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1. Narra Nickel Mining and Dev. Corp vs.
Redmont Consolidated Mines
G.R. No. 195580 April 21, 2014
Velasco, JR., J:
Doctrine: Grandfather Rule is only resorted to
when there exists a doubt in the 60- 40 equity
ownership in the corporation.
FACTS:
Redmont the respondent a domestic
corporation is interested in mining and
exploring some areas in Palawan. After
inquiring with the DENR it learned that such
areas were already covered by Mineral
Production Sharing Agreement or MPSA
applications of the herein petitioners Narra
Corp., Tesoro Inc., and McArthur Inc.
The petitioners gained their Mineral
Production Sharing Agreement through the
following manner:
McArthur, through its predecessors-in-interest
SMMI who was originally issued MPSA and
later on transferred such MPSA to the MMC
who assigned it to McArthur.
Narra acquired its MPSA when PLMDC who
filed and was issued with MPSA conveyed,
transferred and assigned its rights and
interests over such MPSA in favor of Narra.
Tesoro acquired its MPSA when another
application filed by SMMI and issued by the
DENR to SMMI. SMMI subsequently conveyed,
transferred and assigned its right and interest
over the said MPSA application to Tesoro.
Aside from MPSA, the petitioners also applied
for FTAA or Financial or Technical Assistance
Agreements which are granted to foreign owned
corporations.
The respondent filed a petition before DENR
seeking to deny the permits of the petitioners
on the ground that these corporations are
owned and controlled by MBMI Resources Inc.,
a 100% Canadian corporation. Redmont
alleged that 60% of the capital stock of
McArthur, Tesoro and Narra are owned and
controlled by MBMI.
Petitioners averred that they were qualified
persons under Sec. 3 (aq) of R.A. No. 7942 or
the Philippine Mining Act of 1995.In their
answer they countered that the liberal control
test must be used in determining the
nationality of a corporation, and that the
nationality of the corporation is immaterial
because of their subsequent application for
FTAA
ISSUE:
Whether or not the Grandfather Rule
must be used to determine the nationality of
the petitioner corporations.
RULING:
Yes. There was doubt as to the
nationality of petitioners. The court used the
Grandfather Rule to determine the nationality
of petitioners. In determining the nationality of
the petitioners, the CA looked into their
corporate structures and their corresponding
common shareholders. Using the grandfather
rule, the CA discovered that MBMI in effect
owned majority of the common stocks of the
petitioners as well as at least 60 % equity
interest of other majority shareholders of
petitioners through joint venture agreements.
The CA found that through “a web of
corporate layering” it is clear that one common
controlling investor in all mining corporations
involved is MBMI.
In is the “Control Test” is still the
prevailing mode of determining whether or not
a corporation is a Filipino corporation, within
the ambit of sec. 2, Art. II of the 1987
Constitution, entitled to undertake the
exploration, development and utilization of the
natural resources of the Philippines.
When in the mind of the court there is doubt,
based on the attendant facts and
circumstances of the case, in the 60-40 Filipino
equity ownership in the corporation, then it
may apply the “grandfather rule.”

2. Shrimp Specialists, Inc. vs. Fuji-
Triumph Agri-Industrial Corp.
G.R. No. 168756 December 7, 2009
Carpio J.:
Rationale: Solidary liability may be incurred,
but only to exceptional circumstances. The veil
of corporate fiction shall only be disregarded
when the separate juridical personality of a
corporation is abused or used to commit fraud
and perpetrate a social injustice.
FACTS:
Shrimp Specialists and Fuji, signed by Eugene
Lim as President, arrived into a Distributorship
Agreement, under which Fuji contracted to
supply prawn feeds on credit basis to Shrimp
Specialists. In 1987, Shrimp Specialists began
purchasing prawn feeds from Fuji and paid for
them in the regular course of business. From 3
June 1989 to 24 July 1989, Fuji delivered
prawn feeds, and Shrimp Specialists issued 9
postdated checks as payment.
Shrimp Specialists alleges that it issued a stop-
payment order for the checks because it
discovered that earlier deliveries were
contaminated with a flatoxin. Fuji denies that
the feeds were contaminated. Fuji adds that
when the checks were presented for payment,
the drawee bank dishonored all the checks due
to a stop-payment order.
In January 1990, Ervin Lim, Fujis Vice-
President and owner, and Edward Lim, Shrimp
Specialists Finance Officer, met in Ozamiz City
to converse the unpaid deliveries. After the
meeting, both agreed that Shrimp Specialists
would issue another set of checks to cover the
ones issued earlier. This agreement was
reduced into writing and signed by both parties
on behalf of their corporations.
However, upon presentment of the replacement
checks, these were again dishonored due to
another stop-payment order issued by Shrimp
Specialists. Fuji claims that despite repeated
demands for payment, Shrimp Specialists
failed to comply with its obligation to make
good the replacement checks.
On 26 October 1990, Fuji filed a civil complaint
for sum of money against Shrimp Specialists
and Eugene Lim. The Regional Trial Court of
Quezon City (trial court), Branch 76, rendered
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a decision finding Shrimp Specialists and
Eugene Lim solidarily liable.
The CA rendered a decision modifying the trial
court’s decision. The CA absolved Eugene Lim
from any liability.
ISSUE:
Whether or not the CA erred in dismissing the
case against respondent Eugene Limand
freeing him from solidary liability with Shrimp
Specialists.
RULING:
No. A corporation is vested by law with a
personality separate and distinct from the
people comprising it. Ownership by a single or
small group of stockholders of nearly all of the
capital stock of the corporation is not by itself a
sufficient ground to disregard the separate
corporate personality.
Thus, obligations incurred by corporate
officers, acting as a corporate agent, are direct
accountabilities of the corporation they
represent.
In Uy v. Villanueva, the Court explained: The
general rule is that obligations incurred by the
corporation, acting through its directors,
officers, and employees, are its sole liabilities.
However, solidary liability may be incurred, but
only under the following exceptional
circumstances:
1. When directors and trustees or, in
appropriate cases, the officers of acorporation:
(a) vote for or assent to patently unlawful acts
of the corporation; (b) act in bad faith or with
gross negligence in directing the corporate
affairs; (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or
members, and other persons;
2. When a director or officer has consented
to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file
with the corporate secretary his written
objection thereto;
3. When a director, trustee or officer has
contractually agreed or stipulated to hold
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himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or officer is
made, by specific provision of law, personally
liable for his corporate action.
In this case, none of these exceptional
circumstances is present. In its decision, the
trial court failed to provide a clear ground why
Eugene Lim was held solidarily liable with
Shrimp Specialists. The trial court merely
stated that Eugene Lim signed on behalf of the
Shrimp Specialists as President without
explaining the need to disregard the separate
corporate personality.
The CA correctly ruled that the evidence to
hold Eugene Lim solidarily liable should be
more than just signing on behalf of the
corporation because artificial entities can only
act through natural persons. Thus, the CA was
correct in dismissing the case against Eugene
Lim.
3. EDSA Shangri-La Hoteland Resort,
Inc., Rufo B. Colayco, Rufino L. Samaniego,
Kuok Khoon Chen, and Kuok KhoonTsenvs.
BF Corporation
G.R. No. 145842 June 27, 2008
Velasco, JR., J:
Doctrine:A corporation is invested by law with
a personality separate and distinct from those
of the persons composing it.
FACTS:
The case is a consolidated case of two
petitions for review under Rule 45 to nullify
certain issuances of the court of appeals.
Petitioners, contracted with BF
Corporation to build the EDSA Shangri-La
Hotel on May 1, 1991. In the contract, the
manner of payment agreed was that BF Corp.
shall submit a monthly progress billing to the
petitioner which would measure the work
accomplished and to prepare a Progress
Payment Certificate for the month’s progress
billing.
Since the start of the construction up to
June 30, 1992, the respondent submitted a
total of 19 monthly progress reports. According
to the records, petitioner paid for the progress
billing of 1 to 13. For the progress billings 14-
19, BF claimed that no re-measure was done
by the petitioner and no payments were made.
The respondent filed a case with the
RTC a complaint for collection of sum of money
after several attempts to collect from the
petitioner. The RTC ordered the petitioner to
pay jointly and severally the respondent BF
Corp. a sum of money with interest and
damages which was assailed.
In the second petition, Cynthia Roxas-
del Castillo assails the CA decision insofar at it
adjudged her jointly and severally liable with
ESHRI to pay the monetary award decreed in
the RTC decision.
ISSUE:
Whether or not the veil of corporate
identity shall be pierced.
RULING:
No, the court did not allow such
application.
A corporation, upon coming to existence, is
invested by law with a personality separate and
distinct from those of the persons composing it.
Ownership by a single or a small group of
stockholders of nearly all of the capital stock of
the corporation is not, without more, sufficient
to disregard the fiction of separate corporate
personality.
Obligations incurred by corporate officers,
acting as corporate agents, are not theirs but
direct accountabilities of the corporation they
represent.
Solidary liability on the part of corporate
officers may at times attach, but only under
exceptional circumstances, such as when they
act with malice or in bad faith.
The veil of corporate fiction shall be
disregarded when the separate juridical
personality of a corporation is abused or used
to commit fraud and perpetrate a social
injustice, or used as a vehicle to evade
obligations. In this case, no act of malice or like
dishonest purpose is recognized on petitioner
Roxas-del Castillo as to permit the lifting of the
corporate veil.

4. ROMMEL M. ZAMBRANO, et al.
vs.
PHILIPPINE CARPET MANUFACTURING
CORP.
G.R. No. 224099 June 21, 2017
FACTS:
Petitioners averred that they were
employees of Philippine Carpet Manufacturing
Corporation (Phil Carpet) and were of the belief
that their dismissal was without just cause and
in violation of due process because the closure
of Phil Carpet was a mere pretense to transfer
its operations to its wholly owned and
controlled corporation, Pacific Carpet
Manufacturing
Corporation (PacificCarpet). They claimed that
the job orders of some regular clients of
PhilCarpet were transferred to Pacific Carpet;
and that several machines were moved from
the premises of Phil Carpet to Pacific Carpet.
ISSUE:
WhetherPacific Carpetmay be held liable for
Phil Carpet’s obligation.
RULING:
No, Pacific Carpethasapersonalityseparateand
distinct from Phil Carpet.Equally well-settled is
the principle that the corporate mask may be
removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of
another corporation. For reasons of public
policy and in the interest of justice, the
corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or
inequity committed against third
persons.Hence, any application of the doctrine
of piercing the corporate veil should be done
with caution.
Piercing the corporate veil based on the alter
ego theory requires the concurrence of three
elements: control of the corporation by the
stockholder or parent corporation, fraud or
fundamental unfairness imposed on the
plaintiff, and harm or damage caused to the
plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these
elements prevents piercing the corporate
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veil.The Court finds that none of the tests has
been satisfactorily met in this case.
Although ownership by one corporation of all or
a great majority of stocks of another
corporation and their interlocking directorates
may serve as indicia of control, by themselves
and without more, these circumstances are
insufficient to establish an alter ego
relationship or connection between Phil Carpet
on the one hand and Pacific Carpet on the
other hand, that will justify the puncturing of
the latter's corporate cover, and is not of itself
sufficient ground for disregarding the separate
corporate personality.Petitioners failed to
present substantial evidence to prove their
allegation that Pacific Carpet is a mere alter
ego of Phil Carpet.
5. MANUEL C. ESPIRITU, JR., et al.
vs.
PETRON CORPORATION and CARMEN J.
DOLOIRAS, doing business under the name
"KRISTINA PATRICIA ENTERPRISES”
G.R. No. 170891 November 24,
2009
FACTS:
Petron sold and distributed LPG in cylinder
tanks that carried its trademark
"Gasul”. Respondent Kristina Patricia
Enterprises (KPE) is the exclusive distributor of
Gasul LPGs in the whole of Sorsogon. Bicol Gas
was also in the business of selling and
distributing LPGs in Sorsogon but theirs
carried the trademark "Bicol Savers Gas”.In the
course of trade and competition, any given
distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to
other distributors operating in the same area.
They called these "captured cylinders." Bicol
Gas and KPE had an agreement for the
swapping of "captured cylinders" since one
distributor could not refill captured cylinders
with its own brand of LPG.
Jose Doloiras, KPE’s manager, observed on
almost a daily basis, however, that Bicol Gas’
trucks which plied the streets of the province
carried a load of Gasul tanks. He noted that
KPE’s volume of sales dropped significantly
from June to July 2001. KPE’s Jose saw a
particular Bicol Gas truck on the Maharlika
5
Highway. While the truck carried mostly Bicol
Savers LPG tanks, it had on it one unsealed
50-kg Gasul tank and one 50-kg Shellane
tank.They said it was empty but, when Jose
turned open its valve, he noted that it was not.
Misal, the Bicol Gas sales representative, and
Leorena, the truck driver, then admitted that
the Gasul and Shellane tanks on their truck
belonged to a customer who had them filled up
by Bicol Gas.
The provincial prosecutor ruled that there was
probable cause only for violation of R.A. 623
(unlawfully filling up registered tanks) and that
only the four Bicol Gas employees, Mirabena,
Misal, Leorena, and petitioner Llona, could be
charged. The charge against the stockholders
and directors of the company was dismissed.
Petron and KPE filed a petition for review with
the Office of the Regional State Prosecutor, but
was denied. Since the Bicol Gas employees
presumably acted under the direct order and
control of its owners, the Court of Appeals
ordered the inclusion of the stockholders of
Bicol Gas in the various charges.
ISSUE:
Whether or not the stockholders and members
of the board of directors of Bicol Gas are liable
with respect to the charge of unlawfully filling
up a steel cylinder or tank that belonged to
Petron.
RULING:
Bicol Gas is a corporation. As such, it is an
entity separate and distinct from the persons of
its officers, directors, and stockholders.
However, corporate officers or employees,
through whose act, default or omission the
corporation commits a crime, may themselves
be individually held answerable for the crime.
The "owners" of a corporate organization are its
stockholders and they are to be distinguished
from its directors and officers. The petitioners
here, with the exception of Audie Llona, are
being charged in their capacities as
stockholders of Bicol Gas. But the Court of
Appeals forgets that in a corporation, the
management of its business is generally vested
in its board of directors, not its stockholders.
Stockholders are basically investors in a
corporation. They do not have a hand in
running the day-to-day business operations of
the corporation unless they are at the same
time directors or officers of the corporation.
Before a stockholder may be held criminally
liable for acts committed by the corporation,
therefore, it must be shown that he had
knowledge of the criminal act committed in the
name of the corporation and that he took part
in the same or gave his consent to its
commission, whether by action or inaction.
It would be unfair to charge all the
stockholders involved, some of whom were
proved to be minors. No evidence was
presented establishing the names of the
stockholders who were charged with running
the operations of Bicol Gas. The complaint even
failed to allege who among the stockholders sat
in the board of directors of the company or
served as its officers.The Court of Appeals of
course specifically mentioned petitioner
stockholder Manuel C. Espiritu, Jr. as the
registered owner of the truck that the KPE
manager brought to the police for investigation
because that truck carried a tank of Petron
Gasul. But the act that R.A. 623 punishes is
the unlawful filling up of registered tanks of
another. It does not punish the act of
transporting such tanks. And the complaint
did not allege that the truck owner connived
with those responsible for filling up that Gasul
tank with Bicol Gas LPG.
6. QUEENSLAND-TOKYO COMMODITIES,
INC., ROMEO Y. LAU, and CHARLIE
COLLADO
vs.
THOMAS GEORGE
G.R. No. 172727 September 8,
2010
FACTS:
QTCI is a duly licensed broker engaged in the
trading of commodity futures. In 1995,
Guillermo Mendoza, Jr. (Mendoza) and Oniler
Lontoc (Lontoc) of QTCI met with respondent
Thomas George (respondent), encouraging the
latter to invest with QTCI. On July 7, 1995,
upon Mendoza’s prodding, respondent finally
invested with QTCI. On the same day, Collado,
in behalf of QTCI, and respondent signed the
Customer’s Agreement. Forming part of the
agreement was the Special Power of
Attorneyexecuted by respondent, appointing
Mendoza as his attorney-in-fact with full
authority to trade and manage his account.

On June 20, 1996, the Securities and
Exchange Commission (SEC) issued a Cease-
and-Desist Order (CDO) against QTCI. Alarmed
by the issuance of the CDO, respondent
demanded from QTCI the return of his
investment, but it was not heeded. He then
sought legal assistance, and discovered that
Mendoza and Lontoc were not licensed
commodity futures salesmen.On February 4,
1998, respondent filed a complaint for
Recovery of Investment with Damages with the
SEC against QTCI, Lau, and Collado
(petitioners), and against the unlicensed
salesmen, Mendoza and Lontoc. The case was
docketed as SEC Case No. 02-98-5886, and
was raffled to SEC Hearing Officer Julieto F.
Fabrero.
Only petitioners answered the complaint, as
Mendoza and Lontoc had since vanished into
thin air.After due proceedings, the SEC
Hearing Officer rendered a decision in favor of
Thomas George.
ISSUE:
Whether or not the corporate officers of
QCTI are liable for damages.
RULING:
The evidence on record established that
petitioners indeed permitted an unlicensed
trader and salesman, like Mendoza, to handle
George's account. On the other hand, the
record is bereft of proof that George had
knowledge that the person handling his
account was not a licensed trader. George can,
therefore, recover the amount he had given
under the contract.
Doctrine dictates that a corporation is invested
by law with a personality separate and distinct
from those of the persons composing it, such
that, save for certain exceptions, corporate
officers who entered into contracts in behalf of
the corporation cannot be held personally
liable for the liabilities of the latter.
Personal liability of a corporate director,
trustee, or officer, along (although not
necessarily) with the corporation, may validly
attach, as a rule, only when — (1) he assents to
a patently unlawful act of the corporation, or
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when he is guilty of bad faith or gross
negligence in directing its affairs, or when there
is a conflict of interest resulting in damages to
the corporation, its stockholders, or other
persons; (2) he consents to the issuance of
watered down stocks or who, having knowledge
thereof, does not forthwith file with the
corporate secretary his written objection
thereto; (3) he agrees to hold himself personally
and solidarily liable with the corporation; or (4)
he is made by a specific provision of law
personally answerable for his corporate action.
Wherefore there is no compelling reason to
depart from the conclusion of the SEC Hearing
Officer, which was affirmed by the CA. We are
in full accord with his reasons for holding Lau
and Collado jointly and severally liable with
QTCI for the payment of respondent's claim.
7. ERIC GODFREY STANLEY LIVESEY vs.
BINSWANGER PHILIPPINES, INC. and KEITH
ELLIOT
G.R. No. 177493 March 19, 2014
Facts:
Petitioner Livesey filed a complaint for illegal
dismissal with money claims against CBB
Philippines Strategic Property Services, Inc.
(CBB), a domestic corporation engaged in real
estate and Paul Dwyer, its President. Allegedly
CBB hired him as Director and Head of
Business Space Development and later on was
appointed as Managing Director, where his
salary was increased which CBB failed to pay
portion of it. CBB,however, denied liability
claiming that when he became the President,
he was designated as the Managing Director as
an extension of his office in Hongkong. CBB
furtherclaimed that Labor Arbiter has no
jurisdiction over Intra-Corporate dispute. Labor
Arbiter found that he was illegally dismissed
and ordered his reinstatement as Managing
Director.
Thereafter, the parties entered into compromise
agreement, where CBB would pay S31, 000.00
on or before June 30, 2003. Further, that up
until CBB was unable to fully pay the same,
CBB shall not, inter alia, suspend, discontinue,
or cease its entire, or a substantial portion of
its business operations. However, after making
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initial payment CBB ceased from its
operations.
After Livesey learned that CBB organized
another corporation, Binswanger Philippines,
Inc., to avoid its liabilities it moved for the
issuance of a writ of execution. As the issued
writ was not enforced Livesey filed a motion for
the issuance of an alias writ invoking the
doctrine of piercing the veil of corporate fiction
alleging the CBB and Binswanger are one and
the same corporation. Labor Arbiter Laderas
denied the motion. Upon appeal, NLRC
reversed said decision and ordered and
declared that respondents are jointly and
severally liable with CBB for Labor Arbiter
Reyno’s decision. Respondents’ motion for
reconsideration was denied. Thus, they filed
petition for certiorari before the Court of
Appeals under Rule 65 alleging that NLRC
acted with grave abuse of discretion for holding
them liable to Livesey and in exercising
jurisdiction over an intra-corporate dispute.
Livesey contented that the petition should be
dismissed outright for being filed out of time.
The CA granted the petition and reversed the
NLRC decision. Livesey’s motion for
reconsideration was denied. Hence, this
petition.
Issues:
1) Whether CBB and Biswanger are one and
the same corporation
2) Whether CA erred in not finding Elliot
liable
Ruling:
1) Yes, they are one and the same
corporation, hence, doctrine of piercing the veil
must be applied.
Through the confluence of events surrounding
CBB’s closure and Binswanger’s sudden
emergence, a reasonable mind would arrive at
the conclusion that Binswanger is CBB’s alter
ego or that CBB and Binswanger are one and
the same corporation. There are also
indications of badges of fraud in Binswanger’s
incorporation. It was a business strategy to
evade CBB’s financial liabilities, including its
outstanding obligation to Livesey.
It has long been settled that the law vests a
corporation with a personality distinct and
separate from its stockholders or members. In
the same vein, a corporation, by legal fiction
and convenience, is an entity shielded by a
protective mantle and imbued by law with a
character alien to the persons comprising it.
Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a
point beyond its reason and policy.
Circumstances might deny a claim for
corporate personality, under the "doctrine of
piercing the veil of corporate fiction."
Piercing the veil of corporate fiction is an
equitable doctrine developed to address
situations where the separate corporate
personality of a corporation is abused or used
for wrongful purposes. Under the 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
obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or
inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction
will be disregarded and the individuals
composing it and the two corporations will be
treated as identical.
In the present case, we see an indubitable link
between CBB’s closure and Binswanger’s
incorporation. CBB ceased to exist only in
name; it re-emerged in the person of
Binswanger for an urgent purpose, and that is
to avoid payment by CBB of the last two
installments of its monetary obligation to
Livesey, as well as its other financial liabilities.
Freed of CBB’s liabilities, especially that owing
to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage
business.
Livesey’s evidence, whose existence the
respondents never denied, converged to show
this continuity of business operations from
CBB to Binswanger.It was not just coincidence
that Binswanger is engaged in the same line of
business CBB embarked on: (1) it even holds
office in the very same building and on the very
same floor where CBB once stood; (2) CBB’s
key officers, Elliot, no less, and Catral moved
over to Binswanger, performing the tasks they
were doing at CBB; (3) notwithstanding CBB’s
closure, Binswanger’s Web Editor (Young), in
an e-mail correspondence, supplied the
information that Binswanger is "now known" as
either CBB (Chesterton Blumenauer

Binswanger or as Chesterton Petty, Ltd., in the
Philippines; (4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection
with a labor case where Binswanger was
summoned by the authorities, although Elliot
claimed that he bought the item with his own
money; and (5) Binswanger’s takeover of CBB’s
project with the PNB.
2) Yes, he should be made liable as Binswanger
for CBB 's unfulfilled obligation to Livesey.
Elliot knew CBB 's plan to close the
corporation and organize another for the
purpose of evading CBB 's liabilities to Livesey
and its other financial liabilities.This wrongful
intent we cannot and must not be condone, for
it will give a premium to an iniquitous business
strategy where a corporation is formed or used
for a non-legitimate purpose, such as to evade
a just and due obligation.
8. Jose Bernas, et. al. vs. Jovencio Cinco,
et. al.,
G.R. Nos. 163356-57, July 01, 2015
Facts:
MSCOC called a Special Stockholders' Meeting
and sent out notices to all stockholders and
members pursuant to stockholders request for
the purpose of removing the sitting officers and
electing new ones due to the anomalies in
handling the corporate funds. As aresult of
which Bernas’ group were removed from office
and, in their place and stead, Cinco group were
elected.
Aggrieved, Bernas Group initiated an action
before the Securities Investigation and Clearing
Department (SICD) of the SEC seeking for the
nullification of the 17 December 1997 Special
Stockholders Meeting on the ground that it was
improperly called. They argued that the
authority to call a meeting lies with the
Corporate Secretary and not with the MSCOC
which functions merely as an oversight body
and is not vested with the power to call
corporate meetings. Cinco Group, on the other
hand, insisted that the same is sanctioned by
the Corporation Code and the MSC by-laws.
After the investigation initiated by the newly
elected directors, the Board resolved to expel
Bernas from the club by selling his shares at
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public auction. Prior to the resolution of SEC,
the Annual Stockholders' Meeting was held on
20 April 1998, where majority of the
stockholders representing 2/3 of the
outstanding shares resolved to approve,
confirm and ratify, among others, the calling
and · holding of 17 December 1997 Special
Stockholders' Meeting, the acts and resolutions
adopted therein including the removal of
Bernas Group from the Board and the election
of their replacements.
Due to the filing of several petitions for and
against the removal of the Bernas Group from
the Board, SEC En Banc, in its Decision15
dated 30 March 1999, resolved to supervise the
holding of the 1999 Annual Stockholders'
Meeting. During the said meeting, the
stockholders once again approved, ratified and
confirmed the holding of the 17 December
1997 Special Stockholders' Meeting. It was
likewise ratified by the stockholders during the
2000 Annual Stockholders' Meeting which was
held on 17 April 2000.
SICD rendered a Decision finding, among
others, that the 17 December 1997 Special
Stockholders' Meeting and the Annual
Stockholders' Meeting conducted on 20 April
1998 and 19 April 1999 are invalid. The SICD
likewise nullified the expulsion of Bernas from
the corporation and the sale of his share at the
public auction.
On appeal, the SEC En Banc reversed the
findings of the SICD and validated the holding
of the 17 December 1997 Special Stockholders'
Meeting as well as the Annual Stockholders'
Meeting held on 20 April 1998 and 19 April
1999. Court of Appeals rendered a Decision20
declaring the 17 December 1997 Special
Stockholders' Meeting invalid for being
improperly called but affirmed the actions
taken during the Annual Stockholders' Meeting
held on 20 April 1998, 19 April 1999 and 17
April 2000. Aggrieved, both parties elevated the
case before this Court.
Issue:
Whether the conduct of the 17 December 1997
Special Stockholders' Meeting is considered
void ab initio
Ruling:
9
Yes, the 17 December 1997 Special
Stockholders' Meeting is null and void and
produces no effect.
The resolution expelling the Bernas Group from
the corporation and authorizing the sale of
Bernas' shares at the public auction is likewise
null and void. The subsequent Annual
Stockholders' Meeting held on 20 April 1998,
19 April 1999 and 17 April 2000 are valid and
binding except the ratification of the removal of
the Bernas Group and the sale of Bernas'
shares at the public auction effected by the
body during the said meetings. The expulsion
of the Bernas Group and the subsequent
auction of Bernas' shares are void from the
very beginning and therefore the ratifications
effected during the subsequent meetings
cannot be sustained. A void act cannot be the
subject of ratification.
Xxx The Corporation Code laid down the rules
on the removal of the Directors of the
corporation by providing, inter alia, the
persons authorized to call the meeting and the
number of votes required for the purpose of
removal, thus:
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. Should the secretary fail
or refuse to call the special meeting upon
such demand or fail or refuse to give the
notice, or if there is no secretary, the call
for the meeting may be addressed directly
to the stockholders or members by any
stockholder or member of the corporation
signing the demand. 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
prescribed in this Code. 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. Xxx
Only the President and the Board of Directors
are authorized by the by-laws to call a special
meeting. In cases where the person authorized
to call a meeting refuses, fails or neglects to
call a meeting, then the stockholders
representing at least 100 shares, upon written
request, may file a petition to call a special
stockholder's meeting.
In the instant case, there is no dispute that the
17 December 1997 Special Stockholders'
Meeting was called neither by the President nor
by the Board of Directors but by the MSCOC.
Further, nowhere in the Corporation Code or in
the MSC by-laws can it be gathered that the
Oversight Committee is authorized to step in
wherever there is breach of fiduciary duty and
call a special meeting for the purpose of
removing the existing officers and electing their
replacements even if such call was made upon
the request of shareholders. The defect goes
into the very authority of the persons who
made the call for the meeting. It is apt to recall
that illegal acts of a corporation which
contemplate the doing of an act which is
contrary to law, morals or public order, or
contravenes some rules of public policy or
public duty, are, like similar transactions
between individuals, void. They cannot serve as
basis for a court action, nor acquire validity by
performance, ratification or estoppel. The same
principle can apply in the present case. The
void election of 17 December 1997 cannot be
ratified by the subsequent Annual
Stockholders' Meeting.
A distinction should be made between
corporate acts or contracts which are illegal

and those which are merely ultra vires. The
former contemplates the doing of an act which
are contrary to law, morals or public policy or
public duty, and are, like similar transactions
between individuals, void: They cannot serve as
basis of a court action nor acquire validity by
performance, ratification or estoppel. Mere
ultra vires acts, on the other hand, or those
which are not illegal or void ab initio, but are
not merely within the scope of the articles of
incorporation, are merely voidable and may
become binding and enforceable when ratified
by the stockholders.32 The 1 7 December 1997
Meeting belongs to the category of the latter,
that is, it is void ab initio and cannot be
validated.
Further, Cinco Group cannot invoke the
application of de facto officership doctrine to
justify the actions taken after the invalid
election since the operation of the principle is
limited to third persons who were originally not
part of the corporation but became such by
reason of voting of government-sequestered
shares.
9. Magallanes Watercraft Asso., Inc., et. al.
vs. Margarito Auguis, et. al.
G.R. No. 211485, May 30, 2016
Facts:
MWAI is a local association of motorized banca
owners and operators ferrying cargoes and
passengers from Magallanes, Agusan del Norte,
to Butuan City and back. The Board of MWAI
passed a resolution and issued a memorandum
suspending the rights and privileges of Auguis
and Basnig as members of the association for
thirty (30) days for their refusal to pay their
membership dues and berthing fees because of
their pending oral complaint and demand for
financial audit of the association funds.
Despite such, still they failed to settle their
obligation. Hence, an action for damages and
attorney's fees with a prayer for the issuance of
a writ of preliminary injunction was filed before
the RTC.
RTC ordered Auguis and Basnig to pay their
unpaid accounts but required MWAI to pay
them actual damages and attorney's fees.
MWAI appealed before the CA. CA affirmed
with modification the RTC decision. According
to the appellate court, the RTC correctly held
10
that MWAI was guilty of an ultra vires act. It
wasneither MWAI's Articles of Incorporation
nor its By-Laws contained any provision that
expressly and/or impliedly vested power or
authority upon its Board to recommend the
imposition of disciplinary sanctions on its
delinquent officers and/or members.
It further noted that MWAI lacked the authority
to suspend the right of the respondents to
operate their bancas, which was granted
through a Certificate of Public Convenience.
The Maritime Industry Authority (MARINA) was
the sole government agency which had the
authority to suspend, cancel and/or revoke the
franchise of the two. MWAI acted beyond the
scope of its powers when it suspended the
rights of Auguis and Basnig as members of
MWAI to berth on the seaport of Magallanes
and operate their bancas. MWAI moved for
reconsideration, but its motion was denied.
Hence, this present petition.
Issue:
Whether MWAI, through its board, committed
an ultra vires act when it suspended the rights
and privileges of its members
Ruling:
No. The fact alone that neither the
articles of incorporation nor the by-laws of
MWAI granted its Board the authority to
discipline members does not make the
suspension of the rights and privileges of the
respondents’ ultra vires. In National Power
Corporation v. Vera, the Court stressed that an
act might be considered within corporate
powers, even if it was not among the express
powers, if the same served the corporate ends,
to wit:
For if that act is one which is lawful in itself
and not otherwise prohibited, and is done for
the purpose of serving corporate ends, and
reasonably contributes to the promotion of
those ends in a substantial and not in a remote
and fanciful sense, it may be fairly considered
within the corporation's charter powers.
Under Section 3(a) and Section 3(c) Article V of
MWAI's By-Laws, its members are bound "[t]o
obey and comply with the by-laws, rules and
regulations that may be promulgated by the
association from time to time" and "to pay
membership dues and other assessments of
the association." Thus, the respondents were
11
obligated to pay the membership dues of which
they were delinquent. MWAI could not be
faulted in suspending the rights and privileges
of its delinquent members.
In University of Mindanao, the Court wrote that
corporations were not limited to the express
powers enumerated in their charters, but
might also perform powers necessary or
incidental thereto, to wit:
A corporation may exercise its powers only
within those definitions. Corporate acts that
are outside those express definitions under the
law or articles of incorporation or those
"committed outside the object for which a
corporation is created" are ultra vires.
The only exception to this rule is when acts are
necessary and incidental to carry out a
corporation's purposes, and to the exercise of
powers conferred by the Corporation Code and
under a corporation's articles of incorporation.
10. HYATT ELEVATORS v. GOLDSTAR
ELEVATORS
Facts:
1. Petitioner [herein Respondent] Goldstar
Elevator Philippines, Inc. (GOLDSTAR for
brevity) is a domestic corporation primarily
engaged in the business of marketing,
distributing, selling, importing, installing, and
maintaining elevators and escalators.
2. On the other hand, private respondent
[herein petitioner] Hyatt Elevators and
Escalators Company (HYATT for brevity) is a
domestic corporation similarly engaged in the
business of selling, installing and
maintaining/servicing elevators, escalators and
parking equipment.
3. On February 23, 1999, HYATT filed a
Complaint for unfair trade practices and
damages under Articles 19, 20 and 21 of the
Civil Code of the Philippines against LG
Industrial Systems Co. Ltd. (LGISC) and LG
International Corporation (LGIC), alleging
among others, that: in 1988, it was appointed
by LGIC and LGISC as the exclusive distributor
of LG elevators and escalators in the
Philippines under a "Distributorship
Agreement"; x x x LGISC, in the latter part of
1996, made a proposal to change the exclusive
distributorship agency to that of a joint venture
partnership; while it looked forward to a
healthy and fruitful negotiation for a joint
venture, however, the various meetings it had
with LGISC and LGIC, through the latter's
representatives, were conducted in utmost bad
faith and with malevolent intentions; in the
middle of the negotiations, in order to put
pressures upon it, LGISC and LGIC terminated
the Exclusive Distributorship Agreement;
4. On March 17, 1999, LGISC and LGIC
filed a Motion to Dismiss raising the following
grounds: (1) lack of jurisdiction over the
persons of defendants, summons not having
been served on its resident agent; (2) improper
venue; and (3) failure to state a cause of action.
5. "On December 4, 2000, HYATT filed a
motion for leave of court to amend the
complaint, alleging that subsequent to the
filing of the complaint, it learned that LGISC
transferred all its organization, assets and
goodwill, as a consequence of a joint venture
agreement with Otis Elevator Company of the
USA, to LG Otis Elevator Company (LG OTIS,
for brevity). Thus, LGISC was to be substituted
or changed to LG OTIS, its successor-in-
interest. Likewise, the motion averred that x x
x GOLDSTAR was being utilized by LG OTIS
and LGIC in perpetrating their unlawful and
unjustified acts against HYATT. Consequently,
in order to afford complete relief, GOLDSTAR
was to be additionally impleaded as a party-
defendant. Hence, in the Amended Complaint,
HYATT impleaded x x x GOLDSTAR as a party-
defendant, and all references to LGISC were
correspondingly replaced with LG OTIS.
6. On April 12, 2002, x x x GOLDSTAR
filed a Motion to Dismiss the amended
complaint, raising the following grounds: (1)
the venue was improperly laid, as neither
HYATT nor defendants reside in Mandaluyong
City, where the original case was filed; RTC
denied the motion to dismiss.
7. CA reversed - Makati was the principal
place of business of both respondent and
petitioner, as stated in the latter's Articles of
Incorporation, that place was controlling for
purposes of determining the proper venue.

Issue:
Whether or not the Court of Appeals, in
reversing the ruling of the Regional Trial Court,
erred as a matter of law and jurisprudence, as
well as committed grave abuse of discretion, in
holding that in the light of the peculiar facts of
this case, venue was improper
Held:
Venue is improperly laid.
The resolution of this case rests upon a proper
understanding of Section 2 of Rule 4 of the
1997 Revised Rules of Court:
"Sec. 2. Venue of personal actions. - All other
actions may be commenced and tried where
the plaintiff or any of the principal plaintiff
resides, or where the defendant or any of the
principal defendant resides, or in the case of a
non-resident defendant where he may be
found, at the election of the plaintiff."
Since both parties to this case are
corporations, there is a need to clarify the
meaning of "residence." The law recognizes two
types of persons: (1) natural and (2) juridical.
Corporations come under the latter in
accordance with Article 44(3) of the Civil Code.
JURIDICAL PERSONS
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and
entities for public interest or purpose,
created by law; their personality begins as
soon as they have been constituted
according to law;
(3) Corporations, partnerships and
associations for private interest or purpose
to which the law grants a juridical
personality, separate and distinct from that
of each shareholder, partner or member.
Art. 45. Juridical persons mentioned in Nos.
1 and 2 of the preceding article are
governed by the laws creating or
recognizing them.
12
Private corporations are regulated by laws of
general application on the subject.
Partnerships and associations for private
interest or purpose are governed by the
provisions of this Code concerning
partnerships
Residence is the permanent home -- the place
to which, whenever absent for business or
pleasure, one intends to return. Residence is
vital when dealing with venue. A corporation,
however, has no residence in the same sense in
which this term is applied to a natural person.
This is precisely the reason why the Court in
Young Auto Supply Company v. Court of
Appeals ruled that "for practical purposes, a
corporation is in a metaphysical sense a
resident of the place where its principal office is
located as stated in the articles of
incorporation." Even before this ruling, it has
already been established that the residence of a
corporation is the place where its principal
office is established.
This Court has also definitively ruled that for
purposes of venue, the term "residence" is
synonymous with "domicile." Correspondingly,
the Civil Code provides:
"Art. 51. When the law creating or recognizing
them, or any other provision does not fix the
domicile of juridical persons, the same shall be
understood to be the place where their legal
representation is established or where they
exercise their principal functions."
It now becomes apparent that the residence or
domicile of a juridical person is fixed by "the
law creating or recognizing" it. Under Section
14(3) of the Corporation Code, the place where
the principal office of the corporation is to be
located is one of the required contents of the
articles of incorporation, which shall be filed
with the Securities and Exchange Commission
(SEC).
In the present case, there is no question as to
the residence of respondent. What needs to be
examined is that of petitioner. Admittedly, the
latter's principal place of business is Makati, as
indicated in its Articles of Incorporation. Since
the principal place of business of a corporation
determines its residence or domicile, then the
13
place indicated in petitioner's articles of
incorporation becomes controlling in
determining the venue for this case.
Petitioner argues that the Rules of Court do not
provide that when the plaintiff is a corporation,
the complaint should be filed in the location of
its principal office as indicated in its articles of
incorporation. Jurisprudence has, however,
settled that the place where the principal
office of a corporation is located, as stated
in the articles, indeed establishes its
residence. This ruling is important in
determining the venue of an action by or
against a corporation, as in the present
case.
Without merit is the argument of petitioner
that the locality stated in its Articles of
Incorporation does not conclusively indicate
that its principal office is still in the same
place. We agree with the appellate court in its
observation that the requirement to state in the
articles the place where the principal office of
the corporation is to be located "is not a
meaningless requirement. That proviso would
be rendered nugatory if corporations were to be
allowed to simply disregard what is expressly
stated in their Articles of Incorporation."
Inconclusive are the bare allegations of
petitioner that it had closed its Makati office
and relocated to Mandaluyong City, and that
respondent was well aware of those
circumstances. Assuming arguendo that they
transacted business with each other in the
Mandaluyong office of petitioner, the fact
remains that, in law, the latter's residence was
still the place indicated in its Articles of
Incorporation. Further unacceptable is its
faulty reasoning that the ground for the CA's
dismissal of its Complaint was its failure to
amend its Articles of Incorporation so as to
reflect its actual and present principal office.
The appellate court was clear enough in its
ruling that the Complaint was dismissed
because the venue had been improperly laid,
not because of the failure of petitioner to
amend the latter's Articles of Incorporation.
Indeed, it is a legal truism that the rules on the
venue of personal actions are fixed for the
convenience of the plaintiffs and their
witnesses. Equally settled, however, is the
principle that choosing the venue of an action
is not left to a plaintiff's caprice; the matter is
regulated by the Rules of Court.[21] Allowing
petitioner's arguments may lead precisely to
what this Court was trying to avoid in Young
Auto Supply Company v. CA: the creation of
confusion and untold inconveniences to party
litigants. Thus enunciated the CA:
"x x x. To insist that the proper venue is the
actual principal office and not that stated in its
Articles of Incorporation would indeed create
confusion and work untold inconvenience.
Enterprising litigants may, out of some ulterior
motives, easily circumvent the rules on venue
by the simple expedient of closing old offices
and opening new ones in another place that
they may find well to suit their needs."
We find it necessary to remind party litigants,
especially corporations, as follows:
"The rules on venue, like the other procedural
rules, are designed to insure a just and orderly
administration of justice or the impartial and
evenhanded determination of every action and
proceeding. Obviously, this objective will not be
attained if the plaintiff is given unrestricted
freedom to choose the court where he may file
his complaint or petition.
"The choice of venue should not be left to the
plaintiff's whim or caprice. He may be impelled
by some ulterior motivation in choosing to file a
case in a particular court even if not allowed by
the rules on venue."
WHEREFORE, the Petition is hereby DENIED,
and the assailed Decision and Resolution
AFFIRMED.
Claim for Moral Damage
A corporation, being merely an artificial person
cannot be considered on the same level of
natural person. It has only the power
attributes and properties expressly provided by
law or incidental to its existence. It has no
feelings, emotions or senses cannot experience
physical suffering and hence, not entitled to
moral damages, sleepless nights, wounded
feelings, physical sufferings, mental anguish
and anxieties that may suffered only by natural
person. However, by way of exception, a
corporation may claim moral damages for
bismirched reputation.
Conversely, a corporaton is civilly liable in

manner as natural persons for torts committed
by its officer or agent.
Since corporation has legal personality or
juridical capacity of its own, consequently, it
has the capacity to enter into a contract, to sue
and be sues and acquire property on its own
name
11. ABS CBN Broadcasting V CA
Facts:
1. In 1990, ABS-CBN (Petitioner) and Viva
(Respondent) executed a Film Exhibition
Agreement whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films.
2. ABS-CBN shall have the right of first
refusal to the next twenty-four (24) Viva films
for TV telecast under such terms as may be
agreed upon by the parties hereto, provided,
however, that such right shall be exercised by
ABS-CBN from the actual offer in writing.
3. Viva, through defendant Del Rosario,
offered ABS-CBN, through its vice-president
Charo Santos-Concio, a list of three(3) film
packages (36 title) from which ABS-CBN may
exercise its right of first refusal under the
afore-said agreement. ABS-CBN, however
through Mrs. Concio, "can tick off only ten (10)
titles" (from the list) "we can purchase". A
rejection letter was sent by VP Charo Santos.
6 January 1992
Dear Vic,
This is not a very formal business letter I am
writing to you as I would like to express my
difficulty in recommending the purchase of the
three film packages you are offering ABS-CBN.
From among the three packages I can only tick
off 10 titles we can purchase. Please see
attached. I hope you will understand my
position. Most of the action pictures in the list
do not have big action stars in the cast. They
are not for primetime. In line with this I wish to
mention that I have not scheduled for telecast
several action pictures in out very first contract
because of the cheap production value of these
movies as well as the lack of big action stars.
As a film producer, I am sure you understand
what I am trying to say as Viva produces only
big action pictures.
In fact, I would like to request two (2)
additional runs for these movies as I can only
schedule them in our non-primetime slots. We
have to cover the amount that was paid for
14
these movies because as you very well know
that non-primetime advertising rates are very
low. These are the unaired titles in the first
contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to
us before and have been rejected because of
the ruling of MTRCB to have them aired at 9:00
p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the
3 packages please consider including all the
other Viva movies produced last year. I have
quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
4. On April 2, 1992, defendant Del Rosario
and ABS-CBN general manager, Eugenio Lopez
III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of
Viva. What transpired in that lunch meeting is
the subject of conflicting versions. Mr. Lopez
testified that he and Mr. Del Rosario allegedly
agreed that ABS-CRN was granted exclusive
film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly
put this agreement as to the price and number
of films in a "napkin'' and signed it and gave it
to Mr. Del Rosario. On the other hand, Del
Rosario denied having made any agreement
with Lopez regarding the 14 Viva films; denied
the existence of a napkin in which Lopez wrote
something; and insisted that what he and
Lopez discussed at the lunch meeting was
Viva's film package offer of 104 films for a total
price of P60 million. Mr. Lopez promising to
make a counter proposal which came in the
form of a proposal contract.
5. That on April 7, 1992, defendant Del
Rosario eceived through his secretary, a
handwritten note from Ms. Concio,a counter-
proposal covering 53 films, 52 of which came
from the list sent by defendant Del Rosario and
one film was added by Ms. Concio, for a
consideration of P35 million. " The said counter
proposal was however rejected by Viva's Board
15
of Directors [in the] evening of the same day,
April 7, 1992, as Viva would not sell anything
less than the package of 104 films for P60
million pesos
6. That on April 29, 1992, after the
rejection of ABS-CBN and following several
negotiations and meetings defendant Del
Rosario and Viva's President Teresita Cruz, in
consideration of P60 million, signed a letter of
agreement dated April 24, 1992. granting RBS
the exclusive right to air 104 Viva-produced
and/or acquired films.
7. ABS CBN filed before RTC a complaint
for specific performance with a prayer for a writ
of preliminary injunction and/or temporary
restraining order against private respondents
Republic Broadcasting Corporation (hereafter
RBS ), Viva Production (hereafter VIVA), and
Vicente Del Rosario.
8. RTC- According to the RTC, there was
no meeting of minds on the price and terms of
the offer. The alleged agreement between Lopez
III and Del Rosario was subject to the approval
of the VIVA Board of Directors, and said
agreement was disapproved during the meeting
of the Board on 7 April 1992. Hence, there was
no basis for ABS-CBN's demand that VIVA
signed the 1992 Film Exhibition Agreement.
Furthermore, the right of first refusal under the
1990 Film Exhibition Agreement had
previously been exercised per Ms. Concio's
letter to Del Rosario ticking off ten titles
acceptable to them, which would have made
the 1992 agreement an entirely new contract.
RTC favored defendant and awarded them with
damages (including Moral Damages) CA
affrimed.
Issue: Whether or not CA erred IN AWARDING
MORAL AND EXEMPLARY DAMAGES IN
FAVOR OF PRIVATE RESPONDENT RBS.
Held:
No Moral Damages due to respodent.
As to moral damages the law is Section 1,
Chapter 3, Title XVIII, Book IV of the Civil
Code. Article 2217 thereof defines what are
included in moral damages, while Article 2219
enumerates the cases where they may be
recovered, Article 2220 provides that moral
damages may be recovered in breaches of
contract where the defendant acted
fraudulently or in bad faith. RBS's claim for
moral damages could possibly fall only under
item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21,
26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award
designed to compensate the claimant for actual
injury suffered. and not to impose a penalty on
the wrongdoer.62 The award is not meant to
enrich the complainant at the expense of the
defendant, but to enable the injured party to
obtain means, diversion, or amusements that
will serve to obviate then moral suffering he
has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual
status quo ante, and should be proportionate to
the suffering inflicted.63 Trial courts must then
guard against the award of exorbitant
damages; they should exercise balanced
restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice,
or corruption on the part of the trial court.
The award of moral damages cannot be granted
in favor of a corporation because, being an
artificial person and having existence only in
legal contemplation, it has no feelings, no
emotions, no senses, It cannot, therefore,
experience physical suffering and mental
anguish, which call be experienced only by one
having a nervous system. The statement in
People v. Manero and Mambulao Lumber Co. v.
PNB that a corporation may recover moral
damages if it "has a good reputation that is
debased, resulting in social humiliation" is an
obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a
corporation.
12. FILIPINAS BROADCASTING NETWORK v.
AGO MEDICAL
Facts:
1. "Exposé" is a radio documentary
program hosted by Carmelo 'Mel' Rima ("Rima")
and Hermogenes 'Jun' Alegre ("Alegre"). Exposé
is aired every morning over DZRC-AM which is
owned by Filipinas Broadcasting Network, Inc.
("FBNI"). "Exposé" is heard over Legazpi City,
the Albay municipalities and other Bicol areas.
2. In the morning of 14 and 15 December
1989, Rima and Alegre exposed various alleged
complaints from students, teachers and
parents against Ago Medical and Educational
Center-Bicol Christian College of Medicine
("AMEC") and its administrators.
Quoting the abovementioned Expose
JUN ALEGRE:

Let us begin with the less burdensome: if you
have children taking medical course at AMEC-
BCCM, advise them to pass all subjects
because if they fail in any subject they will
repeat their year level, taking up all subjects
including those they have passed
already. Several students had approached me
stating that they had consulted with the DECS
which told them that there is no such
regulation. If [there] is no such regulation why
is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical
Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay
for the subject even if the subject does not have
an instructor - such greed for money on the
part of AMEC's administration. Take the
subject Anatomy: students would pay for the
subject upon enrolment because it is offered by
the school. However there would be no
instructor for such subject. Students would be
informed that course would be moved to a later
date because the school is still searching for
the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical
and Educational Center has survived and has
been surviving for the past few years since its
inception because of funds support from
foreign foundations. If you will take a look at
the AMEC premises you'll find out that the
names of the buildings there are foreign
soundings. There is a McDonald Hall. Why
not Jose Rizal or Bonifacio Hall? That is a very
concrete and undeniable evidence that the
support of foreign foundations for AMEC is
substantial, isn't it? With the report which is
the basis of the expose in DZRC today, it would
be very easy for detractors and enemies of the
Ago family to stop the flow of support of foreign
foundations who assist the medical school on
the basis of the latter's purpose. But if the
purpose of the institution (AMEC) is to deceive
students at cross purpose with its reason for
being it is possible for these foreign
foundations to lift or suspend their donations
temporarily.[8]
16
xxx
On the other hand, the administrators of
AMEC-BCCM, AMEC Science High School and
the AMEC-Institute of Mass Communication in
their effort to minimize expenses in terms of
salary are absorbing or continues to accept
"rejects". For example how many teachers in
AMEC are former teachers of Aquinas
University but were removed because of
immorality? Does it mean that the present
administration of AMEC have the total definite
moral foundation from catholic administrator
of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground,
garbage, not merely of moral and physical
misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC
is Justita Lola, as the family name
implies. She is too old to work, being an old
woman. Is the AMEC administration exploiting
the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is
just patiently making use of Dean Justita
Lola were if she is very old. As in
atmospheric situation zero visibility the plane
cannot land, meaning she is very old, low pay
follows. By the way, Dean Justita Lola is also
the chairman of the committee on scholarship
in AMEC. She had retired from Bicol
University a long time ago but AMEC has
patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a
dumping ground for moral and physically
misfit people. What does this mean? Immoral
and physically misfits as teachers.
May I say I'm sorry to Dean Justita Lola. But
this is the truth. The truth is this, that your
are no longer fit to teach. You are too old. As
an aviation, your case is zero visibility. Don't
insist.
xxx Why did AMEC still absorb her as a
teacher, a dean, and chairman of the
scholarship committee at that. The reason is
practical cost saving in salaries, because an old
person is not fastidious, so long as she has
money to buy the ingredient of beetle
17
juice. The elderly can get by that's why she
(Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the
interests of students. It is likely that the
students would be influenced by evil.When
they become members of society outside of
campus will be liabilities rather than assets.
What do you expect from a doctor who while
studying at AMEC is so much burdened with
unreasonable imposition? What do you expect
from a student who aside from peculiar
problems because not all students are rich in
their struggle to improve their social status are
even more burdened with false regulations.
3. Above expose prompted AMEC and
Angelita Ago ("Ago"), as Dean of AMEC's College
of Medicine to file a complaint for damage
claiming that the broadcasts were defamatory
4. Trial court rendered a Decision finding
FBNI and Alegre liable for libel except Rima. In
holding FBNI liable for libel, the trial court
found that FBNI failed to exercise diligence in
the selection and supervision of its employees.
Damages (including moral damages) was also
awarded to Respondent. CA Affirmed
Issue: WHETHER AMEC IS ENTITLED TO
MORAL DAMAGES
H eld:
AMEC is entitled to moral damages.
FBNI contends that AMEC is not entitled to
moral damages because it is a corporation.
A juridical person is generally not entitled to
moral damages because, unlike a natural
person, it cannot experience physical suffering
or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral
shock. The Court of Appeals cites Mambulao
Lumber Co. v. PNB, et al. to justify the award
of moral damages. However, the Court's
statement in Mambulao that "a corporation
may have a good reputation which, if
besmirched, may also be a ground for the
award of moral damages" is an obiter dictum.
Nevertheless, AMEC's claim for moral damages
falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the
recovery of moral damages in cases of libel,
slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is
a natural or juridical person. Therefore, a
juridical person such as a corporation can
validly complain for libel or any other form of
defamation and claim for moral damages.
Moreover, where the broadcast is libelous per
se, the law implies damages. In such a case,
evidence of an honest mistake or the want of
character or reputation of the party libeled goes
only in mitigation of damages. Neither in such
a case is the plaintiff required to introduce
evidence of actual damages as a condition
precedent to the recovery of some damages. In
this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral
damages unreasonable. The record shows that
even though the broadcasts were libelous per
se, AMEC has not suffered any substantial or
material damage to its reputation. Therefore,
we reduce the award of moral damages from
P300,000 to P150,000.
13. CALUBAD V. RICARCEN DEVELOPMENT
CORP.
G.R NO. 202364,AUGUST 30,2017
FACTS:
Respondent Ricarcen Development Corporation
(Ricarcen) was a domestic corporation engaged
in renting out real estate. It was the registered
owner of a parcel of land located at 53 Linaw
St., Sta. Mesa Heights, Quezon City. This
parcel of land was covered by Transfer
Certificate of Title (TCT) No. RT-84937 (166018)
and was subdivided into two (2) lots.
Ricarcen was a family corporation. Marilyn R.
Soliman (Marilyn) was its president from 2001
to August 2003. The other members of the
board of directors during that time were
Marilyn's mother, Erlinda Villanueva (Erlinda),
her brother, Josefelix R. Villanueva (Josefelix),
her aunt, Maura Rico, and her sisters, Ma.
Elizabeth V. Chamorro (Elizabeth), Ma. Theresa
R. Villanueva, and Annabelle R. Villanueva.
On October 15, 2001, Marilyn, acting on

Ricarcen's behalf as its president, took out a
P4,000,000.00 loan from Calubad. This loan
was secured by a real estate mortgage over
Ricarcen's Quezon City property covered by
TCT No. RT-84937 (166018), as evidenced by a
Deed of Real Estate Mortgage.
The terms of the loan provided that Ricarcen
would pay the P4,000,000.00 loan within a
period of six (6) months with "a compounded
interest at the rate of FIVE (5%) percent for the
first month and THREE (3%) percent for [the]
succeeding months and a penalty of ONE (1%)
percent per month on the principal sum in
case of delay in payment."The terms of the loan
also provided that the first monthly interest
payment of P200,000.00 would be deducted
from the loan proceeds.
On December 6, 2001, Ricarcen, through
Marilyn, and Calubad amended and increased
the loan to P5,000,000.00 in the Amendment of
Deed of Mortgage (Additional Loan of
P1,000,000.00),13 with the same property used
as security and under the same terms and
conditions as those of the original Deed of Real
Estate Mortgage.
On May 8, 2002, Ricarcen, again acting
through Marilyn, took out an additional loan of
2,000,000.00 from Calubad, as evidenced by
the executed Second Amendment of Deed of
Mortgage (Additional Loan of P2,000,000.00).
To prove her authority to execute the three (3)
mortgage contracts in Ricarcen's behalf,
Marilyn presented Calubad with a Board
Resolution dated October 15, 2001. This
Resolution empowered her to borrow money
and use the Quezon City property covered by
TCT No. RT-84937 (166018) as collateral for
the loans. Marilyn also presented two (2)
Secretary's Certificates dated December 6,
2001 and May 8, 2002, executed by Marilyn's
sister and Ricarcen's corporate secretary,
Elizabeth.
Sometime in 2003, after Ricarcen failed to pay
its loan, Calubad initiated extrajudicial
foreclosure proceedings on the real estate
mortgage. The auction sale was set on March
18
19, 2003.
Calubad was the highest bidder during the
scheduled auction sale; thus, on March 27,
2003, he was issued a Certificate of Sale.
On April 10, 2003, the Certificate of Sale was
annotated on TCT No. RT-84937 (166018).
Ricarcen claimed that it only learned of
Marilyn's transactions with Calubad sometime
in July 2003.
On September 9, 2003, Ricarcen filed its
Complaint for Annulment of Real Estate
Mortgage and Extrajudicial Foreclosure of
Mortgage and Sale with Damages against
Marilyn, Calubad, and employees of the
Registry of Deeds of Quezon City and of the
Regional Trial Court of Quezon City.
ISSUE:
Whether or not the petitioner is liable under
THE DOCTRINE OF APPARENT AUTHORITY.
HELD:
YES. When a corporation intentionally or
negligently clothes its agent with apparent
authority to act in its behalf, it is estopped
from denying its agent's apparent authority as
to innocent third parties who dealt with this
agent in good faith.
14. CITYSTATE SAVINGS BANK V. TOBIAS
G.R. NO. 227990
MARCH 7,2018
FACTS:
Rolando Robles , a certified public accountant,
has been employed with Citystate Savings
Bank since July 1998 then as Accountant-
trainee for its Chino Roces Branch. On
September 6, 2000, Robles was promoted as
acting manager for petitioner's Baliuag,
Bulacan branch, and eventually as manager.
Sometime in 2002, respondent Teresita Tobias
, a meat vendor at the Baliuag Public Market,
was introduced by her youngest son to Robles,
19
branch manager of petitioner's Baliuag,
Bulacan branch.
Robies persuaded Tobias to open an account
with the petitioner, and thereafter to place her
money in some high interest rate mechanism,
to which the latter yielded.
Thereafter, Robies would frequent Tobias' stall
at the public market to deliver the interest
earned by her deposit accounts in the amount
of Php 2,000.00. In turn, Tobias would hand
over her passbook to Robies for updating. The
passbook would be returned the following day
with typewritten entries but without the
corresponding counter signatures.
Tobias was later offered by Robies to sign-up in
petitioner's back-to-back scheme which is
supposedly offered only to petitioner's most
valued clients.
Under the scheme, the depositors authorize the
bank to use their bank deposits and invest the
same in different business ventures that yield
high interest. Robies allegedly promised that
the interest previously earned by Tobias would
be doubled and assured her that he will do all
the paper work. Lured by the attractive offer,
Tobias signed the pertinent documents without
reading its contents and invested a total of Php
1,800,000.00 to petitioner through Robies.
Later, Tobias became sickly, thus she included
her daughter and herein respondent Shellidie
Valdez (hereinafter referred to as Valdez), as co-
depositor in her accounts with the petitioner.
In 2005, Robies failed to remit to respondents
the interest as scheduled. Respondents tried to
reach Robies but he can no longer be found;
their calls were also left unanswered. In a
meeting with Robies' siblings, it was disclosed
to the respondents that Robies withdrew the
money and appropriated it for personal use.
Robies later talked to the respondents,
promised that he would return the money by
installments and pleaded that they do not
report the incident to the petitioner. Robies
however reneged on his promise. Petitioner also
refused to make arrangements for the return of
respondents' money despite several demands.
ISSUE:
WON Petitioner is liable under THE DOCTRINE
OF APPARENT AUTHORITY.
HELD:
YES. Nonetheless, while it is clear that the
proximate cause of respondents' loss is the
misappropriation of Robles, petitioner is still
liable under Article 1911 of the Civil Code, to
wit:
Art. 1911. Even when the agent has exceeded
his authority, the principal is solidarity liable
with the agent if the former allowed the latter
to act as though he had full powers.
The doctrine of apparent authority or what is
sometimes referred to as the "holding out"
theory, or the doctrine of ostensible agency,
imposes liability, not "as the result of the reality
of a contractual relationship, but rather because
of the actions of a principal or an employer in
somehow misleading the public into believing
that the relationship or the authority exists." It
is defined as:
The power to affect the legal relations of
another person by transactions with third
persons arising from the other's manifestations
to such third person such that the liability of
the principal for the acts and contracts of his
agent extends to those which are within the
apparent scope of the authority conferred on
him, although no actual authority to do such
acts or to make such contracts has been
conferred.
The existence of apparent or implied authority
is measured by previous acts that have been
ratified or approved or where the accruing
benefits have been accepted by the principal. It
may also be established by proof of the course
of business, usages and practices of the bank;
or knowledge that the bank or its officials have,
or is presumed to have of its responsible
officers' acts regarding bank branch affairs.
As aptly pointed by the CA, petitioner's
evidence bolsters the case against it, as they
support the finding that Robles as branch
manager, has been vested with the apparent or
implied authority to act for the petitioner in
offering and facilitating banking transactions.

15. BANATE V. PHILIPPINE COUNTRYSIDE
RURAL BANK
G.R.NO.163825,JULY 13,2016
FACTS:
On July 22, 1997, petitioner spouses Rosendo
Maglasang and Patrocinia Monilar (spouses
Maglasang) obtained a loan (subject loan) from
PCRB for P1,070,000.00. The subject loan was
evidenced by a promissory note and was
payable on January 18, 1998. To secure the
payment of the subject loan, the spouses
Maglasang executed, in favor of PCRB a real
estate mortgage over their property, Lot 12868-
H-3-C, including the house constructed
thereon (collectively referred to as subject
properties), owned by petitioners Mary Melgrid
and Bonifacio Cortel (spouses Cortel), the
spouses Maglasang's daughter and son-in-law,
respectively. Aside from the subject loan, the
spouses Maglasang obtained two other loans
from PCRB which were covered by separate
promissory notes and secured by mortgages on
their other properties.
Sometime in November 1997 the
spouses Maglasang and the spouses Cortel
asked PCRB’s permission to sell the properties
which they mortgaged with the bank. They
likewise requested that the said properties be
released from the mortgage since the two other
loans were adequately secured by the other
mortgages. The spouses Maglasang and the
spouses Cortel claimed that the PCRB, acting
through its Branch Manager, Pancrasio
Mondigo, verbally agreed to their request but
required first the full payment of the subject
loan. They thereafter sold to petitioner Violeta
Banate the subject properties for
P1,750,000.00 and used the amount to pay the
subject loan with PCRB. After settling the
subject loan, PCRB gave the owner’s duplicate
certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in
her name. It, however, carried the mortgage
lien in favor of PCRB, prompting the petitioners
to request from PCRB a Deed of Release of
Mortgage. As PCRB refused to comply with the
petitioners’ request, the petitioners instituted
an action for specific performance before the
RTC to compel PCRB to execute the release
deed.
20
Accordingly, PCRB claimed that full
payment of the three loans, obtained by the
spouses Maglasang, was necessary before any
of the mortgages could be released; the
settlement of the subject loan merely
constituted partial payment of the total
obligation. Thus, the payment does not
authorize the release of the subject properties
from the mortgage lien.
ISSUE: Whether or not Mondigo, as
branch manager of PCRB, has the authority to
modify the original mortgage contract on behalf
of the company.
RULING:
The petition was denied. As a general
rule, a mortgage liability is usually limited to
the amount mentioned in the contract.
However, the amounts named as consideration
in a contract of mortgage do not limit the
amount for which the mortgage may stand as
security if, from the four corners of the
instrument, the intent to secure future and
other indebtedness can be gathered. This
stipulation is valid and binding between the
parties and is known as the "blanket mortgage
clause" (also known as the "dragnet clause)."He
is not authorized to modify the mortgage
contract that would in effect cause novation.
Under the doctrine of apparent authority, acts
and contracts of the agent, as are within the
apparent scope of the authority conferred on
him, although no actual authority to do such
acts or to make such contracts has been
conferred, bind the principal. The principal’s
liability, however, is limited only to third
persons who have been led reasonably to
believe by the conduct of the principal that
such actual authority exists, although none
was given. In other words, apparent authority
is determined only by the acts of the principal
and not by the acts of the agent. There can be
no apparent authority of an agent without acts
or conduct on the part of the principal; such
acts or conduct must have been known and
relied upon in good faith as a result of the
exercise of reasonable prudence by a third
party as claimant, and such acts or conduct
must have produced a change of position to the
third party’s detriment.
In the present case, the decision of the
trial court was utterly silent on the manner by
21
which PCRB, as supposed principal, has
“clothed” or “held out” its branch manager as
having the power to enter into an agreement,
as claimed by petitioners. No proof of the
course of business, usages and practices of the
bank about, or knowledge that the board had
or is presumed to have of, its responsible
officers’ acts regarding bank branch affairs,
was ever adduced to establish the branch
manager’s apparent authority to verbally alter
the terms of mortgage contracts. Neither was
there any allegation, much less proof, that
PCRB ratified Mondigo’s act or is estopped to
make a contrary claim.
Business Judgment Rule
16. Balinghasay vs. Castillo, G.R. No.
185664, April 8, 2015
Unjust Enrichment; Article 22 of the New Civil
Code provides that “every person who through
an act of performance by another, or any other
means, acquires or comes into possession of
something at the expense of the latter without
just or legal ground, shall return the same to
him.”— In the case at bar, the ultrasound
investors pooled together the amount of
P850,000.00, which was used to purchase the
equipment. Because of the MOA’s invalidity,
the ultrasound investors can no longer operate
the ultrasound unit within MCP. Nonetheless,
it is only fair for the ultrasound investors to
retain ownership of the equipment, which they
may use or dispose of independently of MCPI.
Under the "business judgment rule," the
trial court cannot undertake to control the
discretion of the corporation’s board as
long as good faith attends its exercise.16
Sec. 31. Liability of directors, trustees or
officers. - Directors or trustees who willfully
and knowingly vote for or assent to patently
unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in
directing the affairs of the corporation or
acquire any personal or pecuniary interest in
conflict with their duty as such directors or
trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the
corporation, its stockholders or members and
other persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty,
any interest adverse to the corporation in
respect of any matter which has been reposed
in him in confidence, as to which equity
imposes a disability upon him to deal in his
own behalf, he shall be liable as a trustee for
the corporation and must account for the
profits which otherwise would have accrued to
the corporation.
Facts: MCPI is a domestic corporation
operating the Medical Center Parañaque. In the
dire need of ultrasound operation in said
hospital, the Board of Directors awarded the
operation of the ultrasound unit to a group of
investors but was not covered by a written
contract. In a Memorandum of Agreement
(MOA) entered into by and between MCPI and
the ultrasound investors, the gross income to
be derived shall be divided in the proportion of
60% and 40%, respectively. Come April 1,
1999, MCPI’s share would be 45%, while the
ultrasound investors would receive 55%.
Further, the ownership of the ultrasound
machine would eventually be transferred to
MCPI.8
Respondents filed a derivative suit10 against
the petitioners for violation of Section 3111 of
the Corporation Code and prays for the
annulment of said MOA.
RTC dismissed the complaint finding that MCPI
impliedly ratified the MOA by accepting or
retaining benefits flowing therefrom. Moreover,
the elected MCPI’s Board Directors for the
years 1998 to 2000 did not institute legal
actions against the petitioners. MCPI slept on
its rights for almost four years, and estoppel
had already set in before the derivative suit
was filed in 2001. The RTC likewise stressed
that the sharing agreement, per MOA
provisions, was fair, just and reasonable.
Further, under the "business judgment rule,"
the trial court cannot undertake to control
the discretion of the corporation’s board as
long as good faith attends its exercise.16

CA reversed RTCs decision declaring the MOA
as invalid. [The petitioners] MCPI directors,
who are ultrasound investors were in bad faith
in violation of their duty as such directors,
acquired an interest adverse to the corporation
when they entered into the ultrasound
contract. By doing so, they have unjustly
profited from the transaction which otherwise
would have accrued to MCPI. Certainly, said
[petitioners] directors/ultrasound investors
have dealt in their behalf and took an interest
adverse to MCPI.
Issue: Whether or not CA committed an error of
law in not applying the "business judgment
rule" and declaring the contract void?
Held: No. SC agrees that bad faith was present
and thus the business judgment rule does not
apply:
(a) there was no quorum when the Board
meetings were held as the BODs who attended
were ultrasound investors too; (b) the MOA was
not ratified by a vote of two-thirds of MCPI’s
outstanding capital stock; and (c) the Balance
Sheets for the years 1996 to 2000 indicated
that MCPI was in a financial position to
purchase the ultrasound equipment.
In the case at bar, the ultrasound investors
pooled together the amount of ₱850,000.00,
which was used to purchase the
equipment. Because of the MOA’s invalidity,
the ultrasound investors can no longer operate
the ultrasound unit within MCP. Nonetheless,
it is only fair for the ultrasound investors to
retain ownership of the equipment, which they
may use or dispose of independently of MCPI.
17. Ching v. Quezon City Sports Club,
Inc., G.R. No. 200150, [November 7, 2016
Mercantile Law; Corporation Law; Articles of
incorporation and bylaws of a country club are
the fundamental documents governing the
conduct of the corporate affairs of said club;
they establish the norms of procedure for
exercising rights, and reflected the purposes
and intentions of the incorporators.— The
bylaws are the self-imposed rules resulting
from the agreement between the country club
and its members to conduct the corporate
business in a particular way.
22
Bad Faith; Bad faith does not simply connote
bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and
conscious doing of wrong.—Moreover, bad faith
does not simply connote bad judgment or
negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of
wrong. It means a breach of a known duty
through some motive or interest or ill will that
partakes of the nature of fraud.
Same; Bad faith under the law cannot be
presumed; it must be established by clear and
convincing evidence. The ascertainment of good
faith, or lack of it, is a question of fact.—The
determination of whether one acted in bad faith
is evidentiary in nature, and acts of bad faith
must be substantiated by evidence. Indeed, it
is well-settled that bad faith under the law
cannot be presumed; it must be established by
clear and convincing evidence. The
ascertainment of good faith, or lack of it, is a
question of fact.
Facts:Petitioner Ching was a member of the
Quezon City Sports Club, which implemented a
special assessment to their club members
seeking an amount of P 2,500 due to losing to
NLRC case. Petitioner Catherine was duly
notified of the implementation of the special
assessment through a Letter. However,
believing that the imposition of the special
assessment was unjust and/or illegal, she did
not pay the same.
The Respondent board later on suspended the
privileges of members who had not paid the
special assessment, including petitioner.
Petitioner paid the P2,500.00 special
assessment only after her membership
privileges were already suspended. However,
according to the petitioner, even though she
had already paid the special assessment,
respondents continued harassing her when she
was at the respondent Club.
Petitioners instituted before the RTC a
Complaint for damages against respondents.
RTC rendered its Decision, based on the
"Business Judgment Rule" and Philippine
Stock Exchange, Inc. v. Court of
23
Appeals,27 holding that questions of policy
and management are left to the honest
decision of the officers and directors of a
corporation; and the courts are without
authority to substitute their judgment for
that of the BOD unless said judgment had
been attended with bad faith. The RTC
found no evidence of bad faith on the part of
respondents.
The Court of Appeals also ruled in favor of
respondents finding no bad faith or intent to
injure/humiliate on the part of respondents,
considering that the suspension of petitioner
Catherine's privileges was in accordance with
the By-Laws and policy of respondent Club.
Issue: Whether or not respondent corporation
is in good faith and thus, the business
judgment rule should apply?
Held: Yes. SC finds no bad faith on the part of
respondents in implementing petitioner
Catherine's suspension and hence the business
judgment rule should apply. Articles of
incorporation and by-laws of a country club are
the fundamental documents governing the
conduct of the corporate affairs of said club;
establish the norms of procedure for exercising
rights, and reflected the purposes and
intentions of the incorporators. By-laws are the
private "statutes" by which the country club is
regulated, and will function.
Section 33(a) of the By-Laws refers to the
regular dues and ordinary accounts or bills
incurred by members. Tracking back, the
P2,500.00 special assessment was not an
ordinary account or bill incurred by petitioners
which requires notice and hearing prior to a
member's suspension. Here, petitioner
Catherine did not receive notice specifically
advising her that she could be suspended for
nonpayment of the special assessment.
Moreover, bad faith does not simply connote
bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of
a known duty through some motive or interest
or ill will that partakes of the nature of fraud.
Even so, the Court deems it proper to award
nominal damages to petitioners. Article 2221 of
the Civil Code authorizes the award of nominal
damages to a plaintiff whose right has been
violated or invaded by the defendant, for the
purpose of vindicating or recognizing that right,
not for indemnifying the plaintiff for any loss
suffered. The Court may also award nominal
damages in every case where a property right
has been invaded. The amount of such
damages is addressed to the sound discretion
of the court, taking into account the relevant
circumstances.48 For its failure to observe due
process, as provided under Section 35(a) of the
By-Laws, in the suspension of petitioner
Catherine's privileges, respondent Club is liable
to pay petitioners nominal damages in the
amount of P25,000.00.
The Court clarifies that only respondent Club
shall be liable for the nominal damages
because in the absence of malice and bad faith,
officers of a corporation cannot be made
personally liable for the liabilities of the
corporation which, by legal fiction, has a
personality separate and distinct from its
officers, stockholders, and members.
22. MatlingInd’l and Commercial Corp et al
vs. Ricardo R. Coros
GR No. 157802 October 13, 2010
FACT:
Ricardo Coros was the Vice President for
Finance and Administration of Matling
Industrial and Commercial Corporation. He
filed a case for illegal suspension and illegal
dismissal against Matling and some of its
corporate officers.
The petitioner moved to dismiss the complaint
raising the ground that the Labor Arbiter has
no jurisdiction over the case, since the
controversy is an intra-corporate dispute and
should be under the jurisdiction of the
Securities and Exchange Commission.
The NLRC set aside the dismissal. The
petitioners elevated the issue to the CA, but the
CA dismissed the petition.
Issue:
Whether or not the respondent was a corporate
officer of Matling or not
Held
No. Ricardo Doros was not a corporate officer.
The appeal must fail.

For a position to be considered as a corporate
office, or, for that matter, for one to be
considered as a corporate officer, the position
must, if not listed in the by-laws, have been
created by the corporation's board of directors,
and the occupant thereof appointed or elected
by the same board of directors or stockholders.
This is the implication of the ruling in Tabang
v. National Labor Relations Commission, which
reads:
"The president, vice president, secretary and
treasurer are commonly regarded as the
principal or executive officers of a corporation,
and modern corporation statutes usually
designate them as the officers of the
corporation. However, other offices are
sometimes created by the charter or by-laws of
a corporation, or the board of directors may be
empowered under the by-laws of a corporation
to create additional offices as may be
necessary.
It has been held that an 'office' is created by
the charter of the corporation and the officer is
elected by the directors or stockholders. On the
other hand, an 'employee' usually occupies no
office and generally is employed not by action
of the directors or stockholders but by the
managing officer of the corporation who also
determines the compensation to be paid to
such employee."
This ruling was reiterated in the subsequent
cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor
Relations Commission.
The position of vice-president for
administration and finance, which Coros used
to hold in the corporation, was not created by
the corporation’s board of directors but only by
its president or executive vice-president
pursuant to the by-laws of the corporation.
Moreover, Coros’ appointment to said position
was not made through any act of the board of
directors or stockholders of the corporation.
Consequently, the position to which Coros was
appointed and later on removed from, is not a
corporate office despite its nomenclature, but
an ordinary office in the corporation.
Coros’ alleged illegal dismissal therefrom is,
therefore, within the jurisdiction of the labor
arbiter.
23. MARC II Marketng Inc. vs Alfredo M.
Joson
GR No. 171993 December 12, 2011
24
Facts:
Petitioner Marc II Marketing is a domestic
corporation engaged in buying and distributing
household appliances, among others. It took
over the operations of Mark Marketing, which
was made non-operational following its
incorporation and registration with the
Securities and Exchange Commission (SEC),
Petitioner Lucila Joson is Marc II’s President
and majority stockholder. She was also the
former President and majority stockholder of
the now defunct Mark Marketing.
Before Marc II was officially incorporated,
Alfredo Joson had already been engaged by
Lucila in her capacity as President to work as
General Manager, Pending Marc II’s
incorporation, Alfredo was designated as
General Manager of Mark Marketing. Later on,
Marc II was officially incorporated, and Alfredo
becomes it General Manager.
However, Marc II decided to cease its
operations due to poor sales collection
aggravated by inefficient management of its
affairs. Alfredo was then informed of the
termination of his services since work is no
longer necessary for the winding up of Mark II’s
affairs.
Alfredo then filed a complaint for illegal
dismissal with the Labor Arbiter. The Labor
Arbiter ruled in favor of Alfredo. Petitioner
argued that Alfredo is a corporate officer and
thus should not be under the jurisdiction of
the Labor Arbiter. NLRC ruled in favor of the
petitioner. The matter was brought before the
Court of Appeals which affirmed the Labors
Arbiters decision of illegal dismissal.
Issue:
Whether or not, Alfredo is a corporate officer or
is merely an employee of Marc II.
Held:
Alfredo Joson is an employee of Marc II
Industrial and not a corporate officer.
Under Section 25 of the Corporation Code or
the Corporation by-laws, the corporate officers
are specifically enumerated, to wit : (1)
president; (2) secretary; (3) treasurer; and (4)
such other officers as may be provided for in
the by-laws.
25
Conformably with Section 25, a position must
be expressly mentioned in the by-laws in order
to be considered as a corporate officer. Thus,
the creation of an office pursuant to or under a
by-law provision enabling provision is not
enough to make a position a corporate office.
An “office” is created by the charter of the
corporation. An office is elected by directors or
stockholders. On the other hand, an employee
occupies no office and generally is employed
not by the directors or stockholders but by the
managing officer of the corporation who also
determines the compensation to be paid to
such employee.
The position of a general manager is not among
those enumerated. The enabling clause in
petitioner corporation's by-laws empowering its
Board of Directors to create additional
officers, i.e., General Manager, and the alleged
subsequent passage of a board resolution to
that effect cannot make such position a
corporate office. Matling clearly enunciated
that the board of directors has no power to
create other corporate offices without first
amending the corporate by-laws so as to
include therein the newly created corporate
office. Though the board of directors may
create appointive positions other than the
positions of corporate officers, the persons
occupying such positions cannot be viewed as
corporate officers under Section 25 of the
Corporation Code. In view thereof, this Court
holds that unless and until petitioner
corporation's by-laws is amended for the
inclusion of General Manager in the list of its
corporate officers, such position cannot be
considered as a corporate office within the
realm of Section 25 of the Corporation Code
24. Leslie Okol vs Slimmers World
International
GR No. 160146 December 11, 2009
Facts:
Respondent Slimmers World International
operating under the name of Behavior
Modifications, Inc. employed Leslie Okolas a
management trainee and rose from the ranks
from being Head Officer Manager to become
Vice President in 1996 until her dismissal in
1999.
Prior to her dismissal, Slimmers World
preventively suspended Okol. The suspension
arose from the seizure of Bureau of Customs of
several slimming machine which was placed
under the name of Okol and two customs
brokers for a lesser value. For being
undervalued the equipment are seized.
Okol filed her written explanation, however,
Slimmers World found her explanation to be
unsatisfactory. Through a letter dated
September 1999 signed by its president, Okol’s
employment was terminated.
Okol filed a complaint with the Arbitration
branch of the NLRC against Slimmers World for
illegal dismissal among others. Respondent
filed a Motion to Dismiss, on the ground that
NLRC had no jurisdiction over the subject
matter of the complaint, the Labor Arbiter
granted the motion, he ruled that Okol was the
Vice President at the time of her dismissal ,
falling outside his jurisdiction, since it involved
a corporate officer and is an intra-corporate
controversy.
Issue
Whether or not Okol is a corporate officer
Held
Okol is a corporate officer at the time of her
dismissal. Slimmers World provided the
company’s General Information Sheet and
Directors Affidavit attesting that petitioner was
an officer. The GIS and minutes of the meeting
of the board of directors indicate that petitioner
was a member of the Board of Directors ,
holding one subscribed share of the capital
stock, and an elected corporate officer. From
the documents submitted by the respondent, it
is clear that Okol was director and officer of
Slimmers World and the illegal dismissal,
unpaid commissions , reinstatement and
backwages imputed by the petitioner fall
squarely within the ambit of intra-corporate
disputes.
The question of renumeration involving a
stockholder and officer , not a mere employee,
is not a simple labor problem but a matter that
comes within the area of corporate affairs and

management and is a corporate controversy in
contemplation of the Corporation Code.
28. Harpoon Marine Services, Inc. and Jose
Lido T. Rosit vs. Fernan H. Francisco
G.R. No. 167751, March 02 : 2011
Del Castillo, J.:
Doctrine
The general rule is grounded on the theory that
a corporation has a legal personality separate
and distinct from the persons comprising it. To
warrant the piercing of the veil of corporate
fiction, the officer's bad faith or wrongdoing
"must be established clearly and convincingly"
as "bad faith is never presumed."
Facts
Petitioner Harpoon, a company engaged in ship
building and ship repair, with petitioner Rosit
as its President and Chief Executive Officer
(CEO), originally hired respondent Yard
Supervisor tasked to oversee and supervise all
projects of the company. In 1998, respondent
left for employment elsewhere but was rehired
by petitioner Harpoon and assumed his
previous position a year after.
On June 15, 2001, respondent averred that he
was unceremoniously dismissed by petitioner
Rosit. He was informed that the company could
no longer afford his salary and that he would
be paid his separation pay and accrued
commissions.
Petitioners presented a different version of the
events and refuted the allegations of
respondent. They explained that
respondentwas dismissed because of
absenteeism, AWOL and abandoning his job
which the latter denied.
Petitioners filed a petition for certiorariwith the
CA, which on January 26, 2005, affirmed the
findings and conclusions of the NLRC. The CA
declared petitioners solidarily liable for
respondent's backwages, separation pay and
accrued commissions.
Petitioners moved for reconsideration which
was denied by the CA. Hence, this petition.
Issue
Whether petitioner Rosit can be held solidarily
liable with petitioner Harpoon.
26
Ruling
The petition is partly meritorious.Rosit could
not be held solidarily liable with Harpoonfor
lack of substantial evidence of bad faith and
maliceon his part in terminating respondent.
As held in the case of MAM Realty Development
Corporation v. National Labor Relations
Commission, "obligations incurred by
[corporate officers], acting as such corporate
agents, are not theirs but the direct
accountabilities of the corporation they
represent." As such, they should not be
generally held jointly and solidarily liable with
the corporation. The Court, however, cited
circumstances when solidary liabilities may be
imposed, as exceptions:
1. When directors and trustees or, in
appropriate cases, the officers of a corporation
-
(a) vote for or assent to [patently] unlawful acts
of the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
(c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or
members, and other persons.
2. When the director or officer has
consented to the issuance of watered stock or
who, having knowledge thereof, did not
forthwith file with the corporate secretary his
written objection thereto.
3. When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable with the
corporation.
4. When a director, trustee or officer is
made, by specific provision of law, personally
liable for his corporate action.
In the case at bench, the CA's basis for
petitioner Rosit's liability was that he acted in
bad faith when he approached respondent and
told him that the company could no longer
afford his salary and that he will be paid
instead his separation pay and accrued
commissions. This finding, however, could not
substantially justify the holding of any
personal liability against petitioner Rosit. The
records are bereft of any other satisfactory
evidence that petitioner Rosit acted in bad faith
with gross or inexcusable negligence, or that he
acted outside the scope of his authority as
company president. Indeed, petitioner Rosit
27
informed respondent that the company wishes
to terminate his services since it could no
longer afford his salary. Moreover, the promise
of separation pay, according to petitioners, was
out of goodwill and magnanimity. At the most,
petitioner Rosit's actuations only show the
illegality of the manner of effecting
respondent's termination from service due to
absence of just or valid cause and non-
observance of procedural due process but do
not point to any malice or bad faith on his part.
Besides, good faith is still presumed. In
addition, liability only attaches if the officer has
assented to patently unlawful acts of the
corporation.
Thus, it was error for the CA to hold petitioner
Rositsolidarily liable with petitioner Harpoon
for illegally dismissing respondent.
The Court absolvedPetitioner Jose Lido T. Rosit
from the liability adjudged against co-petitioner
Harpoon Marine Services, Incorporated.
29. SPI Technologies, Inc. and Lea
Villanueva vs Victoria K. Mapua
G.R. No. 191154, April 7, 2014
Reyes, J.:
Doctrine
The Court cannot apply the exceptions
provided by law when a corporate officer
becomes personally liable for the obligation
Facts
Victoria K. Mapua (Mapua) was hired by SPI
Technologies, Inc. (SPI) as the Corporate
Development’s Research/Business Intelligence
Unit Head and Manager of the company. The
Company through its Vice President and
Corporate Development Head, Peter Maquera
(Maquera) hired Elizabeth Nolan (Nolan) as
Mapua’s supervisor.
Sometime in October 2006, the hard disk on
Mapua’s laptop crashed, causing her to lose
files and data. Mapua informed Nolan and her
colleagues that she was working on recovering
the lost data and asked for their patience for
any possible delay on her part in meeting
deadlines. Nolan informed Mapua that she was
realigning Mapua’s position to become a
subordinate of co-manager Sameer Raina
(Raina) due to her missing a work deadline.
Nolan also disclosed that Mapua’s colleagues
were "demotivated" [sic] because she was
"taking things easy while they were working
very hard," and that she was "frequently
absent, under timing, and coming in late every
time [Maquera] goes on leave or on vacation."In
December 2006, Mapua noticed that her
colleagues began to ostracize and avoid her.
Nolan and Raina started giving out majority of
her research work and other duties under
Healthcare and Legal Division to the rank-and-
file staff. Mapua lost about 95% of her work
projects and job
responsibilities.Mapuarequested for a transfer
to another department within SPI which did
not happen. Eventually, Mapua’s level was
downgraded because a new manager will be
hired and positioned between her rank and
Raina’s.On March 21, 2007, she was
terminated due to redundant position.
The Labor Arbiter ruled in favor of the
Company which was reversed by NILRC. The
Court of Appeals reversed the NLRC’s ruling
and reinstated the ruling of the Labor Arbiter.
Issue
Whether the Officers of the SPI Technology
aresolidarily and personally liable.
Ruling
The Court ruled in a negative on the issue of
the solidary obligation of the corporate officers
impleaded vis-à-vis the corporation forMapua’s
illegal dismissal, "It is hornbook principle that
personal liability of corporate directors,
trustees or officers attaches only when:
(a) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad
faith or gross negligence in directing its affairs,
or when there is a conflict of interest resulting
in damages to the corporation, its stockholders
or other persons;
(b) they consent to the issuance of watered
down stocks or when, having knowledge of
such issuance, do not forthwith file with the
corporate secretary their written objection;
(c) they agree to hold themselves personally
and solidarily liable with the corporation; or
(d) they are made by specific provision of law
personally answerable for their corporate
action."
While the Court finds Mapua’s averments
against Villanueva, Nolan, Maquera and Raina
as detailed and exhaustive, the Court takes
notice that these are mostly suppositions on
her part. Thus, the Court cannot apply the
above-enumerated exceptions when a corporate
officer becomes personally liable for the
obligation

30. Mirant (Phils.) Corporation and Edgardo
A. Bautista vs. Joselito A. Caro
G.R. No. 181490, April 23, 2014
Villarama, Jr., J.:
Doctrine
A corporation has a personality separate and
distinct from its officers and board of directors
who may only be held personally liable for
damages if it is proven that they acted with
malice or bad faith in the dismissal of an
employee.
Facts
Petitioner corporation is a holding company
that owns shares in project companies such as
Mirant Sual Corporation and Mirant Pagbilao
Corporation (Mirant Pagbilao) which operate
and maintain power stations located in Sual,
Pangasinan and Pagbilao, Quezon, respectively.
Petitioner corporation and its related
companies maintain around 2,000 employees
detailed in its main office and other sites.
Petitioner Edgardo A. Bautista (Bautista) was
the President of petitioner corporation when
respondent was terminated from
employment.Respondent was employed by
Mirant Pagbilao as Procurement Supervisor.
Respondent filed a complaint10 for illegal
dismissal and money claims for 13th and 14th
month pay, bonuses and other benefits, as well
as the payment of moral and exemplary
damages and attorney’s fees. Respondent
posits the following allegations in his Position
Paper:11
The respondent was dismissed because of his
unjustified reason for not submitting to
random drug testing. He averred that at
around 11:30 a.m. of the same day, he received
a phone call from his wife’s colleague who
informed him that a bombing incident occurred
near his wife’s work station in Tel Aviv, Israel
where his wife was then working as a caregiver.
Respondent claims that after the said phone
call, he proceeded to the Israeli Embassy to
confirm the news on the alleged bombing
incident. Respondent further claims that before
he left the office on the day of the random drug
28
test, he first informed the secretary of his
Department, Irene Torres (Torres), at around
12:30 p.m. that he will give preferential
attention to the emergency phone call that he
just received. He also told Torres that he would
be back at the office as soon as he has resolved
his predicament. Respondent recounts that he
tried to contact his wife by phone but he could
not reach her. He then had to go to the Israeli
Embassy to confirm the bombing incident.
However, he was told by Eveth Salvador
(Salvador), a lobby attendant at the Israeli
Embassy, that he could not be allowed entry
due to security reasons.
On that same day, at around 6:15 p.m.,
respondent returned to petitioner corporation’s
office. When he was finally able to charge his
cellphone at the office, he received a text
message from Tina Cecilia (Cecilia), a member
of the Drug Watch Committee that conducted
the drug test, informing him to participate in
the said drug test. He immediately called up
Cecilia to explain the reasons for his failure to
submit himself to the random drug test that
day. He also proposed that he would submit to
a drug test the following day at his own
expense. Respondent never heard from Cecilia
again.
The Investigating Committee found him guilty
of "unjustified refusal to submit to random
drug testing" and recommended a penalty of
four working weeks suspension without pay,
instead of termination, due to the presence of
mitigating circumstances. On January 19,
2005, petitioner corporation’s Asst. Vice
President for Material Management
Department, George K. Lamela, Jr. (Lamela),
recommended that respondent be terminated
from employment instead of merely being
suspended. Lamela argued that even if
respondent did not outrightly refuse to take the
random drug test, he avoided the same. Lamela
averred that "avoidance" was synonymous with
"refusal."
Issue:
Whether the Court of Appeals grievously erred
when it held petitioner Bautista personally
liable for [respondent] Caro’s unfounded claims
considering that, aside from respondent Caro’s
dismissal being lawful, petitioner Bautista
merely acted within the scope of his functions
in good faith.
Ruling
No. The petition avers that petitioner Bautista
should not be held personally liable for
29
respondent’s dismissal as he acted in good
faith and within the scope of his official
functions as then president of petitioner
corporation. In agreeing with petitioners, the
Court cited that both decisions of the Labor
Arbiter and the CA did not discuss the basis of
the personal liability of petitioner Bautista, and
yet the dispositive portion of the decision of the
Labor Arbiter - which was affirmed by the
appellate court - held him jointly and severally
liable with petitioner corporation.
A corporation has a personality separate and
distinct from its officers and board of directors
who may only be held personally liable for
damages if it is proven that they acted with
malice or bad faith in the dismissal of an
employee. Absent any evidence on record that
petitioner Bautista acted maliciously or in bad
faith in effecting the termination of respondent,
plus the apparent lack of allegation in the
pleadings of respondent that petitioner
Bautista acted in such manner, the doctrine of
corporate fiction dictates that only petitioner
corporation should be held liable for the illegal
dismissal of respondent.
Thus,petitioner Edgardo A. Bautista is not held
personally liable as then President of petitioner
corporation at the time of the illegal dismissal.
31. PUNO (as heir of the late Carlos Puno)
vs. PUNO ENTERPRISES, INC.
GR 177066, September 11, 2009
NACHURA, J.:
FACTS
Carlos L. Puno, who died on June 25, 1963,
was an incorporator of respondent Puno
Enterprises, Inc. On March 14, 2003, petitioner
Joselito Musni Puno, claiming to be an heir of
Carlos L. Puno, initiated a complaint for
specific performance against respondent.
Petitioner averred that he is the son of the
deceased with the latter’s common-law wife,
Amelia Puno. As surviving heir, he claimed
entitlement to the rights and privileges of his
late father as stockholder of respondent. The
complaint thus prayed that respondent allow
petitioner to inspect its corporate book, render
an accounting of all the transactions it entered
into from 1962, and give petitioner all the
profits, earnings, dividends, or income
pertaining to the shares of Carlos L. Puno.
The RTC allowed the plaintiff to inspect the
corporate books and records of the company
from 1962 up to the present including the
financial statements of the corporation.
On appeal, the CA ordered the dismissal of the
complaint.
ISSUE
Whether or not upon the death of a
stockholder, the heirs automatically become
stockholders of the corporation thus entitled to
the rights and privileges of a stockholder.
RULING
The petition is without merit. Petitioner failed
to establish the right to inspect respondent
corporation’s books and receive dividends on
the stocks owned by Carlos L. Puno.
Sections 74 and 75 of the Corporation Code
enumerate the persons who are entitled to the
inspection of corporate books, thus—
“Sec. 74. Books to be kept; stock transfer
agent.—x x x.
The records of all business transactions of the
corporation and the minutes of any meeting
shall be open to the inspection of any director,
trustee, stockholder or member of the
corporation at reasonable hours on business
days and he may demand, in writing, for a copy
of excerpts from said records or minutes, at his
expense.
xxxx
Sec. 75. Right to financial statements.—
Within ten (10) days from receipt of a written
request of any stockholder or member, the
corporation shall furnish to him its most recent
financial statement, which shall include a
balance sheet as of the end of the last taxable
year and a profit or loss of statement for said
taxable year, showing in reasonable detail its

assets and liabilities and the result of its
operations.”
The stockholder’s right of inspection of the
corporation’s books and records is based upon
his ownership of shares in the corporation and
the necessity for self-protection. After all, a
shareholder has the right to be intelligently
informed about corporate affairs. Such right
rests upon the stockholder’s underlying
ownership of the corporation’s assets and
property.
Similarly, only stockholders of record are
entitled to receive dividends declared by the
corporation, a right inherent in the ownership
of the shares.
Upon the death of a shareholder, the heirs do
not automatically become stockholders of the
corporation and acquire the rights and
privileges of the deceased as shareholder of the
corporation. The stocks must be distributed
first to the heirs in estate proceedings, and the
transfer of the stocks must be recorded in the
books of the corporation. Section 63 of the
Corporation Code provides that no transfer
shall be valid, except as between the parties,
until the transfer is recorded in the books of
the corporation. During such interim period,
the heirs stand as the equitable owners of the
stocks, the executor or administrator duly
appointed by the court being vested with the
legal title to the stock.17 Until a settlement and
division of the estate is effected, the stocks of
the decedent are held by the administrator or
executor.18 Consequently, during such time, it
is the administrator or executor who is entitled
to exercise the rights of the deceased as
stockholder.
Thus, even if petitioner presents sufficient
evidence in this case to establish that he is the
son of Carlos L. Puno, he would still not be
allowed to inspect respondent’s books and be
entitled to receive dividends from respondent,
absent any showing in its transfer book that
some of the shares owned by Carlos L. Puno
were transferred to him. This would only be
possible if petitioner has been recognized as an
30
heir and has participated in the settlement of
the estate of the deceased.
32. Lao vs. Lao, G.R. No. 170585 October 6,
2008
REYES, R.T., J.:
FACTS
Petitioners claimed that they are stockholders
of PFSC based on the General Information
Sheet filed with the SEC, in which they are
named as stockholders and directors of the
corporation. Petitioner David Lao alleged that
he acquired 446 shares in PFSC from his
father, Lao Pong Bao, which shares were
previously purchased from a certain Hipolito
Lao. Petitioner Jose Lao, on the other hand,
alleged that he acquired 333 shares from
respondent Dionisio Lao himself.
Respondent denied petitioners’ claim. He
alleged that the inclusion of their names in the
corporation’s General Information Sheet was
inadvertently made. He also claimed that
petitioners did not acquire any shares in PFSC
by any of the modes recognized by law, namely
subscription, purchase, or transfer. Since they
were neither stockholders nor directors of
PFSC, petitioners had no right to be issued
certificates or stocks or to inspect its corporate
books.
The General Information Sheet of PFSC for the
years 1987-1998 state that petitioners-
appellants David C. Lao and Jose C. Lao own
446 and 333 shares, respectively, in PFSC. It is
also indicated therein that David C. Lao
occupied various key positions in PFSC from
1987-1998 and Jose C. Lao served as Director
in PFSC from 1990-1998. The Sworn
Statements of Uy Lam Tiong, former corporate
secretary of the PFSC, also state that
petitioners-appellants David C. Lao and Jose C.
Lao, per corporate records of PFSC, own shares
of stock numbering 446 and 333, respectively.
The minutes of the Annual Stockholders
Meeting of PFSC on January 28, 1988 at 3:00
o’clock p.m. shows that among those present
were petitioners-appellants David C. Lao and
31
Jose C. Lao. During the said meeting,
petitioner-appellant David C. Lao was
nominated and elected Director of PFSC.
Withal, the Minutes of the Meeting of the Board
of Directors of PFSC at its Office at Hipodromo,
Cebu City, on January 28, 1988 at 4:00 p.m.
disclose that petitioner-appellant David C. Lao
was elected vice-president of PFSC. Both
minutes were signed by the officers of PFSC
including respondent-appellee
RTC denied the petition of David C. Lao and
Jose C. Lao to be recognized as stockholders
and directors of PFSC, to be issued certificates
of stock of said corporation and to be allowed
to exercise rights of stockholders of the same
corporation. CA concurred with the RTC in
toto.
ISSUE
Whether or not the mere inclusion as
shareholder in the General Information Sheet
of a corporation sufficient proof that one is a
shareholder in such corporation
RULING
Petitioners failed to prove that they are
shareholders of PSFC.
Records disclose that petitioners have no
certificates of shares in their name. A
certificate of stock is the evidence of a holder’s
interest and status in a corporation. It is a
written instrument signed by the proper officer
of a corporation stating or acknowledging that
the person named in the document is the
owner of a designated number of shares of its
stock.24 It is prima facie evidence that the
holder is a shareholder of a corporation.
Nor is there any written document that there
was a sale of shares, as claimed by petitioners.
Petitioners did not present any deed of
assignment, or any similar instrument,
between Lao Pong Bao and Hipolito Lao; or
between Lao Pong Bao and petitioner David
Lao. There is likewise no deed of assignment
between petitioner Jose Lao and private
respondent Dionisio Lao.
Absent a written document, petitioners must
prove, at the very least, possession of the
certificates of shares in the name of the alleged
seller. Again, they failed to prove possession.
They failed to prove the due delivery of the
certificates of shares of the sellers to them.
Section 63 of the Corporation Code provides:
“Sec. 63. Certificate of stock and transfer of
shares.—The capital stock of stock
corporations shall be divided into shares for
which certificates signed by the president or
vice-president, countersigned by the secretary
or assistant secretary, and sealed with the seal
of the corporation shall be issued in
accordance with the by-laws. Shares of stock
so issued are personal property and may be
transferred by delivery of the certificate or
certificates indorsed by the owner or his
attorney-in-fact or other person legally
authorized to make the transfer. No transfer,
however, shall be valid, except as between
the parties, until the transfer is recorded in
the books of the corporation so as to show
the names of the parties to the transaction,
the date of the transfer, the number of the
certificate or certificates and the number of
shares transferred.”
In contrast, respondent was able to prove that
he is the owner of the disputed shares. He had
in his possession the certificates of stocks of
Hipolito Lao. The certificates of stocks were
also properly endorsed to him. More
importantly, the transfer was duly registered in
the stock and transfer book of the corporation.
Thus, as between the parties, respondent has
proven his right over the disputed shares.
The mere inclusion as shareholder of
petitioners in the General Information Sheet of
PFSC is insufficient proof that they are
shareholders of the company.
Petitioners bank heavily on the General
Information Sheet submitted by PFSC to the
SEC in which they were named as
shareholders of PFSC. They claim that
respondent is now estopped from contesting
the General Information Sheet.
While it may be true that petitioners were
named as shareholders in the General

Information Sheet submitted to the SEC, that
document alone does not conclusively prove
that they are shareholders of PFSC. The
information in the document will still have to
be correlated with the corporate books of PFSC.
As between the General Information Sheet and
the corporate books, it is the latter that is
controlling.
If a transferee of shares of stock who failed to
register such transfer in the Stock and
Transfer Book of the Corporation could not
exercise the rights granted unto him by law as
stockholder, with more reason that such rights
be denied to a person who is not a stockholder
of a corporation. Petitioners-appellants never
secured such a standing as stockholders of
PFSC and consequently, their petition should
be denied.”
It should be stressed that the burden of proof
is on petitioners to show that they are
shareholders of PFSC. This is so because they
do not have any certificates of shares in their
name. Moreover, they do not appear in the
corporate books as registered shareholders. If
they had certificates of shares, the burden
would have been with PFSC to prove that they
are not shareholders of the corporation.
As discussed, petitioners failed to hurdle their
burden. There is no written document
evidencing their claimed purchase of shares.
We note that petitioners agreed to submit their
case for decision based merely on the
documents on record. Hence, no testimonial
evidence was presented to prove the alleged
purchase of shares. Absent any documentary
or testimonial evidence, the bare assertion of
petitioners that they are shareholders cannot
prevail.
33. Loyola Grand Villas Homeowners (South)
Association, Inc. vs. CA, Home Insurance
and Guaranty Corporation, Emden
Encarnacion And Horatio Aycardo
G.R. No. 117188. August 7, 1997
ROMERO, J.:
32
FACTS
LGVHAI was organized as the association of
homeowners and residents of the Loyola Grand
Villas. It was registered with the Home
Financing Corporation, the predecessor of
herein respondent HIGC, as the sole
homeowners’ organization in the said
subdivision.For unknown reasons, however,
LGVHAI did not file its corporate by-laws. They
discovered that there were two other
organizations within the subdivision—the
North Association and the South
Association.According to private respondents, a
non-resident and Soliven himself, respectively
headed these associations. When Soliven
inquired about the status of LGVHAI, HIGC,
informed him that LGVHAI had been
automatically dissolved for two reasons. First,
it did not submit its by-laws within the period
required by the Corporation Code and, second,
there was non-user of corporate charter
because HIGC had not received any report on
the association's activities. Apparently, this
information resulted in the registration of the
South Association with the HIGC.
These developments prompted the officers of
the LGVHAI to lodge a complaint with the
HIGC. They questioned the revocation of
LGVHAI’s certificate of registration without due
notice and hearing and concomitantly prayed
for the cancellation of the certificates of
registration of the North and South
Associations by reason of the earlier issuance
of a certificate of registration in favor of
LGVHAI.
ISSUE
Whether or not failure of a corporation to file
its by-laws within one month from the date of
its incorporation, as mandated by Section 46 of
the Corporation Code, result in its automatic
dissolution
RULING
NO. Failure to file by-laws within the
prescribed time will not result in the automatic
dissolution of a corporation.
33
As Fletcher aptly puts it: “It has been said that
the by-laws of a corporation are the rule of its
life, and that until by-laws have been adopted
the corporation may not be able to act for the
purposes of its creation, and that the first and
most important duty of the members is to
adopt them. This would seem to follow as a
matter of principle from the office and
functions of by-laws. Viewed in this light, the
adoption of by-laws is a matter of practical, if
not one of legal, necessity. Moreover, the
peculiar circumstances attending the formation
of a corporation may impose the obligation to
adopt certain by-laws, as in the case of a close
corporation organized for specific purposes.
And the statute or general laws from which the
corporation derives its corporate existence may
expressly require it to make and adopt by-laws
and specify to some extent what they shall
contain and the manner of their adoption. The
mere fact, however, of the existence of power in
the corporation to adopt by-laws does not
ordinarily and of necessity make the exercise of
such power essential to its corporate life, or to
the validity of any of its acts.”
As the “rules and regulations or private laws
enacted by the corporation to regulate, govern
and control its own actions, affairs and
concerns and its stockholders or members and
directors and officers with relation thereto and
among themselves in their relation to it,” by-
laws are indispensable to corporations in this
jurisdiction. These may not be essential to
corporate birth but certainly, these are
required by law for an orderly governance and
management of corporations. Nonetheless,
failure to file them within the period required
by law by no means tolls the automatic
dissolution of a corporation.
Automatic corporate dissolution for failure to
file the by-laws on time was never the intention
of the legislature. Moreover, even without
resorting to the records of deliberations of the
Batasang Pambansa, the law itself provides the
answer to the issue propounded by petitioner.
Section 46 of the Corporation Code reveals the
legislative intent to attach a directory, and not
mandatory, meaning for the word “must” in the
first sentence thereof. Note should be taken of
the second paragraph of the law which allows
the filing of the by-laws even prior to
incorporation. This provision in the same
section of the Code rules out mandatory
compliance with the requirement of filing the
by-laws “within one (1) month after receipt of
official notice of the issuance of its certificate of
incorporation by the Securities and Exchange
Commission.” It necessarily follows that failure
to file the by-laws within that period does not
imply the “demise” of the corporation.
By-laws may be necessary for the “government”
of the corporation but these are subordinate to
the articles of incorporation as well as to the
Corporation Code and related statutes. There
are in fact cases where by-laws are
unnecessary to corporate existence or to the
valid exercise of corporate powers, thus: “In the
absence of charter or statutory provisions to
the contrary, by-laws are not necessary either
to the existence of a corporation or to the valid
exercise of the powers conferred upon it,
certainly in all cases where the charter
sufficiently provides for the government of the
body; and even where the governing statute in
express terms confers upon the corporation the
power to adopt by-laws, the failure to exercise
the power will be ascribed to mere non-action
which will not render void any acts of the
corporation which would otherwise be valid.
Under PD 902-A, it is now clear that the failure
to file by-laws within the required period is
only a ground for suspension or revocation of
the certificate of registration of corporations.
Under Section 6(I) of PD 902-A, the SEC is
empowered to ‘suspend or revoke, after proper
notice and hearing, the franchise or certificate
of registration of a corporation’ on the ground
inter alia of ‘failure to file by-laws within the
required period.’ It is clear from this provision
that there must first of all be a hearing to
determine the existence of the ground, and
secondly, assuming such finding, the penalty is
not necessarily revocation but may be only
suspension of the charter. In fact, under the
rules and regulations of the SEC, failure to file

the by-laws on time may be penalized merely
with the imposition of an administrative fine
without affecting the corporate existence of the
erring firm.
Commercial Cases # 28-30
Liomar Hernandez
34. Petronilo J. Barayuga
v.
Adventist University of the Philippines,
through its Board of Trustees, represented
by its Chairman, Nestor D. Dayson
G.R. No. 168008
August 17, 2011
Facts:
AUP, a non-stock and non-profit domestic
educational institution incorporated under
Philippine laws, was directly under the North
Philippine Union Mission (NPUM) of the
Southern Asia Pacific Division of the Seventh
Day Adventists, which elected the petitioner
(Barayuga) as secretary for the NPUM, and
subsequently appointed him as President of
AUP. During his tenure as President, the audit
revealed that the petitioner committed several
anomalies and serious violations. The NPUM
Executive Committee then called for a special
meeting for the purpose of deciding the
petitioner’s case, and by secret ballot was voted
to be removed from his Presidency, and to
appoint an interim committee to assume the
powers of the President. Thereafter, the
petitioner filed for a temporary restraining
order (TRO) alleging that he was removed as
President without valid grounds, despite his
five (5) year term as President of AUP as
provided for in the latter’s Constitution and by-
laws. RTC issued the injunction and ruled in
petitioner’s favor, however the CA reversed the
RTC’s decision, hence the petition.
Issue: Whether or not the termination of
petitioner’s presidency was in accord with
AUP’s Constitution and by-laws.
Ruling: No.
34
Section 108 of the Corporation Code determines
the membership and number of trustees in an
educational corporation which the second
paragraph of the provision contains a proviso
expressly subjecting the duration to what
is otherwise provided in the articles of
incorporation or by-laws of the educational
corporation. That contrary provision controls
the term of office. In AUPs case, its amended
By-Laws provided the term of the members of
the Board of Trustees to serve a term of office
of only two years; and the officers, who
included the President, were to be elected from
among the members of the Board of Trustees
during their organizational meeting, which was
held during the election of the Board of
Trustees every two years. Naturally, the
officers, including the President, were to
exercise the powers vested by Section 2 of the
amended By-Laws for a term of only two years,
not five years.
Ineluctably, the petitioner, having assumed as
President of AUP on January 23, 2001, could
serve for only two years, or until January 22,
2003. By the time of his removal for cause as
President on January 27, 2003, he was already
occupying the office in a hold-over capacity,
and could be removed at any time, without
cause, upon the election or appointment of his
successor making his insistence on holding on
to the office untenable.
35. Valley Golf & Country Club, Inc.
v.
Rosa Vda. De Caram
G.R. No. 158805
April 16, 2009
Facts:
The respondent’s deceased husband,
Caram owned subscribed and fully paid for one
share in the capital stock of Valley Golf in
1961, and was correspondingly issued a
Certificate of Stock for the said purchase. Since
1980 Mr. Caram however stopped paying his
monthly membership dues to the Valley Golf,
and had not paid the same despite continued
demands for payment. As a consequence, he
35
was declared a delinquent, and his share was
sold at public auction to satisfy his
membership dues in 1987, in line with Valley
Golf’s by-laws. Unknown to Valley Golf, Mr.
Caram had died in October 1986, and his heirs
only came to know about the sale of his share
in Valley Golf during the settlement of his
estate, forcing them to file a case for
reconveyance with SEC. SEC, SEC en-banc,
and CA ruled in favor of Mrs. Caram holding
that the By-Laws of the corporation does not
justify the sale of the shares of its member for
non-payment of dues by virtue of Sec. 67 of the
Corporation Code.
Issue: Whether or not a Corporation can
dispose a fully-paid share of a member on
account of its unpaid debts to the Corporation
when it is authorized to do so under the
corporate by-laws.
Ruling: No.
The arrangement provided for in the afore-
quoted by-laws of Valley Golf whereby a lien is
constituted on the membership share to
answer for subsequent obligations to the
corporation finds applicable parallels under the
Civil Code. Membership shares are considered
as movable or personal property, and they can
be constituted as security to secure a principal
obligation, such as the dues and fees. There
are at least two contractual modes under the
Civil Code by which personalproperty can be
used to secure a principal obligation. The first
is through a contract of pledge, while the
second is through a chattel mortgage. In this
case, Caram had not signed any document that
manifests his agreement to constitute hisGolf
Share as security in favor of Valley Golf to
answer for his obligations to the club. There is
nodocument we can assess that it is
substantially compliant with the form of chattel
mortgages underSection 5 of Act No. 1508. The
by-laws could not suffice for that purpose since
it is not designed asa bilateral contract
between Caram and Valley Golf, or a vehicle by
which Caram expressed hisconsent to
constitute his Golf Share as security for his
account with Valley Golf.
36. JUANITO ANG, for and in behalf of
SUNRISE MARKETING (BACOLOD),
INC.vs.SPOUSES ROBERTO and RACHEL
ANGG.R. No. 201675. June 19, 2013
FACTS:Sp s . Rob e r t o a nd R a c h e l A n g
t o ok ov e r t he a c ti v e m a na g e me n t of
[ SM BI ]. T h r ou g h t he employment of
sugar coated words, they were able to
successfully manipulate the stocks
sharingsbetween themselves at 50-50 under
the condition that the procedures mandated
by the CorporationCode on increase of capital
stock be strictly observed (valid Board
Meeting). No such meeting of theBoard to
increase capital stock materialized. It was more
of an accommodation to buy peace. Juanito
claimed that payments to Nancy and
Theodore ceased sometime after 2006. On
24November 2008, Nancy and Theodore,
through their counsel here in the
Philippines, sent a demandletter to
"Spouses Juanito L. Ang/Anecita L. Ang
and Spouses Roberto L. Ang/Rachel L.
Ang" forpayment of the principal amounting
to $1,000,000.00 plus interest at ten percent
(10%) per annum,for a total of
$2,585,577.37 within ten days from receipt
of the letter. 12 Roberto and Rachel then
sent a letter to Nancy and Theodore’s counsel
on 5 January 2009, saying that they are not
complying w i t h the d e m a nd le t te r
b e c a u s e t he y h a v e n o t p e r s on a l l y
c o n t r a c te d a l o a n f r om N a n c y a n d
Theodore.
ISSUE: Whether or not the Honorable Court of
Appeals erred in ordering the dismissal of the
Complaint on the ground that the case is not a
derivative suit.
RULING:NO.
The Complaint is not a derivative suit. A
derivative suit is an action brought by a
stockholder on behalf of the corporation to
enforce corporate rights against the
corporation’s directors, officers or other
insiders. Under Sections 23 and 36 of
the Corporation Code, the directors or

officers, as provided under the by-laws,
have the right to decide whether or not a
corporation should sue. Since these
directors or officers will never be willing
to sue themselves, or impugn their
wrongful or fraudule nt de cisions,
stockholde rs are pe rmitte d by law to
bring an action in the name of the
corporation to hold these directors and
officers accountable. In derivative suits,
the real party in interest is the corporation,
while the stockholder is a mere nominal part.
50. MINDANAO SAVINGS AND LOAN
ASSOCIATION, INC. (MSLAI)
v.
EDWARD WILLKOM, ET. AL,
G.R. No. 178618.October 11, 2010
FACTS:
First Iligan and Loan Association, Inc.
(FISLAI) and Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly
registered with the SEC primarily engaged in
the business of granting loans and receiving
deposits from the general public and treated as
banks. FISLAI and DSLAI entered into a
merger, with DSLAI as the surviving
corporation but their articles of merger were
not registered with SEC due to incomplete
documents. DSLAI changed its corporate name
to MSLAI by way of amendments to its Articles
of Incorporation which was approved by the
SEC. The Board of Directors of FISLAI passed
and approved Board Resolution assigning its
assets in favor of DSLAI which in turn
assumed the former’s liabilities. The business
of MSLAI, however, failed. Hence, the Monetary
Board of Central Bank of the Philippines
ordered its liquidation with PDIC as its
liquidator.
Prior to the closure of MSLAI, Uy filed
with RTC of Iligan City, an action for collection
of sum of money against FISLAI. The RTC
issued a decision in favor of Uy, directing
FISLAI to pay. As a consequence 6 parcels of
land owned by FISLAI were levied and sold to
Willcom. MSLAI represented by PDIC filed a
complaint before the RTC for annulment of
36
Sheriff’s sale alleging that the sale on execution
of the subject properties was conducted
without notice. Respondent, in its answer
averred that MSLAI had no cause of action
because MSLAI is a separate and distinct entity
from FISLAI on the ground that the unofficial
merger between FISLAI and DSLAI did not take
effect considering that the merging companies
did not comply with the formalities and
procedure for merger or consolidation as
prescribed by the Corporation Code.
ISSUE:
Was the merger betweenFISLAI and
DSLAI valid and effective?
RULINGS:
No, in merger, one of the corporation
survive while the rest are dissolved and all
their rights, properties and liabilities are
acquired by the surviving corporation.
Although there is a dissolution of the absorbed
or merged corporation, there is no winding up
of their affairs or liquidation of their assets
because the surviving corporation
automatically acquires all the rights, privileges,
and powers, as well as their liabilities.
The merger, however, does not become
effective upon the mere agreement of the
constituent corporation. The steps necessary to
accomplish a merger or consolidation, as
provided for Section 76[24], 77[25], 78[26], and
79[27] of the Corporation Code are:
a. The board of each corporation draws up
a plan or merger or consolidation;
b. Submission of a plan to its stockholders
or members of each corporation for approval;
c. Execution of formal agreement, refers to
articles of merger or consolidation;
d. Submission of said merger or
consolidation to the SEC for approval;
e. If necessary, the SEC shall set a
hearing, notifying all the corporations
concerned at least 2 weeks before; and
f. Issuance of certificate of merger or
consolidation.
Clearly, the merger or consolidation
shall only be effective upon the issuance of
37
certificate of merger by the SEC, subject to its
prior determination that the merger is not
inconsistent with the Corporation Code or
existing laws. In this case, it is undisputed that
the articles of merger between FISLAI and
DSLAI were not registered with the SEC due to
incomplete documentation. Consequently the
SEC did not issue the required certificate of
merger. Even if it is true that the Monetary
Board of Central Bank of the Philippines
recognized such merger, the fact remains that
no certificate was issued by the SEC, such
merger is still incomplete without the
certification. The issuance of the certificate of
merger is crucial because not only does it bear
out SEC’s approval but it also marks the
moments when the consequence of merger take
place.
Transfer of Stock Ownership
40) Fil-Estate Gold and Dev. Inc., et al. v.
Vertex Sales and Trading, Inc., G.R.
No. 202079, June 10, 2013
Before the Court is the petition for review
on certiorari, filed by petitioners (FEGDI) and
(FELI), assailing the of the (CA) reversing the
decision of the (RTC).
FACTS:
FEGDI is a stock corporation whose primary
business is the development of golf courses.
FELI is also a stock corporation, but is engaged
in real estate development.
FEGDI was the developer of the (Forest Hills).
FEGDI sold, to Vertex one Class “C” Common
Share of Forest Hills for P1,100,000.00.
Despite Vertex’s full payment, the share
remained in the name of FEGDI.
Vertex wrote FEDGI a letter demanding the
issuance of a stock certificate in its name.
FELI replied, initially requested Vertex to first
pay the necessary fees for the transfer. Although
Vertex complied with the request, no certificate
was issued.
Vertex filed a Complaint for Rescission with
Damages against FEGDI, FELI and Forest Hills.
It averred that the petitioners defaulted in their
obligation to issue the stock certificate.
During the pendency of the rescission action, a
certificate of stock was issued in Vertex’s name,
but Vertex refused to accept it.
The RTC dismissed the complaint. It ruled that,
the sale had already been consummated as
Vertex already enjoyed the rights a shareholder
can exercise, thus the issuance of the stock
certificate is just a collateral matter to the sale
and the stock certificate is not essential to “the
creation of the relation of shareholder.”
the CA reversed the RTC. It held that there can
be no valid transfer of shares where there is no
delivery of the stock certificate.
FEGDI and FELI filed the present petition for
review on certiorari to assail the CA rulings.
In its comment to the petition, Vertex alleged
that its use and enjoyment of Forest Hills’
facilities cannot be considered delivery and
transfer of ownership.
ISSUE: Whether Physical delivery of stock
certificate is necessary to transfer ownership of
stocks?
HELD:
Yes. Physical delivery of a stock certificate is
necessary to transfer ownership of stocks.
In Raquel-Santos v. Court of Appeals, the Court
held that in “a sale of shares of stock, physical
delivery of a stock certificate is one of the
essential requisites for the transfer of
ownership of the stocks purchased.”
Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and transfer of
shares. – xxx Shares of stock so issued are
personal property and may be transferred by
delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact
or other person legally authorized to make
the transfer. xxx

It is not entirely correct to say that a sale had
already been consummated as Vertex already
enjoyed the rights a shareholder can exercise.
The enjoyment of these rights cannot suffice
where the law, by its express terms, requires a
specific form to transfer ownership.
The petition lacks merit.
Sale of delinquent Stocks
41) Calatagan Golf Club, Inc. vs. Sixto
Clemente, JR., G.R. No. 16544, April 16,
2009
Petitioner (Calatagan) filed this Rule 45 petition
against respondent (Clemente) seeking the
reversal of the Decision of the CA and the
reinstatement of the Decision of the (SEC).
FACTS:
Clemente applied to purchase one share of stock
of Calatagan, indicating in his application for
membership his mailing address, complete
residential address, office and residence
telephone numbers, as well as the company
(Phimco) with which he was connected.
Calatagan issued to him Certificate of Stock
after paying P120,000.00 for the share.
Calatagan charges monthly dues on its members
to meet the expenses for the general operations
of the club, and the maintenance and
improvement of its premises and facilities,
Clemente ceased paying his dues.
Calatagan send a demand letter to Clemente's
mailing address but were sent back to sender
with the postal note that the address had been
closed.
Calatagan declared Clemente delinquent for
having failed to pay his monthly dues for more
than sixty (60) days. Calatagan also included
Clemente's name in the list of delinquent
members posted on the club's bulletin board.
38
Calatagan sent a third and final letter to
Clemente’s mailing address that had already
been closed, containing a warning that
Clemente’s share would be sold at public
auction.
A notice of auction sale was posted on the Club's
bulletin board.
The auction sale took place as scheduled.
Clemente learned of the sale of his share only
after 4 years. He filed a claim with the (SEC)
seeking the restoration of his shareholdings.
SEC rendered a decision dismissing Clemente's
complaint. Citing Section 69 of the Corporation
Code which provides that the sale of shares at
an auction sale can only be questioned within
six (6) months from the date of sale, the SEC
concluded that Clemente's claim, filed four (4)
years after the sale, had already prescribed. The
SEC further held that Calatagan had complied
with all the requirements for a valid sale of the
subject share.
CA reversed the SEC. Accordingly, Section 69 of
the Corporation Code specifically refers to
unpaid subscriptions to capital stock, and not to
any other debt of stockholders. It employed
Article 1140 of the Civil Code as the proper rule
of prescription [eight (8) years]
The CA also pointed out that since that
Calatagan's first two demand letters had been
returned to it as sender with the notation about
the closure of the mailing address, it very well
knew that its third and final demand letter also
sent to the same mailing address would not be
received by Clemente.
Hence, the present appeal.
ISSUE: Whether the requisite notices under both
the law and the by-laws had been rendered to
Clemente?
HELD:
No.
Sec. 32. Lien on Shares; Sale of Share at Auction
- The club shall have a first lien on every share
of stock to secure debts of the members to the
39
Club. This lien shall be annotated on the
certificates of stock and may be enforced by the
Club in the following manner:
(a) Within ten (10) days after the Board
has ordered the sale at auction of a
member's share of stock for indebtedness
under Section 31(b) hereof, the Secretary
shall notify the owner thereof, and shall
advise the Membership Committee of
such fact.
As quoted above, Sec. 32 (a) of the By-Laws
provides that "within ten (10) days after the
Board has ordered the sale at auction of a
member's share of stock for indebtedness, the
Secretary shall notify the owner thereof and
shall advise the Membership Committee of such
fact.,". Obviously, the reason for this mandatory
requirement is to give the Membership
Committee the opportunity to find out, before
the share is sold, if proper notice has been made
to the shareholder member.
The contention of Calatagan that it "exercised
due diligence before the foreclosure sale" and
"sent several notices to Clemente's specified
mailing address" is lack of merit. The SC cannot
label as due diligence Calatagan's act of sending
the letter to Clemente's mailing address knowing
fully well that the P.O. Box had been closed.
Ultimately, Calatagan failed to duly observe both
the spirit and letter of its own by-laws. The by-
law provisions was clearly conceived to afford
due notice to the delinquent member of the
impending sale, and not just to provide an
intricate façade that would facilitate Calatagan's
sale of the share. virtual law library
It is noteworthy that Clemente in his
membership application had provided his
residential address along with his residence and
office telephone numbers. Nothing in Section 32
of Calatagan's By-Laws requires that the final
notice prior to the sale be made solely through
the member's mailing address. In fact, one
telephone call to Clemente's phone numbers on
file would have alerted him of his impending
loss.
Calatagan's bad faith and failure to observe its
own By-Laws had resulted not merely in the loss
of Clemente's privilege to play golf at its golf
course and avail of its amenities, but also in
significant pecuniary damage to him.
the petition is DENIED.
On the issue of prescription:
Whether the action of Clemente had already
prescribed pursuant to Section 69 of the
Corporation Code?
No. Section 69 of the Code provides that an
action to recover delinquent stock sold must be
commenced by the filing of a complaint within
six (6) months from the date of sale. Section 69
xxx refers specifically to unpaid subscriptions to
capital stock.
There are fundamental differences that defy
equivalence or even analogy between the sale of
delinquent stock under Section 68 and the sale
that occurred in this case. At the root of the sale
of delinquent stock is the non-payment of the
subscription price for the share of stock itself.
The stockholder or subscriber has yet to fully
pay for the value of the share or shares
subscribed.
In this case, Clemente had already fully paid for
the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title
to his share. Thus, there is no purpose for us to
apply Section 69 to the case at bar.
Here, Calatagan's action is for the recovery of a
share of stock. Thus, Article 1140 of the Civil
Code is applicable, which provides that an
action to recover movables shall prescribe in
eight (8) years.

Quorum
42) Paul Lee Tan, et. al. vs. Paul Sycip, et.
al., August 17, 2006
FACTS:
Petitioner Grace Christian High School (GCHS) is
a nonstock, non-profit educational corporation
with fifteen (15) regular members, who also
constitute the board of trustees.
During the annual members' meeting held in
1998, there were only eleven (11) living member-
trustees, as four (4) had already died. Out of the
eleven, seven (7) attended the meeting through
their respective proxies.
The meeting was convened although there was
an objection that there was no quorum.
In the meeting, Petitioners voted to replace the
four deceased member-trustees.
When the controversy reached the (SEC),
petitioners maintained that the deceased
member-trustees should not be counted in the
computation of the quorum because, upon their
death, members automatically lost all their
rights (including the right to vote) and interests
in the corporation.
SEC Hearing Officer declared the meeting null
and void for lack of quorum.
The SEC en banc affirmed the Decision of the
hearing officer in toto.
The CA dismissed the appeal of petitioners.
Hence, this Petition.
40
ISSUE: whether in NON-STOCK
corporations, dead members should still be
counted in determination of quorum for
purposed of conducting the Annual Members'
Meeting.
HELD:
No. Dead members who are dropped from the
membership roster in the manner and for the
cause provided for in the By-Laws of GCHS are
not to be counted in determining the requisite
quorum for the annual members' meeting
For stock corporations, the "quorum" referred to
in Section 52 of the Corporation Code is based
on the number of outstanding voting stocks.
For nonstock corporations, only those who are
actual, living members with voting rights shall
be counted in determining the existence of a
quorum during members' meetings. Dead
members shall not be counted.
Effect of the Death of a Member or
Shareholder
In stock corporations, shareholders may
generally transfer their shares. Thus, on the
death of a shareholder, the executor or
administrator duly appointed by the Court is
vested with the legal title to the stock and
entitled to vote it. Until a settlement and division
of the estate is effected, the stocks of the
decedent are held by the administrator or
executor.
On the other hand, membership in and all rights
arising from a nonstock corporation are personal
and non-transferable, unless the articles of
incorporation or the bylaws of the corporation
provide otherwise. In other words, the
determination of whether or not "dead members"
are entitled to exercise their voting rights
(through their executor or administrator),
depends on those articles of incorporation or
bylaws.
Under the By-Laws of GCHS, membership in the
corporation shall, among others, be terminated
by the death of the member. Section 91 of the
Corporation Code further provides that
termination extinguishes all the rights of a
member of the corporation, unless otherwise
41
provided in the articles of incorporation or the
bylaws.
Applying Section 91 to the present case, we hold
that dead members who are dropped from the
membership roster in the manner and for the
cause provided for in the By-Laws of GCHS are
not to be counted in determining the requisite
vote in corporate matters or the requisite
quorum for the annual members' meeting. With
11 remaining members, the quorum in the
present case should be 6. Therefore, there being
a quorum, the annual members' meeting,
conducted with six members present, was valid.
The Petition is partly GRANTED. (GCHS) may
convene and fill up the vacancies in the board.
Appraisal Right
43) Philip Turner, et. al. vs. Lorenzo Shipping
Corp., G.R. No. 157479, Nov.24, 2010
This case concerns the right of dissenting
stockholders to demand payment of the value of
their shareholdings.
FACTS:
TURNER held 1,010,000 shares of stock of the
LORENZO, a domestic corporation engaged
primarily in cargo shipping activities.
In 1999, LORENZO decided to amend its articles
of incorporation to remove the stockholders' pre-
emptive rights to newly issued shares of stock.
Feeling that the corporate move would be
prejudicial to their interest as stockholders,
TURNER voted against the amendment and
demanded payment of their shares xxx.
LORENZO found the fair value of the shares
demanded by TURNER unacceptable. It further
insisted xxx that the payment could be made
only if the LORENZO had unrestricted retained
earnings in its books to cover the value of the
shares, which was not the case.
The disagreement on the valuation of the shares
led the parties to constitute an APPRAISAL
COMMITTEE pursuant to Section 82 of
the Corporation Code.
In 2000, the APPRAISAL COMMITTEE reported
its valuation of P2.54/share, or for an aggregate
value of P2,565,400.00
TURNER demanded payment based on the
valuation of the APPRAISAL COMMITTEE.
LORENZO refused TURNER's demand,
explaining that pursuant to the Corporation
Code, the dissenting stockholders exercising
their appraisal rights could be paid only when
the corporation had unrestricted retained
earnings to cover the fair value of the shares,
but that it had no retained earnings at the time
of the TURNER' demand, as borne out by its
Financial Statements for Fiscal Year 1999.
Upon the LORENZO's refusal to pay, TURNER
sued the LORENZO for collection and motion for
partial summary judgment in the RTC, claiming
that: xxx defendant has accumulated
unrestricted retained earnings, as evidenced by
its Financial Statement as of 2002;
RTC, granted TURNER's motion for partial
summary judgment, stating:
The evidence submitted by plaintiffs
shows that the defendant has retained
earnings as of 2002. This is not disputed
by the defendant.
Accordingly, the law does not say that the
unrestricted retained earnings must exist
at the time of the demand. Even if there
are no retained earnings at the time the
demand is made if there are retained
earnings later, the fair value of such
stocks must be paid. The only restriction
is that there must be sufficient funds to
cover the creditors after the dissenting
stockholder is paid. No such allegations
have been made by the defendant.
Subsequently, the RTC issued a writ of
execution.
Aggrieved, LORENZO commenced a special civil
action for certiorari in the CA.
In 2003, CA granted the petition, holding: virtual
law library
 42

However, it is clear from the foregoing
that the Turners' appraisal right is
subject to the legal condition that no
payment shall be made to any dissenting
stockholder unless the corporation has
unrestricted retained earnings in its
books to cover such payment.
In the instant case, it was established
that there were no unrestricted retained
earnings when Turners filed their
Complaint in 2001.
The Turners' right of action arose only
when LORENZO had already retained
earnings in the amount
of P11,975,490.00 on March 21, 2002;
such right of action was inexistent on
January 22, 2001 when they filed the
Complaint.
Thus, TURNER filed the instant review
on certiorari.
ISSUE: Whether TURNER properly exercise their
appraisal rights in the instant case?
HELD:
substantially all of the corporate property and
assets as provided in the Code; and
3. In case of merger or consolidation. (n)
However, no payment shall be made to any
dissenting stockholder unless the corporation
has unrestricted retained earnings in its books
to cover the payment.
In case the corporation has no available
unrestricted retained earnings in its books,
Section 83 of the Corporation Code provides that
if the dissenting stockholder is not paid the
value of his shares within 30 days after the
award, his voting and dividend rights shall
immediately be restored.
It is undisputed that, LORENZO had no
unrestricted retained earnings in its books at the
time the petitioners commenced Civil Case in
2001, proved that the respondent's legal
obligation to pay the value of the petitioners'
shares did not yet arise.
Thus, the petition for review on certiorari is
denied for lack of merit.

No.

As a General Rule, a stockholder who dissents

from certain corporate actions has the right to
demand payment of the fair value of his or her
shares. This right, known as the right of
appraisal, is expressly recognized in Section 81
of the Corporation Code, to wit:

Section 81. Instances of appraisal right. - Any

stockholder of a corporation shall have the right
to dissent and demand payment of the fair value
of his shares in the following instances: (SAM)

1. In case any amendment to the articles of

incorporation has the effect of changing or
restricting the rights of any stockholder or class
of shares, or of authorizing preferences in any
respect superior to those of outstanding shares
of any class, or of extending or shortening the
term of corporate existence;

2. In case of sale, lease, exchange, transfer,

mortgage, pledge or other disposition of all or
43
Appraisal Right
44) Bangko Sentral ng Pilipinas v. Campa,
Jr., G.R. No. 185979, March 16, 2016
This petition for review assails the Resolution1 of
the CA denying petitioner (BSP) motion to
reconsider on the Order of the (RTC) allowing the
intervention in said case by respondents Vicente
Jose Campa, Jr., et al.
FACTS:
Bankwise applied for a loan from BSP sometime
in 2000. BSP advised Bankwise to submit
mortgages of properties owned by third parties
to secure its outstanding obligation to BSP.
In compliance with the requirement, Bankwise
mortgaged some real properties belonging to
third-party mortgagors, including the property
owned by the herein respondents.
Bankwise failed to pay its obligations to BSP,
thus all mortgaged properties were sold at public
auction to BSP, being the highest bidder and
corresponding certificates of sale were
registered.
(Aliño) filed a Complaint for specific performance
against BSP and Bankwise. Aliño alleged that he
is a stockholder of VR Holdings, owning 10% of
the outstanding shares of stock therein. Aliño
averred that he allowed his properties to be used
by Bankwise as collateral for the SLF loan
because Bankwise and VR Holdings assured him
that the properties will be returned to him and
that he will not be exposed to the risk of
foreclosure.
Respondents Campa et al, Jr., filed a Motion for
Leave to Intervene, being the registered owners
of certain real properties subject of the mortgage
and in accommodation of the request of
Bankwise who assured them that there is no
risk of foreclosure.
BSP opposed the motion, but the RTC granted
the motion and admitted the Complaint-in-
Intervention filed by respondents.
BSP appealed said Order to the CA via petition
for certiorari alleging grave abuse of discretion
on the part of the trial court.
the CA ruled in favor of respondents and found
no grave abuse of discretion on the part of the
trial court
BSP moved for reconsideration insisting that
respondents, not being stockholders of VR
Holdings, do not have any legal interest in a
derivative suit initiated by Aliño as a stockholder
of VR Holdings.
Motion was denied.
Hence, the instant petition.
BSP insists that since the case filed by Aliño as
a stockholder of VR Holdings is a derivative suit,
respondents cannot have an actual legal interest
in the matter of litigation because they are not
stockholders in VR Holdings.
While the primary issue relates to the propriety
of an intervention, BSP's opposition is anchored
on the nature of a derivative suit which,
according to it, effectively disallows intervention
by a non-stockholder.
ISSUE: Whether the case filed by Aliño is a
derivative suit, necessitating the appraisal right
requirement?
HELD:
NO. Aliño’s complaint is not a derivative suit,
thus appraisal requirement is not necessary.
Here, it is not a derivative suit because the
damage in this case does not really devolve on
the corporation. The harm or injury that Aliño
sought to be prevented pertains to properties
registered under Aliño and other third-party
mortgagors. Otherwise stated, the suit clearly is
not for the benefit of the corporation, but for a
judgment in favor of the complainant that would
mean recovery of his personal property.
Thus, the unavailability of appraisal right as a
requirement for derivative suits does not apply

in this case. A stockholder who dissents from
certain corporate actions has the right to
demand payment of the fair value,of his or her
shares. This right, known as the right of
appraisal, is expressly recognized in Section 81
of the Corporation Code, to wit:
The appraisal right does not obtain in this case
because the subject of the act complained of is
the private properties of a stockholder and not
that of the corporation.
Finally, a Complaint-in-Intervention is allowed
by the SC, for merely an incident of the main
action.
Petition is partly granted.
Pre-emptive Right and Right of First Refusal
1) Lu Ym vs. Lu Ym, Sr., G.R. Nos. 219902
219903 & 219943-44, January 17, 2018
46. Andaya vs. Rural Bank of Cabadbaran,
Inc., G.R. No. 188769, August 3, 2016
Facts: Andaya bought from Chute 2,200 shares
of stock in the Rural Bank of Cabadbara. Chute,
subsequently, requested the bank to register the
transfer and issue new stock certificates in favor
of the latter which was denied for the reason
that under a previous stockholders' Resolution,
existing stockholders were given priority to buy
the shares of others in the event that the latter
offered those shares for sale (i.e., a right of first
refusal).
Andaya contended citing Section 98 of the
Corporation Code, he claimed that the purported
restriction on the transfer of shares of stock
agreed upon during the 2001 stockholders'
meeting could not deprive him of his right as a
transferee. He pointed out that the restriction
did not appear in the bank's articles of
incorporation, bylaws, or certificates of stock.
The bank eventually denied his request due to
conflict of interest, as he was then president and
chief executive officer of the Green Bank of
Caraga, a competitor bank. Consequently,
44
Andaya instituted an action for mandamus and
damages.
RTC dismissed the complaint. Citing Porice v.
Alsons Cement Corporation, Andaya had no
standing to compel the bank to register the
transfer and issue stock certificates in his name
because it failed "[to show] that the transfer of
subject shares of stock [was] recorded in the
stock and transfer book of [the] bank or that [he
was] authorized by [Chute] to make the
transfer."
Consequently, Andaya directly filed with SC a
Rule 45 petition for review on certiorari assailing
the RTC Decision on pure questions of law.
Issue: Whether a writ of mandamus should
issue in favor of petitioner denying the
application of right of first refusal?
RULING: Yes. The registration of a transfer of
shares of stock is a ministerial duty on the part
of the corporation. Aggrieved parties may then
resort to the remedy of mandamus to compel
corporations that wrongfully or unjustifiably
refuse to record the transfer or to issue new
certificates of stock. This remedy is available
even upon the instance of a bona
fide transferee17 who is able to establish a clear
legal right to the registration of the transfer.
Respondents primarily challenge the mandamus
suit on the grounds that the transfer violated the
bank stockholders' right of first refusal and that
petitioner was a buyer in bad faith. Both parties
refer to Section 98 of the Corporation
Code:lesVirtualawlibrary
SECTION 98. Validity of restrictions on transfer
of shares. — Restrictions on the right to
transfer shares must appear in the articles of
incorporation and in the by-laws as well as in
the certificate of stock; otherwise, the same
shall not be binding on any purchaser thereof
in good faith. Said restrictions shall not be
more than onerous than granting the existing
45
stockholders or the corporation the option to
purchase the shares of the transferring
stockholder with such reasonable
terms, conditions or period stated therein. If
upon the expiration of said period, the existing
stockholders or the corporation fails to exercise
the option to purchase, the transferring
stockholder may sell his shares to any
third person.
Section 98 applies only to close corporations.
Hence, there must first be a factual
determination that respondent Rural Bank is
indeed a close corporation. There needs to be a
presentation of evidence on the relevant
restrictions in the articles of incorporation and
bylaws of the said bank. From the records or the
RTC Decision, there is apparently no such
determination or even allegation that would
assist this Court in ruling on these two major
factual matters. With the foregoing, the validity
of the transfer cannot yet be tested using that
provision. Case was remanded back to the
RTC.
Corporate Books and Right to Inspect
47. Ma. Belen Flordeliza Ang-Abaya, et. al.
vs. Eduardo G. Ang, G.R. No. 178511,
Dec. 4, 2008
Facts: VMC and Genato Investments, Inc. are
family-owned corporations, where petitioners
and private respondent Eduardo G. Ang are
shareholders, officers and members of the board
of directors.
Prior to the instant controversy, VMC, Genato,
and Oriana Manufacturing Corporation (Oriana)
filed Civil Case for damages with prayer for
issuance of a temporary restraining order (TRO)
and/or writ of preliminary injunction against
herein respondent Eduardo and some others for
allegedly conniving to fraudulently wrest
control/management of the
corporations.5 Eduardo allegedly borrowed
substantial amounts of money from the said
corporations without any intention to repay; that
he repeatedly demanded for increases in his
monthly allowance and for more cash advances
contrary to existing corporate policies; that he
harassed petitioner Flordeliza to transfer and/or
sell certain corporate and personal properties in
order to pay off his personal obligations; that he
attempted to forcibly evict petitioner Jason from
his office and claim it as his own; that he
interfered with and disrupted the daily business
operations of the corporations; that Michael was
placed on preventive suspension due to
prolonged absence without leave and
commission of acts of disloyalty such as carrying
out orders of Eduardo which were detrimental to
their business, using privileged information and
confidential documents/data obtained in his
capacity as Vice President of the corporations,
and admitting to have sabotaged their
distribution system and operations.
During the pendency of the case, Eduardo
sought permission to inspect the corporate
books of VMC and Genato on account of
petitioners’ alleged failure and/or refusal to
update him on the financial and business
activities of these family
corporations.6 Petitioners denied the request
claiming that Eduardo would use the
information obtained from said inspection for
purposes inimical to the corporations’ interests.
As a result, Eduardo filed an Affidavit-
Complaint8 against petitioners Flordeliza and
Jason, charging them with violation (two counts)
of Section 74, in relation to Section 144, of the
Corporation Code of the Philippines.9
Meanwhile, in Civil Case No. 4257-MC, the trial
court rendered a Decision granting the
permanent injunction.
The appellate court ruled that the Secretary of
Justice committed grave abuse of discretion
amounting to lack or excess of jurisdiction in
reversing the Resolutions of the Malabon City
Prosecutor and in finding that Eduardo did not
act in good faith when he demanded for the
examination of VMC and Genato’s corporate
books. It further held that Eduardo can demand
said examination as a stockholder of both
corporations; that Eduardo raised legitimate
questions that necessitated inspection of the

corporate books and records; and that
petitioners’ refusal to allow inspection created
probable cause to believe that they have
committed a violation of Section 74 of the
Corporation Code.
Issue: WHETHER OR NOT THE JUSTICE
SECRETARY COMMITTED GRAVE ABUSE OF
DISCRETION IN FINDING THAT PETITIONERS
ACTED IN GOOD FAITH WHEN THEY DENIED
PRIVATE RESPONDENT’S DEMAND FOR
INSPECTION OF CORPORATE BOOKS. 25
Ruling: No, the stockholder’s right to inspect
corporate books is not without limitations. While
the right of inspection was enlarged under the
Corporation Code as opposed to the old
Corporation Law (Act No. 1459, as amended),
It is now expressly required as a
condition for such examination that the
one requesting it must not have been
guilty of using improperly any
information secured through a prior
examination, or that the person asking
for such examination must be acting in
good faith and for a legitimate purpose in
making his demand.
In order for the penal provision under Section
144 of the Corporation Code to apply in a case of
violation of a stockholder or member’s right to
inspect the corporate books/records as provided
for under Section 74 of the Corporation Code,
the following elements must be present:
First. A director, trustee, stockholder or member
has made a prior demand in writing for a copy of
excerpts from the corporation’s records or
minutes;
Second. Any officer or agent of the concerned
corporation shall refuse to allow the said
director, trustee, stockholder or member of the
corporation to examine and copy said excerpts;
Third. If such refusal is made pursuant to a
resolution or order of the board of directors or
trustees, the liability under this section for such
action shall be imposed upon the directors or
trustees who voted for such refusal; and,
46
Fourth. Where the officer or agent of the
corporation sets up the defense that the person
demanding to examine and copy excerpts from
the corporation’s records and minutes has
improperly used any information secured
through any prior examination of the records or
minutes of such corporation or of any other
corporation, or was not acting in good faith or
for a legitimate purpose in making his demand,
the contrary must be shown or proved.
Thus, in a criminal complaint for violation of
Section 74 of the Corporation Code, the defense
of improper use or motive is in the nature of a
justifying circumstance that would exonerate
those who raise and are able to prove the same.
Accordingly, where the corporation denies
inspection on the ground of improper motive or
purpose, the burden of proof is taken from the
shareholder and placed on the corporation.
These serious allegations are supported by
official and other documents, such as board
resolutions, treasurer’s affidavits and written
communication from the respondent Eduardo
himself, who appears to have withheld his
objections to these charges. There is lack of
probable cause to support the allegation that
petitioners violated Section 74 of the Corporation
Code in refusing respondent’s request for
examination of the corporation books.
48. Aderito Z. Yujuico , et. al. vs. Cezar T.
Quiambao et. al., G.R. No. 180416,
June 2, 2014
Facts: STRADEC is a domestic corporation
operating as a business development and
investment company where petitioner Yujuico
was elected as president and chairman of the
company and petitioner Bonifacio C. Sumbilla as
treasurer and one Joselito John G. Blando as
corporate secretary.
Petitioners filed a criminal complaint7 against
respondents and one Giovanni T. Casanova for
violating Section 74 in relation to Section 144 for
having been refused the turnover of the
corporate records of the company, particularly
the accounting files, ledgers, journals and other
47
records of the corporation's business. Quiambao
refused. As it turns out, the corporate records of
STRADEC were in the possession of Casanova-
the accountant of STRADEC. Casanova was
keeping custody of the said records on behalf of
Quiambao, who allegedly needed the same as
part of his defense in a pending case in court.
OCP issued a Resolution10 absolving Casanova
but found probable cause to hail respondents to
court on two (2) offenses: (1) for removing the
stock and transfer book of STRADEC from its
principal office, and (2) for refusing access to,
and examination of, the corporate records and
the stock and transfer book of STRADEC at its
principal office.
The MeTC ordered the issuance of a warrant of
arrest against respondents for the refusal of
access to corporate records but dismissed
Criminal Case No. 89723, the MeTC held that
Section 74, in relation to Section 144, of the
Corporation Code only penalizes the act of
"refus[ing] to allow any director, trustee,
stockholder or member of the corporation to
examine and copy excerpts from the records or
minutes of the corporation"16 and that act is
already the subject matter of Criminal Case No.
89724. Hence, the MeTC opined, Criminal Case
No. 89723-which seeks to try respondents for
merely removing the stock and transfer book of
STRADEC from its principal office-actually
charges no offense and, therefore, cannot be
sustained.17
RTC issued an Order23 granting respondents'
certiorari petition and directing the dismissal of
Criminal Case No. 89724. According to the RTC,
the MeTC committed grave abuse of discretion in
issuing a warrant of arrest against respondents
in Criminal Case No. 89724 for lack of sufficient
evidence. The RTC further pointed out that, at
most, the evidence on record only supports
probable cause that the respondents were
withholding the stock and transfer book of
STRADEC. The RTC, however, opined that
refusing to allow inspection of the stock and
transfer book, as opposed to refusing
examination of other corporate records, is not
punishable as an offense under the Corporation
Code.26 Hence, the directive of the RTC
dismissing Criminal Case No. 89724.
Issue: Whether or not the refusal to allow
inspection of the stock and transfer book of a
corporation as opposed to refusing examination
of corporate records is not a punishable offense
under the Corporation Code?
Ruling: No. Such refusal, when done in violation
of Section 74(4) of the Corporation Code,
properly falls within the purview of Section 144
of the same code and thus may be penalized as
an offense. The foregoing nonetheless, we still
sustain the dismissal of Criminal Case No.
89724 as against the respondents.
A criminal action based on the violation of a
stockholder's right to examine or inspect the
corporate records and the stock and transfer
book of a corporation under the second and
fourth paragraphs of Section 74 of the
Corporation Code-such as Criminal Case No.
89724--can only be maintained against
corporate officers or any other persons acting on
behalf of such corporation. The submissions of
the petitioners during the preliminary
investigation, however, clearly suggest that
respondents are neither in relation to STRADEC.
Section 74 is the provision of the Corporation
Code that deals with the books a corporation is
required to keep.
Section 144 of the Corporation Code, on the
other hand, is the general penal provision of the
Corporation Code. It reads:
Section 144. Violations of the Code. - Violations
of any of the provisions of this Code or its
amendments not otherwise specifically penalized
therein shall be punished by a fine of not less
than one thousand (₱1,000.00) pesos but not
more than ten thousand (₱10,000.00) pesos or
by imprisonment for not less than thirty (30)
days but not more than five (5) years, or both, in
the discretion of the court. If the violation is
committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange
Commission: Provided, That such dissolution

shall not preclude the institution of appropriate
action against the director, trustee or officer of
the corporation responsible for said violation:
Provided, further, That nothing in this section
shall be construed to repeal the other causes for
dissolution of a corporation provided in this
Code. (190 112 a) (Emphasis supplied)
While Section 74 of the Corporation Code
expressly mentions the application of Section
144 only in relation to the act of "refus[ing] to
allow any director, trustees, stockholder or
member of the corporation to examine and copy
excerpts from [the corporation's] records or
minutes," the same does not mean that the
latter section no longer applies to any other
possible violations of the former section.
It must be emphasized that Section 144 already
purports to penalize "[v]iolations" of "any
provision" of the Corporation Code "not
otherwise specifically penalized therein." Hence,
we find inconsequential the fact that that
Section 74 expressly mentions the application of
Section 144 only to a specific act, but not with
respect to the other possible violations of the
former section.
The problem with the petitioners' complaint and
the evidence that they submitted during
preliminary investigation is that they do not
establish that respondents were acting on behalf
of STRADEC. Quite the contrary, the scenario
painted by the complaint is that the respondents
are merely outgoing officers of STRADEC who,
for some reason, withheld and refused to turn-
over the company records of STRADEC; that it is
the petitioners who are actually acting on behalf
of STRADEC; and that STRADEC is actually
merely trying to recover custody of the withheld
records.
In other words, petitioners are not actually
invoking their right to inspect the records and
the stock and transfer book of STRADEC under
the second and fourth paragraphs of Section 74.
What they seek to enforce is the proprietary
right of STRADEC to be in possession of such
records and book. Such right, though certainly
legally enforceable by other means, cannot be
enforced by a criminal prosecution based on a
48
violation of the second and fourth paragraphs of
Section 74. That is simply not the situation
contemplated by the second and fourth
paragraphs of Section 74 of the Corporation
Code.
51. BANK OF COMMERCE
V.
RADIO PHILIPPINES NETWORK, INC., ET.
AL.,
G.R. No. 195615.April 21, 2014
FACTS:
The Traders Royal Bank proposed to sell
to petitioner Bank of Commerce its banking
business consisting of specified assets and
liabilities. BOC agreed to the condition subject
to the approval of BankoSentral ng Pilipinas of
their Purchased and Assumption Agreement (P
& A). The BSP approved the agreement subject
to the condition that BOC would set up an
escrow fund with another bank to cover TRB
liabilities for contingent claims that may
subsequently be adjudge against it, which
liabilities be excluded from the purchase.
Pursuant to the P & A agreement between the
two corporation, BOC acquired its specified
assets and liabilities, excluding arising from
judicial action which were to be covered by the
BSP mandated escrow of 50 million
ISSUE:
Whether or not the P and A constitute a
merger of two corporation?
RULINGS:
No, merger is a re-organization of two or
more corporations the results in their
consolidating into a single corporation, which
is one of the constituent corporation, one
49
disappearing or dissolving and the other
surviving. To put it another way, merger is the
absorption of one or more corporation by
another existing corporation, which retains its
identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and
obligations of the absorbed corporation. The
absorbing corporation continues its existence
while the life or lives of the other corporation is
or are terminated.
The Corporation Code requires the
following steps for merger or consolidation:
a. The board of each corporation draws up
a plan or merger or consolidation;
b. Submission of a plan to its stockholders
or members of each corporation for approval;
c. Execution of formal agreement, refers to
articles of merger or consolidation;
d. Submission of said merger or
consolidation to the SEC for approval;
e. If necessary, the SEC shall set a
hearing, notifying all the corporations
concerned at least 2 weeks before; and
f. Issuance of certificate of merger or
consolidation.
It is clear that no merger took place
between BOC and TRB as the requirements
and procedures for the merger were absent. A
merger does not become effective upon the
mere agreement of the constituent
corporations. All the requirements specified in
the law must be complied in order the merger
to take effect. Section 79 of the Corporation
Code further provides that the merger shall be
effective only upon the issuance by the SEC of
a certificate of merger.
52. ALABANG DEVELOPMENT
CORPORATION
v.
ALABANG HILLS VILLAGE ASSOCIATION ET.
AL.,
G.R. No. 187456.June 2, 2014
FACTS:
Alabang Development Corporation
(ADC), the developer of Alabang Hills Village
Association, filed an injunction and damages
case against the Alabang Hills Village
Association and its president Tinio for
constructing a swimming pool and a multi-
purpose area in one of the common areas in
the village, allegedly still owned by ADC. As
defense, the respondents assert that ADC has
no legal capacity to sue since its existence as a
registered corporate entity was revoked by the
Securities and Exchange Commission (SEC).
The RTC rendered judgment in favor of the
respondents. Aggrieved, it appealed to the
Court of Appeals, which affirmed RTC’s
decision holding that ADC has no legal
capacity to sue since it filed the case when it
no longer existed as a corporate entity.
ISSUE:
Whether or not ADC has legal capacity
to sue the respondents when it was no longer a
registered corporate entity.
RULINGS:
ADC has no legal capacity to sue.The
petitioner lacks capacity to sue because it no
longer possesses juridical personality by reason
of its dissolution and lapse of the three-year
grace period provided under Section 122 of the
Corporation Code, because it filed its complaint
not only after its corporate existence was
terminated but also beyond the three-year
period allowed by Section 122 of the
Corporation Code. It is to be noted that the
time during which the corporation, through its
own officers, may conduct the liquidation of its
assets and sue and be sued as a corporation is
limited to three years from the time the period
of dissolution commences; but there is no time
limit within which the trustees must complete
a liquidation placed in their hands.
It is provided only that the conveyance to the
trustees must be made within the three-year
period. The authorities are to the effect that
suits by or against a corporation abate when it
ceased to be an entity capable of suing or being
sued; but trustees to whom the corporate

assets have been conveyed pursuant to the
authority of Sec. 122 may sue and be sued as
such in all matters connected with the
liquidation.
In the instant case, there is no dispute that
petitioner's corporate registration was revoked
on May 26, 2003, it had three years, or until
50
May 26, 2006, to prosecute or defend any suit
by or against it. The subject complaint,
however, was filed only on October 19, 2006,
more than three years after such revocation. It
is likewise not disputed that the subject
complaint was filed by Petitioner Corporation
and not by its directors or trustees.