that mentioned in the said article for the very reason that the same does not give the stockholders any right in connection with the determination of question of whether or not there should be deducted from the 70% of the profit distributable among the stockholders such amount as may be deemed fit for the payment of subscriptions due and unpaid. Pardo v. Hercules Lumber Co. and Ferrer Facts: Antonio Pardo is a stockholder in Hercules Lumber Company seeking to obtain a writ of mandamus to compel the respondents to permit him and his duly authorized agent and representative to examine the records and business transactions of the company. Pardo is being refused access to said records for the reason that the board of said company passed a resolution which provided that "the books of the company are at their disposition from the 15th to the 25th of March for examination in appropriate hours" and it is being contended that since Pardo has not availed himself of his right to inspect during mentioned dates, his right to inspection and examination is lost, at least for this year. Issue: Whether or not the corporation can validly passed aforementioned resolution. Ratio: No. It is admitted that officials in charge of a corporation may deny inspection when sought at unusual hours or under other improper conditions, but neither executive officers nor the board of directors have the power to deprive a stockholder of his right altogether. The statutory right of inspection is not affected by the adoption by the board of directors of a resolution providing for the closing of transfer books 30 days before an election. The phrase in the law which says that the "right of inspection can be exercised at reasonable hours" only means reasonable hours on business days throughout the year and NOT merely during some arbitrary period of a few days chosen by the directors. Veraguth v. Isabel Sugar Co. Doctrine: Pretexts may not be put forwards by the officers of a corporation to keep a director or shareholder from inspecting the books and minutes of the corporation and the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. A director or stockholder can make copies, abstracts and memoranda of documents, books and papers as an incident to the right of inspection, but CANNOT, without an order of a court, be permitted to take the books from the office of the corporation. A director or stockholder has no absolute right to secure certified copies of the minutes of a corporation until these minutes have been written up and approved by the directors. Facts: Eugenio Veraguth was a director and stockholder of Isabela Sugar Company praying that the court require the respondent corporation and its officers to show cause why they refuse to notify the petitioner and to place at his disposal at reasonable hours, the minutes, documents and books of the corporation for his inspection as director and stockholder and to issue, upon payment of the fees certified copies of any documentation in connection with the said minutes. Prior to the filing of this case, Veraguth telegraphed the secretary of the corporation asking the latter to forwards in the shortest possible time a certified copy of the resolution of the board of directors concerning the payment of attorney's fees in a case which the corporation was involved with. The secretary made an answer by letter stating that since the minutes of the meeting has not yet been signed by the directors present, a copy could not be furnished and that as to other proceedings of the stockholders, a request should be made to the president of the

Isabela Sugar Co. Furthermore, the board adopted a resolution which requires that the authority of the president of the corporation be previously obtained in case an inspection of the books and taking of copies are requested. Issue: Whether or not the resolution which requires the authority of the president before inspection and taking is required. Whether or not the certified copy of the minute should be furnished to petitioner. Ratio: No. Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation and the right of inspection is not to be denied on the ground that the director or shareholder is unfriendly with the officers of the corporation whose records are sought to be inspected. There is no absolute right to secure certified copies of the minutes of the corporation until the same has been written up and approved by the directors. Philpotts v. Philippine Manufacturing Co. and Berry Doctrine: The right of examination into corporate affairs which is conceded to the stockholder may be exercised by the stockholder in person or by any duly authorized representative. Facts: Philpotts is a stockholder in the Philippine Manufacturing Company seeking to obtain a writ of mandamus to compel the respondents to permit him in person or by some authorized agent or attorney to inspect and examine the records of the business transacted by said company since 1918. Issue: Whether or not the right can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person. Ratio: The right of inspection can be exercised either by himself or by any proper representative or attorney-in-fact, and either with or without the attendance of the stockholder. What a man may do in person he may do through another. The provisions of the law pertaining to the right of inspection are to be liberally construed and that said right may be exercised through any other properly authorized person. The right may be regarded as personal in the sense that only a stockholder may enjoy it but the inspection and examination may be made by another. But the rule above is not too sweeping in a sense that there are some things which a corporation may undoubtedly keep secret notwithstanding the right of inspection given by law to the stockholder (e.g. secret formulas or processes). There is however nothing in the instant case which would indicate that the petitioner is seeking to discover anything which the corporation is entitled to keep secret. Gonzales v. Philippine National Bank Doctrine: The right of inspection granted to a stockholder are the following: 1) records must be kept at the principal office of the corporation; 2) inspection must be made on business days; 3) he may demand a copy of the excerpts of the records or minutes; 4) refusal to allow such inspection shall subject the erring officer to civil and criminal liabilities. However, it is now expressly required as a condition that one requesting must not have been guilty of using improperly any information secured and that the person asking for such examination must be acting in good faith and for a legitimate purpose in making his demand. The Philippine National bank is not an ordinary corporation. Having a charter of its own, it is not governed by the Corporation Code of the Philippines. Corporations shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the Corporation Code insofar as they are applicable. Facts: Ramon Gonzales requested the Philippine National Bank to allow him to look into the books and records of the respondent bank in order to satisfy himself as to the truth of published reports that the respondent bank has guaranteed the obligation of Southern Negros Development Corporation, that the bank is a financer of the construction of the Cebu-Mactan bridge, and the construction of a certain Sugar Mill in Iloilo. He stated that his request is for the reason that he wants to inquire into the validity of the transactions, as a stockholder of the said bank. Having been denied this request, he filed a petition for mandamus in court, which was also denied for the reason that he has an improper

motive in asking for an examination of the books and records which disqualifies him to such right. Issue: Whether or not he has the right, solely as a stockholder, to an examination of the books and records of the bank. Ratio: Under the old law, BP 68, the right of inspection is granted to a stockholder. However, this has been modified under the present Corporation Code. The right of inspection granted to a stockholder are the following: 1) records must be kept at the principal office of the corporation; 2) inspection must be made on business days; 3) he may demand a copy of the excerpts of the records or minutes; 4) refusal to allow such inspection shall subject the erring officer to civil and criminal liabilities. However, it is now expressly required as a condition that one requesting must not have been guilty of using improperly any information secured and that the person asking for such examination must be acting in good faith and for a legitimate purpose in making his demand. Being so, he is disqualified from inspecting the books and records. Admittedly, he sought to be a stockholder in order to pry into the transactions entered into by the bank. His obvious purpose was to arm himself with materials which he can use against the bank for acts done by the latter when he was a total stranger to the same. Also, the Philippine National Bank is not governed by the Corporation Code since it has its own charter. According to its charter, it is not allowed to disclose information relative to the fund in its custody to any person except the President of the Philippines or the Secretary of Finance and the Board of Directors. They are only compelled to disclose when there is an order issued by a court of competent jurisdiction. The Philippine National bank is not an ordinary corporation. Having a charter of its own, it is not governed by the Corporation Code of the Philippines. Corporations shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the Corporation Code insofar as they are applicable. Lanuza v. Court of Appeals Doctrine: The articles of incorporation has been described as one that defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders. A stock and transfer book is not in any sense a public record and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein. It may be impeached or even contradicted by other competent evidence. Facts: PMMSi was incorporated with 770 founder's shares and 76 common shares as its initial capital stock subscription reflected in the articles of incorporation (total of 776 shares). However, private respondents herein (Nolasco et. al) registered the company's stock and transfer book for the first time recording only 33 common shares as the only issued and outstanding shared of PMMSI (contrary to the articles of incorporation). Based on the record in the transfer book, a special stockholders meeting was held where a quorum of 27 common shares were present which represented more than 2/3 of the common shares issued and outstanding, based on the record in the transfer book, not the articles of incorporation. Petitioners Lanuza thereafter filed a petition with the SEC questioning the validity of the said meeting alleging that the quorum should not be based on the transfer book records, but on the initial subscribed capital stock of 776 shares as reflected in the Articles of Incorporation. Issue: Whether or not the basis of the quorum should be the articles of incorporation and not the transfer book. Ratio: The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares and outstanding as compared to that listed in the stock and transfer book. A quorum is based on

the totality of shares which have been subscribed to and issued whether it be founder's or common shares. The articles of incorporation has been described as one that defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders. PMMSI's articles being in compliance with the requirements of law, the contents of the articles are binding not only on the corporation, but also on the shareholders. At the time of incorporation, the corporation had 77 issued and outstanding shares. To base the shares on the transfer book, completely disregarding the articles would work injustice to the owners and successors in interest of the said shares. One who is a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed to keep its records accurately. Associated Bank v. Court of Appeals Doctrine: Ordinarily in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporation, there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights, privileges, powers and liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. It is required that the approval of the SEC of the articles of merger be acquired which, in turn, must have been duly approved by a 2/3 majority of the respective stockholders of the constituent corporation. It is effective only upon the issuance of the certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist and when the rights, privileges, powers and liabilities pass on to the surviving corporation. Facts: On September 16, 1975, Associated Banking Corporation and Citizens Bank merged to form just one banking corporation known as the Associated Citizens Bank. Later, it changed back its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. 2 years later, the defendant in this case executed a promissory note whereby the former undertook to pay the latter a sum of money. Said promissory note remained unpaid. Upon filing of a complaint in court, the corporation raised the special defense that the defendant's complaint states no valid cause of action since the corporation is not the proper party in interest because the promissory note was executed in favor of Citizens Bank. Issue: Whether or not the promissory note executed in favor of Citizens Bank 2 years after the merger may be enforced against the merged corporation (Associated Bank) . Ratio: Yes. The fact that the promissory note was executed after the effectivity date of the merger does not militate against the petitioner since the merger agreement clearly provides that all contracts irrespective of the date of the execution entered into in the name of Citizens Bank shall be understood as pertaining to the surviving bank. The clause was deliberately included in the agreement in order to protect the interests of the combining banks, specifically to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. The reference to Citizens Bank in the note shall be construed as a reference to the Associated Bank (surviving bank) for all intents and purposes. Chinese YMCA v. Ching Doctrine: The courts cannot strip a member of a non-stock, non-profit corporation of his membership therein without cause. Otherwise, that would be an unwarranted and undue interference with the well established right of a corporation to determine its membership. Facts: Victor Ching filed an action for Mandamus against petitioners Chinese YMCA and its officers anchored on the fact that only 175 applications for membership were submitted in the Chinese YMCA's membership campaign. On the other hand, petitioners allege that 249 applications were submitted including 106 which were submitted through Ching during the campaign period. Furthermore, the Chinese YMCA avers that there was no counting and/or approval of membership applications since under the Constitution and the By-Laws of the corporation, membership applications had to be screened by its

membership committee, endorsed favorable to the Board and approved by the latter by 2/3 majority vote. Chinese YMCA claims that of the 249 applications, only 174 were favorably endorsed and were subsequently approved. 75 of the applications submitted by Ching were not approved for the reason that Ching had given stop-payment orders on the checks submitted by him and some others to cover payment of the fees corresponding to these 75 applications. For this reason, the court annulled the membership campaign and declared invalid the approval by YMCA of the 174 applications and the 75 membership applications submitted by Ching (allegedly because they were filed out of time). Issue: Whether or not the nullification of the membership applications was proper. Ratio: No. No evidence could be cited by the court to rebut the well nigh conclusive documentary evidence other than the respondent's unsupported suspicion which the trial court adopted in a negative manner with its statement that "some of the applications were filed after the deadline". If there were any applications filed after the deadline, they certainly should have been positively pin-pointed and specifically annulled. What is worse is that the 175 applications which were filed within the deadline, were nullified by the questioned decision without the individuals concerned having been impleaded or heard. Thus, the appealed decision contravened the established principle that the courts cannot strip a member of a non-stock non-profit corporation of his membership without cause. Otherwise, that would be an unwarranted and undue interference with the well established right of a corporation to determine its membership. In order that membership may be acquired in a non-stock corporation, compliance with provisions of the charter, constitution or by-laws must be complied with except insofar as they are waived. The action of the board of directors approving the 174 membership application of old and new members constituting its active membership as duly processed and screened by the authorized committee must be deemed a waiver on its part of any technicality or requirement of form, since otherwise the association would be practically paralyzed and deprived of the substantial revenues from the membership dues. Lions Club International v. Amores Doctrine: The courts will not interfere with the internal affairs of an unincorporated association as to settle disputes between the members, or questions of policy, discipline, or internal government, so long as the government of the society is fairly and honestly administered in conformity with its law and the laws of the land, and not property or civil rights are invaded. Under such circumstances, the decision of the governing body or established private tribunal of the association is binding and conclusive and not subject to review or collateral attack in the courts. The general rule of non-interference in the internal affairs of association is, however, subject to exceptions but the power of review is extremely limited. The courts will exercise power to interfere in the internal affairs of an association where law and justice so require and the proceedings of the association are subject to judicial review where there is fraud, oppression or bad faith or where the action complained of is capricious, arbitrary or unjustly discriminatory. Also, the courts will usually entertain jurisdiction to grant relief in case property or civil rights are invaded, although it has also been held that the involvement of property rights does not necessarily authorize judicial intervention, in the absence of arbitrariness, fraud or collusion. Moreover, the courts will intervene where the proceedings in question are violative of the laws of the society, or the law of the land, as by depriving a person of due process of law. Facts: The principal adversaries in this controversy are respondent Josefa of the Manila Traders Lions Club and petitioner So of the Manila Centrum Lions Club (both duly organized, chartered and affiliated with Lions Club International). Josefa filed a complaint for quo warranto alleging that both Josefa and So filed their certificate of candidacy for the position of district governor for the fiscal year of 1982-1983 and the before the elections an agreement was executed between them whereby the latter withdrew his certificate of candidacy in favor of Josefa. However, news items were published conveying the idea that So had not withdrawn from the gubernatorial race. But these news items were controverted by the fact that according to the Lions Club, So, indeed, withdrew his candidacy.

However, some of the members of the Council of Past District Governors arbitrarily set aside said withdrawal and proclaimed So as a qualified candidate which was objected to by some of the members present since there was no proper quorum. The complaint likewise alleged that all this time, armed men by force and intimidation prevented known leaders and followers of Josefa from entering the plenary session. Josefa alleges that So and some members of the Past District Governors continued to hold and supervise illegal election at the old site where voting and non-voting delegates and alternates were allowed to cast their votes without ballot. Issue: Whether or not the election dispute between So and Josefa for the position is justiciable. Ratio: The court finds for the petitioners and adopted the general rule that courts will not interfere with the internal affairs of an unincorporated association as to settle disputes between the members, or questions of policy, discipline, or internal government, so long as the government of the society is fairly and honestly administered in conformity with its law and the laws of the land, and not property or civil rights are invaded. Under such circumstances, the decision of the governing body or established private tribunal of the association is binding and conclusive and not subject to review or collateral attack in the courts. In accordance with the general rules as to judicial interference, the decision of an incorporated association on the question of an election to office is a matter peculiarly and exclusively to be determined by the association, and in the absence of fraud, is final and binding on the courts. The instant case falls squarely within the ambit of the rule of judicial non-intervention or non-interference. The elections in dispute, the manner by which it was conducted and the results thereof is strictly the internal affair that concerns only the association. The same is to be resolved within the organization in accordance with the constitution and by-laws which are not immoral, unreasonable, and contrary to public policy or in contravention of the laws of the land. San Juan Structural and Steel Fabricators Inc. v. Court of Appeals Doctrine: The property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's board of directors. Unless duly authorized, the treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. It is foreign to the treasurer's function, which generally has been described as to "to receive and keep the funds of the corporation and to disburse them in accordance with the authority given by hi the board or properly authorized officers." When they exceed their authority, their actions cannot bind the corporation unless it has ratified such acts or is estopped from disclaiming them. Close corporations are those whose articles of incorporation provide that: 1. All of the corporation's issued stock of all classes, exclusive of treasury shares shall be held of record by not more than a specified number of persons, not exceeding 20; 2. All of the issued stock of all classes shall be subject to one or more specified restrictions or transfer permitted by the title on close corporations; 3. The corporation shall not list in any stock exchange or make any public offering of any stock of any class. It shall not be considered as a close corporation when at least 2/3 of the voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. It does not become a close corporation just because a man and his wife owns substantially all of its subscribed capital stock. Facts: It is alleged in this case that San Juan Structural and Steel Fabricators (San Juan Corp) entered into an agreement with Motorich Sales Corporation (Motorich) for the transfer to the former of a parcel of land. In the said transaction, Motorich acted through its corporate treasurer, Nenita Gruenberg. Upon payment of the earnest money and the remaining balance, Motorich refused to execute the Deed of Absolute Sale in favor of San Juan Corp. Later, it was also discovered that Motorich entered into another sale concerning the land in dispute with another company. San Juan Corp filed a suit.

