Topic: Stockholders and Members- Right to Vote

Case No. 384

Transmiddle East (Phils) vs. Sandiganbayan, et. al.,

GR No. 172556, June 9 2006

Facts:

Petitioner, Trans Middle East (Phil.) Equities Inc.TMEE is the registered owner of 6,119,067
common shares of stock in the then PCBank, now Equitable-PCI Bank. These shares were
sequestered by the Presidential Commission on Good Government (PCGG) on the theory that
as they actually belong to Benjamin Romualdez they constitute illegally acquired wealth.
Thereafter, a complaint was filed against Romualdez by the PCGG before the Sandiganbayan
for the recovery of these shares. Upon motion, TMEE was allowed to intervene by the
Sandiganbayan, and it sought to enjoin the PCGG from voting these shares.

In 2006, a modified resolution was issued by the Sandiganbayan, disqualifying both the PCGG
nominees, TMEE, PAH and PAR, from voting the sequestered shares in the Equitable PCI Bank
and Benguet Corporation, respectively.

In the absence of an injunctive order restraining the holding of the stockholders’ meeting, a
meeting was held. Over the objections of TMEE, the election of a new Board of Directors of
EPCIB was held. Since TMEE was not allowed to vote its shares, it was unable to elect any
representative to the Board of Directors despite the fact that it maintained enough shares to
be entitled to at least one board seat.

Issue:

1. Can PCGG exercise the right to vote over the sequestered shares?
2. Is TMEE barred from voting its shares due to the writ of sequestration?

Held:

1. Yes. It is settled that as a general rule, the registered owner of the shares of a
corporation, even if they are sequestered by the government through the PCGG,
exercises the right and the privilege of voting on them. The PCGG as a mere
conservator cannot, as a rule, exercise acts of dominion by voting these shares. The
registered owner of sequestered shares may only be deprived of these voting rights,
 and the PCGG authorized to exercise the same, only if it is able to establish that (1)
there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the State; and (2) there is an imminent danger of dissipation, thus
necessitating the continued sequestration of the shares and authority to vote
thereupon by the PCGG while the main issue is pending before the Sandiganbayan.

2. No. The Court held that the existence of the writ of sequestration alone would not
legally justify barring TMEE from voting its shares. Such preclusion may only occur if
there is prima facie evidence showing that the said shares are ill-gotten and there is an
imminent danger of dissipation. The Sandiganbayan or any other court has yet to
pronounce any findings to those effects. In fact, the Sandiganbayan, in its 1998
Resolution, instead declared that TMEE possessed "a prima facie right" as owner of
the registered owner of the sequestered shares, and that there appeared to be "no
strong grounds for apprehension of dissipation or loss of assets of TMEE."
Topic: Stockholders and Members- Meetings

Case No. 403

Board of Liquidators vs. Tan

GR No. L-12282, March 31, 1959

Facts:

John de Castillo et al., commenced a suit in the Court of First Instance of Manila to declare null
and void the election of the members of the board of directors of the SMB Workers Savings
and Loan Association, Inc. and of the members of the Election Committee for the year 1957
held on January 11 and 12. They also asked to restrain the defendants who had been illegally
elected as members of the board of directors from exercising the functions of their office and
to compel the board of directors of the association to call for and hold another election in
accordance with its constitution and by-laws and the Corporation Law. Such was granted by
the court, however, another suit was filed alleging that the subsequent meeting for the
elections would not be in accordance with the constitution and by-laws regarding notice to
the stockholders.

Issue:

Whether or not proper notice was given as regards the new meeting for the elections of the
board of directors.

Held:

No. There was no proper notice. Notice of a special meeting of members should be given at
least five days before the date of the meeting. It appears that the notice was posted on 26
March and the election was set for 28 March. Therefore, the five days previous notice required
would not be complied with.
Topic: Capital Affairs

Case No. 422

Garcia vs. Lim

GR No. L-39427, February 24, 1934

Facts:

Defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank of China
promissory note for the sum of P19,605.17. One of the conditions stipulated in said promissory
note is that in case of defendant's default in the payment of any of the monthly installments,
as they become due, the entire amount or the unpaid balance thereof together with interest
thereon shall become due and payable on demand. The defendant had been, making several
partial payments thereon, leaving an unpaid balance of P9,105.17. However, he defaulted in
the payment of several installments by reason of which the unpaid balance of P9,105.17 on the
promissory note has ipso facto become due and demandable.

It was found that the debt which is the subject matter of the complaint was not really an
indebtedness of the defendant but of Lim Cuan Sy, who had an account with the plaintiff bank
in the form of "trust receipts" guaranteed by the defendant as surety and with chattel
mortgage securities. The plaintiff bank, without the knowledge and consent of the defendant,
foreclosed the chattel mortgage and privately sold the property covered thereby. Inasmuch
as Lim Cuan Sy failed to comply with his obligations, the plaintiff required the defendant, as
surety, to sign a promissory note for the sum of P19,105.17 payable in the manner
hereinbefore. The defendant had been paying the corresponding installments until the debt
was reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the owner of
shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. The plaintiff
bank is now under liquidation.

Issue:

Is it proper to compensate the defendant-appellant's indebtedness of P9,105.17, which is

claimed in the complaint, with the sum of P10,000 representing the value of his shares of
stock with the plaintiff entity, the Mercantile Bank of China.

Held:
No. According to the weight of authority, a share of stock or the certificate thereof is not
indebtedness to the owner or evidence of indebtedness and, therefore, it is not a credit.
Stockholders, as such, are not creditors of the corporation. It is the prevailing doctrine of the
American courts, repeatedly asserted in the broadest terms, that the capital stock of a
corporation is a trust fund to be used more particularly for the security of creditors of the
corporation, who presumably deal with it on the credit of its capital stock. Therefore, the
defendant-appellant Lim Chu Sing not being a creditor of the Mercantile Bank of China,
although the latter is a creditor of the former, there is no sufficient ground to justify
compensation.
Topic: Issuance of the Certificates of Stock

Case No. 441

Nava vs. Peers Mktg Corp.

