INTRA CORPORATE CONTROVERSY/DERIVATIVE SUITS
injunction before the RTC.
1. WESLEYAN UNIVERSITY-PHILIPPINES VS. MAGLAYA, SR.
TICKLER: President; Honorary member of the board; Included in the
WUP bylaws; Corporate officer; Intra Corporate Controversy (ICC).
FACTS:
● WUP is a nonstock educational corp.
● Atty. Maglaya was appointed as a corporate member and was
elected as a member of the BOT for 5 years.
● Later, he was elected as President for a 5 year term.
N
● Again, he was elected as a member of the BOT.
● In a memo, the incumbent Bishops of the United Methodist
VI
Church (Bishops) apprised all corporate members of the
expiration of their terms, unless renewed.
AR
● Said members, including Maglaya, sought the renewal in
WUP’s board.
● Dr. Cabasal, Chairman of the Board, informed the Bishops of
the cessation of corporate terms of some members and/or
trustees since the bylaws provided that the vacancy shall only
A,
be filled by the Bishops upon recommendation of the Board.
● Maglaya learned that the Bishops created an Ad Hoc
G
Committee to plan the turnover of the administration of WUP in
view of the alleged “gentleman's agreement” and that the
Bishops have appointed the incoming corporate members and
N
trustees.
● Maglaya clarified that there was no agreement and any
LO
discussion of the turnover because the corporate members still
have valid and existing terms.
● Later, the Bishops formally introduced the new corporate
SA
members, trustees, and officers which were elected on April 20,
2009.
● Palomo, the new Chairman, informed Maglaya of the
termination of his services and authority as President.
● Maglaya and other former board members filed a complaint for
● RTC dismissed.
L
● CA affirmed RTC’s dismissal.
● Maglaya filed this present case for illegal dismissal.
AR
● NLRC ruled in favor of Maglaya, ruling that although the
position of the President is a corporate office, the manner of
Maglaya’s appointment, his duties, salaries, and allowances
point to his being an employee.
C
ISSUE: W/N Maglaya is an officer and thus makes this case an ICC,
hence NLRC had no jurisdiction?
RULING: Yes. Corporate officers are those who are given that
character by the Corp Code or by the bylaws. Under the Corp Code,
the president, secretary, and treasurer are the specific officers. The
number of officers is not limited to these three. A corp may have
other officers as may be provided for by its bylaws.
The president, vp, corpsec, and treasurer are commonly regarded as
the principal or executive officers of a corp, and they are usually
designated as the officers of the corp. However, other officers are
sometimes created by the charter or bylaws of a corp, or the board
may be empowered under the bylaws to create additional offices as
may be necessary.
An “office” is created by the charter of a corp and the officer is
elected by the directors or stockholders, while an “employee”
usually occupies no office and generally is employed not by action of
the directors or stockholders but by the managing officer of the corp
who also determines the compensation to be paid to such employee.
Hence, the creation of the position under the corp’s charter or
bylaws, and the election of the officer by the directors or
stockholders must concur for an individual to be considered a
corporate officer, as against an ordinary employee or officer.

L
It is only when the officer, claiming to have been illegally dismissed,
is classified as such corporate officer that the issue is deemed an

AR
ICC which falls within the jurisdiction of the trial courts.

It is clear from the bylaws of WUP that the president was one of the
officers of the corp, and was an honorary member of the board. He

C
was appointed by the Board and not by a managing officer of the
corp. Hence, Maglaya is a corporate officer, not a mere employee.

N
The alleged “appointment” of Maglaya instead of “election” as
provided by the bylaws neither convert the president as a mere

VI
employee, nor amend its nature as a corporate officer. With the office
specifically mentioned in the bylaws, the NLRC erred in taking

AR
cognizance of the case, and in concluding that Maglaya was a mere
employee because of the manner of his appointment, his duties and
responsibilities, salaries and allowances.

A corporate officer’s dismissal is always a corporate act, or an ICC

A,
which arises between a stockholder and a corp, and the nature is not
altered by the reason or wisdom with which the Board may have in
G
taking such action. The issue of the alleged termination involving a
corporate officer, not a mere employee, is not a simple labor problem
but a matter that comes within the area of corporate affairs and
N

management and is an ICC in contemplation of the Corp Code.

LO
SA
2. BELO MEDICAL GROUP, INC. VS. SANTOS ● Belo asserted that unless a decision was rendered in Santos’
favor, he could not exercise ownership rights over her
TICKLER: Conflict between 2 stockholders of a corp does not properties.

L
automatically render their dispute as ICC. The nature of the ● Belo also informed BMG that Santos had a business in direct
controversy must also be examined. competition with it and she suspected that his request to inspect

AR
the books was a means to obtain a competitor’s business
FACTS: information and in bad faith.
● BMG received a request from Santos for the inspection of
corporate records. SECOND INSPECTION ATTEMPT

C
● Santos claimed that he was a registered shareholder and a ● A second inspection was attempted through a written demand
co-owner of Belo’s shares, as these were acquired while they by Santos. Again, he was unsuccessful.
cohabited as spouses. ● Belo wrote to BMG to reiterate her objections to Santos’

N
● Santos sought advice on his probable removal as director attempts and his inquiry regarding a patient.
considering that he was not notified of meetings where he could ● Belo manifested that she was exercising her right as a

VI
have been removed. shareholder to inspect the books herself to establish that the 25
● Santos also inquired on the election of Henares as Corp Sec shares were not owned by Santos.

AR
when Santos had not been notified of a meeting for Henares’
possible election. BMG
● Santos sought explanation on the corp’s failure to inform him of ● BMG filed a complaint for an Interpleader alleging that while
the 2007 and 2008 annual meeting. Santos appeared to be a registered stockholder, there was
● Santos’ concern arose from the alleged death of a patient in nothing on record to show that he had paid for the shares under
one of its clinics.
A,
● Santos was unsuccessful in inspecting the corporate books as
his name; that the complaint was filed to protect its interest and
compel Belo and Santos to interplead and litigate their
G
Henares was travelling. conflicting claims of ownership of, as well as the right of
● BMG asked for time for Henares to accommodate his request. inspection arising from, the 25 BMG shares between
themselves.
N

FIRST INSPECTION ATTEMPT ● Henares wrote Belo’s and Santo’s respective counsels to inform
● After the first attempt to inspect, Belo wrote BMG to repudiate them of the complaint.
LO

Santos’ co-ownership of her shares and his interest in the corp. ● Despite receipt, Santos’ counsel still proceeded to BMG’s
● Belo claimed that Santos held the 25 shares in his name merely Makati office, where again, they were unsuccessful in
in trust for her, as she, and not Santos, paid for these shares. inspecting the corporate books.\
SA

● Belo informed BMG that Santos already had a pending petition

with the RTC to be declared as co-owner of her properties.
THIRD INSPECTION ATTEMPT RULING: YES. This is an ICC even if BMG filed a case for
● Santos again sent a letter to BMG to schedule an inspection of interpleader, the rules of which are covered by the RoC.’
the books and warned that continued rejection of his request

L
exposed the corp to criminal liability. To determine whether an ICC exists and whether this case requires
● Again he was not successful. the application of these rules of procedure, this Court evaluated the

AR
relationship of the parties.
● Belo and BMG wrote to Santos to inform him that he was barred
from accessing corporate records because doing so would be The types of intra-corporate relationships (ICR) are between and
inimical to BMG’s interest. among:

C
● Santos was reminded of his majority share in The Obagi Skin [a] the corporation and the public;
Health, Inc., the owner and operator of the House of Obagi [b] the corporation and its stockholders, members, or officers;
(HOO) clinics. [c] the corporation and the state insofar as its franchise, permit or

N
● He was likewise reminded of the service of notice of the 2007 license to operate is concerned; and
SSM to his address in Makati contrary to his claim. [d] the stockholders themselves.

