COMMERCIAL LAW REVIEW stockholders had "already forfeited its franchise or charter,
10-02-2023 including its license to exist and operate as a corporation,"
CASES
A. SAPPARI K. SAWADJAAN VS. THE HONORABLE
COURT OF APPEALS, THE CIVIL SERVICE
COMMISSION AND AL-AMANAH INVESTMENT
BANK OF THE PHILIPPINES
G.R. No. 141735, June 8, 2005
DOCTRINE: A de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any
private suit to which such corporations may be a party.
FACTS: Petitioner Sawadjaan was among the first employees
of the Philippine Amanah Bank (PAB) when it was created by
virtue of Presidential Decree No. 264 on 02 August 1973.
While still designated as appraiser/investigator, Sawadjaan
was assigned to inspect the properties offered as collaterals
by Compressed Air Machineries and Equipment Corporation
(CAMEC) for a credit line of Five Million Pesos
(P5,000,000.00). PAB granted the loan application. When the
loan matured on 17 May 1989, CAMEC requested an
extension of 180 days, but was granted only 120 days to
repay the loan. PAB granted the loan application. When the
loan matured, CAMEC requested an extension of 180 days,
but was granted only 120 days to repay the loan.
Then, Sawadjaan was promoted to Loans Analyst I. Congress
passed Republic Act 6848 creating the AIIBP and repealing
P.D. No. 264 (which created the PAB). Sawadjaan was
among the personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the
bank, now referred to as the AIIBP, discovered that TCT No.
N-130671 was spurious, the property described therein non-
existent, and that the property covered by TCT No. C-52576
had a prior existing mortgage in favor of one Divina Pablico.
The Board of Directors of the AIIBP created an Investigating
Committee to look into the CAMEC transaction, which had
cost the bank Six Million Pesos (P6,000,000.00) in losses.
Investigating Committee rendered a decision Sawadjaan held
liable and recommends suspension. Board of Directors of the
Islamic Bank [AIIBP] adopted the Resolution reducing the
penalty imposed on petitioner from dismissal to suspension
for a period of six (6) months and one (1) day.
Sawadjaan, by himself, filed a Motion for New Trial in the
Court of Appeals based on the following grounds: fraud,
accident, mistake or excusable negligence and newly
discovered evidence. He claimed that he had recently
discovered that at the time his employment was terminated,
the AIIBP had not yet adopted its corporate by-laws.
Sawadjaan argued that since the AIIBP failed to file its by-laws
within 60 days from the passage of Rep. Act No. 6848, as
required by Sec. 51 of the said law, the bank and its
and thus no longer have "the legal standing and personality
to initiate an administrative case."
CSC dismissed the appeal.
Sawadjaan filed the present petition for certiorari under Rule
65 of the Rules of Court challenging the above Decision and
Resolution of the Court of Appeals on the ground that the
court a quo erred: i) in ignoring the facts and evidences that
the alleged Islamic Bank has no valid by-laws; ii) in ignoring
the facts and evidences that the Islamic Bank lost its
juridical personality as a corporation on 16 April 1990; iii) in
ignoring the facts and evidences that the alleged Islamic Bank
and its alleged Board of Directors have no jurisdiction to act
in the manner they did in the absence of a valid by-laws.
ISSUE: Whether or not AIIBP had "already forfeited its
franchise or charter, including its license to exist and operate
as a corporation" for its failure to file its by-laws within 60
days the bank and its stockholders.
RULING: No. The AIIBP was created by Rep. Act No. 6848. It
has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets,
and personnel. It is, in fact, here represented by the Office of
the Government Corporate Counsel, "the principal law office
of government-owned corporations, one of which is
respondent bank." At the very least, by its failure to submit its
by-laws on time, the AIIBP may be considered a de
facto corporation whose right to exercise corporate powers
may not be inquired into collaterally in any private suit to
which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws
within the prescribed period does not ipso facto lose its
powers as such. The SEC Rules on Suspension/Revocation of
the Certificate of Registration of Corporations, details the
procedures and remedies that may be availed of before an
order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.