GR No. L-28120, November 25, 1976

Facts:

Teofilo Po is an incorporator subscribed to eighty shares of Peers Marketing Corporation at

one hundred pesos a share or a total par value of eight thousand pesos. Po paid two thousand
pesos or twenty-five percent of the amount of his subscription. No certificate of stock was
issued to him or, for that matter, to any incorporator, subscriber or stockholder.

Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty shares. In the deed of
sale Po represented that he was "the absolute and registered owner of twenty shares" of
Peers Marketing Corporation.

Nava requested the officers of the corporation to register the sale in the books of the
corporation. The request was denied because Po has not paid fully the amount of his
subscription. Nava was informed that Po was delinquent in the payment of the balance due
on his subscription and that the corporation had a claim on his entire subscription of eighty
shares which included the twenty shares that had been sold to Nava.

Nava filed this mandamus action in court to compel the corporation and Renato R. Cusi and
Amparo Cusi, its executive vice-president and secretary, respectively, to register the said
twenty shares in Nava's name in the corporation's transfer book.

Issue:

Can the officers of Peers Marketing Corporation be compelled by mandamus to enter in its
stock and transfer book the sale made by Po to Nava, it being admitted that the corporation
has an unpaid claim on Po's subscription and that the twenty shares are not covered by any
stock certificate.

Held:

No. The Court hold that the transfer made by Po to Nava is not the "alienation, sale, or transfer
of stock" that is supposed to be recorded in the stock and transfer book, as contemplated in
section 52 of the Corporation Law. As a rule, the shares which may be alienated are those
which are covered by certificates of stock.

The usual practice is for the stockholder to sign the form on the back of the stock certificate.
The certificate may thereafter be transferred from one person to another. If the holder of the
certificate desires to assume the legal rights of a shareholder to enable him to vote at
corporate elections and to receive dividends, he fills up the blanks in the form by inserting his
own name as transferee. Then he delivers the certificate to the secretary of the corporation
so that the transfer may be entered in the corporation's books. The certificate is then
surrendered and a new one issued to the transferee.

That procedure cannot be followed in the instant case because, as already noted, the twenty
shares in question are not covered by any certificate of stock in Po's name. Moreover, the
corporation has a claim on the said shares for the unpaid balance of Po's subscription. A stock
subscription is a subsisting liability from the time the subscription is made. The subscriber is
as much bound to pay his subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable.
Topic: Issuance of the Certificate of Stock

Case No. 441

FuaCun vs. Summers

GR No. L-28694, May 13, 1981

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.

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 interest held by Chua Soco was merely an equity which could not be made
the subject of a chattel mortgage.

Held:
No. Though the courts have uniformly held that chattel mortgages on shares of stock and
other choses in action are valid as between the parties, there is still much to be said in favor
of the defendants' contention that the chattel mortgage here in question would not prevail
over liens of third parties without notice; an equity in shares of stock is of such an intangible
character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged
in such a manner that the recording of the mortgage will furnish constructive notice to third
parties.

In regard to a chattel mortgage of shares of stock: These certificates of stock are in the
pockets of the owner, and go with him where he may happen to locate, as choses in action, or
evidence of his right, without any means on the part of those with whom he proposes to deal on
the faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to
others. The chief office of the company may be at one place to-day and at another tomorrow.
The owner may have no fixed or permanent abode, and with his notes in one pocket and his
certificates of stock in the other.

But a determination of this question is not essential in the present case. There can be
no doubt that an equity in shares of stock may be assigned and that the assignment is valid as
between the parties and as to persons to whom notice is brought home. Such an assignment
exists here, though it was made for the purpose of securing a debt.
Topic: Transfer of Shares of Stock and Registration

Case No. 460

Chua Guan vs. Samahan

GR No. L-42091, November 2, 1935

Facts:

Samahang Magsasaka, Inc., is a corporation duly organized under the laws of the Philippine
Islands and that the individual defendants are the president, secretary and treasurer
respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894
shares of the capital stock of the said corporation represented by nine certificates having a
par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of Manila,
mortgaged said 5,894 shares to Chua Chiu to guarantee the payment of a debt of P20,000 due
on or before June 19, 1932. The said certificates of stock were delivered with the mortgage to
the mortgagee, Chua Chiu. The said mortgage was duly registered in the office of the register
of deeds of Manila on June 23, 1931, and in the office of the said corporation on September
30, 1931. On November 28, 1931, Chua Chiu assigned all his right and interest in the said
mortgage to the plaintiff and the assignment was registered in the office of the register of
deeds in the City of Manila on December 28, 1931, and in the office of the said corporation on
January 4, 1932.

The debtor, Co Toco, defaulted in the payment hence the mortgage was foreclosed and sold
in a public auction. The Sheriff executed a certificate of sale of said shares in favour of the
plaintiff as the highest bidder. The plaintiff tendered the certificates of stock standing in the
name of Gonzalo H. Co Toco to the proper officers of the corporation for cancellation and
demanded that they issue new certificates in the name of the plaintiff. The said officers (the
individual defendants) refused and still refuse to issue said new shares in the name of the
plaintiff.

The defendants refuse to cancel the said certificates standing in the name of Gonzalo H. Co
Toco on the books of the corporation and to issue new ones in the name of the plaintiff
because prior to the date when the plaintiff made his demand, nine attachments had been
issued and served and noted on the books of the corporation against the shares of Gonzalo
H. Co Toco and the plaintiff objected to having these attachments noted on the new
certificates which he demanded.
Issue:

Whether or not shares of a corporation could be hypothecated by placing a chattel mortgage

on the certificate representing such shares.

Held:

Yes. By analogy with the foregoing and considering the ownership of shares in a corporation
as property distinct from the certificates which are merely the evidence of such ownership, it
seems to the Court a reasonable construction of section 4 of Act No. 1508 to hold that the
property in the shares may be deemed to be situated in the province in which the corporation
has its principal office or place of business. If this province is also the province of the owner's
domicile, a single registration sufficient. If not, the chattel mortgage should be registered
both at the owner's domicile and in the province where the corporation has its principal office
or place of business. In this sense the property mortgaged is not the certificate but the
participation and share of the owner in the assets of the corporation.