In its defense, it is alleged by Motorich that the president of the corporation did not sign the agreement and that only the corporate treasurer's signature can be seen. In effect, it was inadequate to bind the corporation. San Juan Corp, on the other hand, contends that despite the fact that there was no signature of the president of the corporation, the agreement was still binding on the corporation since it is a close corporation and almost all of the capital stock was owned by the treasurer (99.866%). Accordingly, Gruenberg needed no authorization from the president since the corporation can be bound by the acts of its principal stockholder. Issue: Whether or not there is a valid contract of sale between San Juan Corp and Motorich. Whether or not Motorich is a close corporation. Ratio: There is no valid and binding contract because it was signed by the corporate treasurer only and was never authorized or ratified by the corporation. A corporation may act only through its board if directors or when authorized by its bylaws or by its board resolution, through its officers or agents in the normal course of business. Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets. The treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general authority. Petitioner has the burden of proving that the treasurer was authorized in the transaction. Since there is no such proof of the authority, the contract does not bind the corporation. Neither was there any proof that there was ratification, express or implied. The receipt of the payment does not prove the fact of ratification since it is a handwritten one and not a corporate receipt, and bears only the name of the treasurer. The document alone does not prove that the acts were authorized or ratified by Motorich. Motorich is not a close corporation. It does not contain, in its articles or bylaws, any provision stating that: 1. Its stockholders shall not exceed 20; 2. Preemption of shares is restricted in favor of any stockholder of the corporation 3. Listing of its stocks in any stock exchange making a public offering of such stocks is prohibited. It does not become one just because the treasurer and her spouse own 99. 866% of the subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all or nearly all the capital stock of a corporation is not of itself a sufficient ground for disregarding the separate corporate personalities. The Court is not unaware that there are exceptional cases where an action by a director, who singly is the controlling stockholder, may be considered as a binding corporate act and a board action as nothing more than a mere formality. The case at hand is not one of them. Manuel R. Dulay Enterprises Inc. v. Court of Appeals Doctrine: In a close corporation, a board resolution authorizing the sale of mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting. Although a corporation is an entity which has a personality distinct and separate from its individual stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience, justify wrong, protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its stockholders is therefore confined to its legitimate use and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. Facts: Manuel Dulay is the president, treasurer and general manager of Dulay Enterprises. The corporation owned an apartment unit which it sold, through Manuel Dulay, to Sps. Veloso as evidence by a Deed of Absolute Sale with Right of Repurchase. Subsequently, without knowledge of Dulay, Spouses Veloso mortgaged the property to one Manuel Torres. It was foreclosed and was sold to the latter in a public auction as the highest bidder. Torres filed a case in court praying for the issuance of a writ of possession. But, Virgilio Dulay, one of the stockholders of the corporation, appeared in court to

intervene in the case and alleged that Manuel Dulay was never authorized to sell or mortgage the subject property. Virgilio contends that the sale of the subject property has no binding effect on the corporation as the board resolution which authorized the sale of the same was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary. Issue: Whether or not the sale is valid and binding on the corporation. Ratio: The sale is valid and binding. Petitioner is classified as a close corporation and consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without a proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do. The contention that the board resolution was passed without the knowledge and consent of the other members of the board cannot be sustained as Virgilio Dulay was very much privy to the transactions involved. To begin with, he is an incorporator and one of the board of directors designated at the time of the organization of the corporation. The said entity is loosely referred to as a family corporation. The corporation was incorporated with 4/5 of its incorporators being close relatives, namely the 3 children and their father whose name identifies their corporation. Besides, he signed a affidavit which attests that he was a witness to the execution of the Deed of Absolute Sale of the property and that he was aware of the transaction. The court cannot lose sight of the fact that the corporation is a closed family corporation where the incorporators and directors belong to one single family. It cannot be concealed that Dulay, as president, treasurer and general manager almost had absolute control over the business and affairs of the corporation. Barlin v. Ramirez Doctrine: The Roman Catholic Church is a juridical person in the Philippine Islands. Facts: The defendant in this case, Ramirez took possession of the church after having been appointed as parish priest. As such, he administered church under the orders of his superiors. Subsequently, his successor was appointed hence, the church made a demand on Ramirez for the delivery of the church convent, cemetery and the sacred ornaments, books, jewels, money and other property of the church. Despite repeated demands, Ramirez refused to make such delivery to Barlin on the ground that, allegedly, the town of Lagonoy, in conjunction with the parish priest thereof, has seen fit to sever connections with the Pope at Rome and his representatives in this island and to join the Filipino Church. For this reason Barlin brought an action against Ramirez alleging that the Roman Catholic Church is the rightful owner of the church building, the convent, the cemetery, (etc.). He prayed to be restore of the possession of the properties thereof and for Ramirez to render an accounting which he had received and retained. As a defense, Ramirez claimed that the Roman Catholic Church had no legal personality in the Philippines. Issue: Who has the better right to the present possession of the property? Ratio: The evidence in this case does not show that the municipality has, as such, any right whatsoever in the property in question. It produced no evidence of ownership. Its claim over the property is based merely in the theory that the property in question belonged prior to the Treaty of Paris to the Spanish Government. By the treaty, it passed to the US Government and then by act of Congress, it was transferred to the Philippine Islands, then to the municipality of Lagonoy. However, there is no evidence to support the last proposition (that the government of the Philippines has transferred the ownership of this church to the municipality of Lagonoy).

In 1898, and prior to the Treaty of Paris, the Roman Catholic Church had by law the exclusive right to the possession of this church and it had the legal right to administer the same for purposes for which the building was consecrated. It was then in the full and peaceful possession of the church with the rights aforesaid. Neither the Government of the US nor the Government of these Islands had ever attempted in any way to interfere with the rights of the Roman Catholic Church in the building when the Spanish sovereignty ceased in the Philippines. Prior to the cession of the Philippines to the United States, the King of Spain was not the owner of the consecrated churches therein and had no right to the possession thereof. The exclusive right to such possession was in the Roman Catholic Church and such right has continued since such cession and not exists. IEMELIF v. Juane Doctrine: A corporation sole is one formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church. As opposed to a corporation aggregate, a corporation sole consists of a single member, while a corporation aggregate consists of two or more persons. Facts: IEMELIF is a religious corporation existing and duly organized under Philippine laws and a registered owner of a parcel of land. Juane is a former minister or pastor o IEMELIF and he was elected as one of the members of the Highest Consistory of Elders. Juane was assigned and appointed as the Resident Pastor of Cathedral Congregation in Tondo, Manila. By virtue of this, he was authorized to stay at and occupy the Resident Pastor's residence inside the Cathedral complex. He also took charge of the Cathedral facilities and other property of the church in the said premises. After some time, he was removed as resident pastor and was asked to vacate the residence. However, Juane ignored and refused to vacate subject property and continued its unlawful occupation to the exclusion of IEMELIF. Hence, IEMELIF filed a legal action to enforce its right. In his defense, Juane filed a motion to dismiss the case based on the argument that the transformation of IEMELIF from a corporation sole to a corporation aggregate was legally defective and therefore, IEMELIF has no personality to eject him from the subject property. He contends that since it was defective, the church remained a corporation sole thus, he claims that he is now the corporation sole, who is entitled to the physical possession of the subject property as the owner thereof. Issue: Whether or not the corporation was transformed into a corporation aggregate. Ratio: Even if the transformation from a corporation sole to a corporation aggregate was legally defective, its head or governing body, the Bishop, whose acts were approved by the Highest Consistory Elders still did not change. A corporation sole is one formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church. As opposed to a corporation aggregate, a corporation sole consists of a single member, while a corporation aggregate consists of two or more persons. If the transformation did not materialize, the corporation sole would still be Bishop Lazato, who himself performed the questioned acts of removing Juane was Resident Pastor. If it did materialize, the corporation aggregate would be composed of the Highest Consistory Elders, which nevertheless approved the very same acts. Accordingly, since the IEMELIF has presented sufficient evidence to prove its allegations, the ejectment of Juane from the subject property is warranted. Santos v. Roman Catholic Bishop of Nueva Caceres Doctrine: The court may take judicial notice that the corporation sole, in which temporalities of the Roman Catholic Church are situated, is the administrator of such temporalities and that the parish priests, as such, have no control thereover.

Facts: Engracio Orense died and left a will, according to which 6 parcels of land were left to the Roman Catholic Church as trustee for various purposes subject to a life estate in favor of the appellant, Santos who, in the absence of descendants, ascendants and collateral heirs of the deceased, was made his universal testamentary heir. The will was probated and a special administratrix for the estate was assigned (Santos). Santos filed a motion reciting that the deceased had incurred various obligations and that there were no funds to meet said obligations hence, it would be necessary to either borrow money or to sell some of the properties left to the Roman Catholic Church. Here are some of the obligations incurred during Orense's lifetime: 1. Obtained a franchise to establish and operate an electric light plant and had signed a contract with Pacific Commercial for the materials. 2. Indebted to PNB In order to settle the obligations, the court, after motion of the administratrix, authorized the disposal of the parcels of land, either at a public or private sale subject to their confirmation. Thereafter, Santos motioned to the court, asking for authority to sell 7 small parcels of rice land which have been devised to different nephews and nieces of the deceased. However, before this motion was acted upon, the Roman Catholic Archbishop of Nueva Caceres, a corporation sole, filed a motion asking that the order authorizing the sale be revoked on the ground that the parish priests have no control over the temporalities of the Roman Catholic Church and that therefore, the consent given by Father Julian Ope to the sale was invalid and of no legal effect and that the debts to which the proceeds of the sale are to be devoted to are not the debts of the deceased but were incurred during the administration of the estate by Santos. For this reason, the court vacated the order of sale (without presentation of evidence). Issue: Whether or not Father Julian Ope had authority to consent to the sale of the lands to satisfy the debts of the deceased. Ratio: The order of sale was void for want of jurisdiction in the court and could be vacated at any time before it has been acted upon and a sale made confirmed. In this case, the distribution of the estate of the deceased has already become final and the title to the estate in remained devised to the Roman Catholic Church had become vested. The proceedings, therefore, were terminated and the court has lost its jurisdiction in respect thereto. There might still be a lien on the property for the debts but it seems obvious that the could not have no jurisdiction to foreclose this lien and order the property sold unless some sort of notice was given the holder of the title. On the contention that the order of sale was vacated without presentation of evidence, it was held that the court could properly take judicial notice of the fact that the corporation sole, The Roman Catholic Archbishop of Nueva Caceres is the administrator of the temporalities of that church in the diocese within which the land in question is situated and that the parish priests have no control thereover. As such, there was no necessity to require the presentation of evidence. Roman Catholic Apostolic Adm. Of Davao v. Land Reg. Com., et. al Doctrine: A corporation sole is a special form of corporation usually associated with the clergy designed to facilitate the exercise of the functions of ownership of the church which was regarded as property owner. It consists of one person only and his successors (who will always be one at a time), in some particular station who are incorporated by law in order to give them some legal capacities and advantages particularly that of perpetuity which in their natural persons they could not have. Through this legal fiction, church properties acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal heirs but to his successor in office. A corporation sole, therefore, is created not only to administer the temporalities of the church or religious society where he belongs, but also to hold and transmit the same to his successor in said office. Facts: One Mateo Rodis executed a deed of sale of a parcel of land in favor of the Roman Catholic Administrator of Davao (a corporation sole organized and existing in accordance with Philippine laws) with Clovis Thibault, a Canadian citizen, as actual incumbent. When they had the deed of sale registered with the Register of Deeds, the latter required said corporation to submit a similar affidavit declaring that 60% of the members thereof were Filipino citizens (to comply with the constitutional requirements). The matter was referred to the LRC en consulta for resolution and it rendered the vendee not qualified to

acquire private lands in the Philippines in the absence of proof that at least 60% of its capital property or assets was actually owned or controlled by Filipino citizens there being no question that the present incumbent of the corporation sole was a Canadian citizen. Thus, an action for mandamus was instituted alleging that the deed of sale was actually one in favor of the Catholic Church which is qualified to acquire private agricultural lands for the establishment of places of worship. Petitioner in this case maintains that a corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or disqualified to acquire and hold real properties. A corporation sole or ordinary is not the owner of properties that he may acquire but merely the administrator thereof. On the other hand, the respondents averred that although it might be true that the petitioner is not the owner of the land purchased, he has control over the same with full power to administer, take possession of, alienate, transfer, encumber, sell or dispose of any or all lands and their improvements or in other words, actually exercising all rights of ownership over the properties. A conglomeration of persons cannot be just pointed out as the recipients of the benefits of the property allegedly administered in their behalf. Neither can it be said that the mass of the people referred to as such beneficiary exercise any right of ownership over the same. Issue: Whether or not the Roman Catholic Apostolic Adm. Of Davao is qualified to acquire private agricultural lands in the Philippines under the Constitution. Ratio: Bishops or archbishops, as the case may be, as corporation's sole are merely administrators of the church properties that come to their possession and which they hold in trust for the church. Through this legal function, church properties are acquired by the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal heirs but to his successor in office. A corporation sole is created not only to administer the temporalities of the church or religious society where he belongs but also to hold and transmit the same to his successor in office. Nowhere can you find any provision conferring ownership of the church properties on the Pope although he appears to be the supreme administrator or guardian of his flock, not on the corporation sole or heads or dioceses as they are admittedly mere administrators of said properties, ownership of these temporalities logically fall and devolve upon the church, diocese or congregation acquiring the same. To allow theory that the churches all over the world follow the citizenship of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country who embrace the Catholic faith and become members of that religious society, likewise citizens of the Vatican or Italy. The same thing may be said with regard to the nationality or citizenship of the corporation sole created under the laws of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or heads of said corporations sole. Every Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in accordance with the laws of the country incorporated in accordance with the laws of the country where it is located, is considered an entity or person with all the rights and privileges granted to such artificial being under the laws of that country, separate and distinct from the personality of the Roman Pontiff or the Holy See without prejudice to its religious relations with the latter which are governed by the Canon Law or their rules and regulations. The Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of the Constitution did not have in mind the religious corporations sole when they provided that 60% of the capital thereof be owned by Filipino citizens. It is undeniable that the nationalization and conservation of our natural resources was on of the dominating objectives of the Convention. It was intended as barriers for foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources, saving these undeveloped wealth for our people to clear and enrich when they are already prepared and capable of doing so. But that is not the case of corporations sole in the Philippines for, they are mere administrators of the temporalities or properties titled in their name and for the benefit of the members of their respective religion composed of an overwhelming majority of Filipinos.

