G.R. No.

22015

September 1, 1924

MARSHALL-WELLS COMPANY, plaintiff-appellant, vs.HENRY W.

ELSER & CO., INC., defendant-appellee.
Hartigan and Welch for appellant.J. F. Boomer for appellee.
MALCOLM, J.:
Marshall-Wells Company, an Oregon corporation, sued Henry W.
Elser & Co., Inc., a domestic corporation, in the Court of First
Instance of Manila, for the unpaid balance of a bill of goods
amounting to P2,660.74, sold by plaintiff to defendant and for which
plaintiff holds accepted drafts. Defendant demurred to the complaint
on the statutory ground that the plaintiff has not legal capacity to sue.
In the demurrer, counsel stated that "The said complaint does not
show that the plaintiff has complied with the laws of the Philippine
Islands in that which is required of foreign corporations desiring to do
business in the Philippine Islands, neither does it show that it was
authorized to do business in the Philippine Islands." The demurrer
was sustained by the trial judge. Inasmuch as the plaintiff could not
allege compliance with the statute, the order was allowed to become
final and an appeal was perfected.
To begin with the law as a fit setting for the issue. The Corporation
Law (Act No. 1459) contains six sections relating particularly to
foreign corporations. Section 68, as amended by Act No. 2900,
provides that no foreign corporation "shall be permitted to transact
business in the Philippine Islands until after it shall have obtained a
license for that purpose from the Chief of the Mercantile Register of
the Bureau of Commerce and Industry," upon order either of the
Secretary of Finance or the Secretary of Commerce and
Communications. No order for a license shall be issued except upon
a statement under oath of the managing agent of the corporation,
showing to the satisfaction of the proper Secretary that the
corporation is solvent and in sound financial condition, and setting
forth the resources and liabilities of the corporation. Said statement
shall contain the following: (1) The name of the corporation; (2) the
purpose for which it was organized; (3) the location of its principal or
home office; (4) the capital stock of the corporation and the amount

thereof actually subscribed and paid into the treasury; (5) the net
assets of the corporation over and above all debts, liabilities,
obligations, and claims outstanding against it; and (6) the name of an
agent residing in the Philippine Islands authorized by the corporation
to accept evidence of summons and process in all legal proceedings
against the corporation and of all notices affecting the corporation.
Further evidence of the solvency and fair dealing of the corporation
may be required. Upon filing in the Mercantile Register of the Bureau
of Commerce and Industry the said statement, a certified copy of its
charter, and the order of the Secretary for the issuance of a license,
the Chief of the Mercantile Register "shall issue to the foreign
corporation as directed in the order of license to do business in the
Philippine Islands," and for the issuance of the license shall collect a
fee fixed in accordance with the schedule established in section 8 of
the Law.
Passing section 69 of the Corporation Law for the moment, section
70, as amended, covers the cases of foreign corporations
"transacting business in the Islands at the time of the passage" of the
Act. Section 71 authorizes the Secretary of Finance or the Secretary
of Commerce and Communications, as the case may be, by and with
the approval of the Governor-General, "to revoke the license to
transact business in the Philippine Islands" of any foreign corporation.
Section 72 concerns summons and legal process. Section 73 makes
a foreign corporation bound by all the laws, rules, and regulations
applicable to domestic corporations of the same class, with certain
exceptions.
Returning now to section 69 of the Corporation Law, its literal
terminology is as follows:
No foreign corporation or corporation formed, organized, or existing
under any laws other that those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands or maintain by
itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed in the
section immediately preceding. Any officer, director, or agent of the
corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one

thousand pesos, or by both such imprisonment and fine, in the

discretion of the court.
Is the obtaining of the license prescribed in section 68, as amended,
of the Corporation Law a condition precedent to the maintaining of
any kind of action in the courts of the Philippine Islands by a foreign
corporation? The issue is framed to correspond with defendant's
theory of the case on appeal, although possibly somewhat at
variance with its stand in the lower court.
So far as we are informed, this is a question of first impression. The
case of Dampfschieffs Rhederei Union vs. Compaia Trasatlantica
([1907], 8 Phil., 766), relating to the provisions of the Code of
Commerce, only held that a foreign corporation which has not
established itself in the Philippines, nor engaged in business in the
Philippines, could, without filing its articles of incorporation in the
mercantile registry, maintain an action against another for damages.
The case of Spreckles vs. Ward ([1909], 12 Phil., 414), while making
reference to a point similar to the one before us, was merely authority
for the holding, that the provisions of section 69 of the Corporation
Law denying to unregistered foreign corporations the right to maintain
suits for the recovery of any debt, claim, or demand, do not impose
on all plaintiff-litigants the burden of establishing by affirmative proof
that they are not unregistered foreign corporations; that fact will not
be presumed without some evidence tending to establish its
existence. But the question is not alone new, but of prime importance,
to the consideration of which we have given mature thought.
Corporations have no legal status beyond the bounds of the
sovereignty by which they are created. A state may restrict the right of
a foreign corporation to engage in business within its limits, and to
sue in its courts. But by virtue of state comity, a corporation created
by the laws of one state is usually allowed to transact business in
other states and to sue in the courts of the forum. (Paul vs. Virginia
[1869], 8 Wall., 168; Sioux Remedy Co., vs. Cope and Cope [1914],
235 U. S., 197; Cyclone Mining Co. vs. Baker Light & Power Co.,
[1908], 165 Fed., 996.)
But here we have present for resolution no question of constitutional
law. Article 4 of the United States Constitution and the Fourteenth

Amendment to the Constitution are not invoked. The issue is not

complicated with matters affecting interstate commerce under the
American Constitution. Nor are we concerned with a question of
private international law. It all simmers down to an issue of statutory
construction.
Defendant isolates a portion of one sentence of section 69 of the
Corporation Law and asks the court to give it a literal meaning.
Counsel would have the law read thus: "No foreign corporation shall
be permitted to maintain by itself or assignee any suit for the recovery
of any debt, claim, or demand whatever, unless it shall have the
license prescribed in section 68 of the law." Plaintiff, on the contrary,
desires for the court to consider the particular point under discussion
with reference to all the law, and thereafter to give the law a common
sense interpretation.
The object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object
of the statute 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. The implication of the law is
that 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,
and thus, in effect, to permit persons to avoid their contracts made
with such foreign corporations. The effect of the statute preventing
foreign corporations from doing business and from bringing actions in
the local courts, except on compliance with elaborate requirements,
must not be unduly extended or improperly applied. It should not be
construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection with the
spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan.,
1; American De Forest Wireless Telegraph Co. vs. Superior Court of
City & County of San Francisco and Hebbard [1908], 153 Cal., 533; 5
Thompson on Corporations, 2d ed., chap. 184.)
Confronted with the option of giving to the Corporation Law a harsh
interpretation, which would disastrously embarrass trade, or of giving
to the law a reasonable interpretation, which would markedly help in

the development of trade; confronted with the option of barring from

the courts foreign litigants with good causes of action or of assuming
jurisdiction of their cases; confronted with the option of construing the
law to mean that any corporation in the United States, which might
want to sell to a person in the Philippine must send some
representative to the Islands before the sale, and go through the
complicated formulae provided by the Corporation Law with regard to
the obtaining of the license, before the sale was made, in order to
avoid being swindled by Philippine citizens, or of construing the law to
mean that no foreign corporation doing business in the Philippines
can maintain any suit until it shall possess the necessary license,
confronted with these options, can anyone doubt what our decision
will be? The law simply means that no foreign corporation shall be
permitted "to transact business in the Philippine Islands," as this
phrase is known in corporation law, unless it shall have the license
required by law, and, until it complies with the law, shall not be
permitted to maintain any suit in the local courts. A contrary holding
would bring the law to the verge of unconstitutionality, a result which
should be and can be easily avoided. (Sioux Remedy Co. vs. Cope
and Cope, supra; Perkins, Philippine Business Law, p. 264.)
The noncompliance of a foreign corporation with the statute may be
pleaded as an affirmative defense. Thereafter, it must appear from
the evidence, first, that the plaintiff is a foreign corporation, second,
that it is doing business in the Philippines, and third, that it has not
obtained the proper license as provided by the statute. (Standard
Stock Food Co. vs. Jasper [1907], 76 Kan., 926; Spreckles vs. Ward,
supra.)
The order appealed from shall be set aside and the record shall be
returned to the court of origin for further proceedings. Without special
finding as to costs in this instance, it is so ordered.
Johnson, Street, Avancea, Villamor, Ostrand and Romualdez, JJ.,
concur.