The Court held that the only safe way to accomplish the hypothecation of share of stock of a
Philippine corporation is for the creditor to insist on the assignment and delivery of the
certificate and to obtain the transfer of the legal title to him on the books of the corporation
by the cancellation of the certificate and the issuance of a new one to him. From the
standpoint of the debtor this may be unsatisfactory because it leaves the creditor as the
ostensible owner of the shares and the debtor is forced to rely upon the honesty and solvency
of the creditor. Of course, the mere possession and retention of the debtor's certificate by
the creditor gives some security to the creditor against an attempted voluntary transfer by
the debtor, provided the by-laws of the corporation expressly enact that transfers may be
made only upon the surrender of the certificate. It is to be noted, however, that section 35 of
the Corporation Law (Act No. 1459) enacts that shares of stock "may be transferred by
delivery of the certificate endorsed by the owner or his attorney in fact or other person legally
authorized to make the transfer." The use of the verb "may" does not exclude the possibility
that a transfer may be made in a different manner, thus leaving the creditor in an insecure
position even though he has the certificate in his possession. Moreover, the shares still
standing in the name of the debtor on the books of the corporation will be liable to seizure by
attachment or levy on execution at the instance of other creditors. This unsatisfactory state
of our law is well known to the bench and bar. Loans upon stock securities should be
facilitated in order to foster economic development. The transfer by endorsement and
delivery of a certificate with intention to pledge the shares covered thereby should be
sufficient to give legal effect to that intention and to consummate the juristic act without
necessity for registration.
Topic: Trust Fund Doctrine for Liability of Watered Stocks

Case No. 479

Cuenca vs. Atas, et al.,

GR No. 146214, October 5, 2007

Facts:

Petitioner Rodolfo M. Cuenca was an incorporator, President, and Chief Executive Officer of
the then Construction Development Corporation of the Philippines (CDCP), now PNCC, from
its incorporation in 1966 until 1983. In the course of its operations, CDCP incurred substantial
credit obligations from both private and government sources. Its unpaid obligations
ballooned so much that by 1983, it became impossible for it to settle its maturing and overdue
accounts with various government financial institutions (GFIs).

In 1983, then President Ferdinand E. Marcos issued Letter of Instruction No. (LOI) 1295,
directing the creditor GFIs to convert into CDCP's shares of stock the following: (1) all of the
direct obligations of CDCP and those of its wholly-owned subsidiaries, including, but not
limited to loans, credits, accrued interests, fees and advances in any currency outstanding as
of December 31, 1982; (2) the direct obligations of CDCP maturing in 1983; and (3) obligations
maturing in 1983 which were guaranteed by the GFIs.

Hence, a special stockholders' meeting, presided by petitioner, was held whereby

stockholders representing more than two-thirds (2/3) of the outstanding capital stock of CDCP
approved the increase of its authorized capital stock from PhP 1.6 to 2.7 billion in accordance
with LOI 1295. Thus, the CDCP, pursuant to said letter, converted some of its obligations to
GFIs into equity.

Issue:

Are the shares issued to the GFIs in any way be considered "watered stocks"?

Held:

No. First, it is undisputed that shares of stock were issued to the GFIs converting part of their
outstanding loan credit to equity with PNCC. The certificates of stock issued attest to this fact.
Moreover, the administrative body below had duly debunked any irregularity in the face of
these certificates of stock. Second, the records and accounts of PNCC duly reflected such
debt-to-equity conversion as attested to by the independent auditors from Carlos J. Valdes &
Co., Certified Public Accountants, in the comparative Financial Statements covering the years
1982 and 1983. Third, the due issuance of the shares of stock in the names of the GFIs was
corroborated by PNCC's stock transfer agent, Caval Securities Registry, Inc. Fourth, the Deed
of Confirmation and its Supplement erased any doubt as to the implementation of LOI 1295.
Thus, based on these reasons, there can be no doubt as to the implementation of LOI 1295.
Corollarily, the shares of stock subject of the instant case issued to the GFIs were for value
and thus cannot be considered as void or "watered stocks."
Topic: Corporate Books and Records

Case No. 497

Forest Hill Golf & Country Club vs. Vertex Sales and Trading, Inc.,
GR No. 202205, March 6, 2013

Facts:

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock
corporation that operates and maintains a golf and country club facility in Antipolo City. Forest
Hills was created as a result of a joint venture agreement between Kings Properties
Corporation (Kings) and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and
FEGDI owned the shares of stock of Forest Hills, holding 40% and 60% of the shares,
respectively.

In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to the full payment of the purchase price,
RSACC transferred its interests over FEGDI's Class "C" common share to respondent Vertex
Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of the transfer and FEGDI, in turn,
requested Forest Hills to recognize Vertex as a shareholder. Forest Hills acceded to the
request, and Vertex was able to enjoy membership privileges in the golf and country club.

Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name
of FEGDI, prompting Vertex to demand for the issuance of a stock certificate in its name. As
its demand went unheeded, Vertex filed a complaint for rescission with damages against
defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the developer of the Forest
Hills golf course.

The RTC dismissed Vertex's complaint which was later on reversed by the CA. Hence, Petition
filed by Forest Hills.

Issue:

Can Forest Hills appeal the ruling rescinding the sale of the share.

Held:
No. The Court held that while Forest Hills questioned and presented its arguments against the
CA ruling rescinding the sale of the share in its petition, it is not the proper party to appeal this
ruling.

