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 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
personal property 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 his Golf Share as security in favor of Valley
Golf to answer for his obligations to the club. There is no document we can assess that it is
substantially compliant with the form of chattel mortgages under Section 5 of Act No. 1508. The
by-laws could not suffice for that purpose since it is not designed as a bilateral contract between
Caram and Valley Golf, or a vehicle by which Caram expressed his consent to constitute his Golf
Share as security for his account with Valley Golf.

Manuel R. Dulay Enterprises, Inc, a domestic corporation obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel).
· Manuel Dulay by virtue of Board Resolution No 18 sold the subject property to spouses
Maria Theresa and Castrense Veloso.

· Maria Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the subject
property to private respondent Manuel A. Torres. Upon the failure of Maria Veloso to pay Torres,
the property was sold to Torres in an extrajudicial foreclosure sale.
· Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the
apartment.

· RTC ordered the corporation and the tenants to vacate the building.

· Petitioners: RTC had acted with GAD when it applied the doctrine of piercing the veil of
corporate entity considering that the sale has no binding effect on corporation as Board
Resolution No. 18 which authorized the sale of the subject property was resolved without the
approval of all the members of the board of directors and said Board Resolution was prepared
by a person not designated by the corporation to be its secretary.

Issue:
· WON the sale to Veloso is valid notwithstanding that it was resolved without the approval
of all the members of the board of directors. (YES)
Ruling
Section 101 of the Corporation Code of the Philippines provides:

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting shall nevertheless
be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt
objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of
all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them
makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof.
· Dulay Inc. is classified as a close corporation and consequently a board resolution authorizing
the sale or mortgage is not necessary to bind the corporation for the action of its president.
#fluffypeaches At any rate, corporate action taken at a board meeting without proper call or
notice in a close corporation is deemed ratified by the absent director unless the latter promptly
files his written objection with the secretary of the corporation after having knowledge of the
meeting which, in his case, Virgilio Dulay failed to do.

· Although a corporation is an entity which has a personality distinct and separate from its
individual stockholders or members, the veil of corporate fiction may be pierced when it is used
to defeat public convenience justify wrong, protect fraud or defend crime.
Issue: Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no
binding effect on the corporation as Board Resolution 18 which authorized the sale of the subject
property was resolved without the approval of all the members of the board of directors and said Board
Resolution was prepared by a person not designated by the corporation to be its secretary.

Held: Section 101 of the Corporation Code of the Philippines provides that "When board meeting is
unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of
a close corporation without a meeting shall nevertheless be deemed valid if: (1) Before or after such
action is taken, written consent thereto is signed by all the directors; or (2) All the stockholders have
actual or implied knowledge of the action and make no prompt objection thereto in writing; or (3) The
directors are accustomed to take informal action with the express or implied acquiesce of all the
stockholders; or (4) All the directors have express or implied knowledge of the action in question and
none of them makes prompt objection thereto in writing. If a directors' meeting is held without proper
call or notice, an action taken therein within the corporate powers is deemed ratified by a director who
failed to attend, unless he promptly files his written objection with the secretary of the corporation after
having knowledge thereof." Herein, the corporation is classified as a close corporation and
consequently a board resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president. At any rate, a corporate action taken
at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the corporation after
having knowledge of the meeting which, in this case, Virgilio Dulay failed to do. The corporation's claim
that the sale of the subject property by its president, Manuel Dulay, to spouses Veloso is null and void
as the alleged Board Resolution 18 was passed without the knowledge and consent of the other
members of the board of directors cannot be sustained. Virgilio E. Dulay's protestations of complete
innocence to the effect that he never participated nor was even aware of any meeting or resolution
authorizing the mortgage or sale of the subject premises is difficult to believe. On the contrary, he is
very much privy to the transactions involved. To begin with, he is an incorporator and one of the board
of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family corporation." The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual
members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, 3 children and their father whose name identifies their
corporation. Besides, the fact that Virgilio Dulay on 24 June 1975 executed an affidavit that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in
favor of Torres indicates that he was aware of the transaction executed between his father and Torres
and had, therefore, adequate knowledge about the sale of the subject property to Torres.
Consequently, the corporation is liable for the act of Manuel Dulay and the sale of the subject property
to Torres by Manuel Dulay is valid and binding.
B. VAN ZUIDEN BROS. v. GTVL MANUFACTURING INDUSTRIES, GR No. 147905, 2007-05-28

Facts:

Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. x x x ZUIDEN is not engaged
in business in the Philippines, but is suing before the Philippine Courts, for the reasons hereinafter stated.

On several occasions, GTVL purchased lace products from [ZUIDEN].

GTVL has failed and refused to pay the agreed purchase price for several deliveries ordered by it and
delivered by ZUIDEN, as above-mentioned.

In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of liability, GTVL has
failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02

Instead of filing an answer, respondent filed a Motion to Dismiss[5] on the ground that petitioner has no
legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without
securing the required license.

Accordingly, petitioner cannot sue before Philippine courts.

Issues:
whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

Ruling:
Section 133 of the Corporation Code

The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before
Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the
Philippines can sue before Philippine courts.

The series of transactions between petitioner and respondent cannot be classified as "doing business" in
the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as "doing business"
in the Philippines is the actual performance of specific... commercial acts within the territory of the
Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in
foreign territories. Here, there is no showing that petitioner performed within the Philippine territory
the... specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open
an office here in the Philippines, appoint a representative or distributor, or manage, supervise or control
a local business. While petitioner and respondent entered into a... series of transactions implying a
continuity of commercial dealings, the perfection and consummation of these transactions were done
outside the Philippines.

As earlier stated, the series of transactions between petitioner and respondent transpired and were
consummated in Hong Kong.[9] We also find no single activity which petitioner performed here in the
Philippines pursuant to its purpose and... object as a business organization.[10] Moreover, petitioner's
desire to do business within the Philippines is not discernible from the allegations of the complaint or
from its attachments. Therefore, there is no basis for ruling that... petitioner is doing business in the
Philippines.
We disagree with the Court of Appeals' ruling that the proponents to the transaction determine whether
a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place where
the transaction took place. To accede to such theory makes it... possible to classify, for instance, a series
of transactions between a Filipino in the United States and an American company based in the United
States as "doing business in the Philippines," even when these transactions are negotiated and
consummated only within the United

States.

The mere act of exporting from one's own country,... without doing any specific commercial act within
the territory of the importing country, cannot be deemed as doing business in the importing country. The
importing country does not acquire jurisdiction over the foreign exporter who has not performed any
specific commercial... act within the territory of the importing country. Without jurisdiction over the
foreign exporter, the importing country cannot compel the foreign exporter to secure a license to do
business in the importing country.
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the Corporation
Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific
business transactions within the Philippine territory... on a continuing basis in its own name and for its
own account. Actual transaction of business within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to
secure... a Philippine business license. If a foreign corporation does not transact such kind of business in
the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to
require such foreign corporation to secure a Philippine business... license.

Considering that petitioner is not doing business in the Philippines, it does not need a license in order to
initiate and maintain a collection suit against respondent for the unpaid balance of respondent�s
purchases.