VI
● BMG filed a supplemental complaint for declaratory relief to
deny Santos’ request for inspection and prayed that he be For as long as any of these ICR exist between the parties, the

AR
perpetually barred from inspecting its books due to his business controversy would be characterized as ICC. This is known as the
interest in a competitor. “relationship test.”
● BMG’s complaint and supplemental complaint were raffled to
the RTC of Makati, a special commercial court, thus classifying Another means to determine if the dispute should be considered as
them as ICC. an ICC is the “nature of controversy test.”
●
A,
Belo argued that the proceedings should not have been
classified as ICC because while their right of inspection as In this case, the Court uses both the relationship test and the nature
G
shareholders may be considered ICC, it ceases to be that and of the controversy test to determine if an ICC is present.
becomes a full-blown civil law question if competing rights of
ownership are asserted as the basis for the right of inspection. Applying the relationship test, both Belo and Santos are named
N

● BMG also prayed that the case be tried as a civil case and shareholders in BMG’s AOI and 2007 GIS. The conflict is clearly an
argued that the Interim Rules of Procedure Governing ICCs did ICC as it involves 2 shareholders although the ownership of stocks of
LO

not include special civil actions for interpleader and declaratory one is questioned. Unless Santos is adjudged as a stranger to the
relief; that the issue on ownership of shares of stock must first corp because he holds his shares only in trust for Belo, then both he
be resolved before the issue on inspection could even be and Belo, based on official records, are stockholders of the corp.
SA

considered ripe for determination. Belo Medical Group argues that the case should not have been
characterized as intra-corporate because it is not between two
ISSUE: W/N this case involves an ICC? shareholders as only Santos or Belo can be the rightful stockholder
of the 25 shares of stock. This may be true. But this finding can only
be made after trial where ownership of the shares of stock is The circumstances of the case and the aims of the parties must not
decided. be taken in isolation from one another. The totality of the controversy
must be taken into account to improve upon the existing tests. BMG

L
The trial court cannot classify the case based on potentialities. The used interpleader as a subterfuge to stop Santos, a registered
two defendants in that case are both stockholders on record. They stockholder, from exercising his right to inspect corporate books.

AR
continue to be stockholders until a decision is rendered on the true
ownership of the 25 shares of stock in Santos’ name. If Santos’
subscription is declared fictitious and he still insists on inspecting
corporate books and exercising rights incidental to being a

C
stockholder, then, and only then, shall the case cease to be
intra-corporate.

N
Applying the nature of the controversy test, this is still an ICC.
The interpleader seeks a determination of the true owner of the

VI
shares registered in Santos’ name. Ultimately, however, the goal is to
stop Santos from inspecting corporate books. This goal is so

AR
apparent that, even if Santos is declared the true owner upon
completion of the interpleader case, BMG still seeks his
disqualification from inspecting the books based on bad faith.
Therefore, the controversy shifts from a mere question of ownership
over movable property to the exercise of a registered stockholder’s
A,
proprietary right to inspect corporate books.
G
BMG argues that to include inspection of corporate books to the
controversy is premature considering that there is still no
determination as to who is the rightful owner of the 25 shares of
N

stock. Its actions belie its arguments. BMG wants the trial court not
to prematurely characterize the dispute as ICC when, in the same
LO

breath, it prospectively seeks Santos’ perpetual disqualification from

inspecting its books. This case was never about putting into light the
ownership of the shares. If that was a concern at all, it was merely
SA

secondary. The primary aim of Belo and BMG was to defeat his right
to inspect the corporate books, as can be seen by the filing of a
declaratory relief.
3. THE PHIL. GEOTHERMAL EMPLOYEES UNION VS. UNOCAL ● Petitioners claimed that UPH was guilty of ULP and filed a
PHILS notice of strike but later withdrew said notice.
● The parties submitted their dispute for voluntary arbitration with

L
TICKLER: merger of a corporation with another does not operate to the SOLE as the VA.
dismiss the employees of the corporation absorbed by the surviving ● SOLE ruled that the petitioner’s members were impliedly

AR
corporation. terminated as a result of the merger; that the merger resulted in
new contracts and a new employer for petitioner’s members’;
FACTS: thus, SOLE awarded separation pay.
● Petitioner is a labor union and the bargaining agent of the rank ● UPH appealed to the CA claiming that petitioners was not

C
and file employees of UNOCAL. entitled to separation benefits given that UPH was not a party to
● UNOCAL is a foreign corp under the laws of California, U.S.A. the merger, that it never closed nor ceased business, and that it
licensed to do business in the PH for exploration and did not terminate its employees.

N
development of geothermal resources. It is a wholly owned ● CA ruled in favor of UPH and reversed the SOLE; that UPH has
subsidiary of UNOCAL California, which in turn, is a wholly a separate personality from its parent company, UC, which was

VI
owned subsidiary of UNOCAL Corp. the party to the MA; that UPH remained undissolved and its
● Unocal PH (UPH) operates 2 geothermal steam fields in Albay employees were not affected by the merger; that although UC

AR
and Laguna, owned by NAPOCOR. became part of Chevron, UPH still remained as a wholly owned
● UNOCAL executed a merger agreement (MA) with Chevron and subsidiary of Unocal California after the merger; that petitioner’s
Blue Merger (BM). members merely wanted to discontinue their employment with
● BM is a wholly owned subsidiary of Chevron. UPH, but there was nothing in the Labor Code nor in the CBA
● Under the MA, UNOCAL merged with BM, and BM became the that would sanction the payment of separation pay to those who
surviving corp.
A,
● Chevron then became the parent corp of the merged corps.
no longer wanted to work for UPH as a result of the merger.
G
● After the merger, BM changed its name to Unocal Corp (UC). ISSUE: W/N the MA resulted in the termination of employees?
● UPH executed a CBA with petitioner.
● Petitioner wrote UPH asking for separation benefits under the RULING: NO. UC, BM, and Chevron entered into the merger.
N

CBA. According to petitioner, the merger resulted in the closure Whether or not UPH is a party to the MA, there is no implied
and cessation of operations of UPH and the implied dismissal of dismissal of its employees as a consequence of the merger.
LO

its employees.
● UPH refused and asserted that the employees were not A merger is a consolidation of 2 or more corps, which results in 1 or
terminated and that the merger did not result in its closure or more corps being absorbed into 1 surviving corp.
SA

cessation of its operations.

● UPH and petitioners decided to submit the matter to DOLE The separate existence of the absorbed corp ceases, and the
where they were not able to arrive at a mutually acceptable surviving corp “retains its identity and takes over the rights,
agreement.
privileges, franchises, properties, claims, liabilities and obligations of the absorbed corp. These employment contracts are not terminated.
the absorbed corps.” They subsist unless their termination is allowed by law.

L
If UPH is a subsidiary of Unocal California, which, in turn, is a
subsidiary of UC, then the merger of UC with BM and Chevron does

AR
not affect UPH or any of its employees. UPH has a separate and
distinct personality from its parent corp.

Nonetheless, if UPH is indeed a party to the merger, the merger still

C
does not result in the dismissal of its employees.

The effect of merger is that the surviving corp automatically assumes

N
the employment contracts of the absorbed corp, such that the
absorbed corp’s employees become part of the manpower of the

VI
surviving corp.