SIGNETICS vs. CA

Facts:
1. The petitioner, Signetics was organized under the laws of the
United States of America. Through Signetics Filipinas
Corporation (SigFil), a wholly-owned subsidiary, Signetics
entered into lease contract over a piece of land with Fruehauf
Electronics Phils., Inc. (Freuhauf).
2. Freuhauf sued Signetics for damages, accounting or return of
certain machinery, equipment and accessories, as well as the
transfer of title and surrender of possession of the buildings,
installations and improvements on the leased land, before the
RTC of Pasig (Civil Case No. 59264). Claiming that Signetics
caused SigFil to insert in the lease contract the words
"machineries, equipment and accessories," the defendants were
able to withdraw these assets from the cost-free transfer
provision of the contract.
3. Service of summons was made on Signetics through TEAM
Pacific Corp. on the basis of the allegation that Signetics is a
"subsidiary of US PHILIPS CORPORATION, and may be served
summons at Philips Electrical Lamps, Inc., Las Pias, Metro
Manila and/or c/o Technology Electronics Assembly &
Management (TEAM) Pacific Corporation, Electronics Avenue,
FTI Complex, Taguig, Metro Manila," service of summons was
made on Signetics through TEAM Pacific Corporation.
4. Petitioner filed a motion to dismiss the complaint on the
ground of lack of jurisdiction over its person. Invoking Section 14,

Rule 14, of the Rules of Court and the rule laid down in Pacific
Micronisian Line, Inc., v. Del Rosario and Pelington to the effect
that the fact of doing business in the Philippines should first be
established in order that summons could be validly made and
jurisdiction acquired by the court over a foreign corporation.
5. The RTC denied the Motion to dismiss. While the CA affirmed
RTC. Hence this petition. The petitioner argues that what was
effectively alleged in the complaint as an activity of doing
business was "the mere equity investment" of petitioner in SigFil,
which the petitioner insists, had theretofore been transferred to
TEAM holdings, Ltd.
Issue: Whether or not the lower court, had correctly
assumed jurisdiction over the petitioner, a foreign
corporation, on its claim in a motion to dismiss, that it had
since ceased to do business in the Philippines.
YES.
1. Signetics cannot, at least in this early stage, assail, on the one
hand, the veracity and correctness of the allegations in the
complaint and proceed, on the other hand, to prove its own, in
order to hasten a peremptory escape. As explained by the Court
in Pacific Micronisian, summons may be served upon an agent
of the defendant who may not necessarily be its "resident agent
designated in accordance with law." The term "agent", in the
context it is used in Section 14, refers to its general meaning,
i.e., one who acts on behalf of a principal.
The allegations in the complaint have thus been able to amply
convey that not only is TEAM Pacific the business conduit of the
petitioner in the Philippines but that, also, by the charge of fraud,
is none other than the petitioner itself.

2. The rule is that, a foreign corporation, although not engaged in

business in the Philippines, may still look up to our courts for
relief; reciprocally, such corporation may likewise be "sued in
Philippine courts for acts done against a person or persons in the
Philippines" (Facilities Management Corporation v. De la
Osa), provided that, in the latter case, it would not be impossible
for court processes to reach the foreign corporation, a matter
that can later be consequential in the proper execution of
judgment. Hence, a State may not exercise jurisdiction in the
absence of some good basis (and not offensive to traditional
notions of fair play and substantial justice) for effectively
exercising it, whether the proceedings are in rem, quasi in
rem or in personam.

AGILENT TECHNOLOGIES vs. INTEGRATED SILICON TECHNOLOGY

FACTS:PetitionerAgilentisaforeigncorporation,which,
byitsownadmission,isnotlicensedtodobusinessinthe
Philippines.RespondentIntegratedSiliconisaprivate
domesticcorporation,100%foreignowned,whichis
engagedinthebusinessofmanufacturingandassembling
electronicscomponents.
Thejuridicalrelationamongthevariouspartiesinthiscase

canbetracedtoa5yearValueAddedAssemblyServices
Agreement(VAASA),betweenIntegratedSiliconandHP
Singapore.UnderthetermsoftheVAASA,Integrated
Siliconwastolocallymanufactureandassemblefiber
opticsforexporttoHPSingapore.HPSingapore,forits
part,wastoconsignrawmaterialstoIntegrated
Silicon.TheVAASAhadafiveyeartermwithaprovision
forannualrenewalbymutualwrittenconsent.Later,with
theconsentofIntegratedSilicon,HPSingaporeassigned
allitsrightsandobligationsintheVAASAtoAgilent.
Later,IntegratedSiliconfiledacomplaintforSpecific
PerformanceandDamagesagainstAgilentanditsofficers.
ItallegedthatAgilentbreachedthepartiesoralagreement
toextendtheVAASA.Agilentfiledaseparatecomplaint
againstIntegratedSiliconforSpecificPerformance,
RecoveryofPossession,andSumofMoneywithReplevin,
PreliminaryMandatoryInjunction,andDamages.
RespondentsfiledaMTDinthe2ndcase,onthegrounds
oflackofAgilentslegalcapacitytosue;litis
pendentia;forumshopping;andfailuretostateacauseof
action.
ThetrialcourtdeniedtheMTDandgrantedpetitioner
Agilentsapplicationforawritofreplevin.Withoutfilinga
MR,respondentsfiledapetitionforcertiorariwiththeCA.
TheCAgrantedrespondentspetitionforcertiorari,set
asidetheassailedOrderofthetrialcourt(denyingthe
MTD)andorderedthedismissalofthe2ndcase.Hence,

theinstantpetition.
ISSUE:WONanunlicensedforeigncorporationnotdoing
businessinthePhilippineslacksthelegalcapacitytofile
suit.
HELD:ThepetitionisGRANTED.TheDecisionofthe
CAwhichdismissedthe2ndcaseisREVERSEDandSET
ASIDE.TheOrderdenyingtheMTDisREINSTATED.
AgilentsapplicationforaWritofReplevinisGRANTED.
NO
Aforeigncorporationwithoutalicenseisnotipso
factoincapacitatedfrombringinganactioninPhilippine
courts.Alicenseisnecessaryonlyifaforeigncorporation
istransactingordoingbusinessinthecountry.The
CorporationCodeprovides:Sec.133.Doingbusiness
withoutalicense.Noforeigncorporationtransacting
businessinthePhilippineswithoutalicense,orits
successorsorassigns,shallbepermittedtomaintainor
interveneinanyaction,suitorproceedinginanycourtor
administrativeagencyofthePhilippines;butsuch
corporationmaybesuedorproceededagainstbefore
Philippinecourtsoradministrativetribunalsonanyvalid
causeofactionrecognizedunderPhilippinelaws.
Theaforementionedprovisionpreventsanunlicensed