As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject
of the sale was its share of stock. The corporation whose shares of stock are the subject of a
transfer transaction (through sale, assignment, donation, or any other mode of conveyance)
need not be a party to the transaction, as may be inferred from the terms of Section 63 of the
Corporation Code. However, to bind the corporation as well as third parties, it is necessary
that the transfer is recorded in the books of the corporation. In the present case, the parties
to the sale of the share were FEGDI as the seller and Vertex as the buyer (after it succeeded
RSACC). As party to the sale, FEGDI is the one who may appeal the ruling rescinding the sale.
The remedy of appeal is available to a party who has "a present interest in the subject matter
of the litigation and is aggrieved or prejudiced by the judgment. A party, in turn, is deemed
aggrieved or prejudiced when his interest, recognized by law in the subject matter of the
lawsuit, is injuriously affected by the judgment, order or decree." The rescission of the sale
does not in any way prejudice Forest Hills in such a manner that its interest in the subject
matter – the share of stock – is injuriously affected. Thus, Forest Hills is in no position to appeal
the ruling rescinding the sale of the share. Since FEGDI, as party to the sale, filed no appeal
against its rescission, the Court consider as final the CA’s ruling on this matter.
Topic: Merger and Consolidation

Case No. 517

Alger Electric vs. Court of Appeals

GR No. L-34298, February 28, 1985

Facts:

Petitioner Alger Electric, Inc., was granted a legislative franchise for a period of fifty (50) years
from June 22, 1963 with the right, privilege, and authority to construct, maintain and operate
an electric light, heat, and power system for the generation and/or distribution of electric
light, heat, and/or power for sale within the municipalities of Sto. Tomas, Damortis and
Rosario, province of La Union, and in the municipality of Sison, province of Pangasinan.

Respondent Northern Cement Corporation (Northern) and the National Power Corporation
(NPC) executed a contract for NPC to directly supply electric power to Northern's cement
plant located in Labayog, Sison, Pangasinan. As a result, the petitioner filed a petition for
prohibition with preliminary injunction against Northern and NPC in the Court of First Instance
of Manila. The petition alleged that the contract was patently illegal.

The appellate court sustained the position of respondent Northern and set aside the
questioned October 24, 1969 order of the trial court. It also ordered the trial court to act on
the respondent's motion to dismiss the case. The appellate court ruled that the Court of First
Instance of Manila did not have jurisdiction over the original complaint considering that the
act sought to be enjoined was to be performed in Sison, Pangasinan which is outside of the
court's territorial jurisdiction. It, therefore, held that the original "petition" could no longer be
amended otherwise it would be in violation of the legal prohibition of a complaint not
amendable in order to confer jurisdiction on the court in which it is filed, if the cause of action
originally set forth was not within The court's jurisdiction. This decision is now challenged in
this petition.

Issue:

Whether or not Northern commit illegal acts when it entered into a contract with NPC.

Held:
No. The Court have interpreted monopolistic claims of corporations, which want to protect
themselves through the exclusion of competitors and antagonistic parties, as necessarily
yielding to the higher claims of public interest. This interpretation is even more called for when
the exclusiveness is claimed on the basis of a public franchise.

Section 2 of Republic Act No. 3826 was obviously enacted to prevent the NPC from
distributing or selling electric power where petitioner Alger is already selling or is able to sell
its own self-generated electricity. In this case, Northern is a bulk purchaser of power. It had
never purchase's Alger's electricity before the suit was filed. It is not the usual consumer —
residential or commercial — for whom retail sales are Ideal. Exclusivity is given by law with
the understanding that the company enjoying it is self-sufficient and capable of supplying the
needed service or product at moderate or reasonable prices. It would be against public
interest where the firm granted a monopoly is merely ail unnecessary conduit of electric
power, jacking up prices as a superfluous middleman or an inefficient producer which cannot
supply cheap electricity to power intensive industries. It is in the public interest when
industries dependent on the heavy use of electricity are given reliable and direct power at the
lowest costs thus enabling the sale of nationally marketed products at prices within the reach
of the masses. Applying the above principles to the specific facts of this case, Northern cannot
be said to have committed an act void ab initio when it concluded the questioned contract
with NPC. Accordingly, the respondent corporation is not liable for damages to the petitioner.
Topic: Liquidation

Case No. 536

Vigilla vs. Phil. College of Criminology

GR No. 200094, June 10, 2013

Facts:

Philippine College of Criminology Inc. (PCCr) is a non-stock educational institution, while the
petitioners were janitors, janitresses and supervisor in the Maintenance Department of PCCr
under the supervision and control of Atty. Florante A. Seril (Atty. Seril), PCCr’s Senior Vice
President for Administration. The petitioners, however, were made to understand, upon
application with respondent school, that they were under MBMSI, a corporation engaged in
providing janitorial services to clients. Atty. Seril is also the President and General Manager of
MBMSI.

Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI had been
revoked as of July 2, 2003. On March 16, 2009, PCCr, through its President, respondent
Gregory Alan F. Bautista (Bautista), citing the revocation, terminated the school’s relationship
with MBMSI, resulting in the dismissal of the employees or maintenance personnel under
MBMSI, except Alfonso Bongot (Bongot) who was retired.

The dismissed employees, led by their supervisor, Benigno Vigilla (Vigilla), filed their
respective complaints for illegal dismissal, reinstatement, back wages, separation pay (for
Bongot), underpayment of salaries, overtime pay, holiday pay, service incentive leave, and
13th month pay against MBMSI, Atty. Seril, PCCr, and Bautista.

PCCr submitted several documents before LA Ronaldo Hernandez, including releases, waivers
and quitclaims in favor of MBMSI executed by the complainants to prove that they were
employees of MBMSI and not PCCr.

Issue:

Can a dissolved corporation enter into an agreement such as releases, waivers and quitclaims
beyond the 3-year winding up period under Section 122 of the Corporation Code?

Held:
Yes. The executed releases, waivers and quitclaims are valid and binding notwithstanding the
revocation of MBMSI’s Certificate of Incorporation. The revocation does not result in the
termination of its liabilities. Section 122 of the Corporation Code provides for a three-year
winding up period for a corporation whose charter is annulled by forfeiture or otherwise to
continue as a body corporate for the purpose, among others, of settling and closing its affairs.

Even if said documents were executed in 2009, six (6) years after MBMSI’s dissolution in 2003,
the same are still valid and binding upon the parties and the dissolution will not terminate the
liabilities incurred by the dissolved corporation pursuant to Sections 122 and 145 of the
Corporation Code.