In any case, petitioner’s argument is irrelevant because this
case is not a corporate controversy, but a labor dispute; and
it is an employer’s basic right to freely select or discharge its
employees, if only as a measure of self-protection against
acts inimical to its interest. Regardless of whether AIIBP is a
corporation, a partnership, a sole proprietorship, or a sari-
sari store, it is an undisputed fact that AIIBP is the
petitioner’s employer. AIIBP chose to retain his services
during its reorganization, controlled the means and methods
by which his work was to be performed, paid his wages, and,
eventually, terminated his services.
And though he has had ample opportunity to do so, the
petitioner has not alleged that he is anything other than an
employee of AIIBP. He has neither claimed, nor shown, that
he is a stockholder or an officer of the corporation. Having
accepted employment from AIIBP, and rendered his services
to the said bank, received his salary, and accepted the
promotion given him, it is now too late in the day for
petitioner to question its existence and its power to
terminate his services. One who assumes an obligation to an
ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
Even if we were to consider the facts behind petitioner
Sawadjaan’s dismissal from service, we would be hard
pressed to find error in the decision of the AIIBP.
As appraiser/investigator, the petitioner was expected to
conduct an ocular inspection of the properties offered by
CAMEC as collaterals and check the copies of the certificates
of title against those on file with the Registry of Deeds. Not
only did he fail to conduct these routine checks, but he also
deliberately misrepresented in his appraisal report that after
reviewing the documents and conducting a site inspection, he
found the CAMEC loan application to be in order. Despite the
number of pleadings he has filed, he has failed to offer an
alternative explanation for his actions.
Petition dismissed.
B. SEVENTH DAY ADVENTIST CONFERENCE CHURCH
OF SOUTHERN PHILS., INC. v. NORTHEASTERN
MINDANAO MISSION OF SEVENTH DAY ADVENTIST,
INC.
G.R. No. 150416, 21 July 2006
Corona, J.
DOCTRINE: One can qualify as a de facto corporation when
(a) there is an existing valid law under which it may be
incorporated; (b) there is an attempt in good faith to
incorporate; and (c) there is an assumption of corporate
powers. Further, the filing of articles of incorporation and the
issuance of the certificate of incorporation are essential for
the existence of a de facto corporation. In fact, an
organization not registered with the Securities and Exchange
Commission (SEC) cannot be considered a corporation in any
concept, not even as a corporation de facto.
FACTS: On April 1959, Spouses Cosio donated a parcel of land
to the South Philippine Union Mission of Seventh Day
Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA)
for church site purpose. Twenty-one years later, on February
1980, the same parcel of land was sold by the Spouses Cosio
to the Seventh Day Adventist Church of Northeastern
Mindanao Mission (SDA-NEMM), which a transfer certificate
of title was issued in the latter’s name.
The Petitioner Seventh Day Adventist Conference Church of
Southern Phils., Inc. claimed to be the alleged successors-in-
interest of the SPUM-SDA, and asserted their ownership over
the property. The Respondent Northeastern Mindanao
Mission of Seventh Day Adventist, Inc. opposed by arguing
that the SPUM-SDA could not legally be a donee because it
was not incorporated yet and had no juridical personality.
Hence, the donation could not have been made.
Thereafter, the Petitioner filed a case for cancellation of title
before the Regional Trial Court (RTC). The RTC rendered a
decision in favor of the Respondent. On appeal, the Court of
Appeals affirmed the RTC decision. Hence, the Petition
whereby the Petitioner claimed that they are de facto
corporation.
ISSUE:
1. Whether or not the Petitioner’s predecessor-in-
interest was a de facto corporation.
2. Whether or not the Petitioner has any right over the
subject property.
