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II.

CONCEPT AND ATTRIBUTES OF CORPORATION

#1

DOCTRINE OF SEPARATE PERSONALITY: Shareholders are in no legal sense the owners of corporate property, which
is owned by the corporation as a distinct legal person

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-


CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-
DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the
late Genaro F. Magsaysay respondents.

FACTS: Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then CFI Olongapo an action against Artemio Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of
the Deed of Assignment executed by the late Senator in favor of SUBIC, for the annulment of the Deed of Mortgage
executed by SUBIC in favor of FILMANBANK and cancellation of TCT 22431 by the Register of Deeds, and for the
latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera,
Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion
for intervention on the ground that on 20 June 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or
a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they
have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of
the suit with respect to SUBIC. On 26 July 1979, the trial court denied the motion for intervention, and ruled that
petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of
certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct
from its stockholders.
CA: found no factual or legal justification to disturb the findings of the lower court. The appellate court further
stated that whatever claims the Magsaysay sisters have against the late Senator or against SUBIC for that matter can be
ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the
petition for review on certiorari.

ISSUE: WoN the Magsaysay sisters, allegedly stockholders of SUBIC, are interested parties in a case where corporate
properties are in dispute.

HELD: NO. The Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to
intervene in the proceedings. The interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a
right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or
aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct legal person.
#2

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be
considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the
personal rights, obligations and transactions of its stockholders or members

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,


vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and
REGISTER OF DEEDS OF BULACAN, defendants-appellees.

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,


vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and
REGISTER OF DEEDS OF BULACAN, defendants-appellees.

FACTS: Sulo ng Bayan, Inc. filed an accion de revindicacion with the CFI Valenzuela against Gregorio Araneta Inc.
(GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the
Register of Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte,
Bulacan registered under the Torrens System in the name of GAI, et. al.'s predecessors-in-interest (who are members of
the corporation). GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no
cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss. However,
it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring
of such action by prescription and laches. TC issued an Order dismissing the (amended) complaint. On 14 February 1967,
Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing among others that the complaint states a
sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the
corporation who are so numerous that the present complaint should be treated as a class suit. The motion was denied by
the trial court in its Order dated 22 February 1967.

ISSUE: WoN the corporation (non-stock) may institute an action in behalf of its individual members for the recovery of
certain parcels of land allegedly owned by said members, among others.

HELD: NO. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal
entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not
affected by the personal rights, obligations and transactions of its stockholders or members. The property of the
corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties
registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely,
a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation,
"even in the case of a one-man corporation." It must be noted, however, that the juridical personality of the corporation, as
separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to
subserve the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate
fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where
necessary to achieve equity. It has not been claimed that the members have assigned or transferred whatever rights they
may have on the land in question to the corporation. Absent any showing of interest, therefore, a corporation, has no
personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property
which belongs to said stockholders or members in their personal capacities.
#3

RE RIGHT AGAINST SELF-INCRIMINATION: Corporations are not entitled to all of the constitutional protections
which private individuals have. They are not at all within the privilege against self-incrimination xx It is also settled that
an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either
incriminate him or may incriminate it.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,


vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER
MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.

FACTS: Petitioner BASECO assailed Executive Orders Numbered 1 and 2 and the sequestration, takeover, and other
orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said corporation. The sequestration order issued on April 14,
1986 was addressed to three of the agents of the Commission, ordering them to sequester several companies among which
is Bataan Shipyard and Engineering Co., Inc. On the strength of the above sequestration order, several letters were sent to
BASECO among which is that from Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to
the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents.
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited
for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." BASECO contends that its right against self
incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which
required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do
so."

ISSUE: Whether or not BASECO’s right against self-incrimination and unreasonable searches and seizures was violated.

HELD: NO. The order to produce documents was issued upon the authority of assailed EO’s treating of the PCGG's
power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts
and other documents as may be material to the investigation conducted by the Commission. It is elementary that the right
against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when
charged with an abuse of such privileges.

Corporations are not entitled to all of the constitutional protections, which private individuals have. They are not at all
within the privilege against self-incrimination; It is also settled that an officer of the company cannot refuse to produce its
records in its possession upon the plea that they will either incriminate him or may incriminate it." The corporation is a
creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges
and franchises, and holds them subject to the laws of the state and the limitations of its charter. It’s powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long
as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to
make use of certain franchises,could not, in the exercise of sovereignty, inquire how these franchises had been employed,
and whether they had been abused, and demand the production of the corporate books and papers for that purpose.
#4

RE SEPRATE PERSONALITY” To disregard the separate juridical personality of a corporation, the wrongdoing must
be clearly and convincingly established. It cannot be presumed. Thus in Bayer-Roxas v. Court of Appeals, we said that
the separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for
fraud or illegality, or to work injustice, or where necessary for the protection of the creditors.