foreigncorporationdoingbusinessinthePhilippines
fromaccessingourcourts.
[Inanumberofcases,however,wehaveheldthatan
unlicensedforeigncorporationdoingbusinessinthe
PhilippinesmaybringsuitinPhilippinecourtsagainsta
Philippinecitizenorentitywhohadcontractedwithand
benefitedfromsaidcorporation.Suchasuitispremisedon
thedoctrineofestoppel.Apartyisestoppedfrom
challengingthepersonalityofacorporationafterhaving
acknowledgedthesamebyenteringintoacontractwithit.
Thisdoctrineofestoppeltodenycorporateexistenceand
capacityappliestoforeignaswellasdomestic
corporations.Theapplicationofthisprinciplepreventsa
personcontractingwithaforeigncorporationfromlater
takingadvantageofitsnoncompliancewiththestatutes
chieflyincaseswheresuchpersonhasreceivedthebenefits
ofthecontract.]Theprinciplesregardingtherightofa
foreigncorporationtobringsuitinPhilippinecourtsmay
thusbecondensedinfourstatements:
ifaforeigncorporationdoesbusinessinthePhilippines
withoutalicense,itcannotsuebeforethePhilippinecourts;
ifaforeigncorporationisnotdoingbusinessinthe
Philippines,itneedsnolicensetosuebeforePhilippine
courtsonanisolatedtransactionoronacauseofaction
entirelyindependentofanybusinesstransaction;

ifaforeigncorporationdoesbusinessinthePhilippines
withoutalicense,aPhilippinecitizenorentitywhichhas
contractedwithsaidcorporationmaybeestoppedfrom
challengingtheforeigncorporationscorporatepersonality
inasuitbroughtbeforePhilippinecourts;and
ifaforeigncorporationdoesbusinessinthe
Philippineswiththerequiredlicense,itcansuebefore
Philippinecourtsonanytransaction.
**ThechallengetoAgilentslegalcapacitytofilesuit
hingesonwhetherornotitisdoingbusinessinthe
Philippines.However,thereisnodefinitiveruleonwhat
constitutesdoing,engagingin,ortransacting
businessinthePhilippines.TheCorporationCodeitselfis
silentastowhatactsconstitutedoingortransacting
businessinthePhilippines.
[Jurisprudencehasit,however,thatthetermimpliesa
continuityofcommercialdealingsandarrangements,and
contemplates,tothatextent,theperformanceofactsor
worksortheexerciseofsomeofthefunctionsnormally
incidenttoorinprogressiveprosecutionofthepurposeand
subjectofitsorganization.
IntheMentholatumcasethisCourtdiscoursedonthetwo
generalteststodeterminewhetherornotaforeign
corporationcanbeconsideredasdoingbusinessinthe

Philippines.Thefirstoftheseisthesubstancetest,thus:
Thetruetest[fordoingbusiness],however,seemstobe
whethertheforeigncorporationiscontinuingthebodyof
thebusinessorenterpriseforwhichitwasorganizedor
whetherithassubstantiallyretiredfromitandturnedit
overtoanother.
Thesecondtestisthecontinuitytest,expressedthus:
Theterm[doingbusiness]impliesacontinuityof
commercialdealingsandarrangements,andcontemplates,
tothatextent,theperformanceofactsorworksorthe
exerciseofsomeofthefunctionsnormallyincidentto,and
intheprogressiveprosecutionof,thepurposeandobjectof
itsorganization.]
**TheForeignInvestmentsActof1991(theFIA;
RepublicActNo.7042,asamended),definesdoing
businessasfollows:
Sec.3,par.(d).Thephrasedoingbusinessshallinclude
solicitingorders,servicecontracts,openingoffices,
whethercalledliaisonofficesorbranches;appointing
representativesordistributorsdomiciledinthePhilippines
orwhoinanycalendaryearstayinthecountryforaperiod
orperiodstotalingonehundredeighty(180)daysormore;
participatinginthemanagement,supervisionorcontrolof

anydomesticbusiness,firm,entity,orcorporationinthe
Philippines;andanyotheractoractsthatimplya
continuityofcommercialdealingsorarrangements,and
contemplatetothatextenttheperformanceofactsor
works,ortheexerciseofsomeofthefunctionsnormally
incidentto,andintheprogressiveprosecutionof,
commercialgainorofthepurposeandobjectofthe
businessorganization.
Ananalysisoftherelevantcaselaw,inconjunctionwith
Sec1oftheIRRoftheFIA(asamendedbyRA8179),
woulddemonstratethattheactsenumeratedintheVAASA
donotconstitutedoingbusinessinthePhilippines.The
saidprovisionprovidesthatthefollowingshallnotbe
deemeddoingbusiness:
(1)Mereinvestmentasashareholderbyaforeignentityin
domesticcorporationsdulyregisteredtodobusiness,
and/ortheexerciseofrightsassuchinvestor;
(2)Havinganomineedirectororofficertorepresentits
interestinsuchcorporation;
(3)Appointingarepresentativeordistributordomiciledin
thePhilippineswhichtransactsbusinessinthe
representativesordistributorsownnameandaccount;
(4)Thepublicationofageneraladvertisementthroughany

printorbroadcastmedia;
(5)MaintainingastockofgoodsinthePhilippinessolely
forthepurposeofhavingthesameprocessedbyanother
entityinthePhilippines;
(6)Consignmentbyaforeignentityofequipmentwitha
localcompanytobeusedintheprocessingofproductsfor
export;
(7)CollectinginformationinthePhilippines;and
(8)Performingservicesauxiliarytoanexistingisolated
contractofsalewhicharenotonacontinuingbasis,suchas
installinginthePhilippinesmachineryithasmanufactured
orexportedtothePhilippines,servicingthesame,training
domesticworkerstooperateit,andsimilarincidental
services.
Byandlarge,toconstitutedoingbusiness,theactivityto
beundertakeninthePhilippinesisonethatisforprofit
making.
BythecleartermsoftheVAASA,Agilentsactivitiesin
thePhilippineswereconfinedto(1)maintainingastockof
goodsinthePhilippinessolelyforthepurposeofhaving
thesameprocessedbyIntegratedSilicon;and(2)
consignmentofequipmentwithIntegratedSilicontobe

usedintheprocessingofproductsforexport.Assuch,we
holdthat,basedontheevidencepresentedthusfar,Agilent
cannotbedeemedtobedoingbusinessinthePhilippines.
RespondentscontentionthatAgilentlacksthelegal
capacitytofilesuitisthereforedevoidofmerit.Asa
foreigncorporationnotdoingbusinessinthePhilippines,it
needednolicensebeforeitcansuebeforeourcourts.