AR
This is the nature and effects of a merger as provided under Sec. 80
of the Corp Code, as well as the policies on work and labor under the
Constitution.

Section 80 of the Corp Code provides that the surviving corp shall
A,
possess all the rights, privileges, properties, and receivables due of
the absorbed corp. Moreover, all interests of, belonging to, or due to
G
the absorbed corp “shall be taken and deemed to be transferred to
and vested in such surviving or consolidated corp without further act
or deed.”
N

The surviving corp likewise acquires all the liabilities and obligations
LO

of the absorbed corp as if it had itself incurred these liabilities or

obligations.
SA

This acquisition of all assets, interests, and liabilities of the absorbed

corp necessarily includes the rights and obligations of the absorbed
corp under its employment contracts. Consequently, the surviving
corp becomes bound by the employment contracts entered into by
4. WISE HOLDINGS VS. GARCIA
TICKLER: ICC; Trustee; enforcement of recognition of trust.
FACTS:
● WH is the parent company of several wholly-owned and
majority-owned subsidiaries engaged in trading of machinery,
real estate development, and insurance.
● One of WH’s subsidiaries, Wise Choice Foods (WF), is a
company engaged in manufacturing of processed and raw food
materials in the PH.
● Petitioners Alino and Campa are members of the BOD of WH
N
and officers of WF.
● Petitioners filed a complaint with TRO, WPI, appointment of
VI
receiver, and attachment, against respondents (1st complaint).
● Petitioners averred that WH, through Campa, incorporated
AR
Sunrich Manufacturing Corp (SMC), which took over WF, and
transferred all of WF’s assets, as well as licenses, privileges,
and goodwill, to SMC in an asset-for-share swap (AFSS).
● In turn, SMC was obliged to issue all its shares of stock to WH
as the sole stockholder of WF.
A,
● WH added that SMC is substantially a continuation of WH’s
prior investment in WF.
G
● Allegedly, WH caused the registration of SMC’s subscribed
shares under its truster officers in WF, the respondents.
● WH claimed that respondents are mere trustees/representatives
N
who hold the stocks in their respective names for and in behalf
of WH, which is the real beneficial owner of the shares.
LO
● Sometime after SMC’s incorporation, respondents transferred
the shares entrusted to them by WH to their co-respondents,
which resulted in the change of composition of the
SA
shareholdings.
● WH allegedly demanded from respondents the conveyance of
the ownership, interests, and benefits pertaining to the subject
shares of stock, remittance and/or accounting of all the income
and/or dividends due to the shares, recording of the foregoing
stock subscriptions in the name of WH, and the issuance to WH
of the corresponding certificates of stocks, but respondents
L
refused. Thus WH filed the 1st complaint.
● The clerk of court of RTC Mandaluyong Br 211 considered the
AR
1st complaint as an ICC and raffled it to a special comm court.
● The RTC denied the TRO.
● WH manifested that the 1st complaint was wrongly classified as
an ICC. According to WH, since the RTC 211 can only exercise
C
jurisdiction as a commercial court, the 1st complaint should be
re-raffled to a regular court.
● Respondents moved to dismiss and asserted that SMC has no
relationship with WF and SMC was formed by Francisco Garcia
with the help of other incorporators; that Campa has no part in
the incorporation of SMC or in the election of its officers or
directors; that respondents, as shareholders of SMC, are the
true, legal and beneficial owners of their shares; that no assets
of WF formed part of and served as contribution to the
incorporation of SMC since it was incorporated by Francisco
Garcia and other respondents on their own.
● RTC 211 applied the Interim Rules of Procedure for ICC in
dismissing the 1st complaint for lack of jurisdiction; that WH’s
allegations constitute an ICC between the parties.
● WH refiled the complaint (2nd complaint) with RTC
Mandaluyong and was raffled to Br. 212, a court of general
jurisdiction.
● Respondents moved to dismiss and raised the same
arguments.
● RTC212 dismissed the second complaint and ruled that the 2nd
complaint involves an ICC and that RTC211’s ruling is binding.
ISSUE: W/N the cause of action of WH refers to an ICC?
RULING: No. The “relationship test” determines whether an issue Second, the nature of the controversy in this case does not refer to
is an ICC and is within SEC’s jurisdiction. This test requires the an ICC.
existence of any of the ICR between the parties.

L
The nature of the controversy test requires that the issue in the
The types of intra-corporate relationships (ICR) are between and complaint must refer to the enforcement of the parties’ correlative

among:
[a] the corporation and the public;
[b] the corporation and its stockholders, members, or officers;
[c] the corporation and the state insofar as its franchise, permit or
AR
rights and obligations under the COrp Code and the internal and
intra-corporate regulatory rules of the corp.
Here, the allegations of the complaint shows an action for

C
license to operate is concerned; and reconveyance of property in recognition of trust. WH seeks the return
[d] the stockholders themselves. of all the shares of stock of SMC, of which they are the real and
beneficial owners. The allegations assert the existence of a trust

N
The second test is a.k.a. The “nature of the controversy test” relationship, which WH allege was created between the parties
under the NCC on implied trust.

VI
The Court later declared as the “better policy” to consider both the
relationship of the parties and the nature of the question that is the

AR
subject of the controversy in determining which body has jurisdiction.

Applying the 2 tests in this case, the cause of action in petitioners’

complaints is an ordinary civil case and not an ICC.

A,
First, there is no corporate relationship between WH and SMC,
whose shares of stock are subject of the controversy. While WH is
G
asserting real ownership of the shares in SMC, WH acknowledges
that such ownership is not registered in SMC’s books.
N

Even SMC, in their affirmative defenses, averred that they are the
registered owners in the SaTB of SMC, and WH was never recorded
LO

as owners of these shares.

Since there is no issue as to the fact that WH are not registered

SA

shareholders of SMC, WH’s complaint should have been

automatically removed from the rules on ICC and the regular courts
should have been granted jurisdiction.
5. ELZEMENDI, JR. ET AL. VS. FERNANDEZ
TICKLER: What cannot be done directly cannot be done indirectly.
FACTS:
● Respondent Teodorico Fernandedz filed a complaint for
invalidation of corporate acts and resolutions against individual
petitioners who allegedly constituted themselves as new
members of the BOD of Valle Verde Country Club (VVCC),
despite lack of quorum.
● VVCC is a non stock corp engaged in promoting sports,
recreational, and social activities, and the operation of a sports
N
and club house.
● Fernandez averred that he is a proprietary member in good
VI
standing of VVCC, and the individual petitioners held a meeting
during which they supposedly acted for and in behalf of VVCC,
AR
and found him guilty of less serious violations of the bylaws and
suspended his membership for 6 months.
● Fernandez asserted that since petitioners were not validly
constituted as the new BOD in place of the hold-over BOD of
VVCC, they had no legal authority to act as such BOD, to find
A,
him guilty, and suspend him.
● Fernandez alleged that he was not accorded due process by
G
not notifying him of the charge and verdict and that he would
not have found out if he did not go to the VVCC complex to use
its facilities, and that he suffered deep pain and embarrassment
N
because a security guard directed a waiter not to serve the food
he had ordered in the presence of several members on the
LO
ground that his name is in the list of members suspended at the
instance of the individual petitioners.
● In an urgent motion or request for production/copying of
SA
documents, Fernandez requested VVCCI to produce and allow
him to copy, in connection with the hearing on his injunction
application, the books and cancelled membership fee
certificates of VVCC, its cert of incorporation, directors’ cert to
bylaws, original bylaws, cert of filing of bylaws, and original
resolution increasing the corp’s membership certificates to
2,000.
L
● Petitioners opposed the urgent motion for being unreasonable
and not being in their possession.
AR
● RTC Pasig Judge San Pedro stressed that she will not touch on
the election contest aspect, otherwise, the mandatory period
within which to file an Election Contest would be rendered
nugatory. The trial court stressed that is cannot allow indirectly
C
what is barred directly by the Rules and, accordingly, the only
issue remaining is whether due process was observed in
suspending Fernandez.
● CA affirmed.
ISSUE:
1. W/N Fernandez’s complaint is an election contest within the
purview of the Interim Rules?
2. W/N Fernandez may question the authority of petitioners to act
as BOD of VVCC and approve the board resolution suspending
his club membership?
RULING:
1. YES. The complaint for misrepresentation of corporate office filed
against individual petitioners falls under the definition of election
contest because it raises the issues of the validation of proxies, and
the manner and validity of elections. It is essentially for the
nullification of the election on the ground that the election was
unlawfully conducted due to lack of quorum.
The allegation in Fernandez's complaint for invalidation of corporate
acts and resolutions partly assails the authority of the BOD to
suspend his membership on the ground that despite the lack of
quorum at the same meeting, the individual petitioners proceeded to
have themselves constituted as the new members of the BOD of
VVCCI. His complaint clearly raises an issue on the validity of the
election of the individual petitioners.