In sum, the peculiarities of the corporation sole indicate that when the specific provision of the constitution was under consideration the framers did not have in mind or overlooked this particular form of corporation. The peculiarities are: 1. The corporation sole is composed only of one person, usually the head or bishop of the diocese. 2. The corporation sole is only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole 3. Such temporalities are administered for and in behalf of the faithful residing in the diocese or territory of the corporation sole 4. The corporation sole has no nationality and the citizenship of the incumbent ordinary has nothing to do with the operation, management or administration of the corporation sole, nor affects the citizenship of the faithful connected with their respective diocese or corporation sole. Republic v. Intermediate Appellate Court Doctrine: A corporation sole is by the nature of its incorporation vested with the right to purchase and hold real and personal property. Facts: The Roman Catholic Bishop, represented by Msgr. Jose Sanchez filed an application for confirmation of title to 4 parcels of land. The legal requirements of publication and posting were duly complied with, as was the service of copies of notice of initial hearing on the proper government officials. However, the Solicitor General filed an opposition alleging, among others, that the applicant did not have an imperfect title or title in fee simple to the parcel of land applied for. The Roman Catholic Bishop contends that the lands were acquired by purchase and that they were already in possession of the land since time immemorial. They anchored their title on the basis of acquisitive prescription since they were in continuous possession and enjoyment of the land covering a period of more than 52 years. The Solicitor General, however, contends that the constitution disqualifies a private corporation from acquiring alienable lands for the public domain. And the Roman Catholic Bishop of Lucena, as such, is thereby disqualified from acquiring the disputed parcel of land. Further, SolGen argues than since registration was filed only on 1979, long after the 1973 Constitution, the application for registration and confirmation is ineffectual because at the time it was filed, private corporations have already been declared ineligible to acquire alienable lands of the public domain. Issue: Whether or not the Roman Catholic Bishop of Lucena, as a corporation sole, is qualified to apply for confirmation of its title to the 4 parcels of land subject of this case. Whether or not the corporation sole should be treated as an ordinary private corporation for purposes of application of the constitutional prohibition. Ratio: In this case, the court declared that the lands in dispute are already private land hence, the constitutional prohibition against their acquisition by private corporations or associations do not apply already. It has already been established that the Roman Catholic has been in open, exclusive and undisputed possession of alienable public land for the period required by law. Upon completion of the requisite period and without the need of judicial or other sanction, it ceases to be public land and becomes private property. The possessor shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title. However, in this case, it must be emphasized that the court is not saying that a corporation sole should be treated like an ordinary private corporation. A corporation sole is a special form of corporation usually associated with the clergy. Conceived and introduced into the common law by sheer necessity, this legal creation was designed to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of the church which was regarded as the property of the owner. A corporation sole consists of one person only and his successors who are incorporate by law in order to give them some legal capacity and advantages, particularly that of perpetuity, which in their natural persons they could not have laid. In this sense, the King is a sole corporation; so is a bishop, distinct from several chapters. There is no doubt that a corporation sole by the nature of its incorporation is vested with the right to purchase and hold

real estate and personal property. It need not therefore be treated as an ordinary private corporation because whether or not it is to be treated as such, the constitutional provision involved will, nevertheless, be not applicable. Philippine National Bank v. CFI of Rizal, Pasig Doctrine: When the period of corporate life expires, the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. Upon the expiration of the period fixed in the Articles of Incorporation (not exceeding 50 years), in the absence of compliance with the legal requirements for the extension of the period, the corporation ceases to exist and is dissolved ipso facto. But it shall nevertheless be continued as a body corporate for 3 years after the time when it would have been so dissolved for the purpose of prosecuting and defending suits by or against it and enabling it gradually to settle and close its affairs to dispose of and convey its property and to divide its assets. The Quo Warranto proceeding under the Rules may be instituted by the Solicitor General only for the involuntary dissolution of a corporation on the following grounds: a) when the corporation has offended against a provision of an act for its creation or renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it has committed or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; d) when it has misused a right, privilege, or franchise conferred upon it by law, or when it has exercised such in contravention of the law. Facts: Private respondents (a corporation with a bunch of Chinese names, Im too lazy to type them all here so Ill just call them respondents for brevity, haha!) are registered owners of 3 parcels of land. They entered into a contract of lease with PBM (Philippine Blooming Mills). PBM is a corporation with a term of 25 years and the contract of lease they signed and agreed to provides that the term of the lease is for 20 years beginning from the date of the contract and is extendable for another term of 20 years at the option of the lessee should its term of existence be extended in accordance with law In accordance with the contract, PBM introduced improvements in the land. Subsequently, PBM executed in favor of PNV a deed of assignment conveying and transferring all of its rights and interests under the lease. The assignment was for and in consideration of the loans granted by PNB to PBM. In addition to this, PBM executed in favor of PNB a real estate mortgage covering all the improvements constructed on the leased premises. PBM filed a petition for registration of improvements. Private respondents, however, filed an action in court seeking to cancel the annotations on the certificates of title pertaining to the assignment of the lease and the mortgage on the improvements on the parcel of land on the ground that the lease entered into already expired by failure of PBM to renew the lease by its failure to extend its corporate existence in accordance with law. It is also contended that since PBM failed to remove the improvements before the expiration of the contract, the right to the improvements made is already waived. On the other hand, PBM is of the position that the contract did not expire since PBM exercised its option to renew the lease with acquiescence of the respondents. The court a quo ordered the cancellation of the entries on the respondents certificate of title. Issue: Whether or not the court a quo committed grave abuse of discretion in ordering the cancellation of the entries in the title (whether or not the contract already expired). Ratio: There was no grave abuse of discretion. Clearly, the option to extend the lease for another period of 20 years can only be exercised if the lessee as a corporation renews or extends its corporate term of existence in accordance with the Corporation Code. Records show that PBM only had a corporate life of 25 years which already ended. They allowed their corporate term to expire without complying with the requirements of the law for the extension of its corporate term of existence. Upon the expiration of the term, in the absence of compliance, the corporation ceases to exist and is dissolved ipso facto. But it shall nevertheless be continued as a body corporate for 3 years after the time when it would have been so dissolved for the purpose of prosecuting and defending suits by or against it and enabling it gradually to settle and close its affairs to dispose of and convey its property and to divide its assets.

There is no need for the institution for a quo warranto proceeding to determine the time or date of the dissolution because the period of corporate existence is provided in the articles of incorporation. When such period expires, the corporation is dissolved automatically insofar as the continuation of its business is concerned. Hence, there is no need for the SEC to make an involuntary dissolution of a corporation whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation. When PBMs corporate like ended and its 3-year period for winding up and liquidation expired, the option of extending the lease was likewise terminated because they failed to renew or extend its corporate life in accordance with law. From then on, respondents can exercise their right to terminate the lease pursuant to the stipulations in the contract. As stated in the contract, the petitioner was duty bound to remove the improvements before the expiration of the lease. Its failure to do so when the lease was terminated was tantamount to a waiver of its rights and interests over the improvements on the leased premises. Republic v. Security Credit and Acceptance Corporation, et. Al Doctrine: A bank is a moneyed institute founded to facilitate the borrowing, lending and safekeeping of money and to deal in notes, bills of exchange and credits. An investment company, which lends out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. Any person engaged in the business carried n by bans of deposit, of discount, or of circulation is doing banking business, although but one of these functions is exercised. A corporation which accepted savings account deposits and lent the money deposited to borrowers, engaged in banking. A corporation which misused its corporate funds and franchise by engaging in illegal banking may be dissolved. Facts: Defendant corporation, Security Credit and Acceptance corporation (SCAC) is a corporation which adopted a set of by-laws which were filed with the commission but the Superintendent of Banks of the Central Bank found that the said corporation is a banking institution hence, the commission advised the corporation to comply with the requirements of the General Banking Act. In a search conducted with a search warrant issued by the MTC, the Manila Police Department searched and seized documents and records relative to its business operations. On the basis of he seized documents, the Monetary Board declared that the corporation is performing banking operations without having first complied with the provisions of the General Banking Act. The corporation was advised of said resolution but notwithstanding, the corporation as well as the members of the Board and the officers have been and still are performing the functions and activities which have been declared to constitute illegal banking operations. The corporation has managed to induce the public to open 59,463 savings deposit accounts. Accordingly, the Solicitor General commenced this action for dissolution of the corporation. Defendants practically admitted all of the allegations in the petition but made certain defenses in respect to other officers impleaded in this complaint on the ground that they never assumed respective offices. Issue: Whether or not the transactions of the corporation partake the nature of banking. Ratio: It partakes the nature of banking as defined in the General Banking Act. Accordingly, the defendant corporation has violated the law by engaging in banking without securing the administrative authority required. The illegal transactions undertaken by defendant corporation warrants its dissolution. Its misuse of corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public. The SC is vested with original jurisdiction, concurrently with courts of first instance (RTC) to hear and decide quo warranto cases and that, it is discretionary for the court to entertain the present case or to require that the issued be taken up in a civil case.

Financing Corporation of the Philippines v. Teodoro, etc. Doctrine: As a rule, minority stockholders of a corporation may not ask for its dissolution in a private suit and such action should be brought by the Government through its legal officer in a quo warranto case at their instance and request. But there might be exceptional cases wherein the intervention of the State, cannot be obtained, as when the State is not interested because it is strictly a matter between the stockholders and does not involve, in the opinion of the government, any of the acts or omissions warranting quo warranto proceedings in which minority stockholders are entitled to have such dissolution. When such action or private suit is brought by them, the trial court has jurisdiction and may or may not grant the prayer. Facts: Asuncion, et.al, in their own behalf and in behalf of the other minority stockholders of the Financing Corporation filed a civil case complaint against said corporation and its president and general manager for alleged gross mismanagement and fraudulent conduct of the corporate affairs of the corporation and asking that the corporation be dissolved. It also prayed that the president be held personally accountable for the amounts and that he be required to make an accounting as well as the appointment of a receiver pending trial and disposition of the case. The trial court granted the petition for appointment of a receiver. The main contention of the petitioners in this case in opposing the appointment and dissolution of the corporation is that the principal action being the dissolution and the auxiliary remedy being the appointment of a receiver, it can only be brought by the State through its legal counsel. Respondents, being merely minority stockholders, have no right or personality to maintain the action for dissolution. Issue: Whether or not the respondents have legal personality to initiate present case. Ratio: Yes. Even minority stockholders may ask for dissolution, under the theory that such minority members, if unable to obtain redress and protection of their rights within the corporation, must not and should not be left without redress and remedy. Even the existence of a de jure corporation may be terminated in a private suit for dissolution by stockholders without the intervention of the State. As a rule, minority stockholders of a corporation may not ask for its dissolution in a private suit and such action should be brought by the Government through its legal officer in a quo warranto case at their instance and request. But there might be exceptional cases wherein the intervention of the State, cannot be obtained, as when the State is not interested because it is strictly a matter between the stockholders and does not involve, in the opinion of the government, any of the acts or omissions warranting quo warranto proceedings in which minority stockholders are entitled to have such dissolution. When such action or private suit is brought by them, the trial court has jurisdiction and may or may not grant the prayer. Having such jurisdiction, the appointment of a receiver is left to the sound discretion of the trial court. Although it is a power to be exercised with great caution, nevertheless, it should be exercised when necessary in order not to entirely ignore and disregard the rights of said minority stockholders, especially when said stockholders are unable to obtain redress and protection of their rights within the corporation. Sumera v. Valencia Doctrine: When a corporation is dissolved and the liquidation of its assets is placed in the hands of receiver or assignee, the periodof3 years prescribed is not applicable, and the assignee may institute all actions leading to the liquidation of the assets of the corporation even after the expiration of 3 years. Facts: Devota de Nuestra Senora de la Correa is a corporation organized in accordance with the laws in force in the Philippines for the promotion of the fishing industry or business for a period of 20 years. On petition of various stockholders, an investigation into its financial condition was made and it was discovered hat Eugenio Valencia, manager of the corporation, had withdrawn the amount of P600 from the remaining assets of the corporation. For this reason, a petition for voluntary dissolution was filed. It was approved and the court ordered the liquidation of the properties. It appointed Nicolas as receiver but he was substituted by herein appellant Tiburcio Sumera to take charge of such liquidation. Sumera made demands from Eugenio Valencia to deliver the remaining balance (P400) of the amount he withdrew from the funds

of the corporation but to no avail. In his defense, Eugenio claims that the action already prescribed since the corporation was already dissolved. It should have been brought within 3 years following dissolution. Issue: Whether or not the action already prescribed not having been brought within 3 years following dissolution. Ratio: Action has not yet prescribed. The time during which the corporation, through its own officers, may conduct liquidation of is assets and sue and be sued as a corporation is limited to 3 years from the time the period of dissolution commences; but that there is no time limited within which the trustees must complete liquidation placed in their hands. Suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued; but trustees to whom the corporate assets have been conveyed pursuant to the authority of the Corporation Law may sue and be sued as such in all matters connected with liquidation. After the expiration of such time, it is generally held not only that the corporation cannot sue or be sued but that actions pending at such time are abated. But a statute authorizing the continuance of a corporation for 3 years to wind up its affairs, does not preclude an action to wind up brought after 3 years. If the corporation carries out the liquidation of its assets through its own officers and continues and defends the actions brought by or against it, its existence shall terminate at the end of 3 years from the time of dissolution but if a receiver or assignee is appointed, as has been done in the present case, with or without a transfer of is properties within 3 years, the legal interest passes to the assignee, the beneficial interest remaining in the members, stockholders, creditors and other interested persons; and said assignee may bring an action, prosecute that which has already been commenced for the benefit of the corporation or defend the latter against any other action already instituted or which may be instituted even outside the 3 year period fixed for the officers of the corporation. Gelano v. Court of Appeals Doctrine: A corporation with a pending court action may still continue prosecuting or defending the same for 3 years after its dissolution. Its legal counsel maybe considered its trustee for that case only. The word trustee as used here may be understood to be it general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation. Facts: Insular Sawmill leased the paraphernal property one Guillermina. Her husband obtained cash advances from said corporation and under their agreement, Insular Sawmill could deduct the amount of the cash advance form the rentals of the leased premises until fully paid. However, the husband left a balance which he refused to pay. The wife, likewise, refused to pay on the ground that the said amount was advanced for the personal account of her husband. It was advanced without her knowledge and consent and allegedly, did not benefit the family. Subsequently, the spouses purchased lumber materials from the corporation leaving, again, unpaid balances. Insular filed a complaint for collection against the spouses on May 29, 1959 (while the corporation was still subsisting). However, while the action filed was still pending, respondent corporation amended its Articles of Incorporation to shorten its term of existence up to December 31, 1960 only. It was only 4 years after the dissolution of the corporation when the trial court rendered a decision in their favor. Issue: Whether or not the corporation could still continue prosecuting and defending suits after dissolution and beyond the period of 3 years without having to take any step to transfer its assets to a trustee or assignee. Ratio: Insular Sawmill ceased as a corporation upon expiration of the 3 year period but the case at bar was instituted during the time when the corporation was still very much alive. Hence, Insular can continue prosecuting. Any litigation filed before dissolution, but which could not be terminated, must necessarily prolong the period until the final determination of the said litigation as otherwise corporations in liquidation would lose what should justly