THE HOME INSURANCE COMPANY, Petitioner, vs. EASTERN SHIPPING LINES and/or
ANGEL JOSE TRANSPORTATION, INC. Respondent.
G. R. L-34382, July 20, 1983
FACTS:
On or about January 13, 1967, S. Kajikita & Co. on board the SS Eastern Jupiter,
which is owned by the respondent, from Osaka, Japan coils of Black Hot Rolled Copper
Wires Rods. The shipment was covered by Bill of Lading with arrival notice to the Phelps
Dodge Copper Products Corporation, the consignee. It was also insured with the plaintiff
against all risks in the amount of P1,580,105.06.
The coils discharged from the vessel were in bad order, consisting of loose and
partly cut coils which had to be considered scrap. The plaintiff paid the consignee under
insurance the amount of P3,260.44 for the loss/damage suffered by the cargo. Plaintiff, a
foreign insurance company duly authorized to do business in the Philippines, made
demands for payment of the aforesaid amount against the carrier and transportation
company for reimbursement of the aforesaid amount, but each refused to pay the same.
The Eastern Shipping Lines filed its answer and denied the allegations of Paragraph I
which refer to the plaintiffs capacity to sue for lack of knowledge or information sufficient
to form a belief as to the truth thereof. Angel Jose Transportation, on the other hand,
admitted the jurisdictional averments in paragraphs 1, 2 and 3 of the heading parties.
The Court of First Instance dismissed the complaint on the ground that the
appellant had failed to prove its capacity to sue. The petitioner then filed a petition for
review on certiorari.

ISSUE: Whether or not that the trial court erred in dismissing the finding that plaintiffappellant has no capacity to sue.
RULING:
The court held that the objective of the law is to subject the foreign corporation to
the jurisdiction of our court. The Corporation Law must be given reasonable, not an
unduly harsh interpretation which does not hamper the development of trade relations and
which fosters friendly commercial intercourse among countries.
Counsel for appellant contends that at the time of the service of summons, the appellant
had not yet been authorized to do business. But, the lack of capacity at the time of the
execution of the contracts was cured by the subsequent registration is also strengthened
by the procedural aspects of the case.
The court find the general denials inadequate to attack the foreign corporations lack of
capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8
requires that "a party desiring to raise an issue as to the legal existence of any party or the
capacity of any party to sue or be sued in a representative capacity shall do so by specific denial,
which shall include such supporting particulars as are particularly within the pleader's knowledge.
At the very least, the private respondents should have stated particulars in their answers upon
which a specific denial of the petitioner's capacity to sue could have been based or which could
have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to
sue was not properly raised as an issue by the answers, the petitioner introduced documentary
evidence that it had the authority to engage in the insurance business at the time it filed the
complaints.

CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE

COMPANY OF THE PHILIPPINES, INC.
GR No. 171815, August 7, 2007
Chico-Nazario, J.
FACTS:
Union Cement Corporation (UCC), a publicly-listed company, has
two principal stockholders UCHC, a non-listed company, with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority
of UCHCs stocks were owned by BCI with 21.31% and ACC with
29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a
disclosure letter, BCI informed the Philippine Stock Exchange (PSE) that
it and its subsidiary ACC had passed resolutions to sell
to Cemco BCIsstocks in UCHC equivalent to 21.31% and ACCs stocks
in UCHC equivalent to 29.69%.

As a consequence of this disclosure, the PSE inquired as to

whether the Tender Offer Rule under Rule 19 of the Implementing Rules
of the Securities Regulation Code is not applicable to the purchase by
petitioner of the majority of shares of UCC. The SEC en banc had
resolved that the Cemco transaction was not covered by the tender
offer rule. Feeling aggrieved by the transaction, respondent National
Life Insurance Company of the Philippines, Inc., a minority stockholder
of UCC, sent a letter toCemco demanding the latter to comply with the
rule on mandatory tender offer. Cemco, however, refused.
Respondent National Life Insurance Company of the Philippines,
Inc. filed a complaint with the SEC asking it to reverse its 27 July
2004 Resolution and to declare the purchase agreement of Cemco void
and praying that the mandatory tender offer rule be applied to its UCC
shares.
The SEC ruled in favor of the respondent by reversing and setting
aside its 27 July 2004 Resolution and directed petitioner Cemco to
make a tender offer for UCC shares to respondent and other holders of
UCC shares similar to the class held by UCHC in accordance with
Section 9(E), Rule 19 of the Securities Regulation Code.
On petition to the Court of Appeals, the CA rendered a decision
affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to
render the questioned decision and, in any event, Cemcowas barred
by estoppel from questioning the SECs jurisdiction. It, likewise, held
that the tender offer requirement under the Securities Regulation Code
and its Implementing Rules applies to Cemcos purchase of UCHC
stocks. Cemcos motion for reconsideration was likewise denied.
ISSUES:
1. Whether or not the SEC has jurisdiction over respondents

complaint and to require Cemco to make a tender offer for

respondents UCC shares.

2. Whether or not the rule on mandatory tender offer applies to the

indirect acquisition of shares in a listed company, in this case,

the indirect acquisition by Cemco of 36% of UCC, a publiclylisted company, through its purchase of the shares in UCHC, a
non-listed company.

HELD:
1. YES. In taking cognizance of respondents complaint against petitioner
and eventually rendering a judgment which ordered the latter to make

a tender offer, the SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit:

13. Violation
If there shall be violation of this Rule by pursuing a
purchase of equity shares of a public company at threshold
amounts without the required tender offer, the
Commission, upon complaint, may nullify the said
acquisition and direct the holding of a tender offer. This
shall be without prejudice to the imposition of other
sanctions under the Code.
The foregoing rule emanates from the SECs power and
authority to regulate, investigate or supervise the activities of
persons to ensure compliance with the Securities Regulation
Code, more specifically the provision on mandatory tender offer
under Section 19 thereof. Moreover, petitioner is barred from
questioning the jurisdiction of the SEC. It must be pointed out
that petitioner had participated in all the proceedings before the
SEC and had prayed for affirmative relief.
2. YES. Tender offer is a publicly announced intention by a person
acting alone or in concert with other persons to acquire equity
securities of a public company. [12] A public company is defined
as a corporation which is listed on an exchange, or a corporation
with assets exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100
shares of such company. [13] Stated differently, a tender offer is
an offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the terms
specified in the offer. [14] Tender offer is in place to protect
minority shareholders against any scheme that dilutes the share
value of their investments. It gives the minority shareholders
the chance to exit the company under reasonable terms, giving
them the opportunity to sell their shares at the same price as
those of the majority shareholders.

The SEC and the Court of Appeals ruled that the indirect
acquisition by petitioner of 36% of UCC shares through the
acquisition of the non-listed UCHC shares is covered by the
mandatory tender offer rule.
The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company
and for the purpose of protecting the minority stockholders of a

listed corporation. Whatever may be the method by which

control of a public company is obtained, either through the direct
purchase of its stocks or through an indirect means, mandatory
tender offer applies. As appropriately held by the Court of
Appeals:
What is decisive is the determination of the power
of control. The legislative intent behind the tender
offer rule makes clear that the type of activity
intended to be regulated is the acquisition of control
of the listed company through the purchase of
shares. Control may [be] effected through a direct
and indirect acquisition of stock, and when this takes
place, irrespective of the means, a tender offer must
occur. The bottomline of the law is to give the
shareholder of the listed company the opportunity to
decide whether or not to sell in connection with a
transfer of control.xxx

