Paul Lee Tan vs.

Paul Sycip

Facts: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation with fifteen (15) regular members, who also constitute the board of trustees. During
the annual members’ meeting held on April 6, 1998, there were only eleven (11) living member-
trustees, as four (4) had already died. Out of the eleven, seven (7) attended the meeting
through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla
Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners
maintained that the deceased member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all their rights (including the right
to vote) and interests in the corporation.

The SEC Hearing Officer declared the April 6, 1998 meeting was null and void for lack of quorum.
She held that the basis for determining the quorum in a meeting of members should be their
number as specified in the articles of incorporation, not simply the number of living members.
She explained that the qualifying phrase "entitled to vote" in Section 24 of the Corporation
Code, which provided the basis for determining a quorum for the election of directors or
trustees, should be read together with Section 89.

The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing
officer in toto. It found to be untenable their contention that the word "members," as used in
Section 52 of the Corporation Code, referred only to the living members of a nonstock
corporation.

ISSUE: Whether dead members should still be counted in the determination of the quorum, for
purposes of conducting the annual members’ meeting.

HELD: The quorum in a members’ meeting is to be reckoned as the actual number of members
of the corporation… Membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the bylaws of the
corporation provide otherwise. In other words, the determination of whether or not "dead
members" are entitled to exercise their voting rights (through their executor or administrator),
depends on those articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated
by the death of the member. Section 91 of the Corporation Code further provides that
termination extinguishes all the rights of a member of the corporation, unless otherwise provided
in the articles of incorporation or the bylaws. Applying Section 91 to the present case, we hold
that dead members who are dropped from the membership roster in the manner and for the
cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the annual members’ meeting. With 11
remaining members, the quorum in the present case should be 6. Therefore, there being a
quorum, the annual members’ meeting, conducted with six members present, was valid.

LIM vs. MOLDEX LAND INC.

FACTS: On July 21, 2012 Condocor (Condominium Corporation) a non-stock, non-profit corporation,
which is the registered condominium corporation for the Golden Empire Tower held its annual general
membership meeting. Moldex became a member of Condocor on the basis of its ownership of the 220
unsold units in the Golden Empire Tower.

During the meeting, an existence of a quorum was declared even though only 29 of the 108 unit buyers
were present. The declaration was based on the presence of the majority of the voting rights, including
those pertaining to the 220 unsold units held by Moldex through its representatives. Lim, through her
attorney-in-fact, objected to the validity of the meeting. The objection was denied. Thus, Lim and all the
other unit owners present, except for one, walked out and left the meeting.

Despite the walkout, the individual respondents and the other unit owner proceeded with the meeting
and elected the new members of the Board of Directors for 2012-2013. All four (4) individual
respondents (JAMINOLA, MACALINTAL, MILANES, and ROMAN) were voted as members of the board,
together with other 3 members.

Consequently, Lim filed an election protest before the RTC. Lim claimed that herein respondents are not
entitled to be members of the Board of Directors because they are non-unit buyers. However, said court
ruled in favor for the respondents. Not in conformity, Lim filed the present petition.

ISSUE: Whether or not the July 21, 2012 membership meeting was valid.

HELD: NO! The July 21, 2012 membership meeting was not valid.

A stockholders' or members' meeting must comply with the following requisites to be valid:

1. The meeting must be held on the date fixed in the ByLaws or in accordance with law;

2. Prior written notice of such meeting must be sent to all stockholders/members of record;

3. It must be called by the proper party;

4. It must be held at the proper place; and

5. Quorum and voting requirements must be met.

Of these five ( 5) requirements, the existence of a quorum is crucial. Any act or transaction made during
a meeting without quorum is rendered of no force and effect.

Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a
majority of the members in the case of non-stock corporations.

Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks while for
non-stock corporations, only those who are actual, living members with voting rights shall be counted in
determining the existence of a quorum.

The By-Laws of Condocor has no rule different from that provided in the Corporation Code with respect
the determination of the existence of a quorum. The quorum during the July 21, 2012 meeting should
have been majority of Condocor's members in good standing. Accordingly, there was no quorum during
the July 21, 2012 meeting considering that only 29 of the 108 unit buyers were present. As there was no
quorum, any resolution passed during the July 21,2012 annual membership meeting was null and void
and, therefore, notbinding upon the corporation or its members. The meeting being null andvoid, the
resolution and disposition of other legal issues emanating from the null and void July 21, 2012
membership meeting has been rendered unnecessary.