LUXURIA HOMES, INC., and/or AIDA M. POSADAS vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO
G.R. No. 125986 January 28, 1999

FACTS: Petitioner Aida M. Posadas and her two minor children co-owned a 1.6 hectare property in Muntinlupa, which
was occupied by squatters. Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding
the development of the said property into a residential subdivision. On May 3, 1989, she authorized respondent Bravo to
negotiate with the squatters to leave the said property. Seven months later, petitioner Posadas and her two children
assigned the said property to petitioner Luxuria Homes, Inc. wherein respondent Bravo signed as one of the witnesses to
the execution of the Deed of Assignment. However, sometime in 1992, the relationship of petitioner Posadas and
respondent Bravo turned sour when the former could not accept the proposed management contracts of the latter to
develop the said property into a residential subdivision. Consequently, in September 1992, private respondents James
Builder Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against
petitioners Posadas and Luxuria Homes, Inc. On September 27, 1993, the trial court declared petitioner Posadas in default
and allowed private respondents to present their evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas,
jointly and in solidum with Luxuria Homes, Inc. to pay private respondents damages and to execute the management
contract. The Court of Appeals modified the decision of the trial court by deleting the award of moral damages and
reducing the award on exemplary damagesHence, this petition.

ISSUE: WoN Luxuria Homes can be held liable

HELD: No. The Deed of Assignment and the Articles of Incorporation of Luxuria Homes, Inc., were both signed by
respondent Bravo himself as witness. It cannot be said then that the incorporation of petitioner Luxuria Homes and the
eventual transfer of the subject property to it were in fraud of private respondents as such were done with the full
knowledge of respondent Bravo himself. Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria
Homes, Inc. The Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner
Luxuria Homes, Inc. Since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of
the supposed transactions, not even to the agreement to negotiate with and relocate the squatters, it cannot be held liable,
nay jointly and in solidum, to pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted
respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein.
#5

RE PIERCING THE CORPORATE VEIL: The corporate mask may be lifted and the corporate veil may be pierced when
a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case
of two corporations, merge them into one. Thus, where a sister corporation is used as a shield to evade a corporation's
subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct
from the other corporation. The piercing of the corporate veil comes into play.

G.R. No. 108734 May 29, 1996


CONCEPT BUILDERS, INC., petitioner,
vs. THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel,
Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos,
respondents.

FACTS: Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters, and niggers. On November 1981, private
respondents were served with individual written notices of termination of employment by petitioner . It was stated in the
individual notices that their contracts of employment had expired and the project in which they were hired had been
completed but it was later found out that the project was not yet complete and that the respondents' work was merely
outsourced. Aggrieved, private respondents filed a complaint before NLRC for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
LA: rendered decision in favor of the private respondents. When the same became final and executory, a writ of execution
was issued, however, the same was refused by the security guard on duty on the ground that the petitioners no longer
occupied the premises. A break-open order was then recommended.

ISSUE: WoN the doctrine of 'piercing the corporate veil should be applied in the case in the absence of any showing that
petitioner corporation created the sister corporation (HPPI) to evade liability.
HELD: YES. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected.
But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to
promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation. The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and circumstances of each case.
PROBATIVE FATORS of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The names of keeping corporate books and records
4. Methods of conducting the business.
Where one corporation is so organized and controlled and its affairs are conducted so that, it is in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such domination of instances,
policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own and is
but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time
the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.

TEST IN DETERMINING THE APPLICABILITY OF DOCTRINE

i. Control, not mere majority or complete stock control but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will on exercise of its own;
ii. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff’s legal rights.
iii. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any of these elements prevents “piercing the corporate veil” of the corporation. In applying the
instrumentality or “alter ego” doctrine, the courts are concerned with reality and not form, with how the corporation
operated and the individual defendant’s relationship to that operation. In the case at bar, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the
other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila.
V. CORPORATE POWERS
#36

Merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its prior determination
that the merger is not inconsistent with the Corporation Code or existing laws. Where a party to the merger is a special
corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the
appropriate government agency should first be obtained.