Securities and Exchange Commission v. Interport Resources Corporation

NATURE: Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision,1 dated 20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036,
enjoining petitioner Securities and Exchange Commission (SEC) from taking cognizance of or
initiating any action against the respondent corporation Interport Resources Corporation (IRC)
and members of its board of directors, respondents Manuel S. Recto, Rene S. Villarica, Pelagio
Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with respect
to Sections 8, 30 and 36 of the Revised Securities Act.
Doctrine: The mere absence of implementing rules cannot effectively invalidate provisions of law
where a reasonable construction that will support the law may be given. It is well established that
administrative authorities have the power to promulgate rules and regulations to confirm to the
terms and standards prescribed by the statute as well as purport to carry into effect its general
policies.
The insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct.
The intent of the law is the protection of investors against fraud, committed when an insider,
using secret information, takes advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from trading the shares of his
corporation. This duty to disclose or abstain is based n 2 factors: 1) the existence of a
relationship giving access, directly or indirectly to information intended to be available only for a
corporate purpose and not for the personal benefit of anyone and 2) the inherent unfairness

involved when a party takes advantage of such information knowing it is unavailable to those with
whom he is dealing.
Facts:
- The Board of Directors of IRC approved a Memorandum of Agreement with GHB (Ganda
Holdings Berhad). Under said memorandum of agreement, IRC acquired 100% of the entire
capital stock of GEHI (Ganda Energy Holdings Inc.) which would own and operate a 102
megawatt gas turbine power generating barge. In exchange, IRC will issue to GHB 55% of the
expanded capital stock of IRC. On the side, IRC would acquire 67% of the entire capital of
PRCI (Philippine Racing Club).
- It is alleged herein that a press release announcing the approval of the agreement was sent to
the Philippine Stock Exchange through facsimile and the SEC, but the facsimile machine of the
SEC could not receive it. However, the SEC received reports that the IRC failed to make
timely public disclosures of its negotiations with GHB and that some of its directors,
heavily traded IRC shares utilizing this material insider information. For this reason, the
SEC required the directors to appear before the SEC to explain the alleged failure to disclose
material information as required by the Rules on Disclosure of Material Facts. Unsatisfied with the
explanation, the SEC issued an order finding that the IRC violated the Rules in connection
with the then Old Securities Act when it failed to make timely disclosures of its
negotiations with GHB. In addition, the SEC found that the directors of IRC entered into
transactions involving IRC shares in violation of the Revised Securities Act.
- Respondents, however, questioned the authority of the SEC to investigate on said matter since
according to PD 902-A, jurisdiction upon the matter was conferred upon the PED (Prosecution
and Enforcement Department) of the SEC however, this issue is already moot since pending
the disposition of the case, the Securities Regulation Code was passed thereby effectively
repealing PD 902-A and abolishing the PED. They also contended that their right to due process
was violated when the SEC required them to appear before the SEC to show cause why
sanctions should not be imposed upon them since such requirement shifted the burden of proof
to respondents.
The case reached the CA and said court ruled in favor of the respondents and effectively enjoined
the SEC from filing any criminal, civil or administrative cases against respondents. In its
resolution, the CA stated that since there are no rules and regulations implementing the
rules regarding DISCLOSURE, INSIDER TRADING OR ANY OF THE PROVISIONS OF THE
REVISED SECURITIES ACT, the SEC has no statutory authority to file any suit against
respondents. The CA, therefore, prohibited the SEC from taking cognizance or initiating any
action against the respondents for the alleged violations of the Revised Securities Act.
Issue:
1.) Whether or not the SEC has authority to file suit against respondents for violations of the RSA.
2.) Whether or not their right to due process was violated when the SEC denied the parties of
their right to cross examination.
Ratio:
- The Revised Securities Act does not require the enactment of implementing rules to
make it binding and effective. The provisions of the RSA are sufficiently clear and
complete by themselves. The requirements are specifically set out and the acts which are
enjoined are determinable. To tule that absence of implementing rules can render ineffective an
act of Congress would empower administrative bodies to defeat the legislative will by delaying the
implementing rules. Where the statute contains sufficient standards and an unmistakable intent
(as in this case, the RSA) there should be no impediment as to its implementation.
- The court does not discern any vagueness or ambiguity in the RSA such that the acts
proscribed and/or required would not be understood by a person of ordinary intelligence. The

provision explains in simple terms that the insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct and that the intent of the law is the
protection of investors against fraud committed when an insider, using secret information,
takes advantage of an uninformed investor. Insiders are obligatd to disclose material
information to the other party or abstain from trading the shares of his corporation. This duty to
disclose or abstain is based n 2 factors: 1) the existence of a relationship giving access, directly
or indirectly to information intended to be available only for a corporate purpose and not for the
personal benefit of anyone and 2) the inherent unfairness involved when a party takes advantage
of such information knowing it is unavailable to those with whom he is dealing.
- This obligation to disclose is imposed upon "insiders" which are particularly officers, directors or
controlling stockholders but that definition has already been expanded and not includes those
persons whose relationship of former relationship to the issuer or the security that is not generally
available and the one who learns such a fact from an insider knowing that the person from whom
he learns such fact is an insider. In some case, however, there may be valid corporate reasons
for the nondisclosure of material information but it should not be used for non-corporate
purposes.
- Respondent contends that the terms "material fact", "reasonable person", "nature and
reliability" and "generally available" are vaguely used in the RSA because under the provision
of the said law what is required to be disclosed is a fact of special significance, meaning:
1. a material fact which would be likely to affect the market price of a security or;
2. one which a reasonable person would consider especially important in determining
his course of action with regard to the shares of stock.
- But the court dismissed said contention and stated that material fact is already defined and
explained as one which induces or tends to induce or otherwise affect the sale or purchase
of securities. On the other hand, "reasonable person" has already been used many times in
jurisprudence and in law since it is a standard on which most of legal doctrines stand (even the
doctrine on negligence uses such standard) and it has been held to mean "a man who relies on
the calculus of common sense of which all reasonable men have in abundance"
- As to "nature and reliability" the proper adjudicative body would be able to determine if facts
of a certain nature and reliability can influence a reasonable person's decision to retain, buy or
sell securities and thereafter explain and justify its factual findings in its decision since the same
must be viewed in connection with the particular circumstances of a case.
As to "generally available", the court held also that such is a matter which may be adjudged
given the particular circumstances of the case. The standards of which cannot remain at a
standstill.
- There is no violation of due process in this case since the proceedings before the PED
are summary in nature. The hearing officer may require the parties to submit their respective
verified position papers together will all supporting documents and affidavits of witnesses. A
formal hearing is not mandatory and it is within the discretion of the hearing officer to
determine whether or not there is a need for a formal hearing.
- Moreover, the law creating the PED empowers it to investigate violations of the rules and
regulations and to file and prosecute such cases. It does not have an adjudicatory powers.
Thus, the PED need not comply with the provisions of the Administrative Code on adjudication.
- The SEC retained jurisdiction to investigate violations of the RSA, reenacted in the
Securities Regulations Code despite the abolition of the PED. In this case, the SEC already
commenced investigating the respondents for violations of the RSA but during the pendency of
the case the Securities and Regulations Code was passed thereby repealing the RSA. However,
the repeal cannot deprive the SEC of its jurisdiction to continue investigating the case.

- Investigations by the SEC is a requisite before a criminal case may be referred to the DOJ since
the SEC is an administrative agency with the special competence to do so. According to the
doctrine of primary jurisdiction, the courts will not determine a controversy involving a question
within the jurisdiction of an administrative tribunal where the question demands the exercise of
sound administrative discretion requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate matters of fact.

G.R. No. 158941

February 11, 2008

TIMESHARE REALTY CORPORATION, petitioner, vs.CESAR LAO

and CYNTHIA V. CORTEZ, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45
of the Rules of Court, assailing the October 30, 2002 Resolution 1 of
the Court of Appeals (CA), which denied due course to the appeal of
Timeshare Realty Corporation (petitioner) from the March 25, 2002
Decision2 of the Securities and Exchange Commission (SEC) in SEC
Case No. 01-99-6199; and the July 4, 2003 CA Resolution, 3 which
denied petitioners Motion for Reconsideration.
As found by the SEC,4 the antecedent facts are as follows:
On October 6, 1996, herein petitioner sold to Ceasar M. Lao and
Cynthia V. Cortez (respondents), one timeshare of Laguna de
Boracay for US$7,500.00 under Contract No. 135000998 payable in
eight months and fully paid by the respondents.
Sometime in February 1998, the SEC issued a resolution to the effect
that petitioner was without authority to sell securities, like timeshares,
prior to February 11, 1998. It further stated in the resolution/order that

the Registration Statement of petitioner became effective only on

February 11, 1998. It also held that the 30 days within which a
purchaser may exercise the option to unilaterally rescind the
purchase agreement and receive the refund of money paid applies to
all purchase agreements entered into by petitioner prior to the
effectivity of the Registration Statement.
Petitioner sought a reconsideration of the aforesaid order but the
SEC denied the same in a letter dated March 9, 1998.
On March 30, 1998, respondents wrote petitioner demanding their
right and option to cancel their Contract, as it appears that Laguna de
Boracay is selling said shares without license or authority from the
SEC. For failure to get an answer to the said letter, respondents this
time, through counsel, reiterated their demand through another letter
dated June 29, 1998. But despite repeated demands, petitioner failed
and refused to refund or pay respondents.5
Respondents directly filed with SEC En Banc6 a Complaint7 against
petitioner and the Members of its Board of Directors - Julius S.
Strachan, Angel G. Vivar, Jr. and Cecilia R. Palma - for violation of
Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178.8 Petitioner filed
an Answer9 to the Complaint but the SEC En Banc, in an Order10
dated April 25, 2000, expunged the Answer from the records due to
tardiness.
On March 25, 2002, the SEC En Banc rendered a Decision in favor of
respondents, ordering petitioner, together with Julius S. Strachan,
Angel G. Vivar, Jr., and Cecilia R. Palma, to pay respondents the
amount of US$7,500.00.11
Petitioner filed a Motion for Reconsideration 12 which the SEC En
Banc denied in an Order13 dated June 24, 2002.
Petitioner received a copy of the June 24, 2002 SEC En Banc Order
on July 4, 200214 and had 15 days or until July 19, 2002 within which
to appeal. However, on July 10, 2002, petitioner sought from the CA
an extension of 30 days, counted from July 19, 2002, or until August
19, 2002, within which to appeal. 15 The CA partly granted the motion
in an Order dated July 24, 2002, to wit:

As prayed for, but conditioned on the timeliness of its filing, the

Motion for Extension to File Petition for Review dated 09 July 2002
and filed before this Court on 10 July 2002 is GRANTED and
petitioners are given a non-extendible period of fifteen (15) days from
10 July 2002 or until 25 July 2002 within which to file the desired
petition, otherwise, the above-entitled case will be dismissed.
(Emphasis supplied.) 16
Petitioner purportedly received the July 24, 2002 CA Order on July
29, 2002,17 but filed a Petition for Review with the CA on August 19,
2002.18
In the assailed October 30, 2002 Resolution, the CA dismissed the
Petition for Review, thus:
Under Section 4, Rule 43 of the 1997 Revised Rules of Civil
Procedure, petitioners shall not be given an extension longer than
fifteen (15) days from the expiration of the reglementary period,
except for the most compelling reason.
Thus, on 24 July 2002, in the absence of a compelling reason that
justifies the granting of a longer period of extension, this Court issued
a resolution wherein petitioners were given an extension of ONLY
fifteen days from 10 July 2002 or until 25 July 2002 within which to
file the petition for review, otherwise, the above entitled case will be
dismissed.
However, records show that petitioners filed their petition for review
only on 19 August 2002, which is twenty-five (25) days beyond the
allowed 15-day extended period granted by this Court.
WHEREFORE, the appeal from the decision of the Securities and
Exchange Commission (SEC) Case No. 01-99-6199 is hereby
DISMISSED for failure of the petitioners to file their Petition for
Review under the 15-day period granted by this Court as provided by
Rule 43, Section 4 of the 1997 Revised Rules of Civil Procedure.
SO ORDERED.19
and denied petitioner's Motion for Reconsideration in the assailed
Resolution dated July 4, 2003.20

Petitioner filed the present petition, urging us to look beyond the

procedural lapse in its appeal, and resolve the following substantive
issues:
Whether or not the eventual approval or issuance of license has
retroactive effect and therefore ratifies all earlier transactions;
Whether or not a party in a contract could withdraw or rescind
unilaterally without valid reason.21
We deny the petition.
A judgment must become final at the time appointed by law 22 -- this is
a fundamental principle upon which rests the efficacy of our courts
whose processes and decrees command obedience only when these
are perceived to have some degree of permanence and predictability.
Thus, an appeal from such judgment, not being a natural right but a
mere statutory privilege, must be perfected according to the mode
and within the period prescribed by the law and the rules; otherwise,
the appeal is forever barred, and the judgment becomes binding. 23
Section 70 of Republic Act No. 8799 24 which was enacted on July 19,
2000, is the law which governs petitioners appeal from the orders of
the SEC En Banc. It prescribes that such appeal be taken to the CA
"by petition for review in accordance with the pertinent provisions of
the Rules of Court," specifically Rule 43.25
Section 4 of Rule 43 is restrictive in its treatment of the period within
which a petition may be filed:
Section 4. Period of appeal. - The appeal shall be taken within fifteen
(15) days from notice of the award, judgment, final order or
resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioners motion
for new trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. Only one (1) motion for
reconsideration shall be allowed. Upon proper motion and the
payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals may
grant an additional period of fifteen (15) days only within which
to file the petition for review. No further extension shall be

granted except for the most compelling reason and in no case to

exceed fifteen (15) days. (Emphasis supplied.)
Petitioners Motion for Extension of Time to File Petition for Review
flouted the foregoing restriction: it sought, not a 15-day, but a 30-day
extension of the appeal period; 26 and it did not even bother to cite a
compelling reason for such extension, other than its counsels
caseload which, as we have repeatedly ruled, hardly qualifies as an
imperative cause for moderation of the rules. 27
Its motion for extension being inherently flawed, petitioner should not
have presumed that the CA would fully grant the same. 28 Instead, it
should have exercised due diligence by filing the proper petition
within the allowable period,29 or at the very least, ascertaining from the
CA whether its motion for extension had been acted upon. 30 As it
were, petitioners counsel left the country, unmindful of the possibility
that his clients period to appeal was about to lapse - as it indeed
lapsed on July 25, 1999, after the CA allowed them a 15-day
extension only, in view of the restriction under Section 4, Rule 43.
Thus, petitioner has only itself to blame that the Petition for Review it
filed on August 19, 1999 was late by 25 days. The CA cannot be
faulted for dismissing it.
The Court notes that the CA reckoned the 15-day extension it granted
to petitioner from July 10, 1999, the date petitioner filed its Motion for
Extension, rather than from July 19, 1999, the date of expiration of
petitioners original period to appeal. While such computation of the
CA appears to be erroneous, petitioner did not question it in the
present petition. But even if we do reckon the 15-day extension
period from July 19, 1999, the same would have ended on August 3,
1999, making petitioners appeal still inexcusably tardy by 16 days.
Either way we reckon it, therefore, petitioners appeal was not
perfected within the period prescribed under Rule 43.
Nevertheless, the Court opts to resolve the substantive issues raised
by petitioner in its appeal so as to determine the lawful rights of the
parties and put an end to the litigation.
Petitioner claims that at the time it entered into a timeshare purchase
agreement with respondents on October 6, 1996, it already

possessed the requisite license and marketing agreement to engage

in such transactions,31 as evidenced by its registration with the SEC
as a corporation.32 Petitioner argues that when it was registered and
authorized by the SEC as broker of securities 33 - such as the Laguna
de Boracay timeshares - this had the effect of ratifying its October 6,
1996 purchase agreement with respondents, and removing any
cause for the latter to rescind it.
The Court is not persuaded.
As cited by the SEC En Banc in its March 25, 2002 Decision, as early
as February 13, 1998, the SEC, through Director Linda A. Daoang,
already rendered a ruling on the effectivity of the registration
statement of petitioner, viz:
This has reference to your registration statement which was rendered
effective 11 February 1998. The 30 days within which a purchaser
may exercise the option to unilaterally rescind the purchase
agreement and receive the refund of money paid, applies to all
purchase agreements entered into by the registrant prior to the
effectivity of the registration statement. The 30-day rescission
period for contracts signed before the Registration Statement
was rendered effective shall commence on 11 February 1998.
The rescission period for contracts after 11 February 1998 shall
commence on the date of purchase agreement. (Emphasis
supplied.)34
Petitioner sought a reconsideration of said ruling but the same was
denied by Director Daoang in an Order dated March 9, 1998. 35
However, petitioner did not resort to any other administrative remedy
against said ruling, such as by questioning the same before the SEC
En Banc. Having failed to exhaust the administrative remedies
available to it, petitioner is already bound by said ruling and can no
longer question the same through a direct and belated recourse to
us.36
Finally, the provisions of B.P. Blg. 178 do not support the contention
of petitioner that its mere registration as a corporation already
authorizes it to deal with unregistered timeshares. Corporate
registration is just one of several requirements before it may deal with

timeshares:
Section 8. Procedure for registration. - (a) All securities required to be
registered under subsection (a) of Section four of this Act shall be
registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the
Commission, of a sworn registration statement with respect to such
securities, containing or having attached thereto, the following:
xxxx
(36) Unless previously filed and registered with the Commission and
brought up to date:
(a) A copy of its articles of incorporation with all amendments thereof
and its existing by-laws or instruments corresponding thereto,
whatever the name, if the issuer be a corporation.
Prior to fulfillment of all the other requirements of Section 8, petitioner
is absolutely proscribed under Section 4 from dealing with
unregistered timeshares, thus:
Section 4. Requirement of registration of securities. - (a) No
securities, except of a class exempt under any of the provisions of
Section five hereof or unless sold in any transaction exempt under
any of the provisions of Section six hereof, shall be sold or offered for
sale or distribution to the public within the Philippines unless such
securities shall have been registered and permitted to be sold
as hereinafter provided. (Emphasis supplied.)
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.

PHILIPPINE VETERANS BANK, Petitioner,

vs.
JUSTINA CALLANGAN, in her capacity as Director of the Corporation Finance
Department of the Securities and Exchange Commission and/or the
SECURITIES AND EXCHANGE COMMISSION, Respondent.
FACTS:
Respondent Justina F. Callangan, the Director of the Corporation Finance
Department of the Securities and Exchange Commission (SEC), sent Philippine
Veterans Bank (the Bank) a letter, informing it that it qualifies as a "public
company" under Section 17.2 of the Securities Regulation Code (SRC) in relation
with Rule 3(1) (m) of the Amended Implementing Rules and Regulations of the SRC.
The Bank is thus required to comply with the reportorial requirements set forth in
Section 17.1 of the SRC and The Bank responded by explaining that it should not be
considered a "public company" because it is a private company whose shares of
stock are available only to a limited class or sector, i.e., to World War II veterans, and
not to the general public but Director Callangan rejected the Banks explanation and
assessed it a penalty for failing to comply with the SRC reportorial requirements
from 2001 to 2003. The Bank moved for the reconsideration of the assessment, but
Director Callangan denied the motion. The Bank then filed a petition for review with
the Court of Appeals (CA) but the CA dismissed the petition and affirmed the
assailed SEC ruling. The CA also denied the Banks motion for reconsideration,
opening the way for the Banks petition for review on certiorari filed with the Supreme
Court but the Supreme Court denied the Banks petition for failure to show any
reversible error in the assailed CA decision and resolution. Now the Supreme Court
resolves the motion for reconsideration filed by petitioner Philippine Veterans Bank
(the Bank).
ISSUE:
Whether or not the petitioner Philippines Veterans Bank is a Public Company
under the Securities Regulation Code (SRC).
RULING:
Yes, the bank is a public company under the SRC.
The Supreme Court DENIED the motion for reconsideration
Under the Rule 3(1)(m) of the Amended Implementing Rules and Regulations of
the SRC, which defines a "public company" as "any corporation with a class of
equity securities listed on an Exchange or with assets in excess of Fifty Million
Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least
two hundred (200) of which are holding at least one hundred (100) shares of a
class of its equity securities."

From these provisions, it is clear that a "public company," as contemplated by the

SRC, is not limited to a company whose shares of stock are publicly listed; even
companies like the Bank, whose shares are offered only to a specific group of
people, are considered a public company, provided they meet the requirements
enumerated above.
The records establish, and the Bank does not dispute, that the Bank has assets
exceeding P50,000,000.00 and has 395,998 shareholders. It is thus considered a
public company that must comply with the reportorial requirements set forth in
Section 17.1 of the SRC.

China Banking vs. Michelin

58 Phil. 261
FACTS:
George OFarrel & Cie Inc. is a domestic corporation acting as agent and
representative of the Michelin & Cie, a foreign corporation engaged in the sale
and distribution of Michelin tires. Michelin decided to discontinue their business
relations, and it was discovered that OFarrel failed to account for an amount
representing the price of tires sold by the latter. Michelin claims the money was
disposed by OFarrel for its own use and benefit and without the authority or
consent of Michelin. Gaston OFarrel (the person) and Sanchez executed a
mortgage on the house of OFarrel and shares owned by both to guarantee
payment of the amount to the Michelin, but left a balance which the latter seeks
to recover. The board of OFarrel filed a petition for its dissolution and sought the
appointment of Gaston as receiver and liquidator, which was granted by TC.
Michelin filed its claim against OFarrel Corp with a prayer that its claim be
allowed as a preferred one against the latter. TC grants motion of Michelin.
Nobody except Michelin and Gaston was notified of the order. China Bank
intervened and moved that Michelins claim be allowed as an ordinary one under
the Insolvency Law and sought the nullification of the TC orders.
ISSUE:
Liquidation.
HELD:

The appointment of a receiver by the court to wind up the affairs of the

corporation upon petition of voluntary dissolution does not empower the court to
hear and pass on the claims of the creditors of the corporation at first hand. In

such cases, the receiver does not act as a receiver of an insolvent corporation.
Since "liquidation" as applied to the settlement of the affairs of a corporation
consists of adjusting the debts and claims, that is, of collecting all that is due the
corporation, the settlement and adjustment of claims against it and the payment
of its just debts, all claims must be presented for allowance to the receiver or
trustees or other proper persons during the winding-up proceedings within the 3
years provided by the Corporation Law as the term for the corporate existence of
the corporation, and if a claim is disputed so that the receiver cannot safely allow
the same, it should be transferred to the proper court for trial and allowance, and
the amount so allowed then presented to the receiver or trustee for payment.
The rulings of the receiver on the validity of claims submitted are subject to
review by the court appointing such receiver though no appeal is taken to the
latter ruling, and during the winding-up proceedings after dissolution, no creditor
will be permitted by legal process or otherwise to acquire priority, or to enforce
his claim against the property held for distribution as against the rights of other
creditors.
NOTE:
Under the Corporation Code, it is the SEC which may appoint the
receiver.

Republic of the Philippines vs. Marsman Development Corp.

G.R. No. L-18956; April 27, 1972
FACTS:

Defendant corporation was a timber license holder with concessions in

Camarines Norte. Investigations led to the discovery that certain taxes were due
on it. BIR assessed Marsman 3 times for unpaid taxes. Atty. Moya, in behalf of
the corporation, received the first 2 assessments. He requested for
reinvestigations. As a result, corporation failed to pay within the prescribed
period. Numerous BIR warnings were given. After 3 years of futile notifications,
BIR sued the corporation.
ISSUE:
WON present action is barred by prescription, in light of the fact that the
corporation law allows corporations to continue only for 3 years after its
dissolution, for the purpose of presenting or defending suits by or against it, and
to settle its affairs.
HELD:
NO. Although Marsman was extra-judicially dissolved, with the 3-year rule,
nothing however bars an action for recovery of corporate debts against the
liquidators. In fact, the 1st assessment was given before dissolution, while the

2nd and 3rd assessments were given just 6 months after dissolution (within the
3-year rule). Such facts definitely established that the Government was a
creditor of the corporation for whom the liquidator was supposed to hold assets
of the corporation.
NOTE: Code provides for a 3-year period for continuation of the corporate
existence for purposes of liquidation, BUT there is nothing in the provision which
bars an action for recovery of debts of the corporation against the liquidator
himself, after the lapse of the 3-year period.

Tan Tiong Bio vs. CIR

G.R. No. L-15778; April 23, 1962
FACTS:

Tan Tiong Bio et. al. are incorporators and directors of the Central
Syndicate. The company realized a net profit of close to P300K, and sale of goods
was the only transaction undertaken by it. BIR sues the Tan Tiong et. al. for
deficiency sales taxes and surcharges on surplus goods purchased by the
corporation from the Foreign Liquidation Commission. Corporation was dissolved,
and Tan Tiong and company substituted themselves as parties, thereby becoming
successors-in-interests in the corporate assets after liquidation. TC rules in favor
of BIR, and Tan Tiong et. al. appeals, claiming that they cannot be held liable for
tax liability there being no law authorizing the government to proceed against
stockholders of a defunct corporation as transferees of the corporate assets upon
liquidation. If they were liable, it is only to the extent of the benefits derived by
them, and that the action is barred by prescription due to the 3-year limit in the
corporation law.
ISSUE:
WON the sales tax can be enforced against the corporations successorsin-interest, even if corporation has been dissolved by expiration of corporate
existence.
HELD:

The creditor of a dissolved corporation may follow its assets, as in the

nature of a trust fund, once they pass into the hands of the stockholders. The
dissolution of a corporation does not extinguish the debts due or owing to it.
An indebtedness of a corporation to the government for income and
excess profit taxes is not extinguished by the dissolution of the corporation. The
hands of government cannot, of course, collect taxes from a defunct corporation,
it loses thereby none of its rights to assess taxes which had been due from the
corporation, and to collect them from persons, who by reason of transactions

with the corporation hold property against which the tax can be enforced and
that the legal death of the corporation no more prevents such action than would
the physical death of an individual prevent the government from assessing taxes
against him and collecting them from his administrator, who holds the property
which the decedent had formerly possessed. Thus, petitioners can be held
personally liable for the corporation's taxes, being successors-in-interest of the
defunct corporation.

CHUNG KA BIO vs. IAC

Facts: Philippine Blooming Mills Company, Inc. was incorporated for a term of 25
years. The members of its board of directors executed a deed of assignment of
all of the accounts receivables, properties, obligations and liabilities of the old
PBM in favor of Chung Siong Pek in his capacity as treasurer of the new PBM,
then in the process of reincorporation. The new PMB was issued a certificate of
incorporation by the Securities and Exchange Commission. Chung Ka Bio and
the other petitioners herein, all stockholders of the old PBM, filed with the SEC a
petition for liquidation of both the old PBM and the new PBM. The allegation was
that the former had become legally non-existent for failure to extend its corporate
life and that the latter had likewise beenipso facto dissolved for non-use of the
charter and continuous failure to operate within 2 years from incorporation.

Issue: WON, The new corporation has not substantially complied with the twoyear requirement of Section 22 of the new Corporation Code on non-user
because its stockholders never adopted a set of by-laws.

Held: No. Non-filing of the by-laws will not result in automatic dissolution of the
corporation. Under Section 6(i) of PD 902-A, the SEC is empowered to suspend
or revoked, 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.

GELANO vs. CA

FACTS:

Insular Sawmill, Inc. leased the paraphernal

property of Guillermina M. Gelano (wife) for
P1.2K/month

November 19, 1947-December 26, 1950:

Carlos Gelano (husband) obtained cash advances of
P25,950 on account of rentals
agreement: Insular Sawmill, Inc. could deduct the
same from the monthly rentals of the leased
premises until the cash advances are fully paid
Carlos Gelano was able to pay only P5,950.00
thereby leaving an unpaid balance of P20,000.00
which he refused to pay

Guillermina M. Gelano refused to pay on the

ground that said amount was for the personal
account of her husband asked for by, and given to
him, without her knowledge and consent and did

not benefit the family

May 4, 1948 to September 11, 1949:

Spouses Gelanos purchased lumber materials on credit
leaving P946.46 unpaid

July 14, 1952: Joseph Tan Yoc Su, as

accomdating party, executed a joint and several promissory
note with Carlos Gelano in favor of China Banking
Corporation bank in the amount of P8,000.00 payable in
60 days to help renew the previous loan of the spouses

the bank collected P9,106.00 including interests by

debiting the current account of the corp.

Carlos only paid P5,000

Guillermina refused to pay on the ground that she
had no knowledge of such accomodation
May 29, 1959: Insular thru Atty. German
Lee, filed a complaint for collection against the spouses
before the CFI
In the meantime, private respondent amended its
Articles of Incorporation to shorten its term of
existence up to December 31, 1960 only
November 20, 1964: CFI favored Insular
holding Carlos Gelano liable
August 23, 1973: held spouses jointly ad
severally liable

ISSUE: W/N a corporation, whose corporate life had ceased

by the expiration of its term of existence, could still continue
prosecuting and defending suits after its dissolution and
beyond the period of 3 years provided for under Act No.

1459, otherwise known as the Corporation law, to wind up

its affairs, without having undertaken any step to transfer its
assets to a trustee or assignee.
HELD: YES. Affirmed with mod - conjugal property is liable

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 3 years from the time the period of dissolution
commences; but that there is no time limited within
which the trustees must complete a liquidation placed
in their hands

only the conveyance to the trustees must be made

within the 3-year period

effect of the conveyance is to make the trustees

the legal owners of the property conveyed, subject
to the beneficial interest therein of creditors and
stockholders

trustee may commence a suit which can

proceed to final judgment even beyond the 3-year
period

"trustee" = general concept - include the

counsel to whom was entrusted in the instant case

The purpose in the transfer of the assets of

the corporation to a trustee upon its dissolution is more
for the protection of its creditor and stockholders

Debtors may not take advantage of the failure of

the corporation to transfer its assets to a trustee

Section 77 of the Corporation Law, when the corporate

existence is terminated in any legal manner, the corporation
shall nevertheless continue as a body corporate for 3 years

after the time when it would have been dissolved, for the
purpose of prosecuting and defending suits by or against it