Although the time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to three years from the
time the period of dissolution commences, there is no time limit within which the trustees
must complete a liquidation placed in their hands. What is provided in Section 122 of the
Corporation Code is that the conveyance to the trustees must be made within the three-year
period. But it may be found impossible to complete the work of liquidation within the three-
year period or to reduce disputed claims to judgment. The trustees to whom the corporate
assets have been conveyed pursuant to the authority of Section 122 may sue and be sued as
such in all matters connected with the liquidation.

Furthermore, Section 145 of the Corporation Code clearly provides that "no right or remedy
in favor of or against any corporation, its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said
corporation." Even if no trustee is appointed or designated during the three-year period of
the liquidation of the corporation, the Court has held that the board of directors may be
permitted to complete the corporate liquidation by continuing as "trustees" by legal
implication.
Topic: Non-Stock Corporators

Case No. 555

Calatagan Golf & Country Club, Inc vs Clemente, Jr.

GR No. 165443, April 16, 2009

Facts:

Clemente applied to purchase one share of stock of Calatagan, indicating in his application for
membership his mailing address at "Phimco Industries, Inc. – P.O. Box 240, MCC," complete
residential address, office and residence telephone numbers, as well as the company (Phimco)
with which he was connected, Calatagan issued to him Certificate of Stock No. A-01295 on 2
May 1990 after paying P120,000.00 for the share.

Calatagan charges monthly dues on its members to meet expenses for general operations, as
well as costs for upkeep and improvement of the grounds and facilities. The provision on
monthly dues is incorporated in Calatagan’s Articles of Incorporation and By-Laws. It is also
reproduced at the back of each certificate of stock.

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more
than sixty (60) days, specifically P5,600.00 as of 31 October 1992. Calatagan also included
Clemente’s name in the list of delinquent members posted on the club’s bulletin board. On 1
December 1992, Calatagan’s board of directors adopted a resolution authorizing the
foreclosure of shares of delinquent members, including Clemente’s; and the public auction of
these shares.

Issue:

Whether or not the action of Clemente had prescribed pursuant to Section 69 of the
Corporation Code, and that the requisite notices under both the law and the by-laws had been
rendered to Clemente.

Held:

Yes. There are fundamental differences that defy equivalence or even analogy between the
sale of delinquent stock under Section 68 and the sale that occurred in this case. At the root
of the sale of delinquent stock is the non-payment of the subscription price for the share of
stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or
shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and
no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the
analogy could have been made if Clemente had not yet fully paid for his share and the non-
stock corporation, pursuant to an article or by-law provision designed to address that
situation, decided to sell such share as a consequence. But that is not the case here, and there
is no purpose for us to apply Section 69 to the case at bar.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to
govern the payment of monthly dues, the declaration of a member as delinquent, and the
constitution of a lien on the shares and its eventual public sale to answer for the member’s
debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation
"shall be terminated in the manner and for the causes provided in the articles of incorporation
or the by-laws." The By-law provisions are elaborate in explaining the manner and the causes
for the termination of membership in Calatagan, through the execution on the lien of the
share. The Court is satisfied that the By-Laws, as written, affords due protection to the
member by assuring that the member should be notified by the Secretary of the looming
execution sale that would terminate membership in the club. In addition, the By-Laws
guarantees that after the execution sale, the proceeds of the sale would be returned to the
former member after deducting the outstanding obligations. If followed to the letter, the
termination of membership under this procedure outlined in the By-Laws would accord with
substantial justice.
Topic: Foreign Corporations

Case No. 574

San Jose Petroleum vs. Court of Appeals

GR No. L-14441, December 17, 1966

Facts:

SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which
is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the
majority interest of which is owned by OIL INVESTMENTS, INC., another foreign (Panamanian)
company.

This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C. A., and
PANCOASTAL PETROLEUM COMPANY, C. A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were 9,979 stockholders of PANCOASTAL
PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988 shares of
stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have
3,077,916 shares held by 12,373 stockholders scattered in 49 American states.

In the two lists of stockholders, there is no indication of the citizenship of these stockholders,
or of the total number of authorized stocks of each corporation for the purpose of
determining the corresponding percentage of these listed stockholders in relation to the
respective capital stock of said corporation.

Issue:

Is the "tie-up" between the two corporations violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949, and the Corporation Law?

Held:

Yes. The privilege to utilize, exploit, and develop the natural resources of this country was
granted, by Article III of the Constitution, to Filipino citizens or to corporations or associations
60% of the capital of which is owned by such citizens. With the Parity Amendment to the
Constitution, the same right was extended to citizens of the United States and business
enterprises owned or controlled, directly or indirectly, by citizens of the United States.
There could be no serious doubt as to the meaning of the word "citizens" used in the
aforementioned provisions of the Constitution. The right was granted to 2 types of persons:
natural persons (Filipino or American citizens) and juridical persons (corporations 60% of
which capital is owned by Filipinos and business enterprises owned or controlled directly or
indirectly, by citizens of the United States). In American law, "citizen" has been defined as
"one who, under the constitution and laws of the United States, has a right to vote for
representatives in congress and other public officers, and who is qualified to fill offices in the
gift of the people."

SAN JOSE PETROLEUM an American business is not entitled to parity rights in the Philippines.
In the circumstances, the Court have to hold that the respondent SAN JOSE PETROLEUM, as
presently constituted, is not a business enterprise that is authorized to exercise the parity
privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law.
Its tie-up with SAN JOSE OIL is, consequently, illegal.
Topic: Contract Test

Case No. 593

Agilent Technologies vs. Integrated Silicon Technology

GR No. 154618, April 14, 2004

Facts:

Petitioner Agilent Technologies Singapore (Pte.), Ltd. ("Agilent") is a foreign corporation,

which, by its own admission, is not licensed to do business in the Philippines. Respondent
Integrated Silicon Technology Philippines Corporation ("Integrated Silicon") is a private
domestic corporation, 100% foreign owned, which is engaged in the business of
manufacturing and assembling electronics components. Respondents Teoh Kiang Hong, Teoh
Kiang Seng and Anthony Choo, Malaysian nationals, are current members of Integrated
Silicon’s board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and
Rolando T. Nacilla are its former members.