CIR vs CLUB FILIPINO

FACTS: Club Filipino owns and operates a club house, a sports complex, and a bar restaurant, which is
incident to the operation of the club and its gold course. The club is operated mainly with funds derived
from membership fees and dues. The BIR seeks to tax the said restaurant as a business.

ISSUE: WoN Club Filipino is a stock corporation.

HELD: NO. The Club was organized to develop and cultivate sports of all class and denomination
for the healthful recreation and entertainment of its stockholders and members.  There was in
fact, no cash dividend distribution to its stockholders and whatever was derived on retail from its
bar and restaurants used were to defray its overhead expenses and to improve its golf course. 
 For a stock corporation to exist, 2 requisites must be complied with:
           
(1) a capital stock divided into shares
(2) an authority to distribute to the holders of such shares, dividends or allotments
of the surplus profits on the basis of shares held. 
 
In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority
for the distribution of its dividends or surplus profits.

CLOSE CORPORATION

Florete Sr. vs Florete Jr.

FACTS: Marsal & Co., Inc. (Marsal) was organized as a close corporation by the
Floretes namely Marcelito Sr., Marcelito Jr., Rogelio, Ma.Elena, and Teresita. Paragraph 7
of the Articles of Incorporation (AOI) provides for the procedure in the sale of the shares
of stocks of a stockholder. It provides that the stockholder seller must notify in writing
the Board of Directors of his intention to sell, who, in turn, must notify all the
stockholders of records within 5 days upon receipt of such letter, and the stockholder must
exercise the preemptive right to buy any share offered for sale within ten days from notice
of the Board, otherwise, the sale shall be null and void.

When Teresita died, her husband Ephraim filed a Petition for Issuance of Letters of
Administration over her estate which includes among others 3464 shareholdings in
Marsal. Ephraim was later granted letters of administration. Thereafter, Ephraim, as special
administrator, entered into a Compromise Agreement and Deed of Assignment with
petitioner Rogelio ceding all the shareholdings of Teresita which included the 3,464 shares
in Marsal corporation to petitioner Rogelio. Such was subsequently approved by the
Probate Court upon motion by Ephraims’s counsel with the conformity of Atty. Muyco.
When Marcelito Sr. died, an intestate proceeding to settle his estate was filed by petitioner Rogelio, who
was later appointed as administrator of the estate. The court approved the project of partition which
Rogelio filed and in the same Order noted the sale of all the shares of the late Teresita to petitioner
Rogelio.

Respondents Marcelino Jr. and Ma. Elena filed a case for annulment/rescission of sale of shares of stocks
and the exercise of their preemptive rights in Marsal corporation and damages against petitioners Rogelio
Florete, Sr. and the estate of the late Teresita F. Menchavez. Respondents claimed that the sale of
Teresita's 3,464 Marsal shares of stocks made by petitioner estate to petitioner Rogelio was void ab initio
as it violated paragraph 7 of Marsal's AOI, since the sale was made sans written notice to the Board of
Directors who was not able to notify respondents in writing of the petitioner estate and heirs' intention to
sell and convey the Marsal shares and depriving respondents of their preemptive rights.

ISSUE: Whether the sale of Teresita's 3 ,464 Marsal shares of stocks made by petitioner estate of Teresita
to petitioner Rogelio was in violation of paragraph 7 of Marsal's Article of Incorporation and hence null
and void and must be annulled or rescinded. (NO)

HELD: The sale of Teresita's 3,464 Marsal shares had already been consented to by respondents, and may
be registered in the name of petitioner Rogelio. There was already substantial compliance with paragraph 7
of the AOI when respondents obtained actual knowledge of the sale. In fact, respondents inaction for 17
years despite knowledge of the sale is in effect a consent and conformity to such sale. They had already
waived the procedure of the stockholder's sale of stocks as provided under Paragraph 7 of the AOL.

Section 99 of the Corporation Code provides that even if the transfer of stocks is made in violation of the
enumerated restrictions, such transfer is still valid if it has been consented to by all the stockholders of the
close corporation and the corporation cannot refuse to register the transfer of stock in the name of the
transferee.