L
Fernandez's complaint disputes the election of petitioners as
members of the BOD of VVCC on the ground of lack of quorum

AR
during the February 23, 2013 annual meeting. Verily, his complaint is
partly an "election contest" as defined under Section 2, Rule 6 of the
Interim Rules, which refers to "any controversy or dispute involving
title or claim to any elective office in a stock or non-stock corporation,

C
the validation of proxies, the manner and validity of elections, and
the qualifications of candidates, including proclamation of winners, to
the office of director, trustees or other officer directly elected by the

N
stockholders in a close corporation or by members of a non-stock
corporation where the article of incorporation so provide."

VI
2. No. To allow Fernandez to indirectly question the validity of the

AR
election would be a clear violation of the 15-day reglementary period
to file an election contest under the Interim Rules. What cannot be
legally done directly cannot be done indirectly.

The 15-day reglementary period within which to file an election

A,
contest under the Interim Rules is meant to hasten the submission
and resolution of corporate election controversies, so that the state
G
of uncertainty in the corporate leadership is settled; and that the said
period not meant to block suits questioning the unlawful acts of
winning directors, including the legitimacy of their authority. However,
N

if the Court were to entertain one of the causes of action in

Fernandez's complaint, which is partly an election contest raised
LO

beyond the said reglementary period, then the salutary purposes of

the said period under the Interim Rules would be rendered futile; the
floodgates to election contests would be opened, to the detriment of
SA

the regime of efficient and stable corporate governance.

6. AGDAO LANDLESS RESIDENTS ASSOCIATION, INC. VS.
MARAMION
TICKLER: Individual vs Derivative suit; for the benefit of the corp.
FACTS:
● ALRAI is a non-stock domestic corp.
● Its board consists of Javonillo, Armentano, and Alcantara.
● Respondents are allegedly ousted members of ALRAI.
● Dakudao & Sons, Inc. (DSI) executed 6 deeds of donation
(DOD) in favor of ALRAI covering 46 titled lots (46TL).
● One DOD prohibits ALRAI, as donee, from partitioning or
N
distributing individual certificates of title of the donated lots to its
members, within 5 years.
VI
● The other 5 DOD does not provide for the 5 year restriction.
● In the board meetings and stockholders meetings, respectively,
AR
members of ALRAI transferred 10 of the donated lots to
individual members and nonmembers of ALRAI, to wit: Dela
Cruz, Javonillo (the president of ALRAI), Armentano (the corp
sec of ALRAI), Alcantara (the widow of the former legal
counsel of ALRAI), Loy (Alcantara sold 1 TCT to Loy).
A,
● Respondents filed a complaint against petitioners and alleged
that the latter expelled them as members; that petitioners are
G
abusing their powers as officers; that petitioners were engaged
in anomalous and illegal acts.
● Respondents prayed for the restoration of their membership,
N
require petitioners to stop selling donated lands and annul the
titles that were transferred. Respondents also prayed for the
LO
production of accounting books of ALRAI.
● Petitioners alleged that ALRAI transferred the lots to Alcantara
as attorney’s fees owed to her late husband; That Javonillo
SA
and Armentano, as president and corpsec, made a lot of
sacrifices for ALRAI, while Dela Cruz provided financial
assistance to ALRAI.
● Petitioners also alleged that respondents are nonmembers who
has no personality to sue and that the members who were
removed were legally ousted due to their absences in meetings.
L
RTC: ruled in favor of respondents and treated the case as ICC and
AR
found the respondents to be members of ALRAI, hence, are entitled
to notices of meetings for the purpose of suspension or expulsion.
CA: CA affirmed with modifications and declared the transfers of
C
TCTs in favor of Dela Cruz and Loy as valid, and the transfers in
favor of Javonillo, Armentano, and Alcantara as invalid. The
expulsion of respondents are also invalid as there is no provision in
ALRAI’s bylaws which provides automatic termination in case of
absences.
ISSUE: W/N this is a case of an individual suit?
RULING: No. This is a case of a derivative suit and not an individual
suit which respondents filed.
Individual suits are filed when the cause of action belongs to the
stockholder personally, and not to the stockholders as a group, or to
the corp (e.g., denial of right to inspection and denial of dividends to
a stockholder). If the cause of action belongs to a group of
stockholders, such as when the rights violated belong to preferred
stockholders, a class or representative suit may be filed to protect
the stockholders in the group.
A derivative suit is one which is instituted by a shareholder or a
member of a corp, for and in behalf of the corp for its protection from
acts committed by directors, trustees, corporate officers, and even
third persons. The whole purpose of the law authorizing a derivative
suit is to allow the stockholders/members to enforce rights which are
derivative (secondary) in nature, i.e., to enforce a corporate cause of
action.
 for the corporate interest of ALRAI. Clearly then, any benefit that
The nature of the action, as well as which court has jurisdiction is may be recovered is accounted for, not in favor of respondents, but
determined based on the allegations in the complaint. for the corp. Therefore, the occasion for the strict application of the

L
rule that a derivative suit should be brought in order to protect and
The first cause of action, and the reliefs sought, should have been vindicate the interest of the corp does not obtain in this case.

AR
brought through a derivative suit. The first cause of action pertains to
the corporate right of ALRAI involving its corporate properties which Fourth, there is substantial compliance with the requirements of a
it owned by virtue of the DOD. In derivative suits, the real derivative suit, to wit:
party-in-interest is the corp, and the suing stockholder is a mere

C
nominal party. A derivative suit, therefore, concerns “a wrong to the a) The party bringing suit should be a shareholder as of the time of
corp itself.” the act or transaction complained of;

N
This case is one pursued by the corp itself, for the following reasons: b) He has tried to exhaust intra-corporate remedies, i.e., a demand
made on the BOD for the appropriate relief but the latter has failed or

VI
First, the RTC has jurisdiction to hear and decide this case since it refused to heed his plea; and
involves “Devices or schemes employed by or any acts, of the BOD,

AR
business associates, its officers or partnership, amounting to fraud c) The cause of action actually devolves on the corp, the wrongdoing
and misrepresentation which may be detrimental to the interest of or harm having been, or being caused to the corpand not to the
the public and/or of the stockholders, partners, members of particular stockholder bringing the suit.
associations or organizations registered with the Commission.”
As for the first requisite, here, the RTC found that respondents are
A,
Second, petitioners did not object to the institution of the case (on
the ground that a derivative suit should have been lodged instead of
bona fide members of ALRAI.
G
an individual suit) in any of the proceedings before the RTC or before As for the second requisite, after respondents demanded
the CA. Armentano to justify the transfer of ALRAI’s properties to the
individual petitioners, respondents were invalidly expelled from the
N

Third, a reading of the complaint (in relation to the cause of action corp. The threat of expulsion is sufficient to forestall any expectation
pertaining to ALRAI’s corporate properties) shows that respondents of further demand for relief. Ultimately, to make an effort to demand
LO

do not pray for reliefs for their personal benefit; but in fact, for the redress within the corp will only result in futility, rendering the
benefit of the ALRAI. exhaustion of other remedies unnecessary.
SA

The reliefs sought show that the complaint was filed ultimately to As for the third requisite, the cause of action and the reliefs sought
curb the alleged mismanagement of ALRAI’s corporate properties. ultimately redound to the benefit of ALRAI. Therefore, we treat this
The reliefs sought do not entail the premature distribution of case as one pursued by the corp to protect its corporate assets.
corporate assets. On the contrary, the reliefs seek to preserve them
As for the validity of the TCT transfers, all transfers including
those made to Dela Cruz and Loy are not valid

L
One of the primary purposes of ALRAI is the giving of assistance in
uplifting and promoting better living conditions to all members in

AR
particular and the public in general. One of its objectives includes “to
uplift and promote better living conditions, education, health and
general welfare of all members in particular and the public in general
by providing its members humble shelter and decent housing.”

C
The power of a corp to validly grant or convey any of its properties is
circumscribed by its primary purpose. It is important to determine

N
whether the conveyance is pursuant to a legitimate corporate
purpose, or is at least reasonable and necessary to further its

VI
purpose.

AR
Based on the records, the transfers are bereft of any legitimate
corporate purpose, nor were they shown to be reasonably necessary
to further ALRAI’s purposes. This is principally because petitioners
personally benefited themselves by allocating among themselves
vast tracts of lands at the dire expense of the landless general
A,
membership of the Association.
G
N
LO
SA
 FOREIGN CORPORATIONS 1. W/N AC is a resident foreign corp within the meaning of Sec
28(a)(1) of the NIRC?
7. AIR CANADA VS. COMMISSIONER OF INTERNAL REVENUE 2. Whether AC is subject to the 2 ½% tax on GPB pursuant to

L
Sec(a)(3) or to the regular corporate income tax of 32%?
TICKLER: An offline international air carrier selling passage tickets in

AR
the PH, through a general sales agent, is a resident foreign corp RULING:
doing business in the PH. 1. YES. AC, an offline carrier, is a resident foreign corp for income
tax purposes. AC falls within the definition of resident foreign corp
FACTS: under Sec 28(a)(1).

C
● AC is a foreign corp organized under the laws of Canada.
● AC was granted an authority to operate as an offline carrier by Sec 28(a)(1) is applicable to a corporation organized, authorized, or
the CAB. existing under the laws of any foreign country, engaged in trade or

N
● As an offline carrier, AC does not have flights originating from or business within the Philippines.
coming to the PH and does not operate any planes in the PH.

VI
● AC engaged the services of Aerotel as its general sales agent The definition of “resident foreign corp” refers to a “foreign corp
in the PH. engaged in trade or business within the PH.”

AR
● Aerotel sells AC’s passage documents in the PH.
● From the 3rd quarter of 2000 to the 2nd quarter of 2002, AC, NIRC defined “resident foreign corp” as applying to “a foreign corp
through Aerotel, filed quarterly and annual ITRs and paid engaged in trade or business within the PH or having an office or
income tax on Gross Philippine Billings (GPB) amounting to place of business therein.”
5.1m

was erroneously paid.

A,
● AC filed a claim for refund amounting to 5.1m alleging that it The term “doing” or “engaging in” or “transacting” business implies a
continuity of commercial dealings and arrangements. There must be
G
● CTA denied the claim and found that AC was engaged in an intention to establish a continuous business, such as the
business in the PH through a local agent that sells airline tickets appointment of a local agent, and not one of a temporary character.
on its behalf. As such, it should be taxed as a resident foreign
N

corp at the regular rate of 32%; that AC was deemed to have Under FIA of 1991, “doing business” includes any other act or acts
established a “permanent establishment” in the PH by that imply a continuity of commercial dealings or arrangements, and
LO

appointment of a local sales agent, in which AC uses its contemplate to that extent the performance of acts or works, or the
premises as an outlet where sales of airline tickets are made. exercise of some of the functions normally incident to, and in
● CTA en banc affirmed its division and ruled that AC is subject to progressive prosecution of, commercial gain or of the purpose and
SA

tax as a resident foreign corp doing business in the PH since it object of the business organization. It includes appointing
sold airline tickets in PH. representatives or distributors, operating under full control of the
foreign corp.
ISSUES:
Therefore, AC is undoubtedly “doing business” or “engaged in trade
or business” in the PH. Hence, AC is taxable on its income derived
from sources within the PH.

L
AC’s income from sale of airline tickets, through aerotel, is income

AR
realized from the pursuit of its business activities in the PH.

2. Neither. AC, as an offline international carrier with no landing

rights in the PH, is not liable to tax on GPB. The tax attaches only

C
when the carriage of persons, excess baggage, cargo, and mail
originated from the PH in a continuous and uninterrupted flight,
regardless of where the passage documents were sold.

N
Not having flights to and from the PH, AC is not liable for the GPB

VI
tax.

AR
While AC is taxable as a resident foreign corp under Sec. 28(A)(1) of
the NIRC on its taxable income from sale of airline tickets in the PH,
it could only be taxed at a maximum of 1 1/2% of gross revenues,
pursuant to the RPH-Canada Tax Treaty that applies to AC as a
“foreign corp organized and existing under the laws of Canada.”
A,
G
N
LO
SA
8. ERIKS VS. COURT OF APPEALS
TICKLER: foreign corp operating without a license; barred from
access to our courts; subsequent acquisition of license cures the
defect at the execution of the contract.
FACTS:
● ERIKS is a non resident foreign corp engaged in the
manufacture and sale of sealing for fluid control and PVC pipes.
● ERIKS is a corp organized under the laws of Singapore. It is not
licensed to do business in the PH and is not so engaged and is
suing on an isolated transaction for which it has capacity to sue.
N
● Private respondent Delfin, doing business under the name of
Delrene EB Controls Center (DECC) and/or EB Karmine
VI
Commercial (EKC), ordered and received from ERIKS various
items on several dates, amounting to $41,927.
AR
● The transfers of goods were perfected in Singapore with a 90
day credit term.
● Demands were made by ERIK but Delfin failed to pay.
● ERIKS filed for recovery of the sum before the RTC of Makati.
● Delfin moved to dismiss, contending that ERIKS had no legal
capacity to sue
A,
● RTC dismissed on the ground that ERIKS is a foreign corp
G
doing business in the PH without a license.
● CA affirmed the RTC and ruled that the series of transactions
between ERIKS and Delfin cannot be an isolated transaction.
N
ISSUE: W/N a foreign corp “doing business” in the PH without the
LO
required license is barred access to our court system?
RULING: YES. Sec. 133 provides that: “No foreign corp transacting
SA
business in the PH without a license x x x shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the PH; but such corp may be sued or
proceeded against before PH courts or administrative tribunals on
any valid cause of action recognized under PH laws.”
L
Sec. 133 bars a foreign corporation “doing business” in the PH
without such license access to our courts.
AR
A foreign corp without such license is not ipso facto incapacitated
from bringing an action. A license is necessary only if it is
“transacting or doing business” in the country.
C
However, there is no definitive rule on what constitutes “doing,”
“engaging in,” or “transacting” business. The Corp Code itself does
not define such terms. To fill the gap, FIA has produced an all
encompassing concept which provides:
The phrase “doing business” includes any other act or acts
that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object
of the business organization.
Each case must be judged in the light of its own circumstances. The
purpose of the law is to subject the foreign corp doing business in
the PH to the jurisdiction of our courts. It is not to prevent the foreign
corp from performing single or isolated acts, but to bar it from
acquiring a domicile for the purpose of business without first taking
the steps necessary to render it amenable to suits in the local courts.
In this case, ERIKS was doing business without a license. The
invoices and delivery receipts cannot be treated to mean a singular
and isolated business transaction that is temporary in character. The
mere fact ERIKS, each time Delfin posts an order, delivers the item,
only indicates that it has the intention and desire to repeat the said
transaction in the future pursuit of its ordinary business. Furthermore, foreign entity would be giving assurance that it will abide by the
if the corp is doing that for which it was created, the amount or decisions of our courts, even if adverse to it.
volume of the business done is immaterial and a single act of that

L
character may constitute doing business. We are not foreclosing ERIK’s right to collect payment. Res judicata
does not set in a case dismissed for lack of capacity to sue, because

There were 17 orders and deliveries over a 4 month period. Delfin
made separate orders at various dates. The transactions did not
consist of separate deliveries for one single order. The transactions
entered are a series of commercial dealings which would signify an
AR
there has been no determination on the merits. Subsequent
acquisition of the license will cure the lack of capacity at the time of
the execution of the contract.

C
intent on the part of ERIKS to do business in the PH and could not
be considered an isolated one, thus would fall under the category of
‘doing business’.

N
The sale by ERIKS of the items covered by the receipts, which are

VI
part and parcel of its main product line, was actually carried out in
the progressive prosecution of commercial gain and the pursuit of

AR
the purpose and object of its business, pure and simple. Further, its
grant and extension of 90-day credit terms to Delfin shows an
intention to continue transacting with the latter, since in the usual
course of commercial transactions, credit is extended only to
customers in good standing or to those on whom there is an intention
A,
to maintain long-term relationship. This being so, the existence of a
distributorship agreement between the parties will not affect the
G
finding of the courts that ERIKS was doing business in the country.

Accordingly, ERIKS must be held to be incapacitated to maintain the

N

action against Delfin.

LO

It was never the intent of the legislature to bar court access to a

foreign corp or entity which happens to obtain an isolated order for
business in the PH. Neither, did it intend to shield debtors from their
SA

legitimate liabilities or obligations. But it cannot allow foreign corps

which conduct regular business any access to courts without the
fulfillment by such corps of the necessary requisites to be subjected
to our govt’s regulation and authority. By securing a license, the
9. GLOBAL BUSINESS HOLDINGS, INC. V. SURECOMP RULING: Yes. GBH is estopped from challenging SS’ capacity to
SOFTWARE, B.V. sue.

L
TICKLER: Foreign corp doing business in the PH without a license As a rule, unlicensed foreign corps doing business in the PH cannot
cannot sue; exception is estoppel; having reaped the benefits file suits in the PH.

AR
FACTS: Sec. 133 provides that: “No foreign corp transacting business in the
● SS, a foreign corp organized under the laws of Netherlands, PH without a license x x x shall be permitted to maintain or intervene
entered into a software license agreement with Asian Bank in any action, suit or proceeding in any court or administrative

C
Corp (ABC), a domestic corp, for the use of its software in agency of the PH; but such corp may be sued or proceeded against
ABC’s computer system for 20 years. before PH courts or administrative tribunals on any valid cause of
● ABC merged with GBH, with GBH as the surviving corp. action recognized under PH laws.”

N
● When GBH took over the operations of ABC, it found the
software unworkable for its operations, and informed SS of its A corp has a legal status only within the state or territory in which it

VI
decision to discontinue with the agreement and stop payments. was organized. For this reason, a corp organized in another country
● SS filed a case for breach of contract before RTC Makati. has no personality to file suits in the PH. In order to subject a foreign

AR
● SS alleged that it is a foreign corp not doing business in the PH corp doing business in the country to the jurisdiction of our courts, it
and is suing on an isolated transaction; that it installed the must acquire a license from the SEC and appoint an agent for
software for $298k as license fee; that ABC undertook to pay service of process. Without such license, it cannot institute a suit in
professional services, which included on site support and the PH. The exception to this rule is the doctrine of estoppel.
development interfaces, and annual maintenance fees for 5
subsequent years.
A,
● In a separate transaction, SS alleged that ABC requested them
A foreign corp doing business in the PH without license may sue in
PH courts a Filipino citizen or a PH entity that had contracted with
G
to purchase on its behalf a software called MF Cobol Runtime and benefited from it. A party is estopped from challenging the
(MF) with a promise to reimburse its cost. personality of a corp after having acknowledged the same by
● GBH moved to dismiss on the ground that SS had no capacity entering into a contract with it. The principle is applied to prevent a
N

to sue because it was doing business in the PH without a person contracting with a foreign corp from later taking advantage of
license. its noncompliance with the statutes, chiefly in cases where such
LO

● RTC ruled in favor of SS and held that GBH is estopped from person has received the benefits of the contract.
denying SS’ capacity to sue; that the merger does not relieve
GBH of its contractual obligations since it undertook to assume
SA

all liabilities and obligations of ABC under the merger

agreement.

ISSUE: W/N GBH is estopped from questioning SS’ capacity to sue?

10. CARGILL VS. INTRA STRATA ASSURANCE
TICKLER: Mere importation from a PH exporter without more does
not constitute as doing business in the PH.
FACTS:
● Cargill is a corp organized under the laws of Delaware, USA.
● Cargill and Northern Mindanao Corp (NMC) executed a contract
whereby NMC agreed to sell to Cargill 20k-24k metric tons of
molasses.
● The contract provides that Cargill would open a letter of credit
(LOC) with BPI.
N
● Under the “red clause” of the LOC, NMC was permitted to draw
up to $500k representing the minimum price of the contract
VI
upon presentation of some documents.
● The contract was amended 3 times:
AR
First, increasing the purchase price of molasses;
Second, reducing the quantity of molasses to 10,500;
Third, providing for the shipment of 50% the of molasses on
A,
the last half of December 1990 through the first half of
January 1991, and the balance of 50% on the last half of
G
January 1991 through the first half of Feb 1991. It also
required NMC to put up a performance bond of $451k
representing the 10,500 metric tons of molasses.
N
● The performance bond was to guarantee NMC’s performance to
LO
deliver the molasses during the prescribed periods.
● In compliance with the contract, ISA issued a performance bond
in the sum of 11.2m to guarantee NMC’s obligation, and a
SA
surety bond of 9.9m to guarantee the repayment of
downpayment.
● NMC was able to deliver only 219 metric tons.
● Cargill sent demand letters to ISA.
● ISA refused to pay.
● Cargill filed a complaint for sum of money against NMC and ISA
● NMC and ISA entered into a compromise agreement (COAG)
L
which provides that NMC would pay Cargill 3m upon signing of
the COAG and would deliver to Cargill 6,991 metric tons.
AR
● NMC still failed to comply.
● RTC ruled in favor of Cargill and ordered ISA to pay 16.9m
● CA ruled that Cargill does not have the capacity to sue since it
is a foreign corp without a requisite license and its purchase of
C
molasses were in pursuance of its basic business and not just a
mere isolated transaction.
ISSUES: W/N ISA is estopped from invoking the lack of capacity to
sue of Cargill?
RULING: Under Art 123 of the Corp Code, a foreign corp must first
obtain a license and a certificate from the appropriate government
agency before it can transact business in the PH.
Where a foreign corp does business in the PH without the proper
license, it cannot maintain any action or proceeding before PH courts
as provided under Sec. 133 of the Corp Code.
Sec. 133 provides that: “No foreign corp transacting business in the
PH without a license x x x shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative
agency of the PH; but such corp may be sued or proceeded against
before PH courts or administrative tribunals on any valid cause of
action recognized under PH laws.”
The phrase “doing business” includes any other act or acts that imply
a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and To be doing or “transacting business in the Philippines” for purposes
object of the business organization. of Sec 133, the foreign corp must actually transact business in the
PH, that is, perform specific business transactions within the PH