belong to them through a mere technicality, something that the courts should prevent. A corporation that has a pending action and which cannot be terminated within the 3 year period after dissolution is authorized to convey its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the 3 year period. Although the respondent did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. There was substantial compliance with the law and hence, Insular can still continue prosecuting the case. Clemente v. Court of Appeals Facts: Sociedad Pupular Calambena is a sociedad anonima organized on or about the advent of the early American occupation of the Philippines with the principal business of cockfighting or the operation and management of a cockpit. During its existence, it acquired a parcel of land from the Friar Lands Estate of Calamba issued in their name. Petitioners in this case claim that Clementa and Elepano, now deceased, were original stockholders of the sociedad. Celemente's shares were later distributed and apportioned to his heirs in accordance with a project of partition. In accordance with the partition, the sociedad issued stock certificates to the heirs. On the basis of said certificate of stocks, the plaintiffs in this case, heirs of Celemente, claim ownership over the property, asserting that their fathers being the only known stockholders of the sociedad, are entitled to be declared owners thereof. Issue: Whether or not the petitioners can be held to have succeeded in establishing themselves a firm title to the property. Ratio: No. Since the sociedad has long become defunct, it should behoove the petitioners or anyone else who may have any interest in the corporation, to take appropriate measures before a proper forum for a peremptory settlement of its affairs. We might invite attention to the various modes provided by the Corporation Code for dissolving, liquidating or winding up, and terminating the life of the corporation. Among the causes for such dissolution are when the corporate term has expired or when, upon a verified complaint and after notice and hearing, the Securities and Exchange Commission orders the dissolution of a corporation for its continuous inactivity for at least five (5) years. The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period, the board of directors (or trustees) itself, following the rationale of the Supreme Court's decision in Gelano vs. Court of Appeals (103 SCRA 90) may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf, might make proper representations with the Securities and Exchange commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns.

Pepsi-Cola Products v. Court of Appeals Doctrine: A corporation whose corporate existence is terminated in any manner continues to be a body corporate for 3 years after its dissolution for purpose of prosecuting and defending suits by and against it and to enable it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. If the 3 year extended life has expires without a trustee or receiver having been expressly designated by the corporation, within that period, the board of directors itself, may be permitted to so continue as trustees by legal implication to complete the corporate liquidation. Facts: Pepsi-Cola Philippines Employees and Workers Union (PCEWU) is a duly registered labor union of the employees of the Pepsi-Cola Distributors of the Philippines (PCDP). Through its local union president, it filed a complaint against PCDP for payment of overtime services rendered by its members on 8 days duly designated as Muslim Holidays for the calendar year 1985. However, PCDP maintained that there were only 5 Muslim Holidays under the Muslim Code and that the holidays included were only applicable to Muslims not all persons found in the said place as stated in the presidential decree. Since respondents failed to specify that they were Muslims/non-Muslims, they were not entitled to the overtime pay. Pending resolution of the case, the PCDP eased to exist as a juridical entity since it was acquired by petitioners herein (Pepsi-Cola Products Philippines). Hence, the NLRC ruled that it was no longer competent for it to proceed. It dismissed the claim for the reason that the cessation and dissolution of the corporate existence of the PCDP rendered any judgment against it incapable of execution and satisfaction. On appeal, the CA declared that the PCDP was still in existence when the complaint was filed and that the supervening dissolution of the corporation did not warrant the dismissal of the complaint against it. Issue: Whether or not the NLRC committed grave abuse of discretion when it dismissed the case on the ground that PCDP already ceased to exist. Ratio: NLRC committed grave abuse of discretion amounting to lack of jurisdiction in dismissing the case. It clearly erred in perceiving that upon the petitioner's acquisition of the PCDP, the latter lost its corporate personality. Under the Corporation Code, a corporation whose corporate existence is terminated in any manner continues to be a body corporate for 3 years after its dissolution for purposes of prosecuting and defending suits by and against it and to enable it to settle and corporate affairs, culminating in the disposition and distribution of its remaining assets. It may, during the 3 year term, appoint a trustee or a receiver who may act beyond that period. The termination of the life of a corporate entity does not by itself cause the extinction or dimunition of the rights and liabilities of such entity. If the 3 year extended life has expired without a trustee or receiver having been expressly appointed by the corporation, within that period, the board of directors (or trustees) itself, may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. Expertravel & Tours, Inc. v. Court of Appeals Doctrine: The authority of a resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign corporation, services and other legal processes in all actions and other legal proceedings against such corporation. Facts: KAL (Korean Airlines) is a corporation established and registered in South Korea and licenses to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim (SKK nalang because I discriminate like that ), while its appointed counsel was Atty. Aguinaldo. KAL, through Atty. Aguinaldo filed a complaint against the petitioner Expertravel for collection of an amount of money with damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo and he indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. He further allege that he was authorized to filed such complaint through a resolution of the Board of Directors during a special meeting.

A motion to dismiss was filed by Expertravel on the ground that Atty. Aguinaldo was not authorized to execute verification and certificate of non-forum shopping as required by the Rules. Issue: Whether or not Atty. Aguinaldo had authority to sign the certification against forum shopping in filing the complaint. Ratio: No. Under the law, Atty. Aguinaldo is not specifically authorized to execute a certificate of non-forum shopping as required by the Rules. This is because while a resident agent may be aware of actions filed against his principal, such resident may not be aware of actions initiated by its principal whether in the Philippines against a domestic corporation or a private individual, or in the country where such corporation was organized and registered corporation or a Filipino citizen. The respondent corporation knew that its resident agent was not specifically authorized to execute the said certification that is why it attempted to show compliance with the rule by attempt to submit a resolution purporting to have been approved by the Board of Directors during a teleconference held with, allegedly, Atty. Aguinaldo and SKK in attendance. The allegation that its board conducted a teleconference and approved said resolution is incredible given the additional fact that no such allegation was made in the complaint. If the resolution was indeed approved, before the complaint was filed, then the respondent should have incorporated it in its complaint or appended a copy thereof. M.E. Grey v. Insular Lumber Co. Facts: Insular Lumber is a corporation organized and existing under the laws of New York and is licensed to engage in business in the Philippines. Plaintiff, Grey, is the owner and possessor of 57 shares of the capital stock of the corporation. The plaintiff asked the offices of the defendant company in to permit him to examine the books and records of the business but he was not allowed to do so. because under the laws of NY, the right of a stockholder to examine exists only if the stockholder owns 3% of the shares of the corporation. Grey contends that his rights as a stockholder, since the corporation herein was registered to do business here, is recognized. Hence, he is entitled to inspect the record of the transactions despite Section 77 of the Corporation Law of NY. Issue: Whether or not Grey has a right to inspect the books of the defendant corporation. Ratio: No. Grey is bound to adhere to the agreement made by him with the defendant corporation in paragraph four of the stipulation of facts, to the effect that the rights of a stockholder, under the law of New York, to examine the books and records of a corporation organized under the laws of said State, and during the entire period material to this action, are only those provided in section 77 Stock Corporation Law of New York. The plaintiff not being a stockholder owning at least 3% of the capital stock of the defendant corporation, has no right to examine the books and records of the corporation nor to require a statement of its affairs embracing a particular account of all its assets and liabilities. In this case, Grey made no effort to prove or even allege that the information he desired to obtain through the examination and inspection of the books was necessary to protect his interests as stockholder of the corporation, or that it was for a specific and honest purpose and not to gratify curiosity nor for speculative or vexatious purposes. Mentholatum co. v Mangaliman Doctrine: No general rule or governing principles can be laid down as to what constitutes doing business or engaging in or transacting business. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. It implies a continuity of commercial dealings and arrangements and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

Facts: Mentholatum is a Kansas corporation which manufactured Mentholatum as a medicament and salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and other external ailments of the body. Philippine American Drug is its exclusive distributing agent in the Philippines authorized by it to look after and protect its interest. It registered Mentholatum as trademark for its products. On the other hand, the Mangaliman brothers prepared a similar medicament and salve named "Mentholiman" which they sold and packed in a container of the same size, color and shape as Mentholatum. For this reason, Mentholatum initiated an action for infringement of trade mark and unfair competition. It claims to have suffered damages for dimunition of sales and the loss of goodwill and reputation of their product in the market. Issue: Whether or not the petitioners could prosecute the instant action without having secured the license required in the corporation law. Whether or not the Philippine American Drug can, by itself, maintain the action. Ratio: Whatever transactions the Philippine American Drug had executed in view of the law, Mentholatum did itself as the principal of the former. Being a foreign corporation doing business WITHOUT LICENSE in the Philippines, it may not prosecute this action for violation of trade mark and unfair competition. Neither can Philippine American Drug maintain the action here for the reason that the distinguishing feature of the agent being his representative character and derivative authority, it cannot now, to the advantage of its principal, claim an independent standing in court. Under the corporation code. No foreign corporation or corporation formed or organized in a foreign country shall be permitted to transact business in the Philippines or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed. Any officer or agent of the corporation transacting business not having license shall be punished by imprisonment for not less than 6 months nor more than 2 years or by a fine of not less than 200 pesos not more than 2000 pesos or both. General Garments Corporation v. Director of Patents Doctrine: A foreign corporation which has never done business in the Philippine Islands and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Islands through the use therein of its products bearing its corporate and trade name has a legal right to maintain an action in the Islands. Facts: General Garments Corporation is the owner of Puritan registered in the Patent Office for assorted men's wear. Puritan Sportswear Corporation, organized and existing in and under the laws of USA filed a petition with the Philippine Patent Office for the cancellation of the trademark "Puritan" under the name of General Garments alleging ownership and prior use in the Philippines of said trademark which use it has not abandoned alleging further that registration thereof has been obtained fraudulently and in violation of the law. General garments moved to dismiss the petition on the ground that Puritan Sportswear Corporation is a foreign corporation not licensed to do business and is not doing business in the Philippines hence, it has no legal capacity to maintain a suit in the PPO for cancellation of a trademark registered therein. Issue: Whether or not Puritan Sportswear has legal capacity to maintain a suit in the PPO for cancellation of a trademark registered therein. Ratio: Yes. The fact that it may not transact business in the Philippines unless it has obtained a license for that purpose, nor maintain a suit in Philippine courts for the recovery of any debt, claim or demand without such license does not make Puritan Sportswear any less a juridical person. An exception to the license requirement has been recognized in this jurisdiction namely, where a foreign corporation sues on an isolated transaction. However, to recognize the it as a juridical person does not resolve the issue in the case.

Respondent here is not suing for the recovery of any debt, claim or demand for which a license is required subject to the exception noted Respondent filed a petition for CANCELLATION OF A TRADEMARK registered invoking the trademark law and under jurisprudence, "A foreign corporation which has never done business in the Philippine Islands and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Islands through the use therein of its products bearing its corporate and trade name has a legal right to maintain an action in the Islands." The purpose of such suit is to protect its reputation, corporate name and goodwill which has been established through the natural development of its trade for a long period of years, in doing of which it does not seek to enforce any legal or contract rights arising from, or growing out of any business which it has transacted in the Philippine Islands. The right to the use of the corporate or trade name is a property right, a right in rem, which it may assert and protect in ay of the courts of the world even in jurisdictions where it does not transact business just the same way as it may protect its tangible property, real or personal against trespass or conversion. It may also be stated that the ruling in the Mentholatum case was subsequently derogated when Congress purposely enacted RA 638 which allows a foreign corporation or a juristic person to bring an action in the Philippine Courts for infringement of a mark or trade-name, for unfair competition, or false designation of origin and false description, whether or not it has been licensed to do business in the Philippines at the time it brings complaint. Facilities Management Corporation v. Dela Osa Doctrine: If a foreign corporation, not engaged in business in the Philippines, is not barred form seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines. Facts: In a petition, dela Osa sought his reinstatement with full backwages as well as the recovery of his overtime compensation, swing shift and graveyard shift differentials He further avers that he rendered overtime services daily and that his entire period was divided into swing and graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums despite his repeated demands from respondents. Petitioner in this case denied the material allegations of the basic petition and interposed that Facilities Management Corporation is domiciled in Wake Island which is beyond the territorial jurisdiction of the Philippine Government hence, is without power and authority of legal representation. Issue: Whether or not the foreign corporation in this case is in law doing business in the Philippines. Whether or not it has personality to be sued in Philippine courts. Ratio: The object of the Corporation Law was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring domicile for the purpose of business without taking the necessary steps to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines from securing redress in the Philippine courts. No general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. If a foreign corporation, not engaged in business in the Philippines, is not banned from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines.

In sum, the corporation in this case was deemed not engaged in business, and only conducted isolated transactions. However, it still has the personality to sue and be sued in Philippine courts. Far East International Import v. Nankai Kogy Doctrine: There are 3 modes of effecting service of summons upon private foreign corporations: 1) by serving upon the agent designated in accordance with law to accept service of summons; 2) if there is no resident agent, by service on the government official designated by law to that effect; 3) by serving on any officer or agent of said corporation within Philippines. Where a single act or transaction of a foreign corporation is not merely incidental or casual but is of such character as distinctly to indicate a purpose on the part of the corporation to do other business in the state, and to make the state a basis of operation for the conduct of a part of the corporation's business, such act or transaction constitutes doing business within the meaning of the law prescribing the conditions which a foreign corporation may be served with summons. Facts: FEI (Far East International), organized under the Philippine Laws, entered into a Contract of Sale with Nankai Kogyo, a foreign corporation in Japan for the purchase of steel. Upon perfection of the contract and after being informed of the readiness to ship and that the export license of Nankai was about to expire, Nankai opened a latter of credit with China Bank. Upon expiration of the license, only a part of the subject of the contract was loaded in the SS. Mina. The loading was accordingly stopped and the boat at Poro Point was also unloaded of the 200 metric tons for the same reason. For this reason, an agreement between the parties was reached for the extension of the license. But this did not materialize because of the untimely death of President Magsaysay. After requests for payment of damages were ignored, FEI filed the present complaint for Specific Performance and damages. However, by special appearance, defendant Nankai filed a motion to dismiss the complaint on the ground of lack of jurisdiction over the person of the defendant and over the subject matter and failure to state cause of action. FEI contends that Nankai is doing business on the Philippines and presented witnesses to prove such fact during the trial. They showed
that the transaction in question was intended to be the beginning of business to be undertaken by Nankai as in fact, representatives of the company made inquiries as to the operation of mines and mining rights in this jurisdiction. They even established a temporary office in Luneta Hotel and manifested their intention to put up one at the Madrigal building. Issue: Whether or not Nankai is doing business in the Philippines so as to make it amenable to summons and subject it to the Court's jurisdiction. Ratio: It is difficult to lay down any rule of universal application to determine when a foreign corporation is doing business. But from the proven facts obtaining in this particular case, the appellant's defense of lack of jurisdiction appears unavailing. If the act is isolated, incidental or casual and not of a character to indicate a purpose to engage in business the corporation is NOT considered to be engaged in business. In the instant case, the appellant was doing business in the Philippines as corroborated by the testimonies that the company was looking into the operation of mines thereby revealing the intention to continue engaging business here after receiving the shipment of scrap iron under consideration. A single act may bring the corporation within the purview of the statute where it is an act of the ordinary business of the corporation. In such a case, the single act or transaction is not merely incidental or casual, but is of such a character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a basis of operations for the conduct of a part of the corporation's ordinary business. Agilent Technologies Singapore v. Integrated Silicon Technology Philippines Corporation Doctrine: A foreign corporation without a license is not ipso facto incapacitated form bringing an action in the Philippine courts. License is necessary only if a foreign corporation is transacting or doing business in the country.