RULING:
1. NO. The Supreme Court has held that one can
qualify as a de facto corporation when (a) there is
an existing valid law under which it may be
incorporated; (b) there is an attempt in good faith
to incorporate; and (c) there is an assumption of
corporate powers. Further, the filing of articles of
incorporation and the issuance of the certificate of
incorporation are essential for the existence of a de
facto corporation. In fact, an organization not
registered with the Securities and Exchange
Commission (SEC) cannot be considered a
corporation in any concept, not even as a
corporation de facto.
In the present case, there is no proof that the SPUM-
SDA, Petitioner’s predecessor-in-interest, attempted
to incorporate at the time when the existing law was
the old Corporation Law. Further, the Petitioners
admitted that they were not registered with the SEC,
nor did they even attempt to organize to comply
with the legal requirements, at the time of the
donation. Hence, the Petitioner’s predecessor-in-
interest was not a de facto corporation.
2. NO. The Supreme Court has held that succession
cannot be claimed from an entity that never came to
exist. Corporate existence begins only from the
moment a certificate of incorporation is used.
Further, the principle of separate juridical
personality can apply when there a corporation to
speak of.
In the present case, there was no corporation to
speak of because SPUM-SDA did not come into
existence, even as a de facto corporation. No
certificate of incorporation was ever issued to the
Petitioner or its predecessor-in-interest at the time
of the donation. Further, representatives of the
Petitioner were not even members of the local
church then. Thus, they could not even claim that
the donation was particularly for them. Considering
these matters, there was no valid donation made to
the Petitioner or its predecessor-in-interest. Hence,
the Petitioner has no right over the subject property.

C. BALINGHASAY V. CASTILLO
G.R. NO. 185664, APRIL 8, 2015
DOCTRINE: It is clear that under the Business Judgment Rule,
the courts are barred from intruding into the business
judgments of the corporation, when the same are made in
good faith.
FACTS: MCPI, a domestic corporation, operates the Medical
Center Parañaque (MCP). Both parties are shareholders. 9 of
the petitioners are part of the Board of MCPI. In 1997, the
BODs awarded the operation of the ultrasound unit to a
group of investors mostly Ob-gyne doctors (ultrasound
investors), which includes the 9 petitioner-BODs. The group
purchased the equipment costing P850k. Albeit awarded by
the Board, the operation was not yet covered by a written
contract.
In the meeting held in 1998, 7 out of 12 Directors present
were part of the ultrasound investors. The BOD made a
counter offer anent the operation of the ultrasound unit.
Hence, essentially then, the award of the ultrasound
operation still bore no formal stamp of approval. In 1999, a
Memorandum of Agreement (MOA) was entered into
between MCPI represented by the President and the
ultrasound investors, represented by one of the petitioners.
The MOA states that the gross income minus professional
fees shall be divided in the proportion of 60% to the investors
and 40% to MCPI; and in 1999, 55-45 respectively. Further,
the ownership of the ultrasound machine would eventually
be transferred to MCPI.
Respondents then wrote MCPI’s counsel challenging the
BOD’s approval of the MOA of being prejudicial to MCPI’s
interest. In 2001, respondents then filed a derivative suit for
the annulment of the MOA and the accounting of and refund
by the petitioners of all profits, income and benefits derived
from the said agreement; and (b) payment of damages and
attorney’s fees. In their answer, petitioners claimed that the
MOA was merely voidable. And since there was no proof that
the subsequent Board of Directors of MCPI moved to annul
the MOA, the same should be considered as having been
ratified.
The RTC dismissed respondent’s complaint and found that
MCPI had, in effect, impliedly ratified the MOA by accepting
or retaining benefits flowing therefrom. Further, under the
"business judgment rule," the trial court cannot undertake to
control the discretion of the corporation’s board as long as
good faith attends its exercise.
On appeal to the CA, the court reversed the RTC’s ruling and
held that the MOA was invalid because there was no quorum.
As discussed:
“Quorum" is defined as that number of
members of a body which, when legally assembled
in their proper places, will enable the body to
transact its proper business. "Majority," when
required to constitute a quorum, means the greater
number than half or more than half of any total. In
the meeting, 12 directors were present in which 7 of
them belonged to the investors. As can be gleaned,
without the presence of the investors, there can be
no quorum. In addition, the parties who signed the
MOA were both investor.