L
In this case, we find that ISA failed to prove that petitioner’s activities territory on a continuing basis in its own name and for its own
in the PH constitute doing business as would prevent it from bringing account. Actual transaction of business within the PH territory is an

an action.
The determination of whether a foreign corp is doing business in the
PH must be based on the facts of each case.
AR
essential requisite for the PH to to acquire jurisdiction over a foreign
corp and thus require the foreign corp to secure a PH business
license. If a foreign corp does not transact such kind of business in
the PH, even if it exports its products to the PH, the PH has no

C
jurisdiction to require such foreign corp to secure a PH business
In this case, Cargill and NMC amended their contract three times to license.
give a chance to NMC to deliver, considering that NMC already

N
received the minimum price of the contract. There is no showing that In the present case, Cargill is merely importing molasses from a PH
the transactions between Cargill and NMC signify the intent of Cargill exporter. A foreign company that merely imports goods from a PH

VI
to establish a continuous business or extend its operations in the PH. exporter, without opening an office or appointing an agent in the PH,
is not doing business in the PH.

AR
Activities within PH that do not create earnings or profits to the
foreign corp do not constitute doing business in the PH.

In this case, the contract involved the purchase of molasses. It was

NMC, the domestic corporation, which derived income from the
A,
transaction and not Cargill. To constitute “doing business,” the
activity undertaken in the PH should involve profit-making. Besides,
G
under FIA, “soliciting purchases” has been deleted from the
enumeration of acts or activities which constitute “doing business.”
N

Other factors which support the finding that petitioner is not

doing business in the Philippines are:
LO

(1) Cargill does not have an office in the Philippines;

(2) Cargill imports products from the PH through its non-exclusive
local broker, whose authority to act on behalf of Cargill is limited to
SA

soliciting purchases of products from suppliers in the PH; and

(3) the local broker is an independent contractor and not an agent of
Cargill.
11. B. VAN ZUIDEN V.  GTVL MANUFACTURING
TICKLER: Foreign corp must actually transact business in the PH;
performing specific business transactions on a continuing basis.
FACTS:
● BVZ is a corp under the laws of HK and is not engaged in
business in the PH.
● BVZ engaged the importation and exportation of lace products.
● On several occasions, GTVL purchased lace products from
BVZ.
● The terms was that BVZ delivers the products purchased by
N
GTVL, to a certain HK corp, known as Kenzar, and the products
are considered sold upon receipt by Kenzar.
VI
● Kenzar had the obligation to deliver the products to the PH
and/or follow whatever instructions GTVL had.
AR
● GTVL is the one obliged to pay the agreed purchase price to
BVZ upon delivery to Kenzar.
● GTVL failed and refused to pay for several deliveries.
● BVZ filed a complaint for collection of sum of money.
● GTVL moved to dismiss on the ground that BVZ has no legal
A,
capacity to sue and alleged that the latter is doing business in
the PH without a license.
G
ISSUE: W/N BVZ, an unlicensed foreign corp, has the legal capacity
to sue before the PH courts?
N
RULING: Sec. 133 provides that: “No foreign corp transacting
LO
business in the PH without a license x x x shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the PH; but such corp may be sued or
SA
proceeded against before PH courts or administrative tribunals on
any valid cause of action recognized under PH laws.”
An unlicensed foreign corp doing business in the PH cannot sue
before PH courts. On the other hand, an unlicensed foreign corp not
doing business in the PH can sue before PH courts.
L
Under the FIA of 1991, the phrase “doing business” includes: any
AR
other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
C
the purpose and object of the business organization.
An essential condition to be considered as “doing business” in the
PH is the actual performance of specific commercial acts within the
territory of the PH for the plain reason that the PH has no jurisdiction
over commercial acts performed in foreign territories.
Here, there is no showing that BVZ performed within the PH the
specific acts of doing business mentioned in FIA. BVZ did not also
open an office here in the PH, appoint a representative or distributor,
or manage, supervise or control a local business. While BVZ and
GTVL entered into a series of transactions implying a continuity
of commercial dealings, the perfection and consummation of
these transactions were done outside the PH.
An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries
specific commercial acts that would constitute doing business in the
importing countries. The mere act of exporting from one’s own
country, without doing any specific commercial act within the territory
of the importing country, cannot be deemed as doing business in the
importing country.
 DISSOLUTION ISSUE: W/N a corp without corporate personality at the time of
redemption may redeem a property?
12. DR. GIL RICH V. GUILLERMO PALOMA III

L
RULING: NO. Once a corp is dissolved, voluntarily or involuntarily,
TICKLER: a corp which has been dissolved retains no juridical liquidation, which is the process of settling the affairs of the

AR
personality to conduct its business except for those directed towards corporation, will ensue.
corporate liquidation.
Liquidation consists of:
FACTS:

C
● Dr. Rich lent 1m to his brother, Estanislao. The agreement was (1) collection of all that is due the corp,
secured by a REM over a 1000sqm land in Southern Leyte. (2) the settlement and adjustment of claims against it, and
● Estanislao failed to pay. Rich foreclosed the property via auction (3) the payment of its debts.

N
sale conducted by Paloma, Sheriff of RTC.
● Rich was the highest bidder and a certificate of sale was issued. Winding up the affairs of the corp means the collection of all assets,

VI
● Without Rich’s knowledge and prior to foreclosure, Estanislao payment of all its creditors, and distribution of the remaining assets,
entered into an agreement with Maasin Traders Lending Corp if any among the stockholders thereof in accordance with their

AR
(MTLC), where loans of 2.6m were secured by a REM on the contracts, or if there be no special contract, on the basis of their
same property. respective interests. The manner of liquidation or winding up may be
● Respondent Servacio, as president of MTLC, exercised provided for in the corporate bylaws and this would prevail unless it
equitable redemption after the foreclosure proceedings. is inconsistent with law.
● Paloma, as sheriff, issued a deed of redemption (DOR) in favor
of MTLC.
A,
● The DOR became the subject of a complaint for annulment and
Sec. 122 of the Corp Code empowers every corp whose corporate
existence has been legally terminated to continue as a body
G
application for TRO and/or WPI. corporate for 3 years after the time when it would have been
● According to Rich, MTLC no longer has juridical personality to dissolved.
effect the equitable redemption as it has already been dissolved
N

by the SEC; that there was a pending case against Servacio for This continued existence would only be for the purposes of
allegedly forging Estanislao’s signature on the same REM for “prosecuting and defending suits by or against it and enabling it to
LO

her equitable redemption. settle and close its affairs, to dispose of and convey its property and
● RTC rendered a decision in favor of Rich and declared the REM to distribute its assets. This extended authority necessarily excludes
between Estanislao and MLTC void and ordered the DOR to be the purpose of continuing the business for which it was established.
SA

cancelled.
● CA reversed. The reason for this is simple: the dissolution of the corp carries with it
the termination of the corp’s juridical personality. Any new business
in which the dissolved corporation would engage in, other than those
for the purpose of liquidation, “will be a void transaction because of
the nonexistence of the corporate party.