The doctrine of estoppel to deny corporate existence and capacity applies to foreign corporation doing business in the Philippines may bring suit in the Philippine courts against a Philippine citizen or entity who had contracted with and benefited from said corporation. The doctrine of estoppel to deny corporate existence and capacity applies to foreign as well as domestic corporations. The application of this principle prevents a person contracting with a foreign corporation form later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract. Facts: Agilent is a foreign corporation which, by its own admission, is not licensed to do business in the Philippines. Respondent, on the other hand, is a private domestic corporation 100% foreign owned which is engaged in the business of manufacturing and assembling electronics components. Integrated Silicon and Hewlett-Packard entered into a VAASA (Value Added Assembly Services Agreement. Under the terms of said agreement, Integrated Silicon was to locally manufacture and assemble fiber optics to export to HP-Singapore. HP, for its part, was to consign raw materials to Integrated Silicon; transport machinery to plant of Integrated Silicon and pay Integrated Silicon the purchase price of the finished products. HP-Singapore assigned all its rights and obligations to Agilent. Integrated Silicon filed a complaint for specific performance and damages against Agilent and its officers for breach of oral agreement to extend the VAASA. They prayed that the defendant be ordered to execute a written extension of the agreement and to comply with it. Summons and a copy of the complaint was sent to one Atty. Quisumbing but the processes were returned on the claim that he was not the registered agent of Agilent. Later, a special appearance was made assailing the court's jurisdiction. Subsequently, Agilent also filed a complaint against Integrated praying that the court ordered the defendants to immediately return and deliver to plaintiff all its equipment which were left at their plant. Respondents argue that since Agilent is an unlicensed foreign corporation DOING BUSINESS IN THE PHILIPPINES (based on the fact that they entered into a service contract, they appointed a full-time representative in Integrated, they appointed 6 full time staff members, and they participated in the management and supervision of Integrated Silicon), it lacks legal capacity to file suit. Issue: Whether or not Agilent has the legal capacity in Philippine courts. Ratio: Agilent cannot be deemed to be doing business in the Philippines. Hence, Respondent's contention that Agilent lacks legal capacity to file suit is therefore devoid of merit. As a foreign corporation NOT DOING BUSINESS, it needed no license before it can sue before our courts. The rule is, a license is only necessary if a foreign corporation is TRANSACTING OR DOING BUSINESS in the country. If it is not doing business in the country, it needs no license to bring suit before our courts. An unlicensed foreign corporation doing business in the Philippines may bring suit in Philippine court against a citizen or entity who had contracted with and benefited form said corporation. This is premised on the doctrine of estoppel. The application of this principle prevents a person from later taking advantage of its noncompliance with the statutes chiefly in cases where no such person has received the benefits of the contract. Summary: Foreign Corporation which DOES BUSINESS, WITHOUT A LICENSE Foreign Corporation NOT DOING BUSINESS, on an ISOLATED TRANSACTION or any cause of action entirely INDEPENDENT of any business transaction Foreign Corporation DOES BUSINESS, WITHOUT LICENSE CANNOT SUE before Philippine courts Needs no license to sue before Philippine Courts
A Philippine citizen or entity which has contracted with said corporation may be ESTOPPED from challenging the corporation's personality in a suit before the courts

Foreign Corporation DOING BUSINESS, WITH LICENSE CAN SUE on any transaction Issue: Whether or not HB has the capacity to institute an action before Philippine Courts. Ratio: It is settled in jurisprudence that a foreign corporation not engaged in business in the Philippines may not be denied the right to file an action in Philippine Courts for isolated transactions. While a plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring suit to present action. Such license is not necessary because it is NOT ENGAGED IN BUSINESS in the Philippines. A foreign corporation not engaged in business in the Philippines is not barred from seeking redress form the courts of the Philippines. The Swedish East Asia Co v. Manila Port Service Doctrine: Section 69 of the Corporation Law is not applicable to a foreign corporation performing single acts or isolated transactions. Facts: Petitioner Swedish East Asia (SEA) is a corporation duly organized and existing under the laws of Sweden and is NOT LICENSED TO DO BUSINESS in the Philippines. Some time in 1967, MS SUDAN (vessel owned by SEA) arrived at Manila and discharged cargo destined thereto under the custody of Manila Port Service, a subsidiary of Manila Railroad Company. By mistake, cargo destined for HK consisting of 16 bundles of lifts of mild steel tees window sections covering which petitioner had issued a bill of lading were also landed to Manila. Upon being notified of the mistake, the manager sent the company's customs men to investigate who found 16 bundles at the custom piers. He instructed their customs men to arrange for reshipment and accomplish necessary papers for payment of customs. However, reshipment of all the 16 bundles was not effected because only 8 were available at the time they were scheduled to be loaded as the remaining 8 could no longer be found. Petitioner filed a complaint in the CFI of Manila for the recovery of the amount of the value of the missing goods which sum it had paid to the consignee in HK. The trial court ruled in favor of SEA but it was later reversed by the CA thereby absolving the respondents from liability to
To determine whether a corporation is doing business here in the Philippines, it must pass the Substance test (whether the corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another) and the Continuity test (continuity of commercial dealings and arrangements and contemplates the performance or works normally incident to and in the progressive prosecution of the purpose and object of its organization). In conclusion, upon examination of the VAASA, the court found that the acts enumerated under the VAASA do not constitute "doing business" in the Philippines. The activities defined there in were confined to maintaining stock of goods in the Philippine solely for the purpose of having the same processed by Integrated Silicon and the consignment of equipment with Integrated silicon to be used in the processing of products for export. Hathibhai Bulakhidas v. Navarro Doctrine: A foreign corporation not engaged in business in the Philippines can file an action before Philippine courts for isolated transactions. It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not be denied the right to file an action in Philippine courts for isolated transactions. Facts: Petitioner HB (hehe ) is a foreign partnership which filed a complaint against a domestic corporation, Diamond Shipping Corporation for the recovery of damages allegedly caused by the failure of the said shipping company to deliver the goods shipped to it by petitioner to their proper destination. In its complaint it alleged that HB is a foreign corporation not doing business in the Philippines and that it is suing under an isolated transaction. Defendant filed a motion to dismiss on the ground that plaintiff has no capacity to sue. The trial court dismissed the complaint on the ground that the partnership is a foreign one not doing business in the Philippines and that it cannot exercise the right to maintain suits before our Courts.

pay the missing goods. In ruling for the respondents, the CA reasoned that the petitioner's action in the lower court has already prescribed as it was instituted more than 3 years after the cargo in question was landed at the port, in violation of the provisions of the management contract between Manila Port Service and the Bureau of Customs which requires that it be brought within 1 year. Petitioner however, argues that the said provision does not apply to their case since the cases involved cargo destined for the Philippines and the consignee are residents of the Philippines who availed themselves of the service of the customs arrastre operator. Respondents on the other hand maintain that SEA is bound by said management contract because it has been transacting business with the respondents regularly in the past and is charged with knowledge of the provisions of the management contract. Furthermore, they challenge the petitioner's capacity to sue it being admittedly a foreign corporation without license to engage in business in the Philippines, citing the Corporation Law. Issue: Whether or not petitioner SEA has capacity to sue. Whether or not respondent is liable under the management contract. Ratio: Yes. Section 69 of the Corporation Law does not apply to a foreign corporation performing single acts or isolated transactions. There is nothing on record to show that the petitioner has been engaged in continuing business or enterprise for which it was organized when the 16 bundles were erroneously discharged in Manila for it to be considered as transacting business within the Philippines. In fact, the bundles were landed not as a result of business but due to a mistaken belief that they were part of the shipment of 40 similar bundles consigned to persons or entities in the Philippines. Petitioner is not bound by the aforementioned management contract. As a rule, the parties to a management contract are bound thereby as well as third parties who availed themselves of the services of the arrastre operator. However, in this case, petitioner had no intention of availing itself of the services of the Manila Port Service nor did it derive benefit therefrom insofar as the cargo herein is concerned since its intention was to take the cargo to HK pursuant to the contract with the consignee. The discharge in Manila was made only through mistake, in good faith. It follows therefore that its right to bring action to recover the value of the missing goods cannot be limited by the preconditions of the contract. In this case, there is no question that the defendants received the bundles which were mistakenly discharged. Therefore, they were under the obligation to return them to the petitioner. Puma v. IAC Doctrine: A foreign corporation net doing business in the Philippines needs no license to sue before the Philippine courts for infringement of trademark and unfair competition. A foreign corporation which has never done business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and trade name, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation when it appears that they have personal knowledge of the existence of such a foreign corporation and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation. Facts: Petitioner Puma is a foreign corporation duly organized in Germany and manufacturer of PUMA products. It filed a complaint for infringement of patent or trademark before the RTC of Makati. Prior to the filing of this case, 3 cases were already ending with the PPO against Mil-Oro which opposed the registration of the trademark, cancellation of registration of the trademark and the cancellation of the certificate of registration. Mil-Oro filed a motion to dismiss on the ground that the complaint states no cause of action and that petitioner has no legal capacity to sue and litis pendentia. Mil-Oro contends that although they are allowed to bring suit as a foreign corporation, there are some conditions that must be met before that exception could be made to apply under RA 166 namely: 1. Trademark of the suing corporation must be registered in the Philippines

2. There is a reciprocal treatment to Philippine Corporations in the country of origin of the foreign corporation Mil-Oro herein contends that the petitioner failed to allege reciprocity which is an essential fact under the trademark law and is fatal to the corporation's cause. Issue: Whether or not the petitioner has legal capacity to sue Whether or not the case should be dismissed on the ground of litis pendentia. Ratio: Yes. Petitioner has the legal capacity to file the action. Citing the case of La Chemise Lacoste, the court ruled that even if there is a failure to allege material facts in its position relative to capacity to sue, the petitioner may still maintain the present suit since it is a foreign corporation not doing business in the Philippines therefore needing no license to sue before the Philippine courts for infringement of trademark and unfair competition. A foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here but is widely and favorably known in the Philippines through the use of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation when it appears that they have personal knowledge of the existence of such corporation and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation. Moreover, adherence to the Paris Convention dictate that a tradename shall be protected in all countries of the Union without the obligation of filing or registration whether or not it forms pat of the trademark. There is no litis pendentia in this case. For such to be a valid ground to dismiss, the other case pending must be between the same parties and the same cause which must be a court action, not one instituted in the Philippine Patents Office. Merril Lynch Futures v. Court of Appeals Doctrine: A foreign corporation doing business in the Philippines may sue in Philippine courts although not authorized to do business here against a Philippine citizen who had contracted with and been benefited by said corporation. Facts: ML Futures filed a complaint against Spouses Lara for the recovery of a debt and interest thereon. In its complaint, it described itself as a non-resident foreign corporation not doing business in the Philippines and duly organized under the laws of Delaware. It alleged that it entered into an agreement with the spouses by virtue of which, it agreed to act as the latter's broker for the purchase and sale of "futures contracts" (contract to buy and sell a quantity of a particular item at a specified future settlement date and at a price agreed upon) in the US. By virtue of said contract, futures contracts were transmitted to the spouses through the facilities of Merrill Lynch Philippines (a corporation servicing ML Futures customers). ML Future's complaint further alleges that the spouses knew and were duly advised that Merril Lynch was not a broker in the futures contracts and that it did not have a license from the SEC to operate as a commodity trading advisor. Despite such fact, they continued to trade in futures contracts however, Lara Spouses refused to pay the balances due since they allege that the transactions were null and void because Merrill Lynch has no license to operate as a commodity and/or futures broker. A motion to dismiss was filed alleging that ML Futures has no capacity to bring suit herein and that it is not a real-party in interest. The contend that they were never informed that Merrill Lunch was not licensed to do business in the Philippines and that, contrary to the allegations in the complaint, they were actually transacting with Merrill Lynch, not ML Futures. Issue: Whether or not ML Futures has capacity to bring suit in the Philippines as a non-resident foreign corporation. Whether or not ML Futures is a real party in interest.

Ratio: Yes. The court is satisfied based on the facts that ML Futures, operating in the US, had indeed done business with Lara Spouses in the Philippines over several years and had done so through Merrill Lynch and had executed all these transactions without ML Futures being licensed to so transact business here and without Merrill Lynch being authorized to operate as a commodity futures trading advisor. However, if at the time they were transacting business with ML Futures, the Laras were fully aware of the lack of license to do business in the Philippines and in relation thereto had made payments to and received money from it for several years, the rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. One who has dealt with a corporation of a foreign origin as a corporate entity is estopped to deny its corporate existence and capacity. This is to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with statute, chiefly in cases where such person has received the benefits of the contract. In this case, Laras received benefits generated by their business relations with ML Futures. Their relations lasted for 7 years. Given these facts and assuming the Lara Spouses were aware from the outset that ML Futures had no license to do business in the country, and Merrill Lynch had no such authority likewise, it would appear inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and not owing to the corporation. Blue Sky Law People v. Rosenthal Doctrine: The intention and purpose of Act No. 2581 is to protect the public against speculative schemes which have no more basis than so many feet of blue sky and against the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines, and other like fraudulent exploitations. Public interest is a sufficient standard to guide the Insular Treasurer in reaching a decision on a matter pertaining to the issuance or cancellation of certificates or permit. And the term public interest is not without a settled meaning. Speculative Securities are securities which have the value which depend upon proposed or promised future promotion or development rather than on present tangible assets and conditions. Facts: Osmena and Rosenthal are both promoters, organizers, founders and incorporators of 2 domestic corporations (ORO Oil and South Cebu Oil) organized to mine, dig for or otherwise obtain from earth petroleum, rock or carbon oils, natural gas and to manufacture, refine, prepare for market, buy, sell and transport the same in crude or refined condition. According to the agreement, the shares they hold were categorized as speculative securities because the value thereof materially depended upon proposed promise of future promotion and development of the oil business rather than on actual tangible assets and conditions thereof as defined by Act. No. 2581. An action was instituted against Osmena and Rosenthal for allegedly, repeatedly and successively selling said shares without first obtaining the corresponding written permit or license from the Insular Treasurer of the Commonwealth of the Philippines as required by law. After trial, the lower court rendered a decision and found the defendants guilty as charged in the information filed. However, the decision was forwarded to the Supreme Court in view of the fact that the constitutionality of the Act has been put into issue by the appellants. It is the position of Osmena and Rosenthal that the law which requires prior issuance of permit before the sale of said speculative securities is unconstitutional on the ground that it is an undue delegation of