BUSTOS vs. MILLIANS SHOE

FACTS: Spouses Fernando and Amelia Cruz owned a 464-square-meter lot. The City Government of
Marikina levied the property for nonpayment of real estate taxes. The City Treasurer of Marikina auctioned
off the property, with petitioner Joselito Hernand M. Bustos emerging as the winning bidder. The Regional
Trial Court rendered a final and executory Decision ordering the cancellation of the previous title and the
issuance of a new one under the name of petitioner.

Meanwhile, notices of lis pendens were annotated on TCT No. N-126668. These markings indicated that
SEC Corp. Case No. 036-04, which was filed before the RTC and involved the rehabilitation proceedings
for MSI, covered the subject property and included it in the Stay Order issued by the RTC. Petitioner
moved for the exclusion of the subject property from the Stay Order. He claimed that the lot belonged to
Spouses Cruz who were mere stockholders and officers of MSI. He further argued that since he had won
the bidding of the property before the annotation of the title, the auctioned property could no longer be part
of the Stay Order.

The CA ruled that The said parcel of land which secured several mortgage liens for the account of
MSI remains to be an asset of the Cruz Spouses, who are the stockholders and/or officers of
MSI, a close corporation. Incidentally, as an exception to the general rule, in a close corporation,
the stockholders and/or officers usually manage the business of the corporation and are subject
to all liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus, the
Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and obligations.

ISSUES: 1. Whether or not MSI is a close corporation.

HELD: 1. NO, MSI is not a close corporation. To be considered a close corporation, an entity
must abide by the requirements laid out in Section 96 of the Corporation Code, which reads: Sec.
96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one
or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall
not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code. Here, neither the
CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts a quo
did not at all refer to the Articles of Incorporation of MSI. The Petition submitted by respondent
in the rehabilitation proceedings before the RTC did not even include those Articles of
Incorporation among its attachments. In effect, the CA and the RTC deemed MSI a close
corporation based on the allegation of Spouses Cruz that it was so. However, mere allegation is not
evidence and is not equivalent to proof. The CA rulings should be set aside.

2. Whether or not the properties of Spouses Cruz are considered answerable for the obligations
of MSI.

HELD: NO, the properties of Spouses Cruz are not considered answerable for the obligations of
MSI. The CA seriously erred in portraying the import of Section 97 of the Corporation Code. The
CA concluded that "in a close corporation, the stockholders and/or officers usually manage the
business of the corporation and are subject to all liabilities of directors, i.e. personally liable for
corporate debts and obligations." However, Section 97 of the Corporation Code only specifies
that "the stockholders of the corporation shall be subject to all liabilities of directors." Nowhere
in that provision do we find any inference that stockholders of a close corporation are
automatically liable for corporate debts and obligations. Parenthetically, only Section 100,
paragraph 5, of the Corporation Code explicitly provides for personal liability of stockholders of
close corporation, viz: Sec. 100. Agreements by stockholders. – 5. To the extent that the
stockholders are actively engaged in the management or operation of the business and affairs of
a close corporation, the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance. Several requisites must be present
for its applicability. None of these were alleged in the case of Spouses Cruz. Neither did the
RTC or the CA explain the factual circumstances for this Court to discuss the personally liability
of respondents to their creditors because of "corporate torts." We thus apply the general
doctrine of separate juridical personality, which provides that a corporation has a legal
personality separate and distinct from that of people comprising it. By that doctrine, stockholders
of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of the
stockholder. Thus, being an officer or a stockholder of a corporation does not make one's
property the property also of the corporation. In rehabilitation proceedings, claims of creditors
are limited to demands of whatever nature or character against a debtor or its property,
whether for money or otherwise. In several cases, we have already held that stay orders should
only cover those claims directed against corporations or their properties, against their guarantors,
or their sureties who are not solidarily liable with them, to the exclusion of accommodation
mortgagors. To repeat, properties merely owned by stockholders cannot be included in the inventory
of assets of a corporation under rehabilitation.

RELIGIOUS CORPORATION

IGLESIA EVANGELICA METODISTA vs. LAZARO

FACTS; Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas
Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General
Superintendent." 39 years later, the IEMELIF enacted a by-laws that established a Supreme
Consistory of Elders (the Consistory), made up of church ministers, who were to serve for 4
years. The by-laws empowered the Consistory to elect a General Superintendent, a General
Secretary, a General Evangelist, and a Treasurer General who would manage the affairs of the
organization. The Consistory served as the IEMELIF's board of directors.