Further, petitioners are ordered to fully account all the profits
which otherwise accrued to MCPI.
ISSUE: Is the MOA valid?
RULING: No, the Court thus finds the CA’s ruling anent the
invalidity of the MOA as amply supported by both evidence
and jurisprudence.
Questions of policy or of management are left solely to the
honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute
its judgment for that of the board, and as long as its acts in
good faith and in the exercise of honest judgment in the
interest of the corporation, its orders are not reviewable by
the courts.
As acknowledged by the petitioners and aptly pointed out by
the respondents, the existence of the circumstances and
urgent hospital necessity justifying the purchase and
operation of the ultrasound unit by the investors were not
at the outset offered as evidence. Having been belatedly
raised, the aforesaid defenses were not scrutinized during the
trial and their truth or falsity was not uncovered. This is fatal
to the petitioners’ cause. The CA thus cannot be faulted for
ruling against the petitioners in the face of evidence showing
that: (a) there was no quorum when the Board meetings
were held on August 14, 1998 and February 5, 1999; (b) the
MOA was not ratified by a vote of two-thirds of MCPI’s
outstanding capital stock; and (c) the Balance Sheets for the
years 1996 to 2000 indicated that MCPI was in a financial
position to purchase the ultrasound equipment.
Further, even if their claims were to be assumed as true for
argument’s sake, the fact remains that the Board Directors,
who approved the MOA, did not outrightly inform the
stockholders about it. The ultrasound equipment was
purchased and had been in operation since 1997, but the
matter was only brought up for ratification by the
stockholders in the annual meetings held in the years 2000
to 2003. This circumstance lends no credence to the
petitioners’ cause.
However, to prevent unjust enrichment, the ultrasound
investors should retain ownership of the equipment.
D. ADVANCE PAPER CORP. V. ARMA TRADERS CORP.
G.R. No. 176897, December 11, 2013
BRION, J.
FACTS: Petitioner Advance Paper is a domestic corporation
engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper
products. Petitioner George Haw (Haw) is the President while
his wife, Connie Haw, is the General Manager.
Respondent Arma Traders is also a domestic corporation
engaged in the wholesale and distribution of school and office
supplies, and novelty products. Respondent Antonio Tan
(Tan) was formerly the President while respondent Uy Seng
Kee Willy (Uy) is the Treasurer of Arma Traders. They
represented Arma Traders when dealing with its supplier,
Advance Paper, for about 14 years.
Respondents Manuel Ting, Cheng Gui and Benjamin Ng
worked for Arma Traders as Vice-President, General Manager
and Corporate Secretary, respectively.
Arma Traders purchased on credit notebooks and other paper
products amounting to ₱7,533,001.49 from Advance Paper.
Upon the representation of Tan and Uy, Arma Traders also
obtained three loans from Advance Paper in November 1994
in the amounts of ₱3,380,171.82, ₱1,000,000.00, and
₱3,408,623.94 or a total of ₱7,788,796.76.
Arma Traders issued 82 postdated checks payable to cash or
to Advance Paper. Tan and Uy were Arma Traders’ authorized
bank signatories who signed and issued these checks which
had the aggregate amount of ₱15,130,636.87. Those checks
were dishonored either for "insufficiency of funds" or
"account closed." Despite repeated demands, however, Arma
Traders failed to settle its account with Advance Paper.
Hence, a complaint for collection of sum of money was files
by the petitioners.
Ng testified that Arma Traders did not purchase the
notebooks and other products.
As to the loan transactions, the respondents countered that
these were the personal obligations of Tan and Uy to Advance
Paper. These loans were never intended to benefit the
respondents.