legislative power to the Insular Treasurer, it violates the equal protection clause and that it is vague and ambiguous. On the other hand, it is the position of the complainants that the Blue Sky Law is constitutional. Being so, the defendants are guilty of the charges in the information since the shares of the 2 corporations are speculative in nature and that the appellants sold their shares without permit or knowing that the latter did not have the permit required by law. Issue: Whether or not the Blue Sky Law (Act. No. 2581) is an undue delegation of power in that it has no standard or rule which can guide the Insular Treasurer in determining cases which a permit ought to be issued. Whether or not it violates the equal protection clause. Whether or not the law is vague and uncertain. Whether or not the shares are speculative in nature. Ratio: There is no undue delegation of legislative power since the Act furnishes a sufficient standard for the Insular Treasurer to follow in reaching a decision regarding the issuance or cancellation of a certificate or permit. It is to be issued when the applicant has complied with the provisions of the Act and this requirement is construed in relation to the other provisions of law which means that a certificate will be issued when the provisions of the Blue Sky Law has been complied with. Consequently, it is to be cancelled on the basis of public interest. Public interest here was given meaning by looking at the intention and purpose of the Blue Sky Law which aims to protect the public against speculative schemes which have no more basis than so many feet of blue sky and against the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines, and other like fraudulent exploitations. Hence, the court is inclined to hold that public interest here is a sufficient standard to guide the Insular Treasurer in reaching a decision on a matter pertaining to the issuance or cancellation of certificates or permits. Furthermore, contrary to the contention of Rosenthal, the Insular treasurer has no discretionary power to determine when a security is a speculative security or not since the law itself defines and enumerates what are speculative securities (those securities with a value which depends on a proposed or promised future promotion or development rather than on present tangible assets and foundation). There is no violation of the EPC since there is a substantial distinction between an owner who sells his securities in a single transaction and one who disposes of them in successive transactions. It is within the power of classification which the state has. It is not unconstitutional for vagueness. An act will not be declared void and inoperative on the ground of vagueness and uncertainty if men of common sense and reason can devise and provide means and all the instrumentalities necessary for its execution are within the reach of those entrusted therewith. Yes. It clearly falls within the definition of speculative securities as defined in the law. Since the beginning and at the time of the issuance of the shares of the 2 corporations, all that they had were exploration leases and nothing tangible beyond this. The value of the shares depended upon the future development and the uncertainty of striking oil. The shares issued under these circumstances are clearly speculative because they depended upon proposed or promised future promotion or development rather than on present tangible assets and conditions. Maria Martinez v. Yek Ton Lin Doctrine: As broker, a person can neither purchase nor sell shares upon his own account. Facts: Jesus Lontoc is an incorporator and director of Central Brokerage (domestic corporation). Said corporation, through its president/manager applied for a certificate of authority to engage in brokerage business in the Philippines. Jesus Lontoc took all the necessary steps for the issuance of the said authority applied for but Lontoc was not a broker. When it was granted, Maria Martinez, who was a licensed broker, purchased from Lontoc of the Central Brokerage 5000 shares of the Baguio Mining Co, the price of which was paid by the corporation by means of checks drawn upon the PNB in favor of Maria. Said issued checks were signed by Lontoc as manager of the corporation and Wendt, as president.

Subsequently, Lontoc ordered Maria to purchase shares of Baguio Gold at P0.34/share. The price thereof including brokerage charges were not paid by Central Brokerage and Yek Tong Lin despite demands made upon the, to do so. Thereafter, Lontoc instructed said mining company to transfer 11,000 shares in his name. 5000 of said transferred shares were then again transferred to Hess Investment and 6000 were transferred to El Singre. In the case filed by the petitioner, Maria, she contends that Central Brokerage, having sold the shares of the petitioner on it behalf, violated the agreement between them and hence, as a surety corporation, was liable under its bond which provides that the corporation shall not purchase and sell for its own account. On the other hand, the corporation herein contends that it did not purchase the shares for its own account in that the sale was made by Jesus Lontoc when he was no longer the manager, having resigned from his position the day before the order was given and the resignation was accepted at the same day by the board of directors of the brokerage company. The shares, accordingly, were disposed of by Lontoc for his own benefit. Issue: Whether or not the corporation is liable to pay Maria. Ratio: Yes. There is no question that Central Brokerage purchased he aforementioned shares upon its own account and thereafter sold them upon its own account to Hess Investment and El Singre in violation of its obligations as a broker for as such broker, it could neither purchase nor sell shares upon its own account. The facts in this case warrant a conclusion that a contractual relation arose between the plaintiff, Maria and the defendant corporation. The liability of the corporation herein is not made to rest upon the fact that it made the purchase of said shares of stock, but on the ground of estoppel. Hence, said defendant is bound to perform its part of the contract entered into by its manager or agent. That part is to pay the price of the shares purchased for it. Araneta v. Gatmaitan Doctrine: An action against a government official sued in his official capacity is essentially one against the government and to require these officials to file a bond would be indirectly a requirement against the government, for as regards bonds or damages that may be proved, if any, the real party in interest would be the Republic of the Philippines. The State undoubtedly is always solvent. Facts: In 1950 trawl operations were being held in San Miguel Bay which caused the depletion of the marine resources of that area. For this reason, there arose a general clamor among the majority of the inhabitants of coastal towns to prohibit the operation of trawls in SMB. In response to these pleas, the president issued an Executive Orders which prohibited the use of trawls in SMB. In defiance of the executive orders, a group of otter trawl operators took the matter to the court by filing a complaint for injunction and/or declaratory relief with preliminary injunction with the CFI and prayed that the executive orders be declared null and void on the ground that the President has no authority to issue said EOs unless the same activity has been banned completely by the legislature. On the other hand, the DENR, represented by the Office of the Solicitor General, alleged that the executive orders in question were issued in accordance with law. The trial court declared the Executive Orders to be invalid and issued an order requiring the Secretary of Agriculture and Natural Resources to post a bond for P30,000 if the writ of injunction restraining them from enforcing the executive orders in question must be stayed. Issue: Whether or not the Secretary and the Director of a bureau, acting in their capacities as such government officials, could be lawfully required to post a bond in an action against them. Whether or not the President has authority to issue said executive orders. Ratio: Under the Rules of Court, the trial court, in its discretion, when an appeal is taken from a judgment granting, dissolving, or denying an injunction, may make an order suspending, modifying, restoring or granting such injunction during the pendency of an appeal, upon such terms as to bond or otherwise as it may consider proper for the security of the rights of the adverse party. The aforesaid provision was the basis for the order of the lower court requiring the filing of the bond for P30,000 as a condition for the non-issuance of the injunction prayed for by plaintiffs therein, and

which the Solicitor General charged to have been issued in excess of jurisdiction. There are 2 requisites for an injunction to issue and that is 1) the existence of a right sought to be protected and that 2) the acts which the injunction is to be directed are violative of said right. In this case, there is no question that the 11 trawlers were duly licensed to operate under the national waters of the Philippines and it is undeniable that the executive enactments sought to be annulled are detrimental to their interests. Because of these facts, the court agrees that the action, being one against government officials acting in such capacity, is essentially one against the government and to require these officials to file a bond would be indirectly a requirement against the government, for as regards bonds or damages that may be proved, if any, the real party in interest would be the Republic of the Philippines. The state is undoubtedly always solvent. However, as the records show that the petitioners failed to put up a bond allegedly due to difficulties encountered with the Auditor General's Office, and that the orders subjects of the prohibition and certiorari were enforced, the issue as to the regularity or adequacy requiring herein petitioners to post a bond becomes moot and academic. With or without executive orders, the restriction and banning of trawl fishing from all Philippine waters come, under the law, within the powers of the Secretary of Agriculture and Natural Resources, who in compliance with his duties may even cause the criminal prosecution of those in violation of the orders and regulations. One of the executive departments is that of Agriculture and Natural Resources which by law is placed under the direction and control of the Secretary, who exercises its functions subject to the general supervision and control of the President. Hence, there can be no doubt that the questioned orders herein was upon the proposition and recommendation of the Secretary of Agriculture and Natural Resources and that is why said secretary, who was and is called upon to enforce said executive orders, was made a party defendant in one of the cases at bar. Furthermore, it may be seen that insofar as the protection of fish fry or fish egg is concerned, the Fisheries Act is complete in itself, leaving to the Secretary the promulgation of rules and regulations to carry into effect the legislative intent. Union Bank of the Philippines v. SEC Doctrine: One must adhere not only to banking and other allied special laws, but also to the rules promulgated by SEC, the government entity tasked not only with the enforcement of the Revised Securities Act, but also with the supervision of all corporations, partnerships or associations which are grantees of government-issued primary franchises and/or licenses or permits to operate in the Philippines. A bank is primarily subject to the control of the BSP, and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. Facts: Union Bank is a commercial banking corporation listed in the stock exchange. It sought the opinion of Chairman Yasay of the SEC as to the applicability of the Full Material Disclosure Rule on banks contending that the said rules, in effect, amend the Revised Securities Act which exempts securities issued or guaranteed by banking institutions from the registration requirement. In his reply, Chairman Yasay opined that while the registration requirements do not apply to banks, it is still covered by the rules governing filing of various reports with the SEC (annual quarterly, current, predecessor and successor reports; proxy statements and information statements) in compliance with the Full Material Disclosure Rule. Unsatisfied with this, Union Bank sought the opinion of the PSE but the latter merely reiterated what Yasay already stated. Thereafter, for failure to submit its proxy statements, the Commission issued a show cause order to Union Bank requiring the latter to show cause why it should not be penalized for such failure. As a defense, Union Bank posited that since it is a bank exempt from registration, it is likewise exempt from compliance with the Full Material Disclosure Rule. Issue: Whether or not Union Bank is required to comply with the SEC's full disclosure rules. Ratio: Yes. That petitioner is under the supervision of the BSP and the PSE does not exempt it from compliance with the continuing disclosure requirements in the Rules. The provision

in the rule which exempts Union Ban from registration does not contemplate exemption from complying with reports required by the said Rules. Having confined the exemption enjoyed by petitioner merely to the initial requirement of registration of securities for public offering, and not to the subsequent filing of various periodic reports, respondent Commission, as the regulatory agency, is able to exercise its power of supervision and control over corporations and over the securities market as a whole. Otherwise, the objectives of the Full Material Disclosure policy would be defeated since the petitioner corporation and its dealings would be totally beyond the reach of the SEC. The said Rules do not amend the RSA because they do not revoke or amend the exemption from registration of the securities enumerated thereunder. They are reasonable regulations imposed upon petitioner as a banking corporation trading its securities in the stock market. Petitioner herein is primarily subject to the control of the BSP, and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. There is no over supervision here. Each regulating authority operates within the sphere of its powers. That stringent requirements are imposed is understandable considering the paramount importance given to the interests of the investing public. The mere fact that in regard to its banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC. These regulations are meant to assure the full, fair and accurate disclosure of information for the protection of investors in the stock market. Since petitioner opted to trade its shares in the exchange, then it must abide by the reasonable rules imposed by the SEC. Nestle Philippines v. Court of Appeals Doctrine: By limiting the class of exempt transactions contemplated in the law to issuance of stock done in the course of and as part of the process of increasing the authorized capital stock of a corporation, the SEC is enabled to examine issuances by a corporation of previously authorized but theretofore unissued capital stock, on a case-to-case basis and under Section 6b, to grant or withhold exemption form the normal registration requirements depending upon the perceived level of need for protection by the investing public in particular cases. An issuance previously authorized but still unissued capital stock, may, in a particular instance, be held to be an exempt transaction by the SEC so long as the SEC finds that the requirements of registration are not necessary in the public interest and for the protection of the investors by reason of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves. Facts: Some time in February 1983, the authorized capital stock of Nestle Philippines was increased from 300 million to 600 million. Nestle underwent the necessary procedures involving Board and stockholders approvals and effected the necessary filings to secure the approval of the increase of authorized capital stock by respondent SEC which approval was in fact granted. Nestle only has 2 principal stockholders (San Miguel and Nestle SA). In 1983, the Board and stockholders approved resolutions authorizing the issuance of 344,500 shares out of the previously authorized but unissued shares to San Miguel and to Nestle. For this, Nestle filed a letter with the SEC seeking exemption from its proposed issuance of additional shares to its existing principal stockholders form the registration requirements of the RSA. In support of their claim for exemption, Nestle is of the position that the exemption from registration requirements embraces not only an increase in the authorized capital stock, but also the issuance of additional shares to existing stockholders of the unissued portion of the unissued capital stock. The SEC responded adversely to Nestle's letter and stated advised them to file the appropriate request for exemption (showing proof that the enforcement of the requirements for registration is not necessary in the public interest and for the protection of the investors by reason of the small amount involved or the limited character of the public offering) and to pay the required fee. Issue: Whether or not the exemption as to registration applies to previously authorized by unissued shares of stocks Ratio: No. The corporation claiming exemption must first show that the enforcement of the registration requirements is not necessary and for the protection of the investors by reason of the small amount involved or limited character of the public offering.

There are 2 kinds of issuance of capital stocks: 1) issuance as part of and in the course of increasing the authorized capital stock of a corporation and 2) the issuance of already authorized but still unissued capital stock. To increase the authorized capital stock, the corporation, with the required vote of the Board and the stockholders, must file a sworn statement of the treasurer and the corporation showing at least 25% of such increased capital stock has been subscribed and at least 25% of the amount has been paid. In contrast, after approval of the SEC of the increased capital stock, and from time to time thereafter, the corporation, by a vote of its Board and without the need of either stockholder or SEC approval, may issue and sell shares of its already authorized but still unissued capital stock to existing stockholders or to members of the general public. When a corporation increases its authorized capital stock, the SEC as a matter of course, examines the financial condition of the corporation hence, there is no need for the exercise of the authority under the RSA. It should be noted that to increase, the corporation must submit a financial statement duly certified by an independent CPA as of the latest date possible or as of the date of the meeting when the stockholders approved the increase or decrease. Furthermore, it must first go through the stockholders and the directors since it requires their approval. Hence, the directors and the officers of the corporation are expected to take pains to inform the shareholders of the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital sought to be raised. Upon the other hand, the issuance of already authorized but unissued stocks requires only the approval of the Board. Here, there is no opportunity for the SEC to see to it that the shareholders have a reasonable opportunity to inform themselves about the very fact of such issuance and about the condition of the corporation and the potential value of the shares of stock being offered. The court must reject an interpretation which may disable the SEC from rendering protection to investors, in the public interest, precisely when such protection is most needed. Onapal v. Court of Appeals Doctrine: A contract for sale or purchase of goods or commodity to be delivered at a future time, if entered into without the intention of having any goods/commodity pass from one party to another but with an understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices, is a transaction which the law will not sanction for being illegal. Commodity Futures Contract shall refer to an agreement to buy or sell a specified quantity and grade of commodity at a future date at a price established at the floor of the exchange. Facts: ONAPAL is a corporation licensed as a commission merchant/broker by the SEC to engage in commodity futures trading. It concluded a trading contract with Susan Chua (private respondent) and the latter was furnished with Commodities Daily Quotations showing daily movements of prices of commodity futures traded and of market reports indicating volume of trade in different futures exchanges. It appears that in this case, Susan was told that to enter into such agreement was profitable and that she could withdraw her money at any time. However, she was later informed that she had to pay an additional amount and if she does not comply, her original deposit will be forfeited. Not knowing how the business works, she made the additional deposit. When she aired that she already wanted to withdraw form the agreement, she was told that she could not get out because there are some accounts hanging on the transaction. She lodged a complaint with the trial court and the court held that the trading contract herein was null and void for being a specie of gambling. Thus, this petition. Onapal is contends that a commodity futures is a specie of security and is valid and enforceable as its terms are governed by special laws, notably the RSA, and the Regulations on Commodity Futures Trading and approved by the Monetary Board. Hence, the Civil Code (the law applied by the trial court in finding that the contract was null and void) is not controlling. Issue: Whether or not the trading contract herein is a specie of gambling.