G.R. No. 178618 October 11, 2010

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE DEPOSIT
INSURANCE CORPORATION, Petitioner,
vs.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff of
Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro City,Respondent.

FACTS: First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao Savings and Loan Association, Inc.
(DSLAI) are entities duly registered with the SEC primarily engaged in the business of granting loans and receiving
deposits from the general public, and treated as banks. In 1985, FISLAI and DSLAI entered into a merger, with DSLAI as
the surviving corporation but their articles of merger were not registered with the SEC due to incomplete documentation.
DSLAI changed its corporate name to MSLAI by way of an amendment to its Articles of Incorporation which was
approved by the SEC. In 1986, the Board of Directors of FISLAI passed and approved Board Resolution assigning its
assets in favor of DSLAI which in turn assumed the former’s liabilities. The business of MSLAI, however, failed. Hence,
the Monetary Board of the Central Bank of the Philippines ordered its liquidation with PDIC as its liquidator.
Prior to the closure of MSLAI, one Remedio Uy filed with the RTC of Iligan City, an action for collection of sum
of money against FISLAI.
RTC issued a summary decision in favor of Uy, directing FISLAI to pay. As a consequence, 6 parcels of land
owned by FISLAI were levied and sold to Willkom. In 1995, MSLAI, represented by PDIC, filed before the RTC a
complaint for the annulment of the Sheriff’s Sale alleging that the sale on execution of the subject properties was
conducted without notice to it and PDIC. Respondents, in its answer, averred that MSLAI had no cause of action because
MSLAI is a separate and distinct entity from FISLAI on the ground that the “unofficial merger” between FISLAI and
DSLAI (now MSLAI) did not take effect considering that the merging companies did not comply with the formalities and
procedure for merger or consolidation as prescribed by the Corporation Code of the Philippines. RTC dismissed the case
for lack of jurisdiction. CA affirmed but ruled that there was no merger between FISLAI and MSLAI (formerly DSLAI)
for their failure to follow the procedure laid down by the Corporation Code for a valid merger or consolidation.

ISSUE: WoN the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

HELD: NO. In merger, one of the corporations survives 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 or merged
corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation
automatically acquires all their rights, privileges, and powers, as well as their liabilities.

The merger, however, does not become effective upon the mere agreement of the constituent corporations. Since a
merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and
creditors, there must be an express provision of law authorizing them. The steps necessary to accomplish a merger or
consolidation, as provided for in Sections 76-79 of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any
amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation,
all the statements required in the articles of incorporation of a corporation;
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be called
and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by registered mail. A
summary of the plan must be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be
respected;
(3) Execution of the formal agreement, referred to as the articles of merger or consolidation, by the corporate
officers of each constituent corporation. These take the place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC for approval;
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before;
(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its
prior determination that the merger is not inconsistent with the Corporation Code or existing laws.
In the case at bar, the merger between FISLAI and DSLAI were not registered with the SEC due to incomplete
documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary
Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the
SEC. Such merger is still incomplete without the certification. The issuance of the certificate of merger is crucial because
not only does it bear out SEC’s approval but it also marks the moment when the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties,
as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation. There being no
merger between FISLAI and DSLAI (now MSLAI), for third parties such as respondents, the two corporations shall not
be considered as one but two separate corporations. Being separate entities, the property of one cannot be considered the
property of the other.
VI. RIGHTS OF SHAREHOLDERS

#37

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share
shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share
of the capital stock of the corporation of which he is a director shall thereby cease to be director . .

G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,


vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS
GONZALES, respondents.

FACTS: A complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private
respondents SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES who, in turn,
filed a third party complaint against ALFA and the petitioners RAMON C. LEE and ANTONIO DM. LACDAO.
Petitioners filed a motion to dismiss the third party complaint which was denied by RTC. Meanwhile, on July 12, 1988,
the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence
of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering
that the management of ALFA had been transferred to the DBP
Respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their
positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the
petitioners as corporate officers was proper.
TC: upheld the validity of the service of summons on ALFA through the petitioners. On second motion for
reconsideration, petitioners reiterate their stand that by virtue of the voting trust agreement they ceased to be officers and
directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. A
petition for certiorari was filed before the public respondent. Meanwhile, the trial court, not having been notified of the
pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25, 1989.
The filed petition for certiorari before the CA was given due course setting aside the orders of respondent judge dated
April 25, 1989 and August 14, 1989. Motion for reconsideration was likewise denied. Hence, this petition for certiorari.
Contentions of the petitioners: (1) that with the execution of the voting trust agreement between them and the
other stockholders of ALFA, as one party, and the DBP, as the other party, (2) the former assigned and transferred all their
shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer
be considered directors of ALFA

ISSUE: WoN the creation of voting trust agreement divests the petitioners of their positions as president and executive
vice-president of ALFA.

HELD: YES. A voting trust agreement results in the separation of the voting rights of a stockholder from his other rights
such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in
the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the
corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and
agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other
attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and
(3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation.
Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust
agreement on the status of a stockholder who is a party to its execution — from legal titleholder or owner of the shares
subject of the voting trust agreement, he becomes the equitable or beneficial owner.
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the
simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or
equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares
in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the
phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not
beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized.
Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial
ownership of, the stock as appearing on the books of the corporation.
The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed
of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to
own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation
Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be
directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as
directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting
trust agreement.
#38

[G. R. No. 107789. April 30, 2003] REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT), petitioner, vs. THE HONORABLE SANDIGANBAYAN (THIRD DIVISION) and VICTOR
AFRICA, respondents.EROCOM INVESTORS AND MANAGERS, INC., BENITO NIETO, CARLOS NIETO,
MANUEL NIETO III, RAMON NIETO, ROSARIO ARELLANO, VICTORIA LEGARDA, ANGELA LOBREGAT,
MA. RITA DE LOS REYES, CARMEN TUAZON and RAFAEL VALDEZ, intervenors. [G. R. No. 147214. April 30,
2003] VICTOR AFRICA, petitioner, vs. THE HONORABLE SANDIGANBAYAN and THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT, respondents.

FACTS: PCGG conducted an Eastern Telecommunications, Philippines, Inc. (ETPI) stockholders meeting during which
a PCGG controlled board of directors was elected. A special stockholders meeting was later convened by the registered
ETPI stockholders wherein another set of board of directors was elected, as a result of which two sets of such board and
officers were elected.
Victor Africa, a stockholder of ETPI, alleging that the PCGG had since 29 January 1988 been "illegally
'exercising' the rights of stockholders of ETPI," especially in the election of the members of the board of directors, filed a
motion before the Sandiganbayan, prayed that said court order the "calling and holding of the Eastern
Telecommunications, Philippines, Inc. (ETPI) annual stockholders meeting for 1992 under its control and guidelines. The
PCGG did not object to Africa's motion provided that "(1) An Order be issued upholding the right of PCGG to vote all the
Class "A" shares of ETPI; (2) In the alternative, in the remote event that PCGG's right to vote the sequestered shares be
not upheld, an Order be issued (a) disregarding the Stock and Transfer Book and Booklet of Stock Certificates of ETPI in
determining who can vote the shares in an Annual Stockholders Meeting of ETPI, (b) allowing PCGG to vote 23.9% of
the total subscription in ETPI, and (c) directing the amendment of the Articles of Incorporation and By-laws of ETPI
providing for the minimum safeguards for the conservation of assets prior to the calling of a stockholders meeting.
Aerocom Investors and Managers, Inc. (AEROCOM), Benito et.al who are stockholders of record of ETPI filed a
"VERY URGENT PETITION FOR AUTHORITY TO HOLD SPECIAL STOCKHOLDERS' MEETING FOR THE
SOLE PURPOSE OF INCREASING [ETPI's] AUTHORIZED CAPITAL STOCK”, Sandiganbayan granted PCGG the
"authority to cause the holding of a special stockholders' meeting of ETPI for the sole purpose of increasing ETPI's
authorized capital stock and to vote therein the sequestered Class 'A' shares of stock." The PCGG-controlled ETPI board
of directors thus authorized the ETPI Chair and Corporate Secretary to call the special stockholders meeting. Notices were
sent to those entitled to vote for a meeting on 17 March 1997. The meeting was held as scheduled and the increase in
ETPI's authorized capital stock from P250 Million to P2.6 Billion was "unanimously approved."
Africa filed before the Supreme Court to nullify the 'stockholders meeting' called/conducted by PCGG contending
that Sandiganbayan has no power to authorize the PCGG to call a stockholders meeting and vote the sequestered shares.
Further he alleged that 1) not given notice of the meeting 2) PCGG had no right to vote the sequestered Class "A" shares.
By Resolution of 16 February 2001, the Sandiganbayan finally resolved to deny the motions for reconsideration of its
Resolution of 13 December 1996, prompting Africa to file before the Supreme Court a petition for Review on Certiorari
challenging the Sandiganbayan Resolutions of 13 December 1996 (authorizing the holding of a stockholders meeting to
increase ETPI's authorized capital stock and to vote therein the sequestered Class "A" shares of stock) and 16 February
2001 (denying reconsideration of the December 13, 1996 Resolution).

ISSUE: WoN PCGG can vote the sequestered ETPI Class "A" shares in the stockholders meeting for the election of the
board of directors.

HELD: (guys super haba nung case, I didn’t include some of the arguments raised by the petitioner)
Africa contends that there was already a resolution by SCdeclaring that his shares in ETP I and those of AEROCOMand
POLYGON (Polygon Investors & Managers, Inc.) were not sequestered. Hence, so he contends, they, and not the PCGG,
should have been allowed to vote their respective shares during the meeting.
(1) NO. SC already rendered decisions holding that the shares of Africa, AEROCOM and POLYGON are not or are no
longer sequestered is of little consequence since the decisions were promulgated after the Sandiganbayan issued its
resolution granting the PCGG authority to call and hold the stockholders meeting to increase the authorized capital
stock. At that time, the shares were presumed to have been regularly sequestered. The more fundamental question that
confronts this Court is: Was the PCGG entitled to vote the sequestered shares in the stockholders meeting of March 17,
1997? (note: when sequestered shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2) purchased with
public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the public character
exception in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the shares.)
(2) PCGG correctly argues that Africa has no cause of action to claim on behalf of AEROCOM and POLYGON that these
two companies are entitled to vote their respective shares in the stockholders meeting to increase ETPIs authorized capital
stock. The claim is personal to AEROCOM and POLYGON. Nevertheless, this does not preclude Africa from invoking
his own right as a small stockholder of ETPI to vote in the stockholders meeting for the purpose of increasing ETPIs
authorized capital stock. The PCGG maintains, however, that it is entitled to vote said shares because this Court, by its
claim, recognized in PCGG v. SEC, supra, that ETPIs assets were being dissipated by the BAN (Benedicto, Africa, Nieto)
Group,
Re Right of PCGG to vote the sequestered shares

Considering the Compromise Agreement entered into by the PCGG and Roberto S. Benedicto in Civil Case No. 009
wherein Roberto S. Benedicto assigned and transferred to the Government 12.8% of the shares of stock of ETPI, which
Compromise Agreement was made the basis of a judgment of this Court, it is only proper that the PCGG may vote these
shares in the stockholders meeting after said judgment shall have become final and executory. Besides, before the PCGG
can vote these shares, the transfer to the State of the shares of stock must be entered in the Stock and Transfer Book, the
entries therein being the only basis for which the stockholder may vote the said shares.

The same ruling is made in respect to the shares of stock represented by stock certificates found in Malacaang (3.1%)
and the shares of stock allegedly admitted by Manuel H. Nieto to belong to former President Ferdinand E. Marcos (8.0%)

The Sandiganbayan clearly made no ruling proscribing the PCGG from voting the shares representing 12.8% of
ETPIs outstanding capital stock, the only requirement it imposed being that the transfer of the shares be registered in the
Stock and Transfer Book and that, in the case of the Benedicto shares, the Compromise Agreement be final and executory.
#40

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA
ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

FACTS: On 1954, co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-
partnership were amended so as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a contribution of P17,500 each
On December 17, 1963 herein respondent filed suit against the three other partners, alleging that the partnership,
which was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding
her demands the defendants had refused and continued to refuse to let her examine the partnership books or to give her
information regarding the partnership affairs or to pay her any share in the dividends declared by the partnership
The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership;
denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and by way of
affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership.

ISSUE: WoN Abad Santos is entitled to see the partnership books because she is an industrial partner in the partnership

HELD: YES. It is not disputed that the provision against the industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by
said partner with this prestation. There is no pretense, however, even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can
hardly be characterized as a business.

SC held that Abad Ssntos is an industrial partner of appellant company, with the right to demand for a formal
accounting and to receive her share in the net profit that may result from such an accounting,

The Supreme Court ruled that according to

ART. 1299. Any partner shall have the right to a formal account as to partnership affairs:

(1)If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable;

In the case at bar, the company is estopped from denying Abad Santos as an industrial partner because it has been 8 years
and the company never corrected their agreement in order to show their true intentions. The company never bothered to
correct those up until Abad Santos filed a complaint.