The juridical relation among the various parties in this case can be traced to a 5-year Value
Added Assembly Services Agreement ("VAASA"), entered into on April 2, 1996 between
Integrated Silicon and the Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components
Operation ("HP-Singapore"). Under the terms of the VAASA, Integrated Silicon was to locally
manufacture and assemble fiber optics for export to HP-Singapore. HP-Singapore, for its part,
was to consign raw materials to Integrated Silicon; transport machinery to the plant of
Integrated Silicon; and pay Integrated Silicon the purchase price of the finished products. The
VAASA had a five-year term, beginning on April 2, 1996, with a provision for annual renewal by
mutual written consent. On September 19, 1999, with the consent of Integrated Silicon, HP-
Singapore assigned all its rights and obligations in the VAASA to Agilent.

On May 25, 2001, Integrated Silicon filed a complaint for "Specific Performance and Damages"
against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor,
docketed as Civil Case No. 3110-01-C. It alleged that Agilent breached the parties’ oral
agreement to extend the VAASA.

Respondent, in its argument, averred that since Agilent is an unlicensed foreign corporation
doing business in the Philippines, it lacks the legal capacity to file suit.
Issue:

Can Agilent, an unlicensed foreign corporation doing business in the Philippines, bring an
action in Philippine courts?

Held:

No. The Court held that the principles regarding the right of a foreign corporation to bring suit
in Philippine courts may be condensed in four statements: (1) if a foreign corporation does
business in the Philippines without a license, it cannot sue before the Philippine courts; (2) if
a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of
any business transaction; (3) if a foreign corporation does business in the Philippines without
a license, a Philippine citizen or entity which has contracted with said corporation may be
estopped from challenging the foreign corporation’s corporate personality in a suit brought
before Philippine courts; and (4) if a foreign corporation does business in the
Philippines with the required license, it can sue before Philippine courts on any transaction.

By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1)
maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by Integrated Silicon; and (2) consignment of equipment with Integrated Silicon to
be used in the processing of products for export. As such, the Court hold that, based on the
evidence presented thus far, Agilent cannot be deemed to be "doing business" in the
Philippines. Respondents’ contention that Agilent lacks the legal capacity to file suit is
therefore devoid of merit. As a foreign corporation not doing business in the Philippines, it
needed no license before it can sue before our courts.
Topic: Isolated Transactions

Case No.

Rimbunan Hijau Group of Companies vs. Oriental Wood Processing Corporation

GR No. 152228, September 23, 2005

Facts:

This case stemmed from a complaint for sum of money filed by Rimbunan Hijau Group of
Companies ("Rimbunan") and Niugini Lumber Merchants Pty., Ltd. ("Niugini") against
Oriental Wood Processing Corporation (respondent). Rimbunan and Niugini (petitioners) are
foreign corporations duly organized and existing under the laws of Papua New Guinea
("PNG") while respondent is a private domestic corporation organized and existing under
Philippine laws.

On 27 December 1999, petitioners filed an amended complaint with application for preliminary
attachment against respondent, seeking to recover the amount of Three Hundred Forty Three
Thousand Seven Hundred Forty One Dollars and Fifty Two Cents (US$343,741.52) or its
equivalent in Philippine currency. The amount represented the alleged remaining balance on
the total purchase price of Five Hundred Forty Three Thousand Six Hundred Ninety Nine
Dollars and Fifty Two Cents (US$543,699.52) for the mixed species of PNG logs which
petitioners sold and exported to respondent sometime in July 1998.

Respondent filed a Motion to Dismiss on the grounds that petitioners have no legal capacity
to sue in this jurisdiction and that Niugini has no legal personality to sue.

Issue:

Can petitioners bring bring an action in Philippine courts?

Held:

Yes. Estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debet—
no person ought to derive any advantage from his own wrong. In this case, the existence of
the transaction giving rise to the complaint was categorically admitted by respondent. In
its Answer with Compulsory Counterlaim (Ad Cautelam). Respondent’s unequivocal admission
of the transaction which gave rise to the complaint establishes the applicability of estoppel
against it.

The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the ‘doctrine of estoppel to
deny corporate existence applies to foreign as well as to domestic corporations;’ "one who
has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its
existence and capacity." The principle "will be applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the contract . . ."

All things considered, respondent can no longer invoke petitioner’s lack of capacity to sue in
this jurisdiction. Considerations of fair play dictate that after having contracted and benefited
from its business transaction with Rimbunan, respondent should be barred from questioning
the latter’s lack of license to transact business in the Philippines.
Topic: Powers and Functions of the SEC

Case No. 629

Pineda vs. Lantin

GR No. L-15350, November 30, 1962

Facts:

In a letter dated July 9, 1958, addressed to the Securities and Exchange Commission, Teresa
Cuaycong La and Apeles H. Lopez, thru counsel, complained of maintain actions of the
respondent corporation, the Bacolod-Murcia Milling Co., Inc. and its President and General
Manager, J. Amado Araneta. They claimed that the named respondents had committed
various acts in violation of the Articles of Incorporation of the respondent corporation
petition, the pertinent provisions of the corporation law, the rules and regulations
promulgated by the Security and Exchange Commission. They represented that conduct of
the said J. Amado Araneta was one series acts prejudicial to the interests of the minority
stockholders. The complainants were two such stockholders.

Acting on the letter-complaint, petitioner Mariano Pineda, in his official capacity as Securities
and Exchange Commissioner, ordered the investigation of the character and, for that
purpose, designated the other petition Arcadio E. Yabyabin and Maximino Pizarro, as
investigators. These last two petitioners were the Chief Counsel and Chief Examiner,
respectively, of the Commission.

Herein respondent corporation and J. Amado Araneta, thru court filed a "Petition to
Reconsider Order and to Set Aside Subpoena Duces Tecum." They contended that with
approval of Republic Act No. 1143 on June 17, 1954, "the power given by law to the Securities
and Exchange Commission to conduct investigations has been qualified and made subject to
the condition that such investigations must be conducted in accordance with the rules
adopted by the Commission." (Sec. 1 [d], Republic Act No. 1143.) And, since the Securities and
Exchange Commission had not till then adopted such rules, it could not proceed with the
investigation.

Petitioner Mariano G. Pineda denied the above petition filed by the respondent. Hence, the
respondent corporation and J. Amado Araneta filed a special civil action for prohibition
against the herein petitioners Yabyabin and Pizarro, and, for the first time, joined Lacson and
Lopez as respondents.

Issue:

Is the filing of the Civil action against petitioners proper?

Held:
No. The role of the Securities and Exchange Commission in our national economy cannot be
minimized. The legislature has entrusted to it the serious responsibility of enforcing all laws
affecting corporations and other forms of associations not otherwise vested in some other
government offices. Being charged, therefore, with overseeing the operations of those
various corporate enterprises from which our government derives great revenues and
income, it cannot afford to be impeded or restrained in the performance of its functions by
writs of injunction emanating from tribunals subordinate to this Court. If every Court of First
Instance can enjoin the Commission from pursuing its objectives, and, in the premises,
substitute its judgment for that of the Commission on what should or should not be done,
then, no one will suffer thereby but the economy of our body politic and, eventually, this
country's citizenry. Certainly, the legislature could never have intended that.
Topic: Controversies Arising Out of Intra-Corporate or Partnership Relations

Case No. 648

Vesagas vs. Court of Appeals

GR No. 142924, December 5, 2001

Facts:

The respondent spouses Delfino and Helenda Raniel are members in good standing of the Luz
Villaga Tennis Clud, Inc. (club). They alleged that petitioner Teodoro B. Vesagas, who claims
to be the club's duly elected president, in conspiracy with petitioner Wilfred D. Asis, who, in
turn, claims to be its duly elected vice-president and legal counsel, summarily stripped them
of their lawful membership, without due process of law. Thus, plaintiffs moved to declare as
illegal their expulsion from the club in utter disregard of the provisions of the club’s by laws.
Respondents, on the other hand, moved to dismiss the complaint on the ground that the SEC
lacked the jurisdiction over the subject matter. They contend that since its inception in the
1970’s, the club in practice has not been a corporation, and that it was only the plaintiffs who
surreptitiously caused the club’s registration with the SEC. Further, they argued that the club
has ceased to be a corporate body at any rates thus, no intra-corpoarate relationship as
between the parties.

Issue:

Does the SEC have jurisdiction over the case?

Held:

Yes. The case falls within the SEC jurisdiction. Petitioners are estopped from denying the
personality of the corporation by their very own acts. The dispute was considered as intra-
corporate in character because the parties involved are officers and members of the club; the
conflict arose from this relation between the parties, and the subject of complaint involved
expulsions from the club membership, validity of amendments of by laws.
Topic: Controversies in the Election or Appointment Dismissal of Corporate Officers

Case No. 666

Apodaca vs. NLRC

GR No. 80039, April 18, 1989

Facts:

Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M.
Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation at
P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On
September 1, 1975, petitioner was appointed President and General Manager of the
respondent corporation. However, on January 2, 1986, he resigned.

On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the balance of
his gasoline and representation expenses and his bonus compensation for 1986. Petitioner
and private respondents submitted their position papers to the labor arbiter. Private
respondents admitted that there is due to petitioner the amount of P17,060.07 but this was
applied to the unpaid balance of his subscription in the amount of P95,439.93. Petitioner
questioned the set-off alleging that there was no call or notice for the payment of the unpaid
subscription and that, accordingly, the alleged obligation is not enforceable.

In a decision dated April 28, 1987, the labor arbiter sustained the claim of petitioner for
P17,060.07 on the ground that the employer has no right to withhold payment of wages
already earned under Article 103 of the Labor Code. Upon the appeal of the private
respondents to public respondent NLRC, the decision of the labor arbiter was reversed in a
decision dated September 18, 1987. The NLRC held that a stockholder who fails to pay his
unpaid subscription on call becomes a debtor of the corporation and that the set-off of said
obligation against the wages and others due to petitioner is not contrary to law, morals and
public policy.

Issue:

May an obligation arising from non-payment of stock subscriptions to a corporation be offset

against a money claim of an employee against the employer?

Held:

No. The unpaid subscriptions are not due and payable until a call is made by the corporation
for payment. Private respondents have not presented a resolution of the board of directors
of Respondent Corporation calling for the payment of the unpaid subscriptions. It does not
even appear that a notice of such call has been sent to petitioner by the respondent
corporation.

What the records show is that the respondent corporation deducted the amount due to
petitioner from the amount receivable from him for the unpaid subscriptions. No doubt such
set-off was without lawful basis, if not premature. As there was no notice or call for the
payment of unpaid subscriptions, the same is not yet due and payable.

Lastly, assuming further that there was a call for payment of the unpaid subscription, the
NLRC cannot validly set it off against the wages and other benefits due petitioner. Article 113
of the Labor Code allows such a deduction from the wages of the employees by the employer,
only in three instances, to wit: Wage Deduction. — No employer, in his own behalf or in behalf
of any person, shall make any deduction from the wages of his employees, except for certain
instances.
Topic: Petitions for Declaration in the State of Suspension of Payments

Case No. 685

Ching vs. Landbank

GR No. 73123, September 2, 1991

Facts:

On September 19, 1980, private respondents Filand Manufacturing and Estate Development
Co., Inc. and Emilio Ching obtained from petitioner Land Bank of the Philippines a loan in the
amount of Ten Million Pesos (P10,000,000.00). Private respondents having failed to pay the
loan on its due date, petitioner instituted a complaint for recovery thereof. During the
pendency of the collection suit, private respondents filed a petition for declaration of
insolvency. Cited as ground therefore was their inability to pay the various debts and liabilities
incurred by them, either jointly or solidarily or guaranteed by one for the other, in the course
of their businesses, such inability being due to business reserves brought about by the fire on
January 2, 1984 which gutted the old Holiday Plaza Building then owned and operated by
Filand Manufacturing, as well as the economic crisis which gripped the country following the
assassination of former Senator Benigno S. Aquino in 1983.

Issue:

Does the SEC which has jurisdiction over proceedings for suspension of payments and
voluntary and involuntary insolvency?

Held:

Yes. Section 5, par. (d) should be construed as vesting upon the SEC original and exclusive
jurisdiction only over petitions to be declared in a state of suspension of payments. This
qualification effectively circumscribes the jurisdiction of the SEC over insolvent corporations,
partnerships and associations, and consequently, over proceedings for the declaration of
insolvency. It demonstrates beyond doubt that jurisdiction over insolvency proceedings
pertains neither in the first instance nor exclusively to the SEC but only in continuation of or
as an incident to the exercise of its jurisdiction over petitions to be declared in a state of
suspension of payments wherein the petitioning corporation, partnership or association had
previously been placed under a rehabilitation receiver or management committee by the SEC
itself.

Viewed differently, where the petition filed is one for declaration of a state of suspension of
payments due to a recognition of the inability to pay one's debts and liabilities, and where the
petitioning corporation either: (a) has sufficient property to cover all its debts but foresees
the impossibility of meeting them when they fall due. However, if the petitioning corporation
has no sufficient assets to cover its liabilities and is not under a rehabilitation receiver or a
management committee created under P.D. No. 902-A and does not seek merely to have the
payments of its debts suspended, but seeks a declaration of insolvency, as in this case.

As declared by the law itself, these are merely ancillary powers to enable the SEC to effectively
exercise its jurisdiction. These additional ancillary powers can be exercised only in connection
with an action pending before the SEC and therefore had to be viewed in relation to Section
5 which defines the SEC's original and exclusive jurisdiction. Section 6 does not enlarge or add
to the exclusive and original jurisdiction of the SEC as particularly enumerated under Section
5 of said Presidential Decree, as amended. Construing P.D. 902-A, as amended, in relation to
Act 1956, the court ruled that insofar as petitions for declaration of insolvency of private
corporations are concerned, it is the regular court that has exclusive and original jurisdiction
thereon. The SEC may entertain such petitions only as an incident of and in continuation of its
already acquired jurisdiction over petitions to be declared in the state of suspension of
payments in the two cases provided in Section 5 (d) of P.D. 902-A, as amended.
Topic: Securities required to be registered

Case No. 704

Nestle Phils. vs. Court of Appeals

GR No. 86738, November 13, 1991

Facts:

San Miguel Corporation and Nestle S.A. are the two major stockholders of Nestle. Nestle
increased its authorized capital stock and was approved by SEC. Thereafter, some unissued
stocks were sold to San Miguel and Nestle. Nestle filed a complaint with the SEC, seeking to
exempt its firm from the registration requirement of Section 4 of the Revised Securities Act
and from the payment of the fee referred to in Section 6(c). The Provision states that a
corporation may be exempted from the requirement of registration it its issues additional
capital stock among its own stockholders exclusively. Nestle argued that issuance of
additional capital stock means issuance of increased authorized capital stock. SEC held that
for purposes of granting a general or particular exemption from the registration
requirements, a request for exemption and fee equivalent to 0.1% of issued value or securities
or stocks are required.

Issue:

Is Nestle entitled to exemption?

Held:

No. The Court held that both the SEC and the Court of Appeals resolved the ambiguity by
construing Section 6 (a) (4) as referring only to the issuance of shares of stock as part of and
in the course of increasing the authorized capital stock of Nestle.

Consideration of the underlying statutory purpose of Section 6(a) (4) compels the Court to
sustain the view taken by the SEC and the Court of Appeals. The reading by the SEC of the
scope of application of Section 6(a) (4) permits greater opportunity for the SEC to implement
the statutory objective of protecting the investing public by requiring proposed issuers of
capital stock to inform such public of the true financial conditions and prospects of the
corporation. By limiting the class of exempt transactions contemplated by the last clause of
Section 6(a) (4) to issuances of stock done in the course of and as part of the process of
increasing the authorized capital stock of a corporation, the SEC is enabled to examine
issuances by a corporation of previously authorized but theretofore unissued capital stock,
on a case-to-case basis, under Section 6(b); and thereunder, to grant or withhold exemption
from the normal registration requirements depending upon the perceived level of need for
protection by the investing public in particular cases.
Topic: Other Cases

Case No. 722

SEC vs. GMA Network, Inc.,

GR No. 164026, December 23, 2008

Facts:

Petitioner, GMA NETWORK, INC., (GMA, for brevity), a domestic corporation, filed an
application for collective approval of various amendments to its Articles of Incorporation and
By-Laws with the respondent Securities and Exchange Commission, (SEC, for brevity). The
amendments applied for include, among others, the change in the corporate name of
petitioner from "Republic Broadcasting System, Inc." to "GMA Network, Inc." as well as the
extension of the corporate term for another fifty (50) years from and after June 16, 2000.

Upon such filing, the petitioner had been assessed by the SEC’s Corporate and Legal
Department a separate filing fee for the application for extension of corporate term
equivalent to 1/10 of 1% of its authorized capital stock plus 20% thereof or an amount
of P1,212,200.00.

Petitioner contested the legality and propriety of the said assessment and that argued that its
application for the extension of its corporate term is akin to an amendment and not to a filing
of new articles of incorporation.

The SEC approved the other amendments to the petitioner’s Articles of Incorporation but
upholds the validity of the questioned assessment.

Issue:

Is the assessment of filing fees proper?

Held:

Yes. A filing fee, by legal definition, is that charged by a public official to accept a document
for processing. The fee should be just, fair, and proportionate to the service for which the fee
is being collected, in this case, the examination and verification of the documents submitted
by GMA to warrant an extension of its corporate term.

Rate-fixing is a legislative function which concededly has been delegated to the SEC by R.A.
No. 3531 and other pertinent laws. The due process clause, however, permits the courts to
determine whether the regulation issued by the SEC is reasonable and within the bounds of
its rate-fixing authority and to strike it down when it arbitrarily infringes on a person’s right to
property.