Ratio: Yes, therefore null and void. The contract herein was a contract for the sale of products for future delivery in which either the seller or buyer may elect to make or demand delivery of goods agreed to be bought and sold but where no such delivery is actually made. The contract here bears all indicia of a valid trading contract because it complies with the Rules and Regulations on Commodity Futures Trading. But when the transaction deviates from the true import of the agreement as when no such delivery, actual or constructive, of the commodity or goods is made, and final settlement is made by payment and receipt of only the difference in prices at the time of delivery from that prevailing at the tie the sale is made, the dealings in futures becomes merely speculative contracts in which the parties merely gamble on the rise and fall of prices. Such contract, if entered into WITHOUT THE INTENTION OF HAVING THE GOODS PASS FROM ONE PARTY TO ANOTHER but with an understanding that at the appointed time, the purchaser is merely to receive or pay the difference between the contract and the market prices, is a transaction which the law will not sanction for being illegal. In this case, the contract is illegal. There was no actual delivery of goods and commodity. It was never intended and made. In the realities of the transaction, the parties merely speculated on the rise or fall in the price of the goods/commodity subject matter of the transaction. If respondent's prediction was correct, she would be the winner and the petitioner the loser. This is clearly a form of gambling as provided for in the law. Osmena III v. SSS Doctrine: A tender offer is a publicly announced intention by a person acting alone or in concerti with other persons to acquire equity securities of a public company (one listed on an exchange, among others) it is also defined as an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. The offeror or buyer in an issue tender offer transaction proposes to buy or acquire, at the stated price and given terms, its own shares of stocks held by its own stockholder who in turn simply have to accept the tender to effect the sale. No bidding is involved in the process. Tender of offer is in place to protect the interests of minority stockholders of a target company against any scheme that dilutes the share value of their investments. It affords such minority shareholders the opportunity to withdraw or exit from the company under reasonable terms, a chance to sell their shares at the same price as those of majority stockholders. Facts: SSS was created pursuant to RA 1161 and placed under the direction and control of the SSC. It took steps to liquefy its long term investments and diversify them into higher yielding and less volatile investment products and among the assets needed to be liquefied were its shareholdings in EPCIB (for the reason that the shares in question have substantially declined in value and the SSS could no longer afford to continue holding on to them at the present level of EPCIB's income). Following talks, BDO and SSS signed a Letter Agreement for the sale and purchase of 187.8 Million EPCIB common shares (EPCIB shares hereinafter) which represents a premium of 30% of the then market value of the EPCIB shares. In the said agreement , the parties agreed to negotiate in good faith a mutually acceptable share sale and purchase agreement and execute the same not later than 30 business days therefrom. To pursue this agreement with BDO, the SSS sought the opinion of the respondent in this case, De La Paz, on the applicability of the public bidding requirement under COA Circular 89-296. In his opinion, such negotiated sale would partake that of a stock exchange transaction and therefore, would be adhering to the general policy of public auction as a mode of divestment. Upon finalization of the purchase and sale agreement, the parties mutually agreed to the purchase by BDO of all of SSS's EPCIB shares at a specific price. However, the SSC passed Res. No. 428 which approved the sale of the EPCIB shares through the SWISS CHALLENGE METHOD (a method wherein one of the bidders is given the optional or preferential right to match the winning bid). In compliance with Res. No. 428, SSS advertised an invitation to bid for the block purchase of the Shares which expressly provided that the result of the bidding is subject to the right of BDO capital to match the highest bid.

Even before the bid envelopes could be opened, the petitioners in this case commenced that instant action assailing the legality of the Swiss Challenge resolution and a provision in the Instruction to Bidders under which the SSS undertakes to offer the shares to BDO should no bidder or prospective bidder qualifies. Petitioners assert that the Swiss Challenge is contrary to Circular No 89-296 and public policy which requires adherence to competitive public bidding in a government contract award to assure the best price possible for government assets. Such feature tends to discourage would be bidders from undertaking the expense and effort of bidding if the chance of winning is diminished by the preferential right to match. On the other hand, the respondents herein posit that the sale of the EPCIB shares is exempt from the tedious bidding requirement of the circular. They contend that not exempting the sale of the shares, as in this case, would place the system at a disadvantage vis-a-vis other stock market players who certainly enjoy greater flexibility in reacting to the vagaries of the market and could sell their holdings at a moment's notice when the price is right. Furthermore, the proposed sale is not covered by the circular for the sale is made in the regular course of the business of SSS. It should be noted in this case that pending consideration of the petition, SM Investments Corporation (SM-BDO) made a MANDATORY TENDER OFFER COVERING THE PURCHASE OF THE EPCIB SHARES AT P92.00/SHARE. Respondents, however, assail this since such mandatory tender offer was inconsistent with the idea of public bidding and that the Tender Offer rules actually provide an opportunity for competing groups to top the Tender Offer Price. Meanwhile, the positive response to Tender Offer enabled the SMBDO Group to acquire controlling interests over EPCIB and paved the way for the BDO EPCIB merger. Issue: Whether or not the sale of the EPCIB shares to SM-BDO after the mandatory tender offer was valid (e.g. even without the opportunity from competing groups to top the Tender Offer Price). Ratio: Before anything else, the court already decided that this case was already moot and academic for the reason that the subject shares (EPCIB shares) are already inexistent in view of the fact of the merger between BDO and EPCIB, the cancellation of the shares and their replacement of totally new common shares of BDO-EPCIB. SSS can no longer cause the implementation or proceed with the planned disposition of the shares by traditional competitive bidding or the challenged bidding with a Swiss Challenge Feature since the shares were already inexistent and unrecoverable. This is so for the supervening BDO-EPCIB merger has so effected changes in the circumstances as to render the fulfillment of any of the obligations that each may have agreed to undertake under either the Letter of Agreement, the SPA or the Swiss Challenge package legally impossible. Granting arguendo that the case is not moot and academic, BDO-EPCI is now the issuer of what one were disputed shares. Should BDO-Capital opt to pursue SSS's shareholdings in EPCIB, the sale or purchase ought to be via an Issued Tender Offer, a phrase which means a publicly announced intention by an issuer to acquire any of its own class of equity securities or by an affiliate of such issuer to acquire such securities. In that eventuality, BDO Capital cannot possibly exercise the right to match under the Swiss Challenge procedure since it is wholly inconsistent with the public bidding requirement. The offeror or buyer in an issue tender offer transaction proposes to buy or acquire AT THE STATED PRICE AND GIVEN TERMS, its own shares of stocks held by its own stockholder who in turn simply HAVE TO ACCEPT THE TENDER TO EFFECT THE SALE. No bidding is involved in the process.

Cemco Holdings v. National Life Insurance Company of the Phils Doctrine: SEC has the power and authority to regulate, investigate, or supervise the activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory tender offer. As a regulatory agency, the SEC has incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. To deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. This power is a legislative recognition of the complexity and the constantly fluctuating nature of the market and the impossibility of foreseeing all the possible contingencies that cannot be addressed in advance. A tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. This is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to sell their shares at the same price as those of majority shareholders. A public company is a corporation which is listed on an exchange or a corporation with assets exceeding P50,000,000 and with 200 or more stockholders at least 200 of them holding not less than 100 shares of such company. Facts: UCC (Union Cement Corporation) is a publicly listed company with 2 principal stockholders UCHC (non-listed company) and CEMCO. In a disclosure letter, the Philippine Stock Exchange was informed that shares of UCHC, the BSI shares (21.31%) and the ACC shares (26.69%) were to be sold to CEMCO. For this reason, in a circular, the PSE stated that as a result of the acquisition of the BSI and ACC shares in UCHC, CEMCO's total beneficial ownership, direct and indirect, in USS has increased by 36% and amounted to at least 53% of the shares of UCC. Despite the increase in the shareholdings in UCC shares, the SEC en banc stated that CEMCO was not covered by the tender offer rule. However, NLIC (National Life Insurance Company), feeling aggrieved as a minority stockholder of USS< sent a letter to CEMCO demanding the latter to comply with the rule on mandatory tender offer. Unheeded, NLIC filed a complaint with the SEC praying for CEMCO to comply with the mandatory tender offer rule applied to its UCC shares. Respondents CEMCO, UCC, UCHC, BCI and ACC on the other hand, argued that the tender of offer applied only to a direct acquisition of the shares of the listed company and did not extend to an indirect acquisition arising from the purchase of the shares of a holding company. The SEC rendered a decision in favor of NLIC. Hence, petitioners filed a complaint with the Court of appeals challenging SEC's jurisdiction over the subject matter. Petitioners contend that the SEC has no authority to require CEMCO to make a tender offer for UCC shares and further argues that such tender offer does not apply. Issue: Whether or not CEMCO's purchase of UCHC shares is subject to the tender offer requirement (on the basis that it applies only to direct acquisition of shares in the public company) Whether or not the SEC has jurisdiction over the complaint and to require CEMCO to make a tender offer for respondent's UCC shares. Whether or not reliance on the Letter of the SEC dated July 27,2004 which opined that the proposed acquisition of shares was not covered by the rule is proper. Ratio: The tender offer requirement applies to this case. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. A public company is a corporation which is listed on an exchange or a corporation with assets exceeding P50M and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company. It is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Under RA 8799, any person or group of persons who intends to acquire at least 15% of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least 50< and having 200 or more stockholders with at least 100 shares each or who intends to acquire at least 30% of such equity over a period of 12 months shall make a tender offer to stockholders. Under the SEC rules, the 15% and 30% acquisition of shares was increased to 35%. Mandatory

tender of offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. The coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition". This is clear from the discussions of the Bicameral Conference Committee on the Securities Act. It is to be noted that the intent of the legislature in passing said law is to regulate activities relating to acquisition of control of the listed company and for the purposes of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, mandatory tender offer applies. Yes, the SEC has jurisdiction and the authority to require CEMCO to comply with the tender offer rule. SEC has the power and authority to regulate, investigate, or supervise the activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory tender offer. As a regulatory agency, the SEC has incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. To deprive the SEC of this power would render the agency inutile, because it would become powerless to regulate and implement the law. No. The letter was nothing but an approval of a draft letter. There was no public hearing. Hence, it was not issued on a definite and concrete controversy affecting legal relations of parties thereby making it a judgment conclusive on all the parties. Moreover, since it runs counter to the Securities Regulation Code which requires compliance with the tender offer rule, the same may be disregarded as it deviates from the provisions of a statute. Securities and Exchange Commission v. Interport Resources Corporation (This case is super long so paalala lang, patience is a virtue ) Doctrine: The mere absence of implementing rules cannot effectively invalidate provisions of law where a reasonable construction that will support the law may be given. It is well established that administrative authorities have the power to promulgate rules and regulations to confirm to the terms and standards prescribed by the statute as well as purport to carry into effect its general policies. The insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based n 2 factors: 1) the existence of a relationship giving access, directly or indirectly to information intended to be available only for a corporate purpose and not for the personal benefit of anyone and 2) the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. Facts: The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda Holdings Berhad). Under said memorandum of agreement, IRC acquired 100% of the entire capital stock of GEHI (Ganda Energy Holdings Inc.) which would own and operate a 102 megawatt gas turbine power generating barge. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC. On the side, IRC would acquire 67% of the entire capital of PRCI (Philippine Racing Club). It is alleged herein that a press release announcing the approval of the agreement was sent to the Philippine Stock Exchange through facsimile and the SEC, but the facsimile machine of the SEC could not receive it. However, the SEC received reports that the IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors, heavily traded IRC shares utilizing this material insider information. For this reason, the SEC required the directors to appear before the SEC to explain the alleged failure to disclose material information as required by the Rules on Disclosure of Material Facts. Unsatisfied with the explanation, the SEC issued an order finding that the IRC violated the Rules in connection with the then Old Securities Act when it failed to make timely disclosures of its negotiations with GHB. In addition, the SEC found that the directors of IRC entered into transactions involving IRC shares in violation of the Revised Securities Act. Respondents, however, questioned the authority of the SEC to investigate on said matter since according to PD 902-A, jurisdiction upon the matter was conferred upon the PED (Prosecution and Enforcement Department) of the SEC however, this issue is already moot since pending the disposition of the case, the Securities Regulation Code was passed thereby effectively repealing PD 902-A and abolishing the PED. They also

contended that their right to due process was violated when the SEC required them to appear before the SEC to show cause why sanctions should not be imposed upon them since such requirement shifted the burden of proof to respondents. The case reached the CA and said court ruled in favor of the respondents and effectively enjoined the SEC from filing any criminal, civil or administrative cases against respondents. In its resolution, the CA stated that since there are no rules and regulations implementing the rules regarding DISCLOSURE, INSIDER TRADING OR ANY OF THE PROVISIONS OF THE REVISED SECURITIES ACT, the SEC has no statutory authority to file any suit against respondents. The CA, therefore, prohibited the SEC from taking cognizance or initiating any action against the respondents for the alleged violations of the Revised Securities Act. Issue: Whether or not the SEC has authority to file suit against respondents for violations of the RSA. Whether or not their right to due process was violated when the SEC denied the parties of their right to cross examination. Ratio: The Revised Securities Act does not require the enactment of implementing rules to make it binding and effective. The provisions of the RSA are sufficiently clear and complete by themselves. The requirements are specifically set out and the acts which are enjoined are determinable. To rule that absence of implementing rules can render ineffective an act of Congress would empower administrative bodies to defeat the legislative will by delaying the implementing rules. Where the statute contains sufficient standards and an unmistakable intent (as in this case, the RSA) there should be no impediment as to its implementation. The court does not discern any vagueness or ambiguity in the RSA such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence. The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct and that the intent of the law is the protection of investors against fraud committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based n 2 factors: 1) the existence of a relationship giving access, directly or indirectly to information intended to be available only for a corporate purpose and not for the personal benefit of anyone and 2) the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. This obligation to disclose is imposed upon "insiders" which are particularly officers, directors or controlling stockholders but that definition has already been expanded and not includes those persons whose relationship of former relationship to the issuer or the security that is not generally available and the one who learns such a fact from an insider knowing that the person from whom he learns such fact is an insider. In some case, however, there may be valid corporate reasons for the nondisclosure of material information but it should not be used for non-corporate purposes. Respondent contends that the terms "material fact", "reasonable person", "nature and reliability" and "generally available" are vaguely used in the RSA because under the provision of the said law what is required to be disclosed is a fact of special significance, meaning: 1. a material fact which would be likely to affect the market price of a security or; 2. one which a reasonable person would consider especially important in determining his course of action with regard to the shares of stock. But the court dismissed said contention and stated that material fact is already defined and explained as one which induces or tends to induce or otherwise affect the sale or purchase of securities. On the other hand, "reasonable person" has already been used many times in jurisprudence and in law since it is a standard on which most of legal doctrines stand (even the doctrine on negligence uses such standard) and it has been held to mean "a man who relies on the calculus of common sense of which all reasonable men have in abundance" As to "nature and reliability" the proper adjudicative body would be able to determine if facts of a certain nature and reliability can influence a reasonable person's decision to retain, buy or sell securities and thereafter explain and justify its factual findings in its decision since the