The respondents also claimed that the loan transactions were
ultra vires because the board of directors of Arma Traders did
not issue a board resolution authorizing Tan and Uy to obtain
the loans from Advance Paper. They claimed that the
borrowing of money must be done only with the prior
approval of the board of directors because without the
approval, the corporate officers are acting in excess of their
authority or ultra vires. When the acts of the corporate
officers are ultra vires, the corporation is not liable for
whatever acts that these officers committed in excess of their
authority. Further, the respondents claimed that Advance
Paper failed to verify Tan and Uy’s authority to transact
business with them. Hence, Advance Paper should suffer the
consequences.
The RTC held that the respondents failed to present hard,
admissible and credible evidence to prove that the sale
invoices were forged or fictitious, and that the loan
transactions were personal obligations of Tan and Uy.
Nonetheless, the RTC dismissed the complaint against Tan,
Uy, Ting, Gui and Ng due to the lack of evidence showing that
they bound themselves, either jointly or solidarily, with Arma
Traders for the payment of its account.
On appeal, the CA held that Arma Traders was not liable for
the loan in the absence of a board resolution authorizing Tan
and Uy to obtain the loan from Advance Paper. The CA
acknowledged that Tan and Uy were Arma Traders’
authorized bank signatories. However, the CA explained that
this is not sufficient because the authority to sign the checks
is different from the required authority to contract a loan.
Hence, this petition, the petitioner argued that Arma Traders
led the petitioners to believe that Tan and Uy had the
authority to obtain loans since the respondents left the active
and sole management of the company to Tan and Uy since
1984. In fact, Ng testified that Arma Traders’ stockholders
and board of directors never conducted a meeting from 1984
to 1995. Therefore, if the respondents’ position will be
sustained, they will have the absurd power to question all the
business transactions of Arma Traders. Citing Lipat v. Pacific
Banking Corporation,53 the petitioners said that if a
corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who
has in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.
ISSUE: Whether Arma Traders is liable to pay the loans
applying the doctrine of apparent authority?
RULING: Yes, Arma Traders is liable to pay the loans on the
basis of the doctrine of apparent authority.
The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent’s
authority if it knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority,
and it holds him out to the public as possessing the power to
do those acts. The doctrine of apparent authority does not
apply if the principal did not commit any acts or conduct
which a third party knew and relied upon in good faith as a
result of the exercise of reasonable prudence. Moreover, the
agent’s acts or conduct must have produced a change of
position to the third party’s detriment.
In Inter-Asia Investment Industries v. Court of Appeals, we
explained:
Under this provision [referring to Sec. 23 of the Corporation
Code], the power and responsibility to decide whether the
corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law.
However, just as a natural person who may authorize another
to do certain acts for and on his behalf, the board of directors
may validly delegate some of its functions and powers to
officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived from
law, corporate bylaws or authorization from the board, either
expressly or impliedly by habit, custom or acquiescence in the
general course of business, viz.:
A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent
that [the] authority to do so has been conferred upon him,
and this includes powers as, in the usual course of the
particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom
and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has
caused person dealing with the officer or agent to believe
that it has conferred.
Apparent authority is derived not merely from practice. Its
existence may be ascertained through (1) the general manner
in which the corporation holds out an officer or agent as
having the power to act or, in other words the apparent
authority to act in general, with which it clothes him; or (2)
the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, within or beyond the
scope of his ordinary powers. It requires presentation of
evidence of similar act(s) executed either in its favor or in
favor of other parties. It is not the quantity of similar acts
which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation.
[emphases and underscores ours]
In People’s Aircargo and Warehousing Co., Inc. v. Court of
Appeals,79 we ruled that the doctrine of apparent authority
is applied when the petitioner, through its president Antonio
Punsalan Jr., entered into the First Contract without first
securing board approval. Despite such lack of board approval,
petitioner did not object to or repudiate said contract, thus
"clothing" its president with the power to bind the
corporation.
"Inasmuch as a corporate president is often given general
supervision and control over corporate operations, the strict
rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such
officer has certain limited powers in the transaction of the
usual and ordinary business of the corporation."80 "In the
absence of a charter or bylaw provision to the contrary, