Topic: Fundamental Rights of a Stockholder (Derivative Suit)

Page: 15

JUAN D. EVANGELISTA ET AL.,

vs.
RAFAEL SANTOS

G.R. No. L-1721 May 19, 1950

FACTS:

Plaintiffs are minority stockholders of the Vitali Lumber Company, Inc., a Philippine
corporation organized for the exploitation of a lumber concession in Zamboanga, Philippines;
that defendant holds more than 50 per cent of the stocks of said corporation and also is and
always has been the president, manager, and treasurer thereof; and that defendant, in such
triple capacity, through fault, neglect, and abandonment allowed its lumber concession to
lapse and its properties and assets to disappear, thus causing the complete ruin of the
corporation and total depreciation of its stocks. Their complaint therefore prays for judgment
requiring defendant: (1) to render an account of his administration of the corporate affairs
and assets: (2) to pay plaintiffs the value of their respective participation in said assets on the
basis of the value of the stocks held by each of them; and (3) to pay the costs of suit.

The complaint does not give plaintiffs’ residence, but, for purposes of venue, alleges
that defendant resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay, province of
Rizal. Having been served with summons at that place, defendant filed a motion for the
dismissal of the complaint on the ground of improper venue and also on the ground that the
complaint did not state a cause of action in favor of plaintiffs.
In support of the objection to the venue, defendant states that he is a resident of Iloilo City
and not of Pasay, defendant also presented further affidavit to the effect that while he has a
house in Pasay, where members of his family who are studying in Manila live and where he
himself is sojourning for the purpose of attending to his interests in Manila, yet he has his
permanent residence in the City of Iloilo where he is registered as a voter for election
purposes and has been paying his residence certificate.

ISSUE:

Whether or not defendant is a resident of Iloilo, therefore, there was no proper venue
when he was served with summons in Pasay.

RULING:

NO.
 The facts in this case show that the objection to the venue is well-founded. Where the
plaintiff is a nonresident and the contract upon which suit is brought was made in the
Philippine Islands it may safely be asserted that the convenience of the defendant would be
best served by a trial in the province where he resides. The fact that defendant was sojourning
in Pasay at the time he was served with summons does not make him a resident of that place
for purposes of venue. Residence is “the permanent home, the place to which, whenever
absent for business or pleasure, one intends to return.

Topic: Fundamental Rights of a Stockholder (Quorum)

Page: 16

PAUL LEE TAN, et al,

vs.
PAUL SYCIP and MERRITTO
LIM

G.R. No. 153468 August 17, 2006

FACTS:

Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation

with fifteen regular members, who also constitute the board of trustees. During the annual
members’ meeting only 11 living member-trustees, as 4 had already died. Seven attended the
meeting through their respective proxies. The meeting was convened and chaired by Atty.
Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum. In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan
were voted to replace the 4 deceased member-trustees. The SEC ruled that the meeting was
void due to lack of quorum

ISSUE:

Whether or not dead members should still be counted in the quorum

RULING:

NO.

The remaining members of the board of trustees of GCHS may convene and fill up the
vacancies in the board. Except as provided, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting
rights:
1. Amendment of the articles of incorporation;
 2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of
the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance with
this Code; and
8. Dissolution of the corporation.
Quorum in a members’ meeting is to be reckoned as the actual number of members of the
corporation. In stock corporations - shareholders may generally transfer their shares and 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
For nonstock corporations, shares are personal and non-transferable unless the articles of
incorporation or the bylaws of the corporation provide otherwise. Section 91 of the
Corporation Code states: termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the bylaws.

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. In this
case, the By-Laws of GCHS states: membership in the corporation shall be terminated by the
death of the member. Thus, with 11 remaining members, the quorum is 6.
Furthermore:
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy occurring in the board
of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
office.
Thus the filling of vacancies in the board by the remaining directors or trustees constituting a
quorum is merely permissive, not mandatory either by the remaining directors constituting a
quorum, or by the stockholders or members in a regular or special meeting called for the
purpose
By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
directors; that is, by a majority vote of the remaining members of the board. The remaining
member-trustees must sit as a board (as a body in a lawful meeting) in order to validly elect the
new ones.
Topic: Capital Affairs (Consideration for Stocks)
Page 16

FUA CUN
vs.
SUMMERS
G.R. No. L-19441 March 27, 1923

FACTS:

It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for
five hundred shares of stock of the defendant Banking Corporation at a par value of P100 per
share, paying the sum of P25,000, one-half of the subscription price, in cash, for which a
receipt was issued.
On May 18, 1921, Chua Soco executed a promissory note in favor of the plaintiff Fua
Cun for the sum of P25,000 payable in ninety days and drawing interest at the rate of 1 per
cent per month, securing the note with a chattel mortgage on the shares of stock subscribed
for by Chua Soco, who also endorsed the receipt above mentioned and delivered it to the
mortgagee. The plaintiff thereupon took the receipt to the manager of the defendant Bank
and informed him of the transaction with Chua Soco, but was told to await action upon the
matter by the Board of Directors.
In the meantime Chua Soco appears to have become indebted to the China Banking
Corporation in the sum of P37,731.68 for dishonored acceptances of commercial paper and in
an action brought against him to recover this amount, Chua Soco's interest in the five hundred
shares subscribed for was attached and the receipt seized by the sheriff. The attachment was
levied after the defendant bank had received notice of the facts that the receipt had been
endorsed over to the plaintiff. Fua Cun thereupon brought the present action maintaining that
by virtue of the payment of the one-half of the subscription price of five hundred shares Chua
Soco in effect became the owner of two hundred and fifty shares and praying that his, the
plaintiff's, lien on said shares, by virtue of the chattel mortgage, be declared to hold priority
over the claim of the defendant Banking Corporation; that the defendants be ordered to
deliver the receipt in question to him; and that he be awarded the sum of P5,000 in damages
for wrongful attachment.

ISSUE:

Whether or not the trial court erred in declaring that Chua Soco, through the payment
of the P25,000, acquired the right to two hundred and fifty shares fully paid up, upon which
shares the plaintiff holds a lien superior to that of the defendant Banking Corporation and
ordering that the receipt be returned to said plaintiff.
RULING:

YES.

The claim of the defendant Banking Corporation upon which it brought the action in
which the writ of attachment was issued, was for the non-payment of drafts accepted by Chua
Soco and had no direct connection with the shares of stock in question. At common law a
corporation has no lien upon the shares of stockholders for any indebtedness to the
corporation and our attention has not been called to any statute creating such lien here. On
the contrary, section 120 of the Corporation Act provides that "no bank organized under this
Act shall make any loan or discount on the security of the shares of its own capital stock, nor
be the purchaser or holder of any such shares, unless such security or purchase shall be
necessary to prevent loss upon a debt previously contracted in good faith, and stock so
purchased or acquired shall, within six months from the time of its purchase, be sold or
disposed of at public or private sale, or, in default thereof, a receiver may be appointed to
close up the business of the bank in accordance with law."
The reasons for this doctrine are obvious; if banking corporations were given a lien on
their own stock for the indebtedness of the stockholders, the prohibition against granting
loans or discounts upon the security of the stock would become largely ineffective.

Topic: Capital Affairs (Right to Transfer Shares)

Page: 17
CYRUS PADGETT
vs.
BABCOCK & TEMPLETON, INC., and W. R. BABCOCK
G.R. No. L-38684 December 21, 1933

FACTS:

The appellee was an employee of the Appellant Corporation and rendered services as
such from January 1, 1923, to April 15, 1929. During that period he bought 35 shares thereof at
P100 a share at the suggestion of the president of said corporation. He was also the recipient
of 9 shares by way of bonus during Christmas seasons. In this way the said appellee became
the owner of 44 shares for which the 12 certificates, Exhibits F to F-11, were issued in his favor.
The word "nontransferable" appears on each and every one of these certificates. Before
severing his connections with the said corporation, the appellee proposed to the president
that the said corporation buy his 44 shares at par value plus the interest thereon, or that he
be authorized to sell them to other persons. The corporation bought similar shares belonging
to other employees, at par value. Sometime later, the said president offered to buy the
appellee's shares first at P85 each and then at P80. The appellee did not agree thereto.
ISSUE:

Whether or not the defendant obliged to buy his shares of stock at par value.

RULING:

NO.

A restriction imposed upon a certificate of shares, similar to the ones under

consideration, is null and void on the ground that it constitutes and unreasonable limitation
of the right of ownership and is in restraint of trade.
Shares of corporate stock being regarded as property, the owner of such shares may,
as a general rule, dispose of them as he sees fit, unless the corporation has been dissolved, or
unless the right to do so is properly restricted, or the owner's privilege of disposing of his
shares has been hampered by his own action.
Any restriction on a stockholder's right to dispose of his shares must be construed
strictly; and any attempt to restrain a transfer of shares is regarded as being in restraint of
trade, in the absence of a valid lien upon its shares, and except to the extent that valid
restrictive regulations and agreements exist and are applicable. Subject only to such
restrictions, a stockholder cannot be controlled in or restrained from exercising his right to
transfer by the corporation or its officers or by other stockholders, even though the sale is to
a competitor of the company, or to an insolvent person, or even though a controlling interest
is sold to one purchaser.

Topic: Capital Affairs (Payment of Balance of Subscription)

Page: 18

VELASCO
vs.
POIZAT
G.R. No. L-11528 March 15, 1918

FACTS:

From the amended complaint filed in this cause upon February 5, 1915, it appears that
the plaintiff, as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is
seeking to recover of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription
made by him to the corporate stock of said company. It appears that the corporation in
question was originally organized by several residents of the city of Manila, where the
company had its principal place of business, with a capital of P50,000, divided into 500 shares.
The defendant subscribed for 20 shares of the stock of the company, an paid in upon his
subscription the sum of P500, the par value of 5 shares . The action was brought to recover
the amount subscribed upon the remaining shares.
 It appears that the defendant was a stock holder in the company from the inception
of the enterprise, and for sometime acted as its treasurer and manager. While serving in this
capacity he called in and collected all subscriptions to the capital stock of the company, except
the aforesaid 15 shares subscribed by himself and another 15 shares owned by Jose R. Infante.
Upon July 13, 1914, a meeting of the board of directors of the company was held at
which a majority of the stock was presented. Upon this occasion two resolutions, important
to be here noted, were adopted. The first was a proposal that the directors, or shareholders,
of the company should make good by new subscriptions, in proportion to their respective
holdings, 15 shares which had been surrendered by Infante.

ISSUE:

Whether or not Poizat is liable for his unpaid subscription.

RULING:

YES.

A stock subscription is a contract between the corporation on one side, and the
subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted
by the Supreme Court of the United States that a subscription for shares of stock does not
require an express promise to pay the amount subscribed, as the law implies a promise to pay
on the part of the subscriber. Section 36 of the Corporation Law clearly recognizes that a stock
subscription is subsisting liability from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is relieved from such liability by
the by-laws of the corporation. The subscriber is as much bound to pay the amount of the
share subscribed by him as he would be to pay any other debt, and the right of the company
to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) give recognition of two remedies
for the enforcement of stock subscriptions. The first and most special remedy given by the
statute consists in permitting the corporation to put up the unpaid stock for sale and dispose
of it for the account of the delinquent subscriber. In this case the provisions of section 38 to
48, inclusive, of the Corporation Law are applicable and must be followed.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock
is merely a remedy in addition to that which proceeds by action in court; and it has been held
that the ordinary legal remedy by action exists even though no express mention thereof is
made in the statute.
Topic: Corporate Books and Records (Right to Financial Statements)

Page: 19

RAMON A. GONZALES
vs.
THE PHILIPPINE NATIONAL BANK
G.R. No. L-33320 May 30, 1983

FACTS:

Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of

Manila a special civil action for mandamus against the herein respondent praying that the
latter be ordered to allow him to look into the books and records of the respondent bank in
order to satisfy himself as to the truth of the published reports that the respondent has
guaranteed the obligation of Southern Negros Development Corporation in the purchase of
a US$ 23 million sugar-mill to be financed by Japanese suppliers and financiers; that the
respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be
constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the
Honiron Philippines, Inc., as well as to inquire into the validity of Id transactions. The petitioner
has alleged hat his written request for such examination was denied by the respondent. The
trial court having dismissed the petition for mandamus, the instant appeal to review the said
dismissal was filed.

ISSUE:

Whether or not the denial for the request of petitioner for inspection valid.

RULING:

YES.

Although the petitioner has claimed that he has justifiable motives in seeking the
inspection of the books of the respondent bank, he has not set forth the reasons and the
purposes for which he desires such inspection, except to satisfy himself as to the truth of
published reports regarding certain transactions entered into by the respondent bank and to
inquire into their validity. The circumstances under which he acquired one share of stock in
the respondent bank purposely to exercise the right of inspection do not argue in favor of his
good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry
into transactions entered into by the respondent bank even before he became a stockholder.
His obvious purpose was to arm himself with materials which he can use against the
respondent bank for acts done by the latter when the petitioner was a total stranger to the
same. He could have been impelled by a laudable sense of civic consciousness, but it could not
be said that his purpose is germane to his interest as a stockholder.
 We also find merit in the contention of the respondent bank that the inspection sought
to be exercised by the petitioner would be violative of the provisions of its charter. The
Superintendent of Banks and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall not reveal to any person other
than the President of the Philippines, the Secretary of Finance, and the Board of Directors the
details of the inspection or investigation, nor shall they give any information relative to the
funds in its custody, its current accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a Court of competent jurisdiction. Any
director, officer, employee, or agent of the Bank, who violates or permits the violation of any
of the provisions of this Act, or any person aiding or abetting the violations of any of the
provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by
imprisonment of not more than five years, or both such fine and imprisonment.
The Philippine National Bank is not an ordinary corporation. Having a charter of its
own, it is not governed, as a rule, by the Corporation Code of the Philippines. The provision of
Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right
of a stockholder to demand an inspection or examination of the books of the corporation may
not be reconciled with the abovequoted provisions of the charter of the respondent bank.

Topic: Dissolution and Liquidation (Involuntary)

Page: 20

PHILIPPINE NATIONAL BANK

vs.
THE COURT OF FIRST INSTANCE OF RIZAL, PASIG

G.R. No. 63201 May 27, 1992

FACTS:

Private respondents are the registered owners of three parcels of land in Pasig, Metro
Manila covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal.
On March 1, 1954, private respondents entered into a contract of lease with Philippine
Blooming Mills, Co., Inc., (PBM for brevity) whereby the latter shall lease the aforementioned
parcels of land as factory site. PBM was duly organized and incorporated on January 19, 1952
with a corporate term of twenty-five (25) years. This leasehold right of PBM covering the
parcels of land was duly annotated at the back of the above stated certificates of title. The
contract of lease provides that the term of the lease is for twenty years. In accordance with
the contract, PBM introduced on the land, buildings, machineries and other useful
improvements. These constructions and improvements were registered with the Registry of
Deeds of Rizal and annotated at the back of the respondents' certificates of title.
 On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB for
brevity) petitioner herein, a deed of assignment, conveying and transferring all its rights and
interests under the contract of lease which it executed with private respondents. The
assignment was for and in consideration of the loans granted by PNB to PBM. The deed of
assignment was registered and annotated at the back of the private respondents' certificates
of title. On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of
PNB a real estate mortgage for a loan ofP100,000.00 and an addendum to real estate
mortgage for another loan of P1,590,000.00, covering all the improvements constructed by
PBM on the leased premises. These mortgages were registered and annotated at the back of
respondents' certificates. PBM filed a petition for registration of improvements in the titles of
real property owned by private respondents docketed as Case No. 6530.
On October 7, 1981, private respondents filed a motion in the same proceedings. The
motion sought to cancel the annotations on respondents' certificates of title pertaining to the
assignment by PBM to PNB of the former's leasehold rights, inclusion of improvements and
the real estate mortgages made by PBM in favor of PNB, on the ground that the contract of
lease entered into between PBM and respondents-movants had already expired by the failure
of PBM and/or its assignee to exercise the option to renew the second 20-year lease. The
motion also states that since PBM failed to remove its improvements on the leased premises
before the expiration of the contract of lease, such improvements shall accrue to respondents
as owners of the land.
On April 22, 1982, respondent court issued an order directing the cancellation of the
inscriptions on respondents' certificates of title.
Hence, this petition. Petitioner alleges that it is not the respondent court but the
Securities and Exchange Commission which has jurisdiction over the private respondents'
motion, which raised as issue the corporate existence of PBM.

ISSUE:

Whether or not the SEC has jurisdiction over the motion

RULING:

NO.
Private respondent's motion with the respondent court was for the cancellation of the
entries on their titles on the ground that the contract of lease executed between them and
PBM had expired. This action is civil in nature and is within the jurisdiction of the respondent
court.The circumstance that PBM as one of the contracting parties is a corporation whose
corporate term had expired and which fact was made the basis for the termination of the
lease is not sufficient to confer jurisdiction on the Securities and Exchange Commission over
the case. Presidential Decree No. 902-A, as amended, enumerates the cases over which the
SEC has exclusive jurisdiction and authority to resolve. The case at bar is not covered by the
enumeration.
Topic: Dissolution and Liquidation (Other Cases)

Page; 21

REYNOLDS PHILIPPINE CORPORATION

vs.
COURT OF APPEALS
G.R. NO. L-36187 JANUARY 17, 1989

FACTS:

In its complaint of June 2, 1966, the petitioner sought to recover from the private
respondent Serg's Products, Inc. the sum of P32,565.62 representing the unpaid price of
aluminum foils and cores sold and delivered by it to the latter. The private respondent denied
liability for payment of the account on the ground that the aluminum foils and cores were
ordered or purchased by Serg's Chocolate Products, a partnership of Antonio Goquiolay and
Luis Sequia Mendoza, not Serg's Products, Inc., a corporation managed and controlled by
Antonio Goquiolay and his wife Conchita Goquiolay, as majority stockholders and principal
officers.

ISSUE:

Whether or not the real debtor of the petitioner were the Private Respondents.

RULING:

YES.

Although the commercial documents were indeed in the name of "Serg's Chocolate
Products," the following facts proved that the true purchaser of the aluminum foils and cores
from the petitioner, was "Serg's Products, Inc." not the partnership denominated "Serg's
Chocolate Products."
The attempt to make the two factories appear as two separate businesses, when in
reality they are but one, is but a devise to defeat the ends of the law and should not be
permitted to prevail. Although the coffee factory is a corporation and, by legal fiction, an
entity existing separate and apart from persons composing it, T and his family, it is settled that
this fiction of law, which had been introduced as a matter of convenience and to subserve the
ends of justice cannot be invoked to further an end subversive of that purpose.

Topic: Non-Stock Corporations

Page: 22

THE PHILIPPINE PUBLIC SCHOOL TEACHERS ASSOCIATION (PPSTA) COMMISSION ON

ELECTIONS
vs.
Honorable SERGIO A. F. APOSTOL
G.R. No. L-36966 February 28, 1974

FACTS:

On July 20, 1972, private respondent Eufemia M. San Luis as a member of the Philippine
Public School Teachers Association (PPSTA), a fraternal non-stock association of public school
teachers throughout the country, filed with respondent court of first instance at Quezon City
a complaint with preliminary injunction for the annulment of the 1972 annual elections of the
PPSTA board of directors held on June 26-28, 1972 at Teachers Camp in Baguio City for having
been held outside its principal office at Quezon City against herein petitioners as defendants.

ISSUE:

Whether or not the elections of the Board of Directors are null and void.

RULING:

NO.

The Court finds it unnecessary to rule upon the parties' above conflicting contentions,
since it finds to be decisive petitioners' contention that respondent has no personality and
standing as a single individual member out of thousands of members of the PPSTA to bring
the action below for annulment of the PPSTA 1972 annual convention and elections, as she
was not even a chapter delegate to the said convention and she was duly represented thereat
in accordance with the PPSTA's by-laws by her duly authorized chapter delegates who have
raised no question as to the proceedings. Article IX, section 5 of the by-laws expressly provides
that "only official delegates to the representative assembly are entitled to take part in the
discussions and to vote."
Respondent's action below was in essence one of quo warranto which is governed by
Rule 66 of the Rules of Court Section 6 thereof provides that in order that an individual may
directly bring the action, he or she must claim to entitled to the public office or position
allegedly unlawfully held or usurped. Otherwise, the action must be brought by the Solicitor
General or fiscal with leave of the court upon the complaint of the realtor under section 4 of
the Rule.
The general rule is that actions for quo warranto should be brought by the Solicitor
General or a fiscal in cases of usurpation of an office established by law or by the Constitution
under color of an executive appointment, or the abuse of a public franchise under color of a
legislative grant, for these are public wrongs and not private injuries. Since, under our system
all power emanates from the people, who constitute the sovereignty, the right to inquire into
the authority by which a person assumes to exercise the functions of a public office or
franchise is regarded as inherent in the people on the right their sovereignty. Hence, the
action should be brought by the Solicitor General or the fiscal who represents the sovereign
power.
Respondent manifestly lays no claim herself to the office of PPSTA director nor has the
present action been filed with leave of court by the Solicitor General or fiscal upon her relation
as a party having an interest injuriously affected, as required by the cited Rule. Her action must
therefore fail on this score and the judgment erroneously rendered by respondent court shall
be set aside.

Topic: Foreign Corporations (Amendment of License)

Page: 22

HATHIBHAI BULAKHIDAS
vs.
HONORABLE PEDRO L. NAVARRO
L-49695 April 7, 1986

FACTS:

Petitioner, a foreign partnership, filed a complaint against a domestic corporation,

DSC, before the CFI of Rizal for the recovery of damages allegedly caused by the failure of the
said shipping corporation to deliver the goods shipped to it by petitioner to their proper
destination.
Paragraph 1 of said complaint alleged that plaintiff is "a foreign partnership firm not
doing business in the Philippines" and that it is "suing under an isolated transaction."
Defendant filed a motion to dismiss the complaint on the ground that plaintiff has no capacity
to sue and that the complaint does not state a valid cause of action against defendant.
 Acting on said motion to dismiss, the CFI dismissed the complaint on the ground that
plaintiff being "a foreign corporation or partnership not doing business in the Philippines it
cannot exercise the right to maintain suits before our Courts."

ISSUE:

Whether a foreign corporation “not engaged in business in the Philippines” can

institute an action before Philippine courts.

RULING:

YES.

It is settled that if a foreign corporation is not engaged in business in the Philippines, it

may not be denied the right to file an action in Philippine courts for isolated transactions. The
object of Sections 68 and 69 of the Corporation law was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to suit in the
local courts. It was never the purpose of the Legislature to exclude a foreign corporation
which happens to obtain an isolated order for business from the Philippines, from securing
redress in the Philippine courts.
No general rule or governing principle can be laid down as to what constitutes 'doing'
or 'engaging' in or 'transacting' business. Indeed, each case must be judged in the light of its
peculiar environmental circumstances. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it and turned it over to
another. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive prosecution of, the purpose and object
of its organization.
While plaintiff is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no capacity to bring the present action. Such license
is not necessary because it is not engaged in business in the Philippines. A foreign corporation
not engaged in business in the Philippines is not barred from seeking redress from the courts
of the Philippines.
Topic: Foreign Corporations (Contract Test)

Page: 23

STEEL CASE, INC.

vs.
DESIGN INTERNATIONAL SELECTIONS

GR. NO. 171995 APRIL 18, 2012

FACTS:

Steelcase, Inc. (Steelcase) granted Design International Selections, Inc. (DISI) the right
to market, sell, distribute, install, and service its products to end-user customers within the
Philippines.Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act
of 1991 (FIA) expressly states that the phrase doing business excludes the appointment by a
foreign corporation of a local distributor domiciled in the Philippines which transacts business
in its own name and for its own account. On the other hand, DISI argues that it was appointed
by Steelcase as the latter’s exclusive distributor of Steelcase products. The dealership
agreement between Steelcase and DISI had been described by the owner himself as basically
a buy and sell arrangement.

ISSUE:

Whether Steelcase had been doing business in the Philippines.

RULING:

NO.

The appointment of a distributor in the Philippines is not sufficient to constitute doing

business unless it is under the full control of the foreign corporation. On the other hand, if the
distributor is an independent entity which buys and distributes products, other than those of
the foreign corporation, for its own name and its own account, the latter cannot be
considered to be doing business in the Philippines. Here, DISI was an independent contractor
which sold Steelcase products in its own name and for its own account. As a result, Steelcase
cannot be considered to be doing business in the Philippines by its act of appointing a
distributor as it falls under one of the exceptions under R.A. No. 7042.

Topic: Foreign Corporations (Other cases)

Page: 24
LA CHEMISE LACOSTE, S. A.
vs.
FERNANDEZ
G.R. No. L-65659 May 21, 1984

FACTS:

The petitioner is a foreign corporation, organized and existing under the laws of France
and not doing business in the Philippines. It is the actual owner of the abovementioned
trademarks used on clothings and other goods specifically sporting apparels sold in many
parts of the world and which have been marketed in the Philippines since 1964. The main basis
of the private respondent's case is its claim of alleged prior registration.
In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg.
No. SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE &
CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and other
garment products of the company. Two years later, it applied for the registration of the same
trademark under the Principal Register. The Patent Office eventually issued an order which
granted the application."Thereafter, Hemandas & Co. assigned to respondent Gobindram
Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE & DEVICE".
The petitioner filed its application for registration of the trademark "Crocodile Device"
and "Lacoste". The former was approved for publication while the latter was opposed by
Games and Garments. The petitioner filed with the National Bureau of Investigation (NBI) a
letter-complaint alleging therein the acts of unfair competition being committed by
Hemandas and requesting their assistance in his apprehension and prosecution.

ISSUE:

Whether or not petitioner has the capacity to sue.

RULING:

YES.

The petitioner is a foreign corporation not doing business in the Philippines. The
marketing of its products in the Philippines is done through an exclusive distributor, Rustan
Commercial Corporation. The latter is an independent entity which buys and then markets not
only products of the petitioner but also many other products bearing equally well-known and
established trademarks and tradenames. In other words, Rustan is not a mere agent or
conduit of the petitioner.
The court finds and concludes that the petitioner is not doing business in the
Philippines. Rustan is actually a middleman acting and transacting business in its own name
and or its own account and not in the name or for the account of the petitioner. More
important is the nature of the case which led to this petition. What preceded this petition for
certiorari was a letter-complaint filed before the NBI charging Hemandas with a criminal
offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows after the
completion of the preliminary investigation being conducted by the Special Prosecutor the
information shall be in the name of the People of the Philippines and no longer the petitioner
which is only an aggrieved party since a criminal offense is essentially an act against the State.
It is the latter which is principally the injured party although there is a private right
violated. Petitioner's capacity to sue would become, therefore, of not much significance in
the main case. We cannot allow a possible violator of our criminal statutes to escape
prosecution upon a far-fetched contention that the aggrieved party or victim of a crime has
no standing to sue. In upholding the right of the petitioner to maintain the present suit before
our courts for unfair competition or infringement of trademarks of a foreign corporation, we
are moreover recognizing our duties and the rights of foreign states under the Paris
Convention for the Protection of Industrial Property to which the Philippines and France are
parties.

Topic: SEC Law (original and exclusive jurisdiction of the RTC)

Page: 25

ALFREDO P. PASCUAL and LORETA S. PASCUAL

vs.
COURT OF APPEALS (former Seventh Division), ERNESTO P. PASCUAL and HON.
ADORACION ANGELES, in her capacity as Presiding Judge, RTC, Kaloocan City, Branch 121
G.R. No. 138542 August 25, 2000

FACTS:

Ernesto P. Pascual filed a complaint in the Regional Trial Court for "accounting,
reconveyance of real property based on implied trust resulting from fraud, declaration of
nullity of TCT, recovery of sums of money, and damages" against his brother, petitioner
Alfredo, and the latter’s wife Loreta Pascual.
Petitioners filed a motion to dismiss on the ground that the complaint raises an intra-
corporate controversy between the parties over which original and exclusive jurisdiction is
vested in the Securities and Exchange Commission (SEC).

ISSUE:

Whether or not complaint against the Petitioners involves an intra-corporate dispute

cognizable by the SEC and, therefore, the Regional Trial Court should have dismissed the
complaint.

RULING:
 NO.

The regular courts, not the SEC, have jurisdiction over this case.1âwphi1 Petitioners and
private respondent never had any corporate relations in Phillens. It appears that private
respondent was never a stockholder in Phillens, of which the parties’ predecessor-in-interest,
Luciano Pascual, Sr., was a stockholder and whose properties are being litigated. Private
respondent’s allegation is that, upon the death of their father, he became co-owner in the
estate left by him, and part of this estate includes the corporate interests in Phillens. He also
alleges that petitioners repudiated the trust relationship created between them and
appropriated to themselves even the property that should have belonged to respondent. It is
thus clear that there is no corporate relationship involved here. That petitioner Alfredo
Pascual was a corporate officer holding in trust for his brother their father’s corporate
interests did not create an intra-corporate relationship between them.
Nor is the controversy corporate in nature. As we have stated before, the grant of
jurisdiction must be viewed in the light of the nature and function of the SEC under the law.
In the case at bar, the corporation whose properties are being contested no longer exists, it
having been completely dissolved in 1993; consequently, the supervisory authority of the SEC
over the corporation has likewise come to an end.

Topic: SEC Law (controversies arising out of intra corporate or partnership relations)

Page: 25

SUNSET VIEW CONDOMINIUM CORPORATION

vs.
JOSE C. CAMPOS, JR
G.R. No. L-52361 April 27, 1981

FACTS:

The private respondent, Aguilar-Bernares Realty, a sole proprietorship with business

name registered with the Bureau of Commerce, owned and operated by the spouses
Emmanuel G. Aguilar and Zenaida B. Aguilar, is the assignee of a unit, "Solana", in the Sunset
View Condominium Project with La Perla Commercial, Incorporated, as assignor. The La Perla
Commercial, Incorporated bought the "Solana" unit on installment from the Tower Builders,
Inc. The petitioner, Sunset View Condominium Corporation, filed for the collection of
assessments levied on the unit against Aguilar-Bernares Realty, private respondent. The
petitioner filed its amended complaint for the collection of overdue accounts on assessments
and insurance premiums and the interest against the private respondent Lim Siu Leng to
whom was assigned a unit called "Alegria" of the Sunset View Condominium Project by
Alfonso Uy who had entered into a "Contract to Buy and Sell" with Tower Builders, Inc. over
the said unit on installment basis. The private respondent filed a motion to dismiss on the
ground of lack of jurisdiction, alleging that the amount sought to be collected is an
assessment. The correctness and validity of which is certain to involve a dispute between her
and the petitioner corporation; that she has automatically become, as a purchaser of the
condominium unit, a stockholder of the petitioner pursuant to Section 2 of the Condominium
Act, Republic Act No. 4726; that the dispute is intra-corporate and is consequently under the
exclusive jurisdiction of the Securities & Exchange Commission as provided in Section 5 of P.D.
No. 902-A.

ISSUE:

Whether or not the Securities & Exchange Commission has jurisdiction over cases for
collection of assessments assessed by the Condominium Corporation on condominium units
the full purchase price of which has not been paid.

RULING:

NO.

Section 5 of the Condominium Act expressly provides that the shareholding in the
Condominium Corporation will be conveyed only in a proper case. It provides that any transfer
or conveyance of a unit or an apartment, office or other space therein, shall include the
transfer or conveyance of the undivided interests in the common areas or, in a proper case,
the membership or shareholding in the condominium corporation. It is clear then that not
every purchaser of a condominium unit is a shareholder of the condominium corporation. The
Condominium Act leaves to the Master Deed the determination of when the shareholding will
be transferred to the purchaser of a unit.
Pursuant to the above statutory provision, ownership of a unit is a condition sine qua
nonto being a shareholder in the condominium corporation. The private respondents,
therefore, who have not fully paid the purchase price of their units and are consequently not
owners of their units are not members or shareholders of the petitioner condominium
corporation.
Inasmuch as the private respondents are not shareholders of the petitioner
condominium corporation, the instant case for collection cannot be a controversy arising out
of intra corporate or partnership relations between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively" which controversies are
under the original and exclusive jurisdiction of the Securities & Exchange Commission,
pursuant to Section 5 (b) of P.D. No. 902- A. The subject matters of the instant cases according
to the allegations of the complaints are under the jurisdiction of the regular courts.

Topic: SEC Law (Petitions for Declaration in the state of Suspension of Payments)
Page: 26

SIOCHI FISHERY ENTERPRISES, INC., JUN-JUN FISHING CORPORATION, DEDE FISHING

CORPORATION, BLUE CREST AQUA-FARMS, INC., and ILOILO PROPERTY VENTURES, INC.,
vs.
BANK OF THE PHILIPPINE ISLANDS
G.R. No. 193872 October 19, 2011

FACTS:

Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing
Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are
domestic corporations of the Siochi family. Petitioners are engaged in various businesses and
have interlocking stockholders and directors. Their principal office is located at 31 Don B.
Bautista Boulevard, Dampalit, Malabon City.
In the course of their business, petitioners borrowed from respondent Bank of the
Philippine Islands (BPI) and from Ayala Life Assurance, Inc. As of 30 June 2004, petitioners’
total obligation amounted to P85,362,262.05.
On 15 July 2004, petitioners filed with the RTC a petition for corporate rehabilitation.
Petitioners prayed that the RTC (1) issue a stay order; (2) declare petitioners in a state of
suspension of payments; (3) approve petitioners’ proposed rehabilitation plan; and (4)
appoint a rehabilitation receiver.

ISSUE:

Whether or not the Court of Appeals erred in setting aside the RTC’s Order because it
is within the RTC’s discretion to disregard the procedural formalities, and the lower court has
factual basis in its finding that [petitioners] are capable of rehabilitation.

RULING:

NO.

The rehabilitation plan is an indispensable requirement in corporate rehabilitation

proceedings. Section 5 of the Rules enumerates the essential requisites of a rehabilitation
plan: The rehabilitation plan shall include (a) the desired business targets or goals and the
duration and coverage of the rehabilitation; (b) the terms and conditions of such
rehabilitation which shall include the manner of its implementation, giving due regard to the
interests of secured creditors; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may
include conversion of the debts or any portion thereof to equity, restructuring of the
debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis
that estimates the proportion of the claims that the creditors and shareholders would receive
if the debtor’s properties were liquidated; and (f) such other relevant information to enable a
reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.
With respect to the Appraisal Report, it bears to stress that the same was
commissioned by respondent corporations and petitioner was not afforded the opportunity
to contest the same. Also, it is extant from the records that some of the properties included
therein do not belong to respondent corporations but to their officers, namely, Ferdinand
Siochi, Mario Siochi, Jr., Gerald Siochi and Jose Patrick Siochi. Thus, these properties should
not be considered as part of respondent corporations’ assets as their officers have a separate
personality from the corporation itself. In turn, this renders doubtful their declaration in their
Rehabilitation Plan that they have "sufficient collaterals to back-up their bank loans.

Topic: Securities Regulation Code and Related Laws (Registration of Securities, Investment
Contract)

Page: 26

HIKOI SUZUKI, RAMON DEL ROSARIO and TAKAYUKI SATO

vs.
DIANA DE GUZMAN

G.R. No. 146979 July 27, 2006

FACTS:

On January 10, 1996, the Suzuki Beach Hotel, Inc. (SBHI) located at 1 Samar Street, Bo.
Barretto, Olongapo City was registered with the Securities and Exchange Commission (SEC),
with Diana de Guzman (respondent) and Editha Taborda (Taborda) as two of the
incorporators. Respondent subscribed to 29,800 shares with a total par value
of P2,980,000.00 and paid her subscription in the amount of P745,000.00. Taborda
subscribed to 100 shares with a total par value of P10,000.00 and paid P2,500.00 on her
subscription. On December 12, 1997, Hikoi Suzuki, Ramon del Rosario, Takayuki Sato
(petitioners), acting as Board of Directors of SBHI, issued a Resolution declaring due and
demandable all unpaid shares of stock and gave the stockholders until December 30, 1997 to
pay their unpaid subscription. Notice of the call for payment was sent to respondent and
Taborda but they failed to pay their respective unpaid subscriptions. Petitioners scheduled a
meeting of the Board on January 12, 1998 to discuss the sale of delinquent shares of stocks.
On January 10, 1998, notice of the meeting was sent to respondent and Taborda.On January
12, 1998, petitioners approved a Resolution to sell all delinquent shares of stock at a public
auction set on January 30, 1998.

On March 4, 1998, respondent and Taborda filed with the SEC a Petition for Calling Special
Stockholders Meetings and for Election of Directors and Officers, Declaration of Nullity of the
Call of Sale of Unpaid Stock Subscription with Writ of Preliminary Injunction and Temporary
Restraining Order, docketed as SEC Case No. 03-98-5924. On March 23, 1998, petitioners filed
a Motion to Dismiss on the ground of lack of jurisdiction, alleging that jurisdiction over the
case was lodged with the civil courts.

ISSUE:

Whether or not SEC has jurisdiction

RULING:

YES.

The CA promulgated the assailed Decision on January 26, 2000, the SEC was still
empowered, under Section 5 of P.D. 902-A, to hear and decide cases involving intra-corporate
disputes, thus:

SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of association
registered with it as expressly granted under existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and decide cases involving:…

b) Controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are the stockholders, members
or associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity; x x x

However, on August 9, 2000, during the pendency of petitioners' Motion for Reconsideration
of the CA Decision, R.A. No. 8799 took effect. Section 5.2 of R.A. No. 8799, provides:

5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that
shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis
supplied)

Thus, original and exclusive jurisdiction to hear and decide cases involving intra-
corporate controversies have been transferred to courts of general jurisdiction or the
appropriate Regional Trial Court. The case involving herein parties has not been submitted for
final resolution on the merits in the SEC. Only the issue on jurisdiction was dealt with by the
SEC which is the subject of herein petition. Thus, herein case does not fall within the exception
adverted to in the aforequoted Section 5.2.

All the foregoing considered, the CA should have noted that R.A. No. 8799 was already
in force and effect, for more than five months, and therefore applicable at the time of the
promulgation of the herein assailed Resolution on February 2, 2001. Although the petition filed
with the CA was procedurally deficient for non-compliance with the rules on material date and
certification of non-forum shopping, the CA should have reconsidered its Decision on the
question of jurisdiction in view of the advent of R.A. No. 8799 transferring cases originally
cognizable by the SEC to the Regional Trial Courts. Technicalities must give way to the realities
of the situation. It is elementary that jurisdiction over the subject matter, or the jurisdiction to
hear and decide a case, is conferred by law and it is not within the courts, let alone the parties,
to themselves determine and conveniently set aside.
Topic: Securities Regulation Code and Related Laws (Fraudulent Transactions)

Page: 28

ONAPAL PHILIPPINES COMMODITIES

vs.,
CA

GR No. 90707 Feb 01, 1993

FACTS:

The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly organized

and existing corporation, was licensed as commission merchant/broker by the SEC, to engage
in commodity futures trading in Cebu City under Certificate of Registration No. CEB-182. On
April 27, 1983, petitioner and private respondent concluded a "Trading Contract". Like all
customers of the petitioner, private respondent was furnished regularly with "Commodities
Daily Quotations" showing daily movements of prices of commodity futures traded and of
market reports indicating the volume of trade in different future exchanges in Hongkong,
Tokyo and other centers. Every time a customer enters into a trading transaction with
petitioner as broker, the trading order is communicated by telex to its principal, Frankwell
Enterprises of Hongkong. If the transaction, either buying or selling commodity futures, is
consummated by the principal, the petitioner issues a document known as "Confirmation of
Contract and Balance Sheet" to the customer. An order of a customer of the petitioner is
supposed to be transmitted from Cebu to petitioner's office in Manila. From Manila, it should
be forwarded to Hongkong and from there, transmitted to the Commodity Futures Exchange
in Japan.

There were only two parties involved as far as the transactions covered by the Trading
Contract are concerned — the petitioner and the private respondents.

A case was filed in court for alleged illegal commodity futures contract. Petitioner
contends that the SEC allows this.

ISSUE:
Whether or not the SEC allows commodity futures contracts
RULING:

The written trading contract in question is not illegal but the transaction between the
petitioner and the private respondent purportedly to implement the contract is in the nature
of a gambling agreement and falls within the ambit of Article 2018 of the New Civil Code, which
is quoted hereunder: If a contract which purports to be for the delivery of goods, securities
or shares of stock is entered into with the intention that the difference between the price
stipulated and the exchange or market price at the time of the pretended delivery shall be
paid by the loser to the winner, the transaction is null and void. The loser may recover what
he has paid.

The facts clearly establish that the petitioner is a direct participant in the transaction,
acting through its authorized agents. It received the customer's orders and private
respondent's money. As per terms of the trading contract, customer's orders shall be directly
transmitted by the petitioner as broker to its principal, Frankwell Enterprises Ltd. of
Hongkong, being a registered member of the International Commodity Clearing House, which
in turn must place the customer's orders with the Tokyo Exchange. There is no evidence that
the orders and money were transmitted to its principal Frankwell Enterprises Ltd. in
Hongkong nor were the orders forwarded to the Tokyo Exchange. We draw the conclusion
that no actual delivery of goods and commodity was intended and ever made by the parties.
In the realities of the transaction, the parties merely speculated on the rise and fall in the price
of the goods/commodity subject matter of the transaction. If private respondent's
speculation was correct, she would be the winner and the petitioner, the loser, so petitioner
would have to pay private respondent the "margin". But if private respondent was wrong in
her speculation then she would emerge as the loser and the petitioner, the winner. The
petitioner would keep the money or collect the difference from the private respondent. This
is clearly a form of gambling provided for with unmistakeable certainty under Article 2018
abovestated. It would thus be governed by the New Civil Code and not by the Revised
Securities Act nor the Rules and Regulations on Commodity Futures Trading laid down by the
SEC. Article 1462 of the New Civil Code does not govern this case because the said provision
contemplates a contract of sale of specific goods where one of the contracting parties binds
himself to transfer the ownership of and deliver a determinate thing and the other to pay
therefore a price certain in money or its equivalent. The said article requires that there be
delivery of goods, actual or constructive, to be applicable. In the transaction in question, there
was no such delivery; neither was there any intention to deliver a determinate thing. The
transaction is not what the parties call it but what the law defines it to be.

It appears that petitioner and private respondent did not intend, in the deals of
purchasing and selling for future delivery, the actual or constructive delivery of the
goods/commodity, despite the payment of the full price therefor. The contract between them
falls under the definition of what is called "futures". The payments made under said contract
were payments of difference in prices arising out of the rise or fall in the market price above
or below the contract price thus making it purely gambling and declared null and void by law.
In England and America where contracts commonly called futures originated, such contracts
were at first held valid and could be enforced by resort to courts. Later these contracts were
held invalid for being speculative, and in some states in America, it was unlawful to make
contracts commonly called "futures". Such contracts were found to be mere gambling or
wagering agreements covered and protected by the rules and regulations of exchange in
which they were transacted under devices which rendered it impossible for the courts to
discover their true character. The evil sought to be suppressed by legislation is the speculative
dealings by means of such trading contracts, which degenerated into mere gambling in the
future price of goods/commodities ostensibly but not actually, bought or sold.

Under Article 2018, the private respondent is entitled to refund from the petitioner
what she paid. There is no evidence that the orders of private respondent were actually
transmitted to the petitioner's principal in Hongkong and Tokyo. There was no arrangement
made by petitioner with the Central Bank for the purpose of remitting the money of its
customers abroad. The money which was supposed to be remitted to Frankwell Enterprises
of Hongkong was kept by petitioner in a separate account in a local bank. Having received the
money and orders of private respondent under the trading contract, petitioner has the
burden of proving that said orders and money of private respondent had been transmitted.
But petitioner failed to prove this point.