same must be viewed in connection with the particular circumstances of a case. As to "generally available", the court held also that such is a matter which may be adjudged given the particular circumstances of the case. The standards of which cannot remain at a standstill. There is no violation of due process in this case since the proceedings before the PED are summary in nature. The hearing officer may require the parties to submit their respective verified position papers together will all supporting documents and affidavits of witnesses. A formal hearing is not mandatory and it is within the discretion of the hearing officer to determine whether or not there is a need for a formal hearing. Moreover, the law creating the PED empowers it to investigate violations of the rules and regulations and to file and prosecute such cases. It does not have an adjudicatory powers. Thus, the PED need not comply with the provisions of the Administrative Code on adjudication. The SEC retained jurisdiction to investigate violations of the RSA, reenacted in the Securities Regulations Code despite the abolition of the PED. In this case, the SEC already commenced investigating the respondents for violations of the RSA but during the pendency of the case the Securities and Regulations Code was passed thereby repealing the RSA. However, the repeal cannot deprive the SEC of its jurisdiction to continue investigating the case. Investigations by the SEC is a requisite before a criminal case may be referred to the DOJ since the SEC is an administrative agency with the special competence to do so. According to the doctrine of primary jurisdiction, the courts will not determine a controversy involving a question within the jurisdiction of an administrative tribunal where the question demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact. Nicolas v. Court of Appeals Doctrine: No broker shall sell any securities unless he is registered with the SEC. Clearly, such is in violation of the RSA. The purpose of the statute requiring the registration of brokers selling securities and the filing of date regarding securities which they propose to sell is to protect the public and strengthen the securities mechanism. An unlicensed person may not recover compensation as a broker where a statute or ordinance requiring a license is applicable and such statute and ordinance is of a regulatory nature. Stock market trading is a technical and a highly specialized institution in the Philippines, hence it must be entrusted to individuals with proven integrity, competence and knowledge who have due regard to the requirements of the law. Facts: Roy Nicolas and Blesito Buan entered into a Portfolio Management Agreement wherein Nicolas was to manage the stock transactions of Blesito for a period of 3 months with an automatic renewal clause. Under said agreement Nicolas was to receive 20% of all realized profits every end of the month. However, the agreement was terminated and thereafter, Blesito requested for an accounting of all the transactions made by Nicolas. Thereafter, Nicolas demanded from Blesito an amount representing his alleged management fees. His demands went unheeded. Hence, a complaint for collection of sum of money was instituted. In his answer, Blesito contended that Nicolas mismanaged his transactions resulting in losses thus, he was not entitled to management fees. Issue: Whether or not Nicolas is entitled to management fees. Ratio: Nicolas is not entitled to the management fees claimed. Evidently in this case, the key word in their contract was "profits", meaning the excess of returns over the expenditure in a transaction or series of transactions or the series of an amount received over the amount paid for goods and services. Nicolas has the burden of proving that the transactions realized gains or profits to entitle him to said management fees. To support his claim, Nicolas presented the profits and loss statements but the same was given no probative value by the court. It was held that the profit and loss statement presented do not sufficiently prove the existence of profits as required by the Portfolio Management to be entitled to fees. The profit and loss statements presented are nothing but bare assertions devoid of any concrete basis as to the method of arriving at the amounts

indicated in the documents. It was considered as an incomplete record yielding easily to the inclusion or deletion of certain matters. They are not reflective of pertinent and relevant data. In fact, it did not even state when the stocks were purchased, the type of stocks bought, when they were sold, acquisition and selling price , when the profits were delivered, etc. Even assuming that the profit and loss statements were given evidentiary weight, the petitioner's action would still be futile by the mere fact that he traded securities for the account of others WITHOUT THE NECESSARY LICENSE from the SEC. No broker shall sell any securities unless he is registered with the SEC to protect the public and strengthen the securities mechanism. An unlicensed person may not recover compensation for services as a broker where a statute or ordinance requiring a license is applicable and such statute or ordinance is of a regulatory nature, was enacted in the exercise of the police power for the purpose of protecting the public. Lopez, Locsin, Ledesma & Co. Inc. v. Court of Appeals Doctrine: Exchange contracts are subject to the rules and regulations of the exchange. An exchange is a voluntary association or corporation organized for the purpose of furnishing to its members a convenient and suitable place to transact their business or promoting uniformity in the customs and usages of merchants, inculcating principles of justice and equity in trade, of facilitating the speedy adjustment of business disputes, of acquiring and disseminating valuable commercial and economic information and generally of securing to its members the benefits of co-operation in the furtherance of their legitimate pursuits (in short, PALENGKE ). Facts: CMS (CMS Stock Brokerage) sold to LLL (Lopez, Locsin, Ledesma) on the floor of the Makati Stock Exchange 2650 Benguet Consolidated Shares evidenced by Exchange contracts. 500 of these shares where purchased for and on orders of different persons. However, CMS failed to deliver to LLL the shares within 10-20 days as stipulated in their exchange contract alleging non-delivery due to mere oversight owing to the huge volume of transactions. So, CMS made known to LLL that it would effect delivery of the shares 4 months later. However, LLL refused to accept delivery at that late time since its clients for whom the purchases were made elected to cancel the orders. CMS filed a complaint with the CFI to compel LLL to accept the shares of stocks in question alleging that pursuant to the Rules and Regulations of the Makati Stock Exchange, LLL had no right to cancel its orders. LLL filed a motion to dismiss the case stating that the law applicable to their transaction was not the Rules and Regulations of the Makati Stock Exchange but is governed by the Civil Laws. Consequently, pursuant to the Civil Laws, LL cannot be compelled to accept since the shares were supposed to be delivered within 10-20 days, not 4 months later. Issue: Whether or not LLL can be compelled to accept the delivery of the shares pursuant to the RR of the Makati Stock Exchange (MSE). Whether or not LLL has the right to rescind the contract. Ratio: Yes. Like any other association, an exchange has the power to adopt its own constitution, by-laws, rules and regulations so far as they are not contrary to law or public policy and which will secure to the members exclusive rights and privileges which the courts have fully recognized. Anyone who becomes a member of the exchange voluntarily submits himself to the operation of these rules and is expected to be bound by and to respect them. CMS as the seller and LLL as the buyer for and on orders of third parties are members of the exchange and thus, they are bound by the rules and by-laws of the exchange. Under the Rules and Regulations, in the event that a selling member fails to deliver within a reasonable period of time shares sold it shall be the buying member's duty to advise the selling member in writing giving him 1 full business day from the time of receipt of the letter to demand and make delivery. 15 days shall be considered as a reasonable period of time within which to effect delivery unless otherwise stated in the sales contract. The parties in this case merely specified the period within which delivery must be made which is 10-20 days. Such qualification does not in any way change the nature of exchange contracts. The duty of the buyer under the rules remains. More than any person, it is the buyer who should be aware whether or not what he has purchased has been delivered to him. Because of this awareness, the exchange imposes upon

him the primary obligation of giving notice. Unless he timely notifies the seller that he is canceling his orders, then the orders placed by the member still stands. LL must, therefore, accept the delivery of the shares of stocks. As a general rule and subject to certain limitations, a customer who engages a broker to execute an order on a stock or produce exchange confers authority on such broker to conduct the transaction according to the rules and established customs of the exchange on which he deals, and the customer is thereby bound by such rules and customs, even though he may not have actual knowledge of them. The failure of the seller to deliver the stocks does not give the buying member the right to rescind the contract. If the seller fails to deliver, it may be compelled through the Chairman of the Floor Trading and Arbitration Committee to purchase the same for the selling member's account. There being a speedy remedy agreed upon by the members, the right of rescission under the New Civil Code is inapplicable. PSE v. Court of Appeals Doctrine: The SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SEC's mission to ensure proper compliance with the laws, such as the RSA and to regulate the sale and disposition of securities in the country. The PSE's management prerogatives are not under the absolute control of the SEC for the PSE is after all a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. Notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE's judgment is attended by bad faith. The question as to what policy is or should be relied upon in approving the registration and sale of securities in the PSE is not for the Supreme Court to determine but is left to the sound discretion of the SEC. Facts: PALI (Puerto Azul Land Inc.) is a domestic real estate corporation which seeks to offer its shares to the public to raise funds allegedly to develop its properties and pay its loans with several banking institutions. It was issued a Permit to Sell and PALI sought to course the trading of its shares through the PSE for which purpose, it filed with the said exchange an application to list its shares with supporting documents. Before its application can be acted upon, the Board of Government of the PSE received a letter from the heirs of Ferdinand Marcos claiming that the late president was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and that the Ternate Development Corporation likewise appears to have been held and continue to be held in trust by Panlilio for then president effectively for his estate. In its answer PALI stated that the properties were not claimed by PALI as its assets and on the contrary, it was actually owned by Fantasia Resort and Puerto Azul Country Club (which are entities distinct from PALI). However, PSE rendered a decision that because of the circumstances surrounding the ownership over the assets of PALI, the listing of PALI's shares in the stock exchange cannot be done. Issue: Whether or not the SEC has the power to order the listing and sale of shares of PALI whose assets are sequestered and to review and substitute the decision of PSE on listing applications. Ratio: No. PSE is not an ordinary corporation. It functions as the primary channel through which the vessels of capital trade ply. Such gives it a distinct color of importance such that governmental intervention in its affairs becomes justified, if not necessary. Due to this special nature of stock exchanges, the country's lawmakers has seen it wise to give special treatment to the administration and regulation of stock exchanges. The SEC's regulatory authority over private corporations encompasses a wide margin of areas touching nearly all of a corporation's concerns. The SEC's powers to look into the subject ruling of the PSE may be implied as a necessary or incidental to the carrying out of the SEC's express power to insure fair dealing in securities. The role of the SEC in our national economy cannot be minimized.

However, this is not to say that the PSE's management prerogatives are under the absolute control of the SEC. After all, the PSE is a corporation authorized by its corporate franchise to engage in its proposed and duly approved business. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE's decision in matters of application for listing in the market, the SEC may exercise such power ONLY IF THE PSE'S JUDGMENT IS ATTENDED BY BAD FAITH. In this case, PSE considered important factors which brings to serious question the qualification of the PALI to sell its shares to the public through the stock exchange. PCGG even confirmed the claim of the heirs of Marcos. In fact, an order of sequestration was issued covering the properties of PALI and a suit for reconveyance has been filed in the Sandiganbayan. Such circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. Petitioner was in the right when it refused the application of PALI. The true ownership of the properties need not be determined as ab absolute fact. What is material is that the uncertainty of the properties' ownership and alienability exists and this puts to question the PALI's public offering. Such matter must be addressed to the sound discretion of the PSE as a corporate entity whose business judgments are respected in the absence of bad faith. Carolina Industries v. CMS Stock Exchange Brokerage Doctrine: Rules of stock exchange form part of the contract between stock brokers and their clientele. Maintenance of debit balance of a customers account over 50% of current price of securities is a violation of the Securities Act. The main purpose of this is to give a government credit agency an effective method of reducing the aggregate amount of the nation's credit resources which can be directed by speculation into the stock market and also for the protection of the small speculator by making it impossible for him to spread himself too thin. Such requirements are intended to prevent the excessive use of credit for the purchase and carrying on of securities, and of reducing the aggregate amount of the national credit resources which are directed by speculation into the stock market and of achieving a more balanced use of such resources. It is the stockbroker's duty, not their clients to see that there is no overextension of credit. Facts: CMS was a licensed security broker and dealer engaged for compensation in the business of buying and selling stocks and securities for and in behalf of investors. CMS is a member of the Makati Stock Exchange (MSE) and Defendant Carlos Sison is the president and at the same time the major and controlling stockholder of CMS. Carolina Industries opened a margin account with CMS for the purchase, carrying and selling of stocks and securities listed in the MSE. Carolina, pursuant to the agreement deposited its margin account with CMS plus 400 Benguet Shares. In its complaint, Carolina alleged that CMS, without the authority of Carolina, purchased for its account shares of the capital stock of Marinduque Mining thereby increasing its liability and that CMS unilaterally liquidated its margin account by selling at a tremendous loss all the stocks and securities credited to its account thereby completely wiping out it's investment. Furthermore, it alleged that the credit or margin that CMS extended to it is equal to 73.42% of the market and that CMS' inducement of it to trade heavily on its margin account by extending to it excessive credit or margin was in clear violation of the provisions of the Securities Act and the implementing rules and regulations of the SEC. It is undisputed that Carolina Industries had a debit balance of over 70% of its security deposit with CMS or more than 20% over the 50% ceiling set by the Securities Act. Thus, CMS unilaterally liquidated Carolina's margin account. Issue: Whether or not a broker can make valid and binding stock purchases for customers under margin accounts in excess and in violation of the credit ceiling under the Securities Act and the SEC Regulations. Whether or not a broker can unilaterally and without notice to customers sell out the shares on deposit and thereby liquidate the margin account in violation of the mandatory provisions of SEC Rules and Implementing the Securities Act.

Ratio: The main purpose of the provisions of the Securities Act on margin requirements is to give a government credit agency an effective method of reducing the aggregate amount of the nation's credit resource which can be directed by speculation into the stock market and also for the protection of the small speculator by making it impossible for him to spread himself too thin. These are intended to prevent the excessive use of credit for the purchase and carrying on of securities and of reducing the aggregate amount of the national credit resources which are directed by speculation into the stock market and of achieving a more balanced use of such resources. The provisions herein enjoin the OVEREXTENSION OF CREDIT AND NOT THE APPLICATIN FOR EXCESSIVE CREDIT. It does not mean that the customer to whom the credit has been extended or for whom it has been arranged acted in violation of the Act. The broker, not the client, who is in the position to verify, at any time, the status of the client's account. It is only the broker, therefore, who can prevent the over-extension of credit. In this case, it should be noted that the petitioner did not know the exact amount of its under margin and it was only after some 3 months thereafter that CMS was able to comply. It is the duty or obligation of the respondent brokerage firm to keep its records in proper order. CMS learned of the excessive under margin of petitioners account. And yet, despite the failure of Carolina to cover its deficiency, respondent allegedly bought for its account the Marinduque shares and the Atlas and Lepanto shares, at a time when Carolina's margin account was admittedly under margin or above the 50% ceiling required by law. This excessive extension of credit by the broker cannot be considered innocent or inadvertent. Thus, pursuant to the law, every contract made in violation of such shall be void. In sum, the over-extension of credit by CMS to Carolina beyond the 50% allowed by law and the non-compliance with the IRR of the SEC rendered null and void the rights of CMS. Therefore, Carolina is entitled to the return of the deposit with the brokerage.

CorpFDigest 26OctRevised

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