L
Two things must be said in this case.

AR
First, if MTLC entered into the REM with Estanislao after its
dissolution, such REM would be void ab initio because of the
nonexistence of MTLC’s juridical personality.

C
Second, if, however, MTLC entered into the REM prior to its
dissolution, then MTLC’s redemption, even if already after its
dissolution (as long as it would not exceed three years thereafter),

N
would still be valid because of the liquidation/winding up powers
accorded by Sec 122 of the Corp Code.

VI
In this case, MTLC has already been dissolved by SEC when it

AR
entered into a REM with Estanislao and when it redeemed the
property.

Therefore, any redemption exercised by MTLC pursuant to this void

REM is likewise void, and could not be given effect.
A,
G
N
LO
SA
13. AGUIRRE II VS. FQB+7, INC. ● The GIS also reported that FQB’s stockholders held their
annual meeting on Sept 3, 2002.
TICKLER: An existing ICC is not affected by the subsequent ● The substantive changes in the GIS prompted Vitaliano to write

L
dissolution of the corp. the “real” BOD, represented by Fidel, where Vitaliano
questioned the validity and truthfulness of the alleged

FACTS:
● Vitaliano filed, in his individual capacity and on behalf of FQB, a
complaint for ICC, injunction, inspection of corporate books
against Nathaniel, Priscila, and Antonio.
AR
stockholders meeting held on Sept 3; he also asked the “real”
BOD to rectify what he perceived as erroneous entries in the
GIS< and to allow him to inspect the corporate books and
records.

C
● The complaint alleged that FQB was established in 1985 with ● The “real” BOD ignored Vitaliano’s request.
the following directors and subscribers, as reflected in its AOI: ● Nathaniel, as president, appointed Antonio as the corp’s
atty-in-fact, with power of administration over the corp’s farm in

N
DIRECTORS SUBSCRIBERS
Quezon.
● Antonio attempted to take over the farm, but was allegedly

VI
1. Francisco Q. Bocobo 1. Francisco Q. Bocobo
2. Fidel N. Aguirre 2. Fidel N. Aguirre prevented by Fidel and his men.
3. Alfredo Torres 3. Alfredo Torres ● Characterizing Nathaniel’s, Priscila’s, and Antonio’s continuous

AR
4. Victoriano Santos 4. Victoriano Santos representation of the corp as a usurpation of the management
5. Victorino Santos 5. Victorino Santos powers and prerogatives of the “real” BOD, the Complaint
6. Vitaliano N. Aguirre II
asked for an injunction against them and for the nullification of
7. Alberto Galang
8. Rolando B. Bechayda all their previous actions as purported directors, including the
GIS they had filed. The Complaint also sought for a declaration
● A,
To Vitaliano’s knowledge, except for the death of Bocobo and
Torres, there has been no other change in the above listings.
●
of Vitaliano’s right to inspect the corporate records.
RTC ruled in favor of Vitaliano.
● The complaint further alleged that, Vitaliano discovered a GIS of
G
● Respondents moved to annul the proceedings on the ground
FQB in the SEC records. This GIS was filed by Bacobo’s heirs,
that RTC has no jurisdiction since it is an agrarian dispute; that
Nathaniel and Priscila, as FQB’s president and sec/treas. The
Vitaliano’s real goal was to maintain custody of the farm; that
N

said GIS stated FQB’s directors and subscribers, as follows:

the jurisdiction belongs to the DAR; that SEC had already
DIRECTORS SUBSCRIBERS revoked FQB’s certificate of registration to comply for its failure
LO

to comply with the SEC’s reportorial requirements.

1. Nathaniel Bocobo 1. Nathaniel Bocobo ● CA ruled in favor of respondents and held that Vitaliano’s
2. Priscila Bacobo 2. Priscila Bacobo complaint, being geared towards the continuation of FQB’s
3. Fidel N. Aguirre 3. Fidel N. Aguirre
SA

4. Victoriano Santos 4. Victoriano Santos business, should be dismissed because the corp has lost its
5. Victorino Santos 5. Victorino Santos juridical personality and that RTC has no jurisdiction to entertain
6. Consolacion Santos 6. Consolacion Santos ICCs when the corp is already dissolved.
●
ISSUE: W/N RTC has jurisdiction over an ICC involving a dissolved
corp?
RULING: Yes. ICC remain even when the corp is dissolved.
The case is essentially an ICC. It arose from the ICR between the
parties, and the questions involved pertain to their rights and
obligations under the Corp Code and matters relating to the
regulation of the corp. The nature of the case as an ICC was not
affected by the subsequent dissolution of the corporation.
Sec 145 of the Corp Code protects the rights and remedies of
N
corporate actors against other corporate actors. The statutory
provision assures an aggrieved party that the corp’s dissolution will
VI
not impair, much less remove, his/her rights or remedies against the
corp, its stockholders, directors or officers. It also states that
AR
corporate dissolution will not extinguish any liability already incurred
by the corp, its stockholders, directors, or officers. It preserves a
corporate actor’s cause of action and remedy against another
corporate actor. In so doing, Sec 145 also preserves the nature of
the controversy between the parties as an intra-corporate dispute.
A,
The dissolution of the corp simply prohibits it from continuing its
G
business. However, despite such dissolution, the parties involved in
the litigation are still corporate actors. The dissolution does not
automatically convert the parties into total strangers or change their
N
ICR. Neither does it change or terminate existing causes of action,
which arose because of the corporate ties between the parties. Thus,
LO
a cause of action involving an intra-corporate controversy remains
and must be filed as an intra-corporate dispute despite the
subsequent dissolution of the corporation.
SA
Sec 122 of the Corp Code prohibits a dissolved corp from continuing
its business, but allows it to continue with a limited personality in
order to settle and close its affairs, including its complete liquidation.
L
Petitioners concede that a dissolved corp can no longer continue its
AR
business. They argue, however, that Sec 122 allows a dissolved corp
to wind up its affairs within 3 years from its dissolution. Petitioners
then maintain that the Complaint, which seeks only a declaration that
respondents are strangers to the corp and have no right to sit in the
C
board or act as officers thereof, and a return of Vitaliano’s
stockholdings, intends only to resolve remaining corporate issues.
The resolution of these issues is allegedly part of corporate winding
up.
Petitioners are correct. The Complaint does not seek to enter into
contracts, issue new stocks, acquire properties, execute business
transactions, etc. Its aim is not to continue the corporate business,
but to determine and vindicate an alleged stockholder’s right to the
return of his stockholdings and to participate in the election of
directors, and a corp’s right to remove usurpers and strangers from
its affairs. The Court fails to see how the resolution of these issues
can be said to continue the business of FQB.
Neither are these issues mooted by the dissolution of the corp. A
corp’s BOD is not rendered functus officio by its dissolution. Since
Sec 122 allows a corp to continue its existence for a limited purpose,
necessarily there must be a board that will continue acting for and on
behalf of the dissolved corp for that purpose. In fact, Sec 122
authorizes the dissolved corp’s BOD to conduct its liquidation within
3 years from its dissolution. Jurisprudence has even recognized the
board’s authority to act as trustee for persons in interest beyond the
said 3-year period.