Although the IEMELIF remained a corporation sole on paper (with all corporate powers lodged in
the hands of one member, the General Superintendent), it had always acted like a corporation
aggregate. Subsequently, the general membership voted to change IEMELIF's organizational
structure from a corporation sole to a corporation aggregate. SEC approved the vote.
However, the corporate papers of the IEMELIF remained unaltered as a corporation sole.

Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration
of Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate
with Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIF's
name against respondent members of its Consistory before the RTC. Petitioners claim that a
complete shift from IEMELIF's status as a corporation sole to a corporation aggregate required,
not just an amendment of the IEMELIF's articles of incorporation, but a complete dissolution of
the existing corporation sole followed by a reincorporation.

ISSUE: WON a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

HELD: The Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But Sec. 109 allows the application to religious corporations
of the general provisions governing non-stock corporations. For non-stock corporations, the power
to amend its articles of incorporation lies in its members. The code requires 2/3 of their votes
for the approval of such an amendment. If such approval mechanism is made to operate in a
corporation sole, its one member in whom all the powers of the corporation technically belongs,
needs to get the concurrence of two-thirds of its membership. The one member, here the
General Superintendent, is but a trustee, according to Sec. 110, of its membership. There is no
point to dissolving the corporation sole of one member to enable the corporation aggregate to
emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being
remains distinct from its members, whatever be their number. The increase in the number of its
corporate membership does not change the complexion of its corporate responsibility to third
parties. The one member, with the concurrence of 2/3 of the membership of the organization for
whom he acts as trustee, can self-will the amendment. He can, with membership concurrence,
increase the technical number of the members of the corporation from "sole" or one to the
greater number authorized by its amended articles.

FOREIGN CORPORATIONS

FACTS: Star City Pty Limited (SCPL) operates as a casino in Sydney, New South Wales,
Australia and claims that it is not doing business in the Philippines and is suing for an
isolated transaction. In 2002 It filed a complaint for collection of sum of money with
prayer for preliminary attachment against Llorente, who was a patron of its Star City
casino and Equitable PCI Bank (EPCIB).

RTC granted the issuance of writ of preliminary attachment based on the indicative
acts of Llorente of his intention to avoid his obligation and defraud SCPL (i.e. leaving
hotel premise without informing SPCL his whereabouts, failing to pay for services
availed of, requesting SPO despite availing of services, failure to communicate for the
settlement of his obligations.  Llorente alleged that he caused the SPO because of
SCPL’s commission of fraud and unfair gaming practices during his stay in the casino
from July 12 to July 17, 2000.  He also sought the dismissal of the case on the ground
of lack of legal capacity to sue since the “isolated transaction rule” only covers
transaction which occurred in the Philippines when the same occurred in Australia.

ISSUE: W/N SCPL has the capacity to sue.

HELD: YES. Sec. 150 of RA 11232 (Revised Corporation Code of the Philippines) (RCC)
which became effective on February 23, 2019 (reproduction of Sec. 133 of BP 68)
provides:

SEC. 150. Doing Business Without a License.–No foreign corporation transacting

business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws

While the RCC grants to foreign corporations with Philippine license the right to sue in
the Philippines, the Court, in the long line of cases under the regime of the
Corporation Code has held that a foreign corporation not engaged in business in the
Philippines may not be denied the right to file an action in the Philippines court for an
isolated transaction.

The issue on whether a foreign corporation which does not have license to engage in
business the Philippines can seek redress in Philippine courts depends on whether it is
doing business or it merely entered into an isolated transaction – qualifying
circumstance essential part of the plaintiff’s capacity to sue (as a matter of pleading
and procedure) should be affirmatively pleaded
In the case at bar, SCPL alleged in its complaint that it is not doing business in the
Philippines and is suing upon a singular and isolated transaction and appointed
Jimeno, Jalandoni and Cope Law Offices as its attorney-in-fact. The latter is
irrelevant to its capacity to sue.

Moreover, Llorente in his answer pleaded an affirmative relief for damages from SCPL
by way of counterclaim – contrary to his position that plaintiff has no capacity to sue
and admitted the capacity of plaintiff to be subject of judicial process. It would be
unfair to allow it to be sued and not allowing it to sue on an isolated transaction here.