G.R. No.

L-12719 May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.

PAREDES, J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the
Collector of Internal Revenue, assessing against and demanding from the "Club Filipino, Inc. de Cebu",
the sum of P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty, allegedly due
from it as a keeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic
corporation organized under the laws of the Philippines with an original authorized capital stock of
P22,000.00, which was subsequently increased to P200,000.00, among others, to it "proporcionar,
operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego de bolos (bowling alleys),
mesas de billar y pool, y toda clase de juegos no prohibidos por leyes generales y ordenanzas generales;
y desarollar y cultivar deportes de toda clase y denominacion cualquiera para el recreo y entrenamiento
saludable de sus miembros y accionistas" (sec. 2, Escritura de Incorporacion del Club Filipino, Inc. Exh.
A). Neither in the articles or by-laws is there a provision relative to dividends and their distribution,
although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall
be donated to a charitable Philippine Institution in Cebu (Art. 27, Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the
government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders
to its members and their guests. The bar-restaurant was a necessary incident to the operation of the
club and its golf-course. The club is operated mainly with funds derived from membership fees and
dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course.
In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or
price of which increased, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage
tax on the gross receipts of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In a
letter dated December 22, 1852, the Collector of Internal Revenue assessed against and demanded from
the Club, the following sums: —

As percentage tax on its gross receipts

during the tax years 1946 to 1951 P9,599.07

Surcharge therein 2,399.77

As fixed tax for the years 1946 to 1952 70.00

Compromise penalty 500.00

The Club wrote the Collector, requesting for the cancellation of the assessment. The request having
been denied, the Club filed the instant petition for review.
The dominant issues involved in this case are twofold:

1. Whether the respondent Club is liable for the payment of the sum of 12,068.84, as fixed and
percentage taxes and surcharges prescribed in sections 182, 183 and 191 of the Tax Code, under which
the assessment was made, in connection with the operation of its bar and restaurant, during the periods
mentioned above; and

2. Whether it is liable for the payment of the sum of P500.00 as compromise penalty.

Section 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on
which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar
year or fraction thereof in which such person shall engage in said business." Section 183 provides in
general that "the percentage taxes on business shall be payable at the end of each calendar quarter in
the amount lawfully due on the business transacted during each quarter; etc." And section 191, same
Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and other eating
places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors are served
five per centum of their gross receipts . . .". It has been held that the liability for fixed and percentage
taxes, as provided by these sections, does not ipso facto attach by mere reason of the operation of a bar
and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a
barkeeper and restaurateur. The plain and ordinary meaning of business is restricted to activities or
affairs where profit is the purpose or livelihood is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary meaning, restricted to activities for profit or
livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila Elks Club] & Court of Tax
Appeals, G.R. No. L-11176, June 29, 1959, giving full definitions of the word "business"; Coll. of Int. Rev.
v. Sweeney, et al. [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts of which
are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc., No. L-10854, Jan. 27, 1960).

Having found as a fact that the Club was organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its stockholders and members; that
upon its dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine
Institution in Cebu; that it is operated mainly with funds derived from membership fees and dues; that
the Club's bar and restaurant catered only to its members and their guests; that there was in fact no
cash dividend distribution to its stockholders and that whatever was derived on retail from its bar and
restaurant was used to defray its overall overhead expenses and to improve its golf-course (cost-plus-
expenses-basis), it stands to reason that the Club is not engaged in the business of an operator of bar
and restaurant (same authorities, cited above).

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact
does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary
adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to
the primary object of developing and cultivating sports for the healthful recreation and entertainment of
the stockholders and members. That a Club makes some profit, does not make it a profit-making Club.
As has been remarked a club should always strive, whenever possible, to have surplus (Jesus Sacred
Heart College v. Collector of Int. Rev., G.R. No. L-6807, May 24, 1954; Collector of Int. Rev. v. Sinco
Educational Corp., G.R. No. L-9276, Oct. 23, 1956).1äwphï1.ñët

It is claimed that unlike the two cases just cited (supra), which are non-stock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into
shares, does not detract from the finding of the trial court that it is not engaged in the business of
operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such
business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the commercial aspect of the business
prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of
operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club is not engaged in
the business as a barkeeper and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital
stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar,
nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its
dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation,
within the contemplation of the corporation law.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit,
nonstock organizations, unless the intent to the contrary is manifest and patent" (Collector v. BPOE Elks
Club, et al., supra), which is not the case in the present appeal.

Having arrived at the conclusion that respondent Club is not engaged in the business as an operator of a
bar and restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable
for any penalty, much less of a compromise penalty.

WHEREFORE, the decision appealed from is affirmed without costs.

[G.R. No. 144476. April 8, 2003]

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and
JULIE ONG ALONZO, petitioners, vs. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D.
TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP.,
MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, and the SECURITIES AND
EXCHANGE COMMISSION, respondents.

[G.R. No. 144629. April 8, 2003]

DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU,
and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners, vs. ONG YONG, JUANITA TAN
ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, and JULIA ONG
ALONZO, respondents.
 RESOLUTION
CORONA, J.:

Before us are the (1) motion for reconsideration, dated March 15, 2002, of petitioner movants Ong
Yong, Juanita Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julia Ong Alonzo (the Ongs);
(2) motion for partial reconsideration, dated March 15, 2002, of petitioner movant Willie Ong seeking a
reversal of this Courts Decision,[1] dated February 1, 2002, in G.R. Nos. 144476 and 144629 affirming with
modification the decision[2] of the Court of Appeals, dated October 5, 1999, which in turn upheld, likewise
with modification, the decision of the SEC en banc, dated September 11, 1998; and (3) motion for issuance
of writ of execution of petitioners David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu,
John Yu and Lourdes C. Tiu (the Tius) of our February 1, 2002 Decision.
A brief recapitulation of the facts shows that:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned
by the Tius, encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank
(PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall was being
built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong
Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs
and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000
shares at a par value of P100.00 each while the Tius were to subscribe to an additional 549,800 shares
at P100.00 each in addition to their already existing subscription of 450,200 shares. Furthermore, they
agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus five directors
while the Ongs were entitled to nominate the President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and
operate the mall.
Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock
while the Tius committed to contribute to FLADC a four-storey building and two parcels of land
respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million
(for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in
another P70 million[3] to FLADC and P20 million to the Tius over and above their P100 million investment,
the total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC
to PNB.
The business harmony between the Ongs and the Tius in FLADC, however, was shortlived because
the Tius, on February 23, 1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of
(1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing
David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President
and Treasurer, respectively, and (3) refusing to give them the office spaces agreed upon.
According to the Tius, the agreement was for David S. Tiu and Cely S. Tiu to assume the positions and
perform the duties of Vice-President and Treasurer, respectively, but the Ongs prevented them from
doing so. Furthermore, the Ongs refused to provide them the space for their executive offices as Vice-
President and Treasurer. Finally, and most serious of all, the Ongs refused to give them the shares
corresponding to their property contributions of a four-story building, a 1,902.30 square-meter lot and a
151 square-meter lot. Hence, they felt they were justified in setting aside their Pre-Subscription
Agreement with the Ongs who allegedly refused to comply with their undertakings.
 In their defense, the Ongs said that David S. Tiu and Cely Y. Tiu had in fact assumed the positions of
Vice-President and Treasurer of FLADC but that it was they who refused to comply with the corporate
duties assigned to them. It was the contention of the Ongs that they wanted the Tius to sign the checks
of the corporation and undertake their management duties but that the Tius shied away from helping
them manage the corporation. On the issue of office space, the Ongs pointed out that the Tius did in fact
already have existing executive offices in the mall since they owned it 100% before the Ongs came
in. What the Tius really wanted were new offices which were anyway subsequently provided to them. On
the most important issue of their alleged failure to credit the Tius with the FLADC shares commensurate
to the Tius property contributions, the Ongs asserted that
, although the Tius executed a deed of assignment for the 1,902.30 square-meter lot in favor of FLADC,
they (the Tius) refused to pay P 570,690 for capital gains tax and documentary stamp tax. Without the
payment thereof, the SEC would not approve the valuation of the Tius property contribution (as opposed
to cash contribution). This, in turn, would make it impossible to secure a new Transfer Certificate of Title
(TCT) over the property in FLADCs name. In any event, it was easy for the Tius to simply pay the said
transfer taxes and, after the new TCT was issued in FLADCs name, they could then be given the
corresponding shares of stocks. On the 151 square-meter property, the Tius never executed a deed of
assignment in favor of FLADC. The Tius initially claimed that they could not as yet surrender the TCT
because it was still being reconstituted by the Lichaucos from whom the Tius bought it. The Ongs later on
discovered that FLADC had in reality owned the property all along, even before their Pre-Subscription
Agreement was executed in 1994. This meant that the 151 square-meter property was at that time
already the corporate property of FLADC for which the Tius were not entitled to the issuance of new
shares of stock.
The controversy finally came to a head when this case was commenced[4] by the Tius on February 27,
1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission of the Pre-
Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr.,
issued a decision on May 19, 1997 confirming the rescission sought by the Tius, as follows:

WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-Subscription Agreement,
and consequently ordering:

(a) The cancellation of the 1,000,000 shares subscription of the individual defendants in FLADC;
(b) FLADC to pay the amount of P170,000,000.00 to the individual defendants representing the
return of their contribution for 1,000,000 shares of FLADC;
( c) The plaintiffs to submit with (sic) the Securities and Exchange Commission amended articles
of incorporation of FLADC to conform with this decision;
(d) The defendants to surrender to the plaintiffs TCT Nos. 132493, 132494, 134066 (formerly
15587), 135325 and 134204 and any other title or deed in the name of FLADC, failing in which
said titles are declared void;
(e) The Register of Deeds to issue new certificates of titles in favor of the plaintiffs and to cancel
the annotation of the Pre-Subscription Agreement dated 15 August 1994 on TCT No. 134066
(formerly 15587);
(f) The individual defendants, individually and collectively, their agents and representatives, to
desist from exercising or performing any and all acts pertaining to stockholder, director or
officer of FLADC or in any manner intervene in the management and affairs of FLADC;
 (g) The individual defendants, jointly and severally, to return to FLADC interest payment in the
amount of P8,866,669.00 and all interest payments as well as any payments on principal
received from the P70,000,000.00 inexistent loan, plus the legal rate of interest thereon from
the date of their receipt of such payment until fully paid;
(h) The plaintiff David Tiu to pay individual defendants the sum of P20,000,000.00 representing
his loan from said defendants plus legal interest from the date of receipt of such amount.

SO ORDERED.[5]

On motion of both parties, the above decision was partially reconsidered but only insofar as the
Ongs P70 million was declared not as a premium on capital stock but an advance (loan) by the Ongs to
FLADC and that the imposition of interest on it was correct.[6]
Both parties appealed[7] to the SEC en banc which rendered a decision on September 11, 1998,
affirming the May 19, 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of
the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as premium
on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest.[8]
On appeal, the Court of Appeals (CA) rendered a decision on October 5, 1999, thus:

WHEREFORE, the Order dated September 11, 1998 issued by the Securities and Exchange Commission
En Banc in SEC AC CASE NOS. 598 and 601 confirming the rescission of the Pre-Subscription Agreement
dated August 15, 1994 is hereby AFFIRMED, subject to the following MODIFICATIONS:

1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development
Corporation in accordance with the following cash and property contributions of the
parties therein.

(a) Ong Group P100,000,000.00 cash contribution for one (1) million shares in First
Landlink Asia Development Corporation at a par value of P100.00 per share;

(b) Tiu Group:

1) P45,020,000.00 original cash contribution for 450,200 shares in First Landlink

Asia Development Corporation at a par value of P100.00 per share;

2) A four-storey building described in Transfer Certificate of Title No. 15587 in the

name of Intraland Resources and Development Corporation valued at
P20,000,000.00 for 200,000 shares in First Landlink Asia Development
Corporation at a par value of P100.00 per share;

3) A 1,902.30 square-meter parcel of land covered by Transfer Certificate of Title

No. 15587 in the name of Masagana Telamart, Inc. valued at P30,000,000.00 for
300,000 shares in First Landlink Asia Development Corporation at a par value of
P100.00 per share.

2) Whatever remains of the assets of the First Landlink Asia Development Corporation and
the management thereof is (sic) hereby ordered transferred to the Tiu Group.
 3) First Landlink Asia Development Corporation is hereby ordered to pay the amount of
P70,000,000.00 that was advanced to it by the Ong Group upon the finality of this
decision. Should the former incur in delay in the payment thereof, it shall pay the legal
interest thereon pursuant to Article 2209 of the New Civil Code.

4) The Tius are hereby ordered to pay the amount of P20,000,000.00 loaned them by the
Ongs upon the finality of this decision. Should the former incur in delay in the payment
thereof, it shall pay the legal interest thereon pursuant to Article 2209 of the New Civil
Code.

SO ORDERED.[9]

An interesting sidelight of the CA decision was its description of the rescission made by the Tius as
the height of ingratitude and as pulling a fast one on the Ongs.The CA moreover found the Tius guilty of
withholding FLADC funds from the Ongs and diverting corporate income to their own MATTERCO
account.[10] These were findings later on affirmed in our own February 1, 2002 Decision which is the
subject of the instant motion for reconsideration.[11]
But there was also a strange aspect of the CA decision. The CA concluded that both the Ongs and the
Tius were in pari delicto (which would not have legally entitled them to rescission) but, for practical
considerations, that is, their inability to work together, it was best to separate the two groups by
rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding
practically everything else to the Tius.
Their motions for reconsideration having been denied, both parties filed separate petitions for review
before this Court.
In their petition docketed as G.R. No. 144476, Ong et al. vs. Tiu et al., the Ongs argued that the Tius
may not properly avail of rescission under Article 1191 of the Civil Code considering that the Pre-
Subscription Agreement did not provide for reciprocity of obligations; that the rights over the subject
matter of the rescission (capital assets and properties) had been acquired by a third party (FLADC); that
they did not commit a substantial and fundamental breach of their agreement since they did not prevent
the Tius from assuming the positions of Vice-President and Treasurer of FLADC, and that the failure to
credit the 300,000 shares corresponding to the 1,902.30 square-meter property covered by TCT No.
134066 (formerly 15587) was due to the refusal of the Tius to pay the required transfer taxes to secure
the approval of the SEC for the property contribution and, thereafter, the issuance of title in FLADCs
name. They also argued that the liquidation of FLADC may not legally be ordered by the appellate court
even for so called practical considerations or even to prevent further squabbles and numerous litigations,
since the same are not valid grounds under the Corporation Code. Moreover, the Ongs bewailed the
failure of the CA to grant interest on their P70 million and P20 million advances to FLADC and David S. Tiu,
respectively, and to award costs and damages.
In their petition docketed as G.R. No. 144629, Tiu et al. vs. Ong et al., the Tius, on the other hand,
contended that the rescission should have been limited to the restitution of the parties respective
investments and not the liquidation of FLADC based on the erroneous perception by the court that: the
Masagana Citimall was threatened with incompletion since FLADC was in financial distress; that the Tius
invited the Ongs to invest in FLADC to settle its P190 million loan from PNB; that they violated the Pre-
Subscription Agreement when it was the Lichaucos and not the Tius who executed the deed of assignment
over the 151 square-meter property commensurate to 49,800 shares in FLADC thereby failing to pay the
price for the said shares; that they did not turn over to the Ongs the entire amount of FLADC funds;that
they were diverting rentals from lease contracts due to FLADC to their own MATTERCO account; that
the P70 million paid by the Ongs was an advance and not a premium on capital; and that, by rescinding
the Pre-Subscription Agreement, they wanted to wrestle away the management of the mall and prevent
the Ongs from enjoying the profits of their P190 million investment in FLADC.
On February 1, 2002, this Court promulgated its Decision (the subject of the instant motions),
affirming the assailed decision of the Court of Appeals but with the following modifications:
1. the P20 million loan extended by the Ongs to the Tius shall earn interest at twelve percent
(12%) per annum to be computed from the time of judicial demand which is from April 23,
1996;
2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten percent (10%)
per annum to be computed from the date of the FLADC Board Resolution which is June 19,
1996; and
3. the Tius shall be credited with 49,800 shares in FLADC for their property contribution,
specifically, the 151 sq. m. parcel of land.
This Court affirmed the fact that both the Ongs and the Tius violated their respective obligations
under the Pre-Subscription Agreement. The Ongs prevented the Tius from assuming the positions of Vice-
President and Treasurer of the corporation. On the other hand, the Decision established that the Tius
failed to turn over FLADC funds to the Ongs and that the Tius diverted rentals due to FLADC to their
MATTERCO account. Consequently, it held that rescission was not possible since both parties were in pari
delicto. However, this Court agreed with the Court of Appeals that the remedy of specific performance,
as espoused by the Ongs, was not practical and sound either and would only lead to further squabbles
and numerous litigations between the parties.
On March 15, 2002, the Tius filed before this Court a Motion for Issuance of a Writ of Execution on
the grounds that: (a) the SEC order had become executory as early as September 11, 1998 pursuant to
Sections 1 and 12, Rule 43 of the Rules of Court; (b) any further delay would be injurious to the rights of
the Tius since the case had been pending for more than six years; and (c) the SEC no longer had quasi-
judicial jurisdiction under RA 8799 (Securities Regulation Code). The Ongs filed their opposition,
contending that the Decision dated February 1, 2002 was not yet final and executory; that no good reason
existed to issue a warrant of execution; and that, pursuant to Section 5.2 of RA 8799, the SEC retained
jurisdiction over pending cases involving intra-corporate disputes already submitted for final resolution
upon the effectivity of the said law.
Aside from their opposition to the Tius Motion for Issuance of Writ of Execution, the Ongs filed their
own Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision)
on March 15, 2002, raising two main points: (a) that specific performance and not rescission was the
proper remedy under the premises; and (b) that, assuming rescission to be proper, the subject decision
of this Court should be modified to entitle movants to their proportionate share in the mall.
On their first point (specific performance and not rescission was the proper remedy), movants Ong
argue that their alleged breach of the Pre-Subscription Agreement was, at most, casual which did not
justify the rescission of the contract. They stress that providing appropriate offices for David S. Tiu and
Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the
Pre-Subscription Agreement since the said obligation (to provide executive offices) pertained to FLADC
itself. Such obligation arose from the relations between the said officers and the corporation and not any
of the individual parties such as the Ongs. Likewise, the alleged failure of the Ongs to credit shares of stock
in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs.
Just the same, it could not be done in view of the Tius refusal to pay the necessary transfer taxes which in
turn resulted in the inability to secure SEC approval for the property contributions and the issuance of a
new TCT in the name of FLADC.
Besides, according to the Ongs, the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190 million desperately needed for the payment of
FLADCs loan to PNB. Hence, in this light, the alleged failure to provide office space for the two corporate
officers was no more than an inconsequential infringement. For rescission to be justified, the law requires
that the breach of contract should be so substantial or fundamental as to defeat the primary objective of
the parties in making the agreement. At any rate, the Ongs claim that it was the Tius who were guilty of
fundamental violations in failing to remit funds due to FLADC and diverting the same to their MATTERCO
account.
The Ongs also allege that, in view of the findings of the Court that both parties were guilty of violating
the Pre-Subscription Agreement, neither of them could resort to rescission under the principle of pari
delicto. In addition, since the cash and other contributions now sought to be returned already belong to
FLADC, an innocent third party, said remedy may no longer be availed of under the law.
On their second point (assuming rescission to be proper, the Ongs should be given their
proportionate share of the mall), movants Ong vehemently take exception to the second item in the
dispositive portion of the questioned Decision insofar as it decreed that whatever remains of the assets
of FLADC and the management thereof (after liquidation) shall be transferred to the Tius. They point out
that the mall itself, which would have been foreclosed by PNB if not for their timely investment of P190
million in 1994 and which is now worth about P1 billion mainly because of their efforts, should be included
in any partition and distribution. They (the Ongs) should not merely be given interest on their capital
investments. The said portion of our Decision, according to them, amounted to the unjust enrichment of
the Tius and ran contrary to our own pronouncement that the act of the Tius in unilaterally rescinding the
agreement was the height of ingratitude and an attempt to pull a fast one as it would prevent the Ongs
from enjoying the fruits of their P190 million investment in FLADC. It also contravenes this Courts
assurance in the questioned Decision that the Ongs and Tius will have a bountiful return of their respective
investments derived from the profits of the corporation.
Willie Ong filed a separate Motion for Partial Reconsideration dated March 8, 2002, pointing out that
there was no violation of the Pre-Subscription Agreement on the part of the Ongs; that, after more than
seven years since the mall began its operations, rescission had become not only impractical but would
also adversely affect the rights of innocent parties; and that it would be highly inequitable and unfair to
simply return the P100 million investment of the Ongs and give the remaining assets now amounting to
about P1 billion to the Tius.
The Tius, in their opposition to the Ongs motion for reconsideration, counter that the arguments
therein are a mere re-hash of the contentions in the Ongs petition for review and previous motion for
reconsideration of the Court of Appeals decision. The Tius compare the arguments in said pleadings to
prove that the Ongs do not raise new issues, and, based on well-settled jurisprudence,[12] the Ongs present
motion is therefore pro-forma and did not prevent the Decision of this Court from attaining finality.
On January 29, 2003, the Special Second Division of this Court held oral arguments on the respective
positions of the parties. On February 27, 2003, Dr. Willie Ong and the rest of the movants Ong filed their
respective memoranda. On February 28, 2003, the Tius submitted their memorandum.
 We grant the Ongs motions for reconsideration.
This is not the first time that this Court has reversed itself on a motion for reconsideration.
In Philippine Consumers Foundation, Inc. vs. National Telecommunications Commission,[13] this Court,
through then Chief Justice Felix V. Makasiar, said that its members may and do change their minds, after
a re-study of the facts and the law, illuminated by a mutual exchange of views.[14] After a thorough re-
examination of the case, we find that our Decision of February 1, 2002 overlooked certain aspects which,
if not corrected, will cause extreme and irreparable damage and prejudice to the Ongs, FLADC and its
creditors.
The procedural rule on pro-forma motions pointed out by the Tius should not be blindly applied to
meritorious motions for reconsideration. As long as the same adequately raises a valid ground[15] (i.e., the
decision or final order is contrary to law), this Court has to evaluate the merits of the arguments to prevent
an unjust decision from attaining finality. In Security Bank and Trust Company vs. Cuenca,[16] we ruled that
a motion for reconsideration is not pro-forma for the reason alone that it reiterates the arguments earlier
passed upon and rejected by the appellate court. We explained there that a movant may raise the same
arguments, if only to convince this Court that its ruling was erroneous. Moreover, the rule (that a motion
is pro-forma if it only repeats the arguments in the previous pleadings) will not apply if said arguments
were not squarely passed upon and answered in the decision sought to be reconsidered. In the case at
bar, no ruling was made on some of the petitioner Ongs arguments. For instance, no clear ruling was made
on why an order distributing corporate assets and property to the stockholders would not violate the
statutory preconditions for corporate dissolution or decrease of authorized capital stock. Thus, it would
serve the ends of justice to entertain the subject motion for reconsideration since some important issues
therein, although mere repetitions, were not considered or clearly resolved by this Court.
Going now to the merits, we resolve whether the Tius could legally rescind the Pre-Subscription
Agreement. We rule that they could not.
FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC
as stockholders, an increase of the authorized capital stock became necessary to give each group equal
(50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock
was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs
subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares
to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares
of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties Pre-Subscription
Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation
Code:

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract (Italics supplied).

A subscription contract necessarily involves the corporation as one of the contracting parties since
the subject matter of the transaction is property owned by the corporation its shares of stock. Thus, the
subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs
invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the
Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their
personal capacities with the Ongs since they were not selling any of their own shares to them. It was
FLADC that did.
 Considering therefore that the real contracting parties to the subscription agreement were FLADC
and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their
personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not
the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs
inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that contracts
take effect only between the parties, their assigns and heirs Therefore, a party who has not taken part in
the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that
he has a real interest affected thereby. [17]
In their February 28, 2003 Memorandum, the Tius claim that there are two contracts embodied in
the Pre-Subscription Agreement: a shareholders agreement between the Tius and the Ongs defining and
governing their relationship and a subscription contract between the Tius, the Ongs and FLADC regarding
the subscription of the parties to the corporation. They point out that these two component parts form
one whole agreement and that their terms and conditions are intrinsically related and dependent on each
other. Thus, the breach of the shareholders agreement, which was allegedly the consideration for the
subscription contract, was also a breach of the latter.
Aside from the fact that this is an entirely new angle never raised in any of their previous pleadings
until after the oral arguments on January 29, 2003, we find this argument too strained for comfort. It is
obviously intended to remedy and cover up the Tius lack of legal personality to rescind an agreement in
which they were personally not parties-in-interest. Assuming arguendo that there were two sub-
agreements embodied in the Pre-Subscription Agreement, this Court fails to see how the shareholders
agreement between the Ongs and Tius can, within the bounds of reason, be interpreted as the
consideration of the subscription contract between FLADC and the Ongs. There was nothing in the Pre-
Subscription Agreement even remotely suggesting such alleged interdependence. Be that as it may,
however, the Tius are nevertheless not the proper parties to raise this point because they were not parties
to the subscription contract between FLADC and the Ongs. Thus, they are not in a position to claim that
the shareholders agreement between them and the Ongs was what induced FLADC and the Ongs to enter
into the subscription contract. It is the Ongs alone who can say that. Though FLADC was represented by
the Tius in the subscription contract, FLADC had a separate juridical personality from the Tius. The case
before us does not warrant piercing the veil of corporate fiction since there is no proof that the
corporation is being used as a cloak or cover for fraud or illegality, or to work injustice.[18]
The Tius also argue that, since the Ongs represent FLADC as its management, breach by the Ongs is
breach by FLADC. This must also fail because such an argument disregards the separate juridical
personality of FLADC.
The Tius allege that they were prevented from participating in the management of the corporation.
There is evidence that the Ongs did prevent the rightfully elected Treasurer, Cely Tiu, from exercising her
function as such. The records show that the President, Wilson Ong, supervised the collection and receipt
of rentals in the Masagana Citimall;[19] that he ordered the same to be deposited in the bank;[20] and that
he held on to the cash and properties of the corporation.[21] Section 25 of the Corporation Code prohibits
the President from acting concurrently as Treasurer of the corporation. The rationale behind the provision
is to ensure the effective monitoring of each officers separate functions.
However, although the Tius were adversely affected by the Ongs unwillingness to let them assume
their positions, rescission due to breach of contract is definitely the wrong remedy for their personal
grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and
adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly
not one of them, specially if the party asking for it has no legal personality to do so and the requirements
of the law therefor have not been met. A contrary doctrine will tread on extremely dangerous ground
because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission
of his subscription and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code.
Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of
rescission of the subject agreement based on a less than substantial breach of subscription contract. Not
only are they not parties to the subscription contract between the Ongs and FLADC; they also have other
available and effective remedies under the law.
All this notwithstanding, granting but not conceding that the Tius possess the legal standing to sue
for rescission based on breach of contract, said action will nevertheless still not prosper since rescission
will violate the Trust Fund Doctrine and the procedures for the valid distribution of assets and property
under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs.
Rivera,[22] provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims.[23] This doctrine is the underlying principle
in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows
the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,[24] (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,[25] and (3) dissolution and
eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares[26] and in Section 122 on the prohibition against the
distribution of corporate assets and property unless the stringent requirements therefor are complied
with.[27]
The distribution of corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on the
earnest desire of the court a quo to prevent further squabbles and future litigations unless the
indispensable conditions and procedures for the protection of corporate creditors are followed.
Otherwise, the corporate peace laudably hoped for by the court will remain nothing but a dream because
this time, it will be the creditors turn to engage in squabbles and litigations should the court order an
unlawful distribution in blatant disregard of the Trust Fund Doctrine.
In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust
Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is allowed.
Contrary to the Tius allegation, rescission will, in the final analysis, result in the premature liquidation
of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and
120 of the Corporation Code.[28] The Tius maintain that rescinding the subscription contract is not
synonymous to corporate liquidation because all rescission will entail would be the simple restoration of
the status quo ante and a return to the two groups of their cash and property contributions. We wish it
were that simple. Very noticeable is the fact that the Tius do not explain why rescission in the instant case
will not effectively result in liquidation. The Tius merely refer in cavalier fashion to the end-result of
rescission (which incidentally is 100% favorable to them) but turn a blind eye to its unfair, inequitable and
disastrous effect on the corporation, its creditors and the Ongs.
 In their Memorandum dated February 28, 2003, the Tius claim that rescission of the agreement will
not result in an unauthorized liquidation of the corporation because their case is actually a petition to
decrease capital stock pursuant to Section 38 of the Corporation Code. Section 122 of the law provides
that (e)xcept by decrease of capital stock, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and liabilities. The Tius claim that their
case for rescission, being a petition to decrease capital stock, does not violate the liquidation procedures
under our laws. All that needs to be done, according to them, is for this Court to order (1) FLADC to file
with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said
decrease. This new argument has no merit.
The Tius case for rescission cannot validly be deemed a petition to decrease capital stock because
such action never complied with the formal requirements for decrease of capital stock under Section 33
of the Corporation Code. No majority vote of the board of directors was ever taken. Neither was there
any stockholders meeting at which the approval of stockholders owning at least two-thirds of the
outstanding capital stock was secured. There was no revised treasurers affidavit and no proof that said
decrease will not prejudice the creditors rights. On the contrary, all their pleadings contained were alleged
acts of violations by the Ongs to justify an order of rescission.
Furthermore, it is an improper judicial intrusion into the internal affairs of the corporation to compel
FLADC to file at the SEC a petition for the issuance of a certificate of decrease of stock. Decreasing a
corporations authorized capital stock is an amendment of the Articles of Incorporation. It is a decision
that only the stockholders and the directors can make, considering that they are the contracting parties
thereto. In this case, the Tius are actually not just asking for a review of the legality and fairness of a
corporate decision. They want this Court to make a corporate decision for FLADC. We decline to intervene
and order corporate structural changes not voluntarily agreed upon by its stockholders and directors.
Truth to tell, a judicial order to decrease capital stock without the assent of FLADCs directors and
stockholders is a violation of the business judgment rule which states that:

xxx xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as
to amount to wanton destruction to the rights of the minority, as when plaintiffs aver that the
defendants (members of the board), have concluded a transaction among themselves as will result in
serious injury to the plaintiffs stockholders.[29]

The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in
corporate law, thus:

Courts and other tribunals are wont to override the business judgment of the board mainly because,
courts are not in the business of business, and the laissez faire rule or the free enterprise system
prevailing in our social and economic set-up dictates that it is better for the State and its organs to leave
business to the businessmen; especially so, when courts are ill-equipped to make business decisions.
More importantly, the social contract in the corporate family to decide the course of the corporate
business has been vested in the board and not with courts.[30]

Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the
corporation to the exclusion of the Ongs. Such an act infringes on the law on reduction of capital stock.
Ordering the return and distribution of the Ongs capital contribution without dissolving the corporation
or decreasing its authorized capital stock is not only against the law but is also prejudicial to corporate
creditors who enjoy absolute priority of payment over and above any individual stockholder thereof.
Stripped to its barest essentials, the issue of rescission in this case is not difficult to understand. If
rescission is denied, will injustice be inflicted on any of the parties? The answer is no because the financial
interests of both the Tius and the Ongs will remain intact and safe within FLADC. On the other hand, if
rescission is granted, will any of the parties suffer an injustice? Definitely yes because the Ongs will find
themselves out in the streets with nothing but the money they had in 1994 while the Tius will not only
enjoy a windfall estimated to be anywhere from P450 million to P900 million[31] but will also take over an
extremely profitable business without much effort at all.
Another very important point follows. The Court of Appeals and, later on, our Decision dated
February 1, 2002, stated that both groups were in pari delicto, meaning, that both the Tius and the Ongs
committed breaches of the Pre-Subscription Agreement. This may be true to a certain extent but, judging
from the comparative gravity of the acts separately committed by each group, we find that the Ongs acts
were relatively tame vis--vis those committed by the Tius in not surrendering FLADC funds to the
corporation and diverting corporate income to their own MATTERCO account. The Ongs were right in not
issuing to the Tius the shares corresponding to the four-story building and the 1,902.30 square-meter lot
because no title for it could be issued in FLADCs name, owing to the Tius refusal to pay the transfer
taxes. And as far as the 151 square-meter lot was concerned, why should FLADC issue additional shares
to the Tius for property already owned by the corporation and which, in the final analysis, was already
factored into the shareholdings of the Tius before the Ongs came in?
We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one
on the Ongs because that was where the problem precisely started. It is clear that, when the finances of
FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over
the corporation again and exclude the Ongs from it. It appears that the Tius refusal to pay transfer taxes
might not have really been at all unintentional because, by failing to pay that relatively small amount
which they could easily afford, the Tius should have expected that they were not going to be given the
corresponding shares. It was, from every angle, the perfect excuse for blackballing the Ongs. In other
words, the Tius created a problem then used that same problem as their pretext for showing their partners
the door. In the process, they stood to be rewarded with a bonanza of anywhere between P450 million to
P900 million in assets (from an investment of only P45 million which was nearly foreclosed by PNB), to
the extreme and irreparable damage of the Ongs, FLADC and its creditors.
After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not
be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There
are no ifs or buts about it.
Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for
this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their
investments assuming good faith and honest intentions we cannot allow the rescission of the subject
subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial;
they were in fact remediable and correctable under the law. It would be totally against all rules of justice,
fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds.
WHEREFORE, the motion for reconsideration, dated March 15, 2002, of petitioners Ong Yong, Juanita
Tan Ong, Wilson Ong, Anna Ong, William Ong, Willie Ong and Julie Ong Alonzo and the motion for partial
reconsideration, dated March 15, 2002, of petitioner Willie Ong are hereby GRANTED. The Petition for
Confirmation of the Rescission of the Pre-Subscription Agreement docketed as SEC Case No. 02-96-5269
is hereby DISMISSED for lack of merit. The unilateral rescission by the Tius of the subject Pre-Subscription
Agreement, dated August 15, 1994, is hereby declared as null and void.
The motion for the issuance of a writ of execution, dated March 15, 2002, of petitioners David S. Tiu,
Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu is hereby DENIED for
being moot.
Accordingly, the Decision of this Court, dated February 1, 2002, affirming with modification the
decision of the Court of Appeals, dated October 5, 1999, and the SEC en banc, dated September 11, 1998,
is hereby REVERSED.
Costs against the petitioner Tius.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, and Callejo, Sr., JJ., concur.

DONNINA C. HALLEY, G.R. No. 157549

Petitioner,
Present:

CARPIO MORALES, Chairperson,

BRION,
-versus- BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:
PRINTWELL, INC.,
Respondent. May 30, 2011
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil
may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002,[1]whereby the Court of
Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),[2]ordering the
defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76
plus interest.
 Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI),
which, at its incorporation on November 12, 1987,[3]had an authorized capital stock of P3,000,000.00
divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to
wit:

Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the

printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI
published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders
on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI
paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance
of P291,342.76 in the RTC.[4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the

original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:[5]

Name Unpaid Shares

Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00

The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in full;
that BMPI had a separate personality from those of its stockholders; thatRizalino C. Vieza had assigned his
fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI
had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official

receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

Receipt No. Date Name Amount

217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated
March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);[7](b)
BMPIbalance sheet[8] and income statement[9]as of December 31, 1988; (c) BMPI income tax return for
the year 1988 (stamped received by the BIR);[10](d) journal vouchers;[11](e) cash deposit slips;[12] and(f)Bank
of the Philippine Islands (BPI) savings account passbookin the name of BMPI.[13]

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of
payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat
the defendants had used BMPIs corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to
defend[a]nt corporation, is not worthy of consideration, because:

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that
the alleged payment made on May 13, 1988 amounting to P135,000.00, is
covered by Official Receipt No. 218 (Exh. 2), whereas the alleged payment made
earlier on November 5, 1987, amounting to P5,000.00, is covered by Official
Receipt No. 222 (Exh. 3). This is cogent proof that said receipts were belatedly
issued just to suit their theory since in the ordinary course of business, a receipt
issued earliermust have serial numbers lower than those issued on a later date.
But in the case at bar, the receipt issued on November 5, 1987 has serial numbers
(222) higherthan those issued on a later date (May 13, 1988).
 b) The claim that since there was no call by the Board of Directors of defendant
corporation for the payment of unpaid subscriptions will not be a valid excuse to
free individual defendants from liability. Since the individual defendants are
members of the Board of Directors of defendantcorporation, it was within their
exclusive power to prevent the fulfillment of the condition, by simply not making
a call for the payment of the unpaid subscriptions. Their inaction should not work
to their benefit and unjust enrichment at the expense of plaintiff.
Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate
personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs.
Judge Jarencio, G.R. No. 41337, 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata,
thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A-9),

and, as appearing from the Articles of Incorporation, individual defendants have the
following unpaid subscriptions:
Names Unpaid Subscription
Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------
Total P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation

constitute a fund to which creditors have a right to look for satisfaction of their claims
(Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a
corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs.
Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as
follows:

Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
------------------
Total P321,342.75[15]
 The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants,
ordering defendants to pay to plaintiff the amount of P291,342.76, as principal, with
interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00
as attorneys fees, plus costs of suit.

Defendants counterclaims are ordered dismissed for lack of merit.

SO ORDERED.[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by
the RTC, as follows:

I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE
LIABILITIES OF THE DEFENDANT CORPORATION.

II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR
UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS
ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT
WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-
APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE
UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF
PROOF CONTROVERTING THEM.

II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA
YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS.,
INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE
SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.
 IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF
EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.

II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL
DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES CLAIM BASED ON THEIR
RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING
FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate
personality would createan injustice becausePrintwell would thereby be at a loss against whom it would
assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievements or perfection of monopoly or generally
the perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals (First Philippine International
Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs.
CIR, 65 SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe appellee the amount
of P291,342.76. The said goods were delivered to and received by BMPI but it failed to
pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per
annum until fully paid. It was also during this time that appellants stockholders were in
charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in
a limbo on where to assert their right to collect from BMPI since the stockholders who
are appellants herein are availing the defense of corporate fiction to evade payment of
its obligations.[17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which
corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts,
stating thus:
 It is an established doctrine that subscription to the capital stock of a corporation
constitute a fund to which creditors have a right to look up to 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 (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which
consists of the payment of subscriptions of the stockholders, is where the creditors can
claim monetary considerations for the satisfaction of their claims. If these funds which
ought to be fully subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to collect from
the corporation of its liability. Such occurrence was evident in the case at bar wherein the
appellants as stockholders failed to fully pay their unpaid subscriptions, which left the
creditors helpless in collecting their claim due to insufficiency of funds of the corporation.
Likewise, the claim of appellants that they already paid the unpaid subscriptions could
not be given weight because said payment did not reflect in the Articles of Incorporations
of BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For
it is a rule that a stockholder may be sued directly by creditors to the extent of their
unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital stock,

without valuable consideration for such releases, 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 or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23
SCRA 1366).[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the
subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction
could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid
subscriptions was incontrovertibly established by competent testimonial and
documentary evidence, namely Exhibits 1, 2, 3 & 4, which were never disputed by
appellee, clearly shows that they should not be held liable for payment of the said unpaid
subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting

to P45,000.00 allegedly representing the initial payment of subscriptions of
stockholder Albert Yu.
 Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting
to P135,000.00 allegedly representing full payment of balance of subscriptions of
stockholder Albert Yu. (Record p. 352).
Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting
to P5,000.00 allegedly representing the initial payment of subscriptions of
stockholder Zenaida Yu.
Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00
allegedly representing the full payment of balance of subscriptions of stockholder
Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower courts findings that
the claim of the individual appellants that they fully paid their subscription to the
defendant BMPI is not worthy of consideration, because, in the case of appellants SPS.
YU, there is an inconsistency regarding the issuance of the official receipt since the alleged
payment made on May 13, 1988 amounting to P135,000.00 was covered by Official
Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on
November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record,
p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to
suit their claim that they have fully paid the unpaid subscriptions since in the ordinary
course of business, a receipt is issued earlier must have serial numbers lower than those
issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had
a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming
arguendo that the individual appellants have paid their unpaid subscriptions, still, it is
very apparent that the veil of corporate fiction may be pierced when made as a shield to
perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA
211).[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our
consideration and resolution, to wit:

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT
DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT
MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE
SAME AS THE REASON FOR THE DECISION
 II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL
COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE
FICTION

III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE
WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of
Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of
the Constitution[20] as well as in Section 1,Rule 36 of the Rules of Court,[21]to the effect that a judgment or
final order of a court should state clearly and distinctly the facts and the law on which it is based. The
petitioner claims that the RTCs violation indicated that the RTC did not analyze the case before rendering
its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality
arose from the fact that the RTC decision was but a replica of Printwells memorandum.She cites Francisco
v. Permskul,[22] in which the Court has stated that the reason underlying the constitutional requirement,
that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform
the reader of how the court has reached its decision and thereby give the losing party an opportunity to
study and analyze the decision and enable such party to appropriately assign the errors committed therein
on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the
veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI,
had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that
she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of
incorporation in determining the current list of unpaid subscriptions despite the articles of
incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of
disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that
separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

 I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in
writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of
Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the
decision of the RTC copied verbatim the allegations of herein Respondents in its Memorandum before the
said court, as if the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,[23]but
fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards
the decision as copied. The omission renders thepetition for review insufficient to support her contention,
considering that the mere similarityin language or thought between Printwells memorandum and the trial
courts decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from
thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys
memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the
judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems
suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum. [24] This
isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and
correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and
views about the legal issues between himself and the party drafting the memorandum.The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions
of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable
tothe adherence by our courts of law and the legal profession to widely knownor universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher
ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears,
considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her
appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.
 Our own readingof the trial courts decision persuasively shows that the RTC did comply with the
requirements regarding the content and the manner of writing a decision prescribed in the Constitution
and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated
the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the
plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely:
(a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining
visible assets of BMPI; and (b) to avoid multiplicity of suits.[25]

The petitionersubmits that she had no participation in the transaction between BMPI and
Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its
obligation to pay. Hence, she should not be personally liable.

We rule against the petitioners submission.

Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers,[26]such separate and distinct personality is merely a fiction created by law for the
sake of convenience and to promote the ends of justice.[27]The corporate personality may be disregarded,
and the individuals composing the corporation will be treated as individuals, if the corporate entity is
being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an
adjunct, or a business conduit for the sole benefit of the stockholders.[28] As a general rule, a corporation
is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts
always presume good faith, andfor that reason accord prime importance to the separate personality of
the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established.[29]It thus behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it
be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits
obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting
the solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants,
remainedbecause the CA found her and the other defendant stockholders to be in charge of the
operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe(d) appellee the amount
of P291,342.76. The said goods were delivered to and received by BMPI but it failed to
pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per
annum until fully paid. It was also during this time that appellants stockholders were in
charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in
a limbo on where to assert their right to collect from BMPI since the stockholders who
are appellants herein are availing the defense of corporate fiction to evade payment of
its obligations.[31]

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
gooddefensesin the suit.

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders,
including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had
already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts
erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax
returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a

 xxx rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a simple debtor, and as
between its creditors and stockholders its assets are in equity a fund for the payment of
its debts.[32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was adopted
in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where thisCourt declared that:

It is established doctrine that 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. (Velasco vs. Poizat, 37 Phil., 802) xxx[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.[36]All assets and property belonging to the corporation held in trust for the
benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full
paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,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,[37] without
a valuable consideration,[38] or fraudulently, to the prejudice of creditors.[39]The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for
the satisfaction of its debt.[40]To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making good unpaid balances
upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid
the par value of the stocks of the corporation.[41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs)
issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer
similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her
favor,we still cannot sustain the petitioners defense of full payment of her subscription.
 In civil cases, theparty who pleads payment has the burden of proving it, that even where the
plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden
of showing with legal certainty that the obligation has been discharged by payment.[42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement
between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services,
and theclient or thecustomer.[43]Althougha receipt is the best evidence of the fact of payment, it isnot
conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also
establishthe fact of payment.[44]

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription,
indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden
to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment
by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.[45]Yet, because a check is not money and only
substitutes for money, the delivery of a check does not operate as payment and does not discharge the
obligation under a judgment.[46] The delivery of a bill of exchange only produces the fact of payment when
the bill has been encashed.[47]The following passage fromBank of Philippine Islands v. Royeca[48]is
enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal
tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not
only that they delivered the checks to the petitioner, but also that the checks were
encashed. The respondents failed to do so. Had the checks been actually encashed, the
respondents could have easily produced the cancelled checks as evidence to prove the
same. Instead, they merely averred that they believed in good faith that the checks
were encashed because they were not notified of the dishonor of the checks and three
years had already lapsed since they issued the checks.
 Because of this failure of the respondents to present sufficient proof of payment, it
was no longer necessary for the petitioner to prove non-payment, particularly proof that
the checks were dishonored. The burden of evidence is shifted only if the party upon
whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the
check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could
not even inform the trial court about the identity of her drawee bank,[49]and about whether the check was
cleared and its amount paid to BMPI.[50]In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had
no bearing on the issue of payment of the subscription because they did not by themselves prove
payment. ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner,
the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their
not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of
complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed,
books and records of a corporation (including the stock and transfer book) are admissible in evidence in
favor of or against the corporation and its members to prove the corporate acts, its financial status and
other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts
and proceedings.[51]Specifically, a stock and transfer book is necessary as a measure of precaution,
expediency, and convenience because it provides the only certain and accurate method of establishing
the various corporate acts and transactions and of showing the ownership of stock and like
matters.[52]That she tendered no explanation why the stock and transfer book was not presented warrants
the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate
covering her subscription might have been a reliable evidence of full payment of the subscriptions,
considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber
who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her
favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of
incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks, averring that
the articles of incorporationdid not reflect the latest subscription status of BMPI.
 Although the articles of incorporation may possibly reflect only the pre-incorporation status of a
corporation, the lower courts reliance on that document to determine whether the original
subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier
explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the
plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their
subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their
failure to counter the reliance on the recitals found in the articles of incorporation simply meant their
failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate
obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor,had a right
to reachher unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their
shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount
of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence,
we need to modify the extent of the petitioners personal liability to Printwell. The prevailing rule is that a
stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid
subscription.[53]In view ofthe petitioners unpaid subscription being worth P262,500.00, shewas liable up
to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at
12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation
(i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings
of fact and of law as provided under Article 2208 of the Civil Code[55]incorporated in the body of decision
of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the
attorneys fees.
 ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the
decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum
of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

SECOND DIVISION

RYUICHI YAMAMOTO, G.R. No. 150283

Petitioner,
Present:

QUISUMBING,* J., Chairperson,

CARPIO MORALES,*
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.

NISHINO LEATHER INDUSTRIES, INC. and Promulgated:

IKUO NISHINO, April 16, 2008
Respondents.
x-------------------------------------------------x

DECISION

CARPIO MORALES, J.:

In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under
Philippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in
leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.

In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national,
forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein
Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock
of WAKO.
 Eventually, Nishino and his brother[1] Yoshinobu Nishino (Yoshinobu) acquired more than 70% of
the authorized capital stock of WAKO, reducing Yamamotos investment therein to, by his claim,
10%,[2] less than 10% according to Nishino.[3]

The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.

Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would
buy-out the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishinos
counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the
pertinent portions of which follow:

Hereunder is a simple memorandum of the subject matters discussed with me by

Mr. Yoshinobu Nishino yesterday, October 29th, based on the letter of Mr. Ikuo Nishino
from Japan, and which I am now transmitting to you.[4]

xxxx

12. Machinery and Equipment:

The following machinery/equipment have been contributed by you to the

company:

Splitting machine - 1 unit

Samming machine - 1 unit
Forklift - 1 unit
Drums - 4 units
Toggling machine - 2 units

Regarding the above machines, you may take them out with you (for your own use
and sale) if you want, provided, the value of such machines is deducted from your and
Wakos capital contributions, which will be paid to you.

Kindly let me know of your comments on all the above, soonest.

x x x x[5] (Emphasis and underscoring supplied)

On the basis of such letter, Yamamoto attempted to recover the machineries and equipment
which were, by Yamamotos admission, part of his investment in the corporation,[6] but he was frustrated
by respondents, drawing Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC)
of Makati a complaint[7] against them for replevin.
 Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond. [8]

In their Answer with Counterclaim,[9] respondents claimed that the machineries and equipment
subject of replevin form part of Yamamotos capital contributions in consideration of his equity in NLII and
should thus be treated as corporate property; and that the above-said letter of Atty. Doce to Yamamoto
was merely a proposal, conditioned on [Yamamotos] sell-out to . . . Nishino of his entire equity,[10] which
proposal was yet to be authorized by the stockholders and Board of Directors of NLII.

By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via
the implementation of the writ of replevin over the machineries and equipment, prayed for the award to
them of moral and exemplary damages, attorneys fees and litigation expenses, and costs of suit.

The trial court, by Decision of June 9, 1995, decided the case in favor of Yamamoto,[11] disposing
thus:

WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful

owner and possessor of the machineries in question, and making the writ of seizure
permanent; (2) ordering defendants to pay plaintiff attorneys fees and expenses of
litigation in the amount of Fifty Thousand Pesos (P50,000.00), Philippine Currency; (3)
dismissing defendants counterclaims for lack of merit; and (4) ordering defendants to pay
the costs of suit.

SO ORDERED.[12] (Underscoring supplied)

On appeal,[13] the Court of Appeals held in favor of herein respondents and

accordingly reversed the RTC decision and dismissed the complaint.[14] In so holding, the appellate court
found that the machineries and equipment claimed by Yamamoto are corporate property of NLII and may
not thus be retrieved without the authority of the NLII Board of Directors;[15] and that petitioners argument
that Nishino and Yamamoto cannot hide behind the shield of corporate fiction does not lie,[16] nor does
petitioners invocation of the doctrine of promissory estoppel.[17] At the same time, the Court of Appeals
found no ground to support respondents Counterclaim.[18]

The Court of Appeals having denied[19] his Motion for Reconsideration,[20] Yamamoto filed the
present petition,[21] faulting the Court of Appeals

A.
 x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN
THE CASE AT BAR.

B.

x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO

THE CASE AT BAR.

C.

x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEYS FEES.[22]

The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce
that Yamamoto may retrieve the machineries and equipment, which admittedly were part of his
investment, bound the corporation. The Court holds in the negative.

Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the
corporation, he cannot bind the latter. Under the Corporation Law, unless otherwise provided, corporate
powers are exercised by the Board of Directors.[23]

Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz:

During the negotiations, the issue as to the ownership of the Machiner[ies] never
came up. Neither did the issue on the proper procedure to be taken to execute the
complete take-over of the Company come up since Ikuo, Yoshinobu, and Yamamoto were
the owners thereof, the presence of other stockholders being only for the purpose of
complying with the minimum requirements of the law.

What course of action the Company decides to do or not to do depends not on

the other members of the Board of Directors. It depends on what Ikuo and Yoshinobu
decide. The Company is but a mere instrumentality of Ikuo [and] Yoshinobu.[24]

xxxx
x x x The Company hardly holds board meetings. It has an inactive board, the
directors are directors in name only and are there to do the bidding of the Nish[i]nos,
nothing more. Its minutes are paper minutes. x x x [25]

xxxx

The fact that the parties started at a 70-30 ratio and Yamamotos percentage
declined to 10% does not mean the 20% went to others. x x x The 20% went to no one
else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and has no say at
 all in the business. Only Ikuo makes the decisions. There were, therefore, no other
members of the Board who have not given their approval.[26] (Emphasis and
underscoring supplied)

While the veil of separate corporate personality may be pierced when the corporation is merely
an adjunct, a business conduit, or alter ego of a person,[27]the mere ownership by a single stockholder of
even all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard
the separate corporate personality.[28]

The elements determinative of the applicability of the doctrine of piercing the veil of corporate
fiction follow:
1. 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 or existence of its own;

2. 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 the plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate
veil. 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 defendants
relationship to that operation.[29] (Italics in the original; emphasis and underscoring
supplied)

In relation to the second element, to disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiffs legal rights must be clearly and convincingly
established; it cannot be presumed.[30] Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply.[31]

In the case at bar, there is no showing that Nishino used the separate personality of NLII to
unjustly act or do wrong to Yamamoto in contravention of his legal rights.

Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus:
 Under the doctrine of promissory estoppel, x x x estoppel may arise from the
making of a promise, even though without consideration, if it was intended that the
promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it
would be virtually to sanction the perpetration of fraud or would result in other injustice.

x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose
negotiations were had between the parties. Having expressly given Yamamoto, through
the Letter and through a subsequent meeting at the Manila Peninsula where Ikuo himself
confirmed that Yamamoto may take out the Machinery from the Company anytime,
respondents should not be allowed to turn around and do the exact opposite of what they
have represented they will do.

In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he
could take out the Machinery if he wanted to so, provided that the value of said machines
would be deducted from his capital contribution x x x.

xxxx

Respondents cannot now argue that they did not intend for Yamamoto to rely
upon the Letter. That was the purpose of the Letter to begin with. Petitioner[s] in fact,
relied upon said Letter and such reliance was further strengthened during their meeting
at the Manila Peninsula.

To sanction respondents attempt to evade their obligation would be to sanction

the perpetration of fraud and injustice against petitioner.[32] (Underscoring supplied)

It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a
request for Yamamoto to give his comments on all the above, soonest.[33]

What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his
acceptance. Without acceptance, a mere offer produces no obligation.[34]
Thus, under Article 1181 of the Civil Code, [i]n conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. In the case at bar, there is no showing of compliance with the
condition for allowing Yamamoto to take the machineries and equipment, namely, his agreement to the
deduction of their value from his capital contribution due him in the buy-out of his interests in
NLII. Yamamotos allegation that he agreed to the condition[35] remained just that, no proof thereof having
been presented.

The machineries and equipment, which comprised Yamamotos investment in NLII,[36] thus
remained part of the capital property of the corporation.[37]
 It is settled that the property of a corporation is not the property of its stockholders or
members.[38] Under the trust fund doctrine, the capital stock, property, and other assets of a corporation
are regarded as equity in trust for the payment of corporate creditors which are preferred over the
stockholders in the distribution of corporate assets.[39] The distribution of corporate assets and property
cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the
corporation unless the indispensable conditions and procedures for the protection of corporate creditors
are followed.[40]

WHEREFORE, the petition is DENIED.

[G.R. No. 150976. October 18, 2004]
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO, MARIA ANTONIA
TEMPLO and MEDICAL CENTER PARAAQUE, INC., petitioners, vs. ANGELES BALINGHASAY,
RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO FUNTILA, TERESITA GAYANILO, RUSTICO JIMENEZ,
ARACELI* JO, ESMERALDA MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA
PARRENO, CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE VALDEZ, SALVACION
VILLAMORA, and HUMBERTO VILLAREAL, respondents.

DECISION
QUISUMBING, J.:

For review on certiorari is the Partial Judgment[1] dated November 26, 2001 in Civil Case No. 01-
0140, of the Regional Trial Court (RTC) of Paraaque City, Branch 258. The trial court declared the February
9, 2001, election of the board of directors of the Medical Center Paraaque, Inc. (MCPI) valid. The Partial
Judgment dismissed petitioners first cause of action, specifically, to annul said election for depriving
petitioners their voting rights and to be voted on as members of the board.
The facts, as culled from records, are as follows:
Petitioners and the respondents are stockholders of MCPI, with the former holding Class B shares
and the latter owning Class A shares.
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Paraaque City. It was
organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the old
Corporation Law was still in force and effect. Article VII of MCPIs original Articles of Incorporation, as
approved by the Securities and Exchange Commission (SEC) on October 26, 1977, reads as follows:

SEVENTH. That the authorized capital stock of the corporation is TWO MILLION (P2,000,000.00) PESOS,
Philippine Currency, divided into TWO THOUSAND (2,000) SHARES at a par value of P100 each share,
whereby the ONE THOUSAND SHARES issued to, and subscribed by, the incorporating stockholders shall
be classified as Class A shares while the other ONE THOUSAND unissued shares shall be considered as
Class B shares. Only holders of Class A shares can have the right to vote and the right to be elected as
directors or as corporate officers.[2] (Stress supplied)
 On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus:

SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION (P5,000,000.00) PESOS,
divided as follows:

CLASS NO. OF SHARES PAR VALUE

A 1,000 P1,000.00
B 4,000 P1,000.00

Only holders of Class A shares have the right to vote and the right to be elected as directors or as
corporate officers.[3] (Emphasis supplied)

The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment granted
the right to vote and to be elected as directors or corporate officers only to holders of Class A shares,
holders of Class B stocks were granted the same rights and privileges as holders of Class A stocks with
respect to the payment of dividends.
On September 9, 1992, Article VII was again amended to provide as follows:

SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO MILLION PESOS
(P32,000,000.00) divided as follows:

CLASS NO. OF SHARES PAR VALUE

A 1,000 P1,000.00
B 31,000 1,000.00

Except when otherwise provided by law, only holders of Class A shares have the right to vote and the
right to be elected as directors or as corporate officers[4] (Stress and underscoring supplied).

The SEC approved the foregoing amendment on September 22, 1993.

On February 9, 2001, the shareholders of MCPI held their annual stockholders meeting and election
for directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPIs history, declared over the objections of herein petitioners, that no
Class B shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen holders
of Class B shares voted for and serve as members of the corporate board and some Class B share owners
were in fact nominated for election as board members. Nonetheless, Jimenez went on to announce that
the candidates holding Class A shares were the winners of all seats in the corporate board. The petitioners
protested, claiming that Article VII was null and void for depriving them, as Class B shareholders, of their
right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68), as
amended.
On March 22, 2001, after their protest was given short shrift, herein petitioners filed a Complaint for
Injunction, Accounting and Damages, docketed as Civil Case No. CV-01-0140 before the RTC of Paraaque
City, Branch 258. Said complaint was founded on two (2) principal causes of action, namely:

a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001 Annual
Stockholders Meeting, and for the conduct of an election whereat all stockholders, irrespective of the
classification of the shares they hold, should be afforded their right to vote and be voted for; and
b. Stockholders derivative suit challenging the validity of a contract entered into by the Board of
Directors of MCPI for the operation of the ultrasound unit.[5]

Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes only of
the second cause of action.
Before the trial court, the herein petitioners alleged that they were deprived of their right to vote
and to be voted on as directors at the annual stockholders meeting held on February 9, 2001, because
respondents had erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article
VII being contrary to the Corporation Code, thus null and void. Additionally, respondents were in estoppel,
because in the past, petitioners were allowed to vote and to be elected as members of the board. They
further claimed that the privilege granted to the Class A shareholders was more in the nature of a right
granted to founders shares.
In their Answer, the respondents averred that the provisions of Article VII clearly and categorically
state that only holders of Class A shares have the exclusive right to vote and be elected as directors and
officers of the corporation. They denied that the exclusivity was intended only as a privilege granted to
founders shares, as no such proviso is found in the Articles of Incorporation. The respondents further
claimed that the exclusivity of the right granted to Class A holders cannot be defeated or impaired by any
subsequent legislative enactment, e.g. the New Corporation Code, as the Articles of Incorporation is an
intra-corporate contract between the corporation and its members; between the corporation and its
stockholders; and among the stockholders. They submit that to allow Class B shareholders to vote and be
elected as directors would constitute a violation of MCPIs franchise or charter as granted by the State.
At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause of
action and required the parties to submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of which
reads:

WHEREFORE, viewed in the light of the foregoing, the election held on February 9, 2001 is VALID as the
holders of CLASS B shares are not entitled to vote and be voted for and this case based on the First
Cause of Action is DISMISSED.

SO ORDERED.[6]

In finding for the respondents, the trial court ruled that corporations had the power to classify their
shares of stocks, such as voting and non-voting shares, conformably with Section 6[7] of the Corporation
Code of the Philippines. It pointed out that Article VII of both the original and amended Articles of
Incorporation clearly provided that only Class A shareholders could vote and be voted for to the exclusion
of Class B shareholders, the exception being in instances provided by law, such as those enumerated in
Section 6, paragraph 6 of the Corporation Code. The RTC found merit in the respondents theory that the
Articles of Incorporation, which defines the rights and limitations of all its shareholders, is a contract
between MCPI and its shareholders. It is thus the law between the parties and should be strictly enforced
as to them. It brushed aside the petitioners claim that the Class A shareholders were in estoppel, as the
election of Class B shareholders to the corporate board may be deemed as a mere act of benevolence on
the part of the officers. Finally, the court brushed aside the founders shares theory of the petitioners for
lack of factual basis.
 Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in rendering
the Partial Judgment dated November 26, 2001, has decided a question of substance in a way not in
accord with law and jurisprudence considering that:

1. Under the Corporation Code, the exclusive voting right and right to be voted granted by the Articles of
Incorporation of the MCPI to Class A shareholders is null and void, or already extinguished;

2. Hence, the declaration of directors made during the February 9, 2001 Annual Stockholders Meeting
on the basis of the purported exclusive voting rights is null and void for having been done without the
benefit of an election and in violation of the rights of plaintiffs and Class B shareholders; and

3. Perforce, another election should be conducted to elect the directors of the MCPI, this time affording
the holders of Class B shares full voting right and the right to be voted.[8]

The issue for our resolution is whether or not holders of Class B shares of the MCPI may be deprived
of the right to vote and be voted for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which denied
them voting rights, is null and void for being contrary to Section 6 of the Corporation Code. They point out
that Section 6 prohibits the deprivation of voting rights except as to preferred and redeemable shares
only. Hence, under the present law on corporations, all shareholders, regardless of classification, other
than holders of preferred or redeemable shares, are entitled to vote and to be elected as corporate
directors or officers. Since the Class B shareholders are not classified as holders of either preferred or
redeemable shares, then it necessarily follows that they are entitled to vote and to be voted for as
directors or officers.
The respondents, in turn, maintain that the grant of exclusive voting rights to Class A shares is clearly
provided in the Articles of Incorporation and is in accord with Section 5[9] of the Corporation Law (Act No.
1459), which was the prevailing law when MCPI was incorporated in 1977. They likewise submit that as
the Articles of Incorporation of MCPI is in the nature of a contract between the corporation and its
shareholders and Section 6 of the Corporation Code could not retroactively apply to it without violating
the non-impairment clause[10] of the Constitution.
We find merit in the petition.
When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase except
when otherwise provided by law was inserted in the provision governing the grant of voting powers to
Class A shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions
to the exclusive grant of voting rights to Class A stockholders. Which law was the amendment referring
to? The determination of which law to apply is necessary. There are two laws being cited and relied upon
by the parties in this case. In this instance, the law in force at the time of the 1992 amendment was the
Corporation Code (B.P. Blg. 68), not the Corporation Law (Act No. 1459), which had been repealed by
then.
We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation
Code and no other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to
classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459,
B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with
a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights
were explicitly provided for, such that no share may be deprived of voting rights except those classified
and issued as preferred or redeemable shares, unless otherwise provided in this Code and that there shall
always be a class or series of shares which have complete voting rights. Section 6 of the Corporation Code
being deemed written into Article VII of the Articles of Incorporation of MCPI, it necessarily follows that
unless Class B shares of MCPI stocks are clearly categorized to be preferred or redeemable shares, the
holders of said Class B shares may not be deprived of their voting rights. Note that there is nothing in the
Articles of Incorporation nor an iota of evidence on record to show that Class B shares were categorized
as either preferred or redeemable shares. The only possible conclusion is that Class B shares fall under
neither category and thus, under the law, are allowed to exercise voting rights.
One of the rights of a stockholder is the right to participate in the control and management of the
corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the
ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the
right to vote his stock nor may the right be essentially impaired, either by the legislature or by the
corporation, without his consent, through amending the charter, or the by-laws.[11]
Neither do we find merit in respondents position that Section 6 of the Corporation Code cannot apply
to MCPI without running afoul of the non-impairment clause of the Bill of Rights. Section 148[12] of the
Corporation Code expressly provides that it shall apply to corporations in existence at the time of the
effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII
of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and stockholders
must have been aware of Section 6 of the Corporation Code and intended that Article VII be construed in
harmony with the Code, which was then already in force and effect. Since Section 6 of the Corporation
Code expressly prohibits the deprivation of voting rights, except as to preferred and redeemable shares,
then Article VII of the Articles of Incorporation cannot be construed as granting exclusive voting rights to
Class A shareholders, to the prejudice of Class B shareholders, without running afoul of the letter and
spirit of the Corporation Code.
The respondents then take the tack that the phrase except when otherwise provided by law found in
the amended Articles is only a handwritten insertion and could have been inserted by anybody and that
no board resolution was ever passed authorizing or approving said amendment.
Said contention is not for this Court to pass upon, involving as it does a factual question, which is not
proper in this petition. In an appeal via certiorari, only questions of law may be reviewed.[13] Besides,
respondents did not adduce persuasive evidence, but only bare allegations, to support their suspicion.
The presumption that in the amendment process, the ordinary course of business has been
followed[14] and that official duty has been regularly performed[15] on the part of the SEC, applies in this
case.
WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of the
Regional Trial Court of Paraaque City, Branch 258, in Civil Case No. 01-0140 is REVERSED AND SET ASIDE.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Carpio, JJ., concur.
Azcuna, J., on leave.

[G.R. No. 131394. March 28, 2005]

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO,
JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE
SCHOOL, INC., respondents.

DECISION
TINGA, J.:

Presented in the case at bar is the apparently straight-forward but complicated question: What
should be the basis of quorum for a stockholders meeting the outstanding capital stock as indicated in the
articles of incorporation or that contained in the companys stock and transfer book?
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 41473[1] promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution[2] of the Court of Appeals
dated 31 October 1997 which denied petitioners motion for reconsideration.
The antecedents are not disputed.
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders shares and seventy-six (76) common shares as its initial capital stock subscription reflected
in the articles of incorporation. However, private respondents and their predecessors who were in control
of PMMSI registered the companys stock and transfer book for the first time in 1978, recording thirty-
three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a
special stockholders meeting was called and held on the basis of what was considered as a quorum of
twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued
and outstanding.
In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities
and Exchange Commission (SEC) for the registration of their property rights over one hundred (120)
founders shares and twelve (12) common shares owned by their father. The SEC hearing officer held that
the heirs of Acayan were entitled to the claimed shares and called for a special stockholders meeting to
elect a new set of officers.[3] The SEC En Banc affirmed the decision. As a result, the shares of Acayan were
recorded in the stock and transfer book.
On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The
petition was dismissed.[4] Appeal was made to the SEC En Banc, which granted said appeal, holding that
the shares of the deceased incorporators should be duly represented by their respective administrators
or heirs concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the
stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for
the corporation.[5]
Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of
Appeals.[6] Rebecca Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and
directors of PMMSI, earlier filed another petition for review of the same SEC En Bancs orders. The
petitions were thereafter consolidated.[7]The consolidated petitions essentially raised the following
issues, viz: (a) whether the basis the outstanding capital stock and accordingly also for determining the
quorum at stockholders meetings it should be the 1978 stock and transfer book or if it should be the 1952
articles of incorporation; and (b) whether the Court of Appeals gravely erred in applying the Espejo
Decision to the benefit of respondents.[8] The Espejo Decision is the decision of the SEC en banc in SEC
Case No. 2289 which ordered the recording of the shares of Jose Acayan in the stock and transfer book.
The Court of Appeals held that for purposes of transacting business, the quorum should be based on
the outstanding capital stock as found in the articles of incorporation.[9] As to the second issue, the Court
of Appeals held that the ruling in the Acayan case would ipso facto benefit the private respondents, since
to require a separate judicial declaration to recognize the shares of the original incorporators would entail
unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have already
proved their stockholdings through the provisions of the articles of incorporation.[10]
In the instant petition, petitioners claim that the 1992 stockholders meeting was valid and legal. They
submit that reliance on the 1952 articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book which private respondents themselves prepared. In
addition, they posit that private respondents cannot avail of the benefits secured by the heirs of Acayan,
as private respondents must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding.
In private respondents Memorandum[11] dated 08 March 2000, they point out that the instant
petition raises the same facts and issues as those raised in G.R. No. 131315[12], which was denied by the
First Division of this Court on 18 January 1999 for failure to show that the Court of Appeals committed
any reversible error. They add that as a logical consequence, the instant petition should be dismissed on
the ground of res judicata. Furthermore, private respondents claim that in view of the applicability of the
rule on res judicata, petitioners counsel should be cited for contempt for violating the rule against forum-
shopping.[13]
For their part, petitioners claim that the principle of res judicata does not apply to the instant case.
They argue that the instant petition is separate and distinct from G.R. No. 131315, there being no identity
of parties, and more importantly, the parties in the two petitions have their own distinct rights and
interests in relation to the subject matter in litigation. For the same reasons, they claim that counsel for
petitioners cannot be found guilty of forum-shopping.[14]
In their Manifestation and Motion[15] dated 22 September 2004, private respondents moved for the
dismissal of the instant petition in view of the dismissal of G.R. No. 131315. Attached to the said
manifestation is a copy of the Entry of Judgment[16] issued by the First Division dated 01 December 1999.
The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No.
131315 it fails to impute reversible error to the challenged Court of Appeals Decision.
Res judicata does not apply in
the case at bar.
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter
settled by judgment.[17] The doctrine of res judicata provides that a final judgment, on the merits rendered
by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and
constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of
action.[18] The elements of res judicata are (a) identity of parties or at least such as representing the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity in the two (2) particulars is such that any judgment which may be
rendered in the other action will, regardless of which party is successful, amount to res judicata in the
action under consideration.[19]
There is no dispute as to the identity of subject matter since the crucial point in both cases is the
propriety of including the still unproven shares of respondents for purposes of determining the quorum.
Petitioners, however, deny that there is identity of parties and causes of actions between the two
petitions.
The test often used in determining whether causes of action are identical is to ascertain whether the
same facts or evidence would support and establish the former and present causes of action.[20] More
significantly, there is identity of causes of action when the judgment sought will be inconsistent with the
prior judgment.[21] In both petitions, petitioners assert that the Court of Appeals Decision effectively
negates the existence and validity of the stock and transfer book, as well as automatically grants private
respondents shares of stocks which they do not own, or the ownership of which remains to be unproved.
Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper basis for
computing the quorum, and consequently determine the degree of control one has over the company.
Essentially, the affirmance of the SEC Order had the effect of diminishing their control and interests in the
company, as it allowed the participation of the individual private respondents in the election of officers
of the corporation.
Absolute identity of parties is not a condition sine qua non for res judicata to apply a shared identity
of interest is sufficient to invoke the coverage of the principle.[22]However, there is no identity of parties
between the two cases. The parties in the two petitions have their own rights and interests in relation to
the subject matter in litigation. As stated by petitioners in their Reply to Respondents
Memorandum,[23] there are no two separate actions filed, but rather, two separate petitions for review
on certiorari filed by two distinct parties with the Court and represented by their own counsels, arising
from an adverse consolidated decision promulgated by the Court of Appeals in one action or
proceeding.[24] As such, res judicata is not present in the instant case.
Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against
forum-shopping. In the Verification/Certification[25] portion of the petition, petitioners clearly stated that
there was then a pending motion for reconsideration of the 18 August 1997 Decision of the Court of
Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids,
as well as a motion for clarification. Moreover, the records indicate that petitioners filed
their Manifestation[26] dated 20 January 1998, informing the Court of their receipt of the petition in G.R.
No. 131315 in compliance with their duty to inform the Court of the pendency of another similar petition.
The Court finds that petitioners substantially complied with the rules against forum-shopping.
The Decision of the Court of
Appeals must be upheld.
The petition in this case involves the same facts and substantially the same issues and arguments as
those in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the
petition before it inadequate in failing to raise any reversible error on the part of the Court of Appeals.
We reach a similar conclusion as regards the present petition.
The crucial issue in this case is whether it is the companys stock and transfer book, or its 1952 Articles
of Incorporation, which determines stockholders shareholdings, and provides the basis for computing the
quorum.
We agree with the Court of Appeals.
 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.[27] When PMMSI was incorporated, the prevailing law
was Act No. 1459, otherwise known as The Corporation Law. Section 6 thereof states:

Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines,
may form a private corporation for any lawful purpose or purposes by filing with the Securities and
Exchange Commission articles of incorporation duly executed and acknowledged before a notary public,
setting forth:

....

(7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and
the number of shares into which it is divided, and if such stock be in whole or in part without par value
then such fact shall be stated; Provided, however, That as to stock without par value the articles of
incorporation need only state the number of shares into which said capital stock is divided.

(8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually
subscribed, the amount or number of shares of no-par stock subscribed by each and the sum paid by
each on his subscription. . . .[28]

A review of PMMSIs articles of incorporation[29] shows that the corporation complied with the
requirements laid down by Act No. 1459. It provides in part:

7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into
two classes, namely:

FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00

COMMON STOCK- 700 shares at P 100 par value P 70,000.00

TOTAL ---------------------1,700 shares----------------------------P 90,000.00

....

8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE
THOUSAND SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the
number of shares and amount of capital stock set out after their respective names:

SUBSCRIBER SUBSCRIBED AMOUNT SUBSCRIBED

No. of Shares Par Value

Crispulo J. Onrubia 120 Founders P 2,400.00

Juan H. Acayan 120 " 2, 400.00
Martin P. Sagarbarria 100 " 2, 000.00
Mauricio G. Gallaga 50 " 1, 000.00
Luis Renteria 50 " 1, 000.00
Faustina M. de Onrubia 140 " 2, 800.00

Mrs. Ramon Araneta 40 " 800.00

Carlos M. Onrubia 80 " 1,600.00
700 P 14,000.00

SUBSCRIBER SUBSCRIBED AMOUNT SUBSCRIBED

No. of Shares Par Value

Crispulo J. Onrubia 12 Common

P 1,200.00
Juan H. Acayan 12 " 1,200.00
Martin P. Sagarbarria 8" 800.00
Mauricio G. Gallaga 8" 800.00
Luis Renteria 8" 800.00
Faustina M. de Onrubia 12 " 1,200.00

Mrs. Ramon Araneta 8" 800.00

Carlos M. Onrubia 8" 800.00
76 P 7,600.00[30]

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at
the time of incorporation, the incorporators were bona fide stockholders of seven hundred (700)
founders shares and seventy-six (76) common shares. Hence, at that time, the corporation had 776 issued
and outstanding shares.
On the other hand, a stock and transfer book is the book which records the names and addresses of
all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be
prescribed by law.[31] A stock and transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and like matters.[32] However, a stock and
transfer book, like other corporate books and records, 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.[33] In fact,
it is generally held that the records and minutes of a corporation are not conclusive even against the
corporation but are prima facie evidence only,[34] and may be impeached or even contradicted by other
competent evidence.[35] Thus, parol evidence may be admitted to supply omissions in the records or
explain ambiguities, or to contradict such records.[36]
In 1980, Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines
supplanted Act No. 1459. BP Blg. 68 provides:
Sec. 24. Election of directors or trustees. At all elections of directors or trustees, there must be present,
either in person or by representative authorized to act by written proxy, the owners of a majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. . . .

Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a majority of the outstanding capital stock or majority of
the members in the case of non-stock corporation.

Outstanding capital stock, on the other hand, is defined by the Code as:

Sec. 137. Outstanding capital stock defined. The term outstanding capital stock as used in this code,
means the total shares of stock issued to subscribers or stockholders whether or not fully or partially
paid (as long as there is binding subscription agreement) except treasury shares.

Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether
it be founders shares or common shares.[37] In the instant case, two figures are being pitted against each
other those contained in the articles of incorporation, and those listed in the stock and transfer book.
To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and
transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles
of incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary. 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 issued and outstanding as compared to that listed in the stock
and transfer book. As a As shown above, at the time the corporation was set-up, there were already seven
hundred seventy-six (776) issued and outstanding shares as reflected in the articles of incorporation. No
proof was adduced as to any transaction effected on these shares from the time PMMSI was incorporated
up to the time the instant petition was filed, except for the thirty-three (33) shares which were recorded
in the stock and transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But
obviously, the shares so ordered recorded in the stock and transfer book are among the shares reflected
in the articles of incorporation as the shares subscribed to by the incorporators named therein.

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the
Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of
the company of its own shares, in which it becomes treasury shares, would not affect the total number
of shares in the Stock and Transfer Book. All that will change are the entries as to the owners of the
shares but not as to the amount of shares already subscribed.

This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the
shares, which were not recorded in the Stock and Transfer Book, but were recorded in the Articles of
Iincorporation just vanish into thin air? . . . .[39]

As shown above, at the time the corporation was set-up, there were already seven hundred seventy-
six (776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced
as to any transaction effected on these shares from the time PMMSI was incorporated up to the time the
instant petition was filed, except for the thirty-three (33) shares which were recorded in the stock and
transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the shares
so ordered recorded in the stock and transfer book are among the shares reflected in the articles of
incorporation as the shares subscribed to by the incorporators named therein.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely
because the corporate officers failed to keep its records accurately.[40]A corporations records are not the
only evidence of the ownership of stock in a corporation.[41] In an American case,[42] persons claiming
shareholders status in a professional corporation were listed as stockholders in the amendment to the
articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts
and conduct of the parties may even constitute sufficient evidence of ones status as a shareholder or
member.[43] In the instant case, no less than the articles of incorporation declare the incorporators to have
in their name the founders and several common shares. Thus, to disregard the contents of the articles of
incorporation would be to pretend that the basic document which legally triggered the creation of the
corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and
their heirs.
Petitioners argue that the Court of Appeals gravely erred in applying the Espejo decision to the
benefit of respondents. The Court believes that the more precise statement of the issue is whether in its
assailed Decision, the Court of Appeals can declare private respondents as the heirs of the incorporators,
and consequently register the founders shares in their name. However, this issue as recast is not actually
determinative of the present controversy as explained below.
Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares
in PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of
private respondents. We do not agree.
The assailed Decision merely declared that a separate judicial declaration to recognize the shares of
the original incorporators would entail unnecessary delay and expense on the part of the litigants,
considering that the incorporators had already proved ownership of such shares as shown in the articles
of incorporation.[44] There was no declaration of who the individual owners of these shares were on the
date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996,
to which the appellate courts Decision should be related, if at all, the ownership of these shares should
only be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine the
respective shares of the legal heirs of the deceased incorporators.[45]
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.
SO ORDERED.

THIRD DIVISION

NECTARINA S. RANIEL and G.R. No. 153413

MA. VICTORIA R. PAG-ONG,
Petitioners,
Present:

YNARES-SANTIAGO, J., Chairperson,

- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

PAUL JOCHICO, JOHN

STEFFENS and SURYA
VIRIYA, Promulgated:
Respondents. March 1, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present Petition for Review on Certiorari is the Decision[1] of the Court of Appeals
(CA) dated April 30, 2002, affirming with modification the Decision dated October 27, 2000 rendered by
the Securities and Exchange Commission (SEC) which held as valid the removal of petitionersMa. Victoria
R. Pag-ong (Pag-ong) as director and Nectarina S. Raniel (Raniel) as director and corporate officer
of Nephro Systems Dialysis Center (Nephro).

Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity of
the Illegal Acts of Respondents, Damages and Injunction. Petitioners, together with respondents
Paul Jochico (Jochico), John Steffens and Surya Viriya, were incorporators and directors of Nephro,
with Raniel acting as Corporate Secretary and Administrator. The conflict started when petitioners
questioned respondents' plan to enter into a joint venture with the Butuan Doctors' Hospital and College,
Inc. sometime in December 1997. Because of this, petitioners claim that respondents tried to compel
them to waive and assign their shares with Nephro but they refused. Thereafter, Raniel sought an
indefinite leave of absence due to stress, but this was denied by Jochico, as NephroPresident. Raniel,
nevertheless, did not report for work, causing Jochico to demand an explanation from her why she should
not be removed as Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over
the disapproval of her request for leave and respondents' decision with regard to the Butuan venture.
On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2,
1998. Despite receipt of the notice, petitioners did not attend the board meeting. In said meeting, the
Board passed several resolutions ratifying the disapproval of Raniel's request for leave, dismissing her as
Administrator of Nephro, declaring the position of Corporate Secretary vacant,
appointing Otelio Jochico as the new Corporate Secretary and authorizing the call of a Special
Stockholders' Meeting on February 16, 1998 for the purpose of the removal of petitioners as directors
of Nephro.

Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be held
on February 16, 1998 which were received by petitioners on February 2, 1998. Again, they did not attend
the meeting. The stockholders who were present removed the petitioners as directors of Nephro. Thus,
petitioners filed SEC Case No. 02-98-5902.

On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the Commission so holds that complainants cannot be awarded the

reliefs prayed for in reinstating Nectarina S. Raniel as secretary and administrator.

The corporation acting thru its Board of Directors can validly remove its corporate
officers, particularly complainant Nectarina S. Raniel as corporate secretary, treasurer
and administrator of the Dialysis Clinic.

Also, the Commission cannot grant the relief prayed for by complainants in
restraining the respondents from interfering in the administration of the Dialysis Clinic
owned by the corporation and the use of corporate funds.

The administration of the Dialysis Clinic of the corporation and the use of
corporate funds, rightfully belong to the officers of the corporation, which in this case are
the respondents.

The counterclaim of respondents to return or assign back the complainants'

shares in favor of respondent Paul Jochico or his nominee is hereby denied for lack of
merit.

The respondents failed to show any clear and convincing evidence to rebut the
presumption of the validity and truthfulness of documents submitted to the Commission
in the grant of corporate license.

The claim for attorney's fees and damages of both parties are likewise denied for
lack of merit, as neither party should be punished for vindicating a right, which he/she
believes should be protected or enforced.

SO ORDERED.[2]

Dissatisfied, petitioners filed a petition for review with the CA.

 On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion:

WHEREFORE, in light of the foregoing discussions, the appealed decision of the

Securities and Exchange Commission is hereby AFFIRMED with the MODIFICATION that
the renewal of petitioners as directors of Nephro is declared valid.
SO ORDERED.[3]

Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the
term renewal as provided in the CA Decision should be removal.[4] Petitioners, on the other hand, filed
the present petition for review on certiorari.

On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all pending
incidents before it in view of the filing of the petition with the Court.[5]

In the present petition, petitioners raised basically the same argument they had before the SEC
and the CA, i.e., their removal from Nephro was not valid.

Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as director
and officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors had sufficient
ground to remove Raniel as officer due to loss of trust and confidence, as her abrupt and unauthorized
leave of absence exhibited her disregard of her responsibilities as an officer of the corporation and
disrupted the operations of Nephro. The SEC also held that the Special Board Meeting held on February
2, 1998 was valid and the resolutions adopted therein are binding on petitioners.[6]

The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting
on February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as director of
Nephro was justified as it was due to her undenied delay in the release of Nephro's medical supplies from
the warehouse of the Fly-High Brokerage where she was an officer, on top of her and her co-petitioner
Raniel's absence from the aforementioned directors' and stockholders' meetings of Nephro despite due
notice.[7]
 It is well to stress the settled rule that the findings of fact of administrative bodies, such as the
SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the part of
said agencies, or unless the aforementioned findings are not supported by substantial evidence. They
carry even more weight when affirmed by the CA.[8] Such findings are accorded not only great respect but
even finality, and are binding upon this Court, unless it is shown that it had arbitrarily disregarded or
misapprehended evidence before it to such an extent as to compel a contrary conclusion had such
evidence been properly appreciated.[9] This rule is rooted in the doctrine that this Court is not a trier of
facts, as well as in the respect to be accorded the determinations made by administrative bodies in general
on matters falling within their respective fields of specialization or expertise.[10]
A review of the petition failed to demonstrate any reversible error committed by the two
tribunals, hence, the petition must be denied. It does not present any argument which convinces the Court
that the SEC and the CA made any misappreciation of the facts and the applicable laws such that their
decisions should be overturned.

A corporation exercises its powers through its board of directors and/or its duly
authorized officers and agents, except in instances where the Corporation Code requires stockholders
approval for certain specific acts.[11]

Based on Section 23 of the Corporation Code which provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled and
held by the board of directors or trustees x x x.

a corporations board of directors is understood to be that body which (1) exercises all powers provided
for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds
all property of the corporation. Its members have been characterized as trustees or directors clothed with
a fiduciary character. [12] Moreover, the directors may appoint officers and agents and as incident to this
power of appointment, they may discharge those appointed.[13]
 In this case, petitioner Raniel was removed as a corporate officer through the resolution of
Nephro's Board of Directors adopted in a special meeting onFebruary 2, 1998. As correctly ruled by the
SEC, petitioners' removal was a valid exercise of the powers of Nephro's Board of Directors, viz.:

In the instant complaint, do respondents have sufficient grounds to cause the

removal of Raniel from her positions as Corporate Secretary, Treasurer and Administrator
of the Dialysis Clinic? Based on the facts proven during the hearing of this case, the answer
is in the affirmative.

Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite
leave, immediately effective yet without prior notice, reveals a disregard of the critical
responsibilities pertaining to the sensitive positions she held in the corporation. Prior to
her hasty departure, Raniel did not make a proper turn-over of her duties and had to be
expressly requested to hand over documents and records, including keys to the office and
the cabinets (Exh. 15).

xxxx

Since Raniel occupied all three positions in Nephro, it is not difficult to foresee
the disruption that her immediate and indefinite absence can inflict on the operations of
the company. By leaving abruptly, Raniel abandoned the positions she is now trying to
reclaim. Raniel's actuation has been sufficiently proven to warrant loss of the Board's
confidence.[14]
The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in
compliance with established procedure, thus:

The resolutions of the Board dismissing complainant Raniel from her various
positions in Nephro are valid. Notwithstanding the absence of complainants from the
meeting, a quorum was validly constituted. x x x.

xxxx

Based on its articles of incorporation, Nephro has five directors two of the
positions were occupied by complainants and the remaining three are held by
respondents.This being the case, the presence of all three respondents in the Special
Meeting of the Board on February 2, 1998 established a quorum for the conduct of
business. The unanimous resolutions carried by the Board during such meeting are
therefore valid and binding against complainants.

It bears emphasis that Raniel was given sufficient opportunity to be

heard. Jochico's letters of January 26, 1998 and January 27, 1998, albeit adversarial,
recognized her right to explain herself and gave her the chance to do so. In fact, Raniel
did respond to Jochico's letter on January 28, 1998 and took the occasion to voice her
opinions about Jochico's alleged practice of using others for your own benefit, without
 cost. (Exh. 14). Moreover, the Special Meeting of the Board could have been the
appropriate venue for Raniel to air her side. Had Raniel decided to grace the meeting with
her presence, she could have explained herself before the board and tried to convince
them to allow her to keep her posts.[15]
Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was likewise
valid.
Only stockholders or members have the power to remove the directors or trustees elected by
them, as laid down in Section 28 of the Corporation Code,[16]which provides in part:

SEC. 28. Removal of directors or trustees. -- Any director or trustee of a

corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote: Provided, that such removal shall take place either at a regular
meeting of the corporation or at a special meeting called for the purpose, and in either
case, after previous notice to stockholders or members of the corporation of the intention
to propose such removal at the meeting. A special meeting of the stockholders or
members of a corporation for the purpose of removal of directors or trustees or any of
them, must be called by the secretary on order of the president or on the written demand
of the stockholders representing or holding at least a majority of the outstanding capital
stock, or if it be a non-stock corporation, on the written demand of a majority of the
members entitled to vote. x x x Notice of the time and place of such meeting, as well as
of the intention to propose such removal, must be given by publication or by written
notice as prescribed in this Code. x x x Removal may be with or without cause: Provided,
That removal without cause may not be used to deprive minority stockholders or
members of the right of representation to which they may be entitled under Section 24
of this Code. (Emphasis supplied)
Petitioners do not dispute that the stockholders' meeting was held in accordance
with Nephro's By-Laws. The ownership of Nephro's outstanding capital stock is distributed as follows:
Jochico - 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25
shares,[17] or a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would be
333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400 shares voted
for petitioners' removal. Said number of votes is more than enough to oust petitioners from their
respective positions as members of the board, with or without cause.
Verily therefore, there is no cogent reason to grant the present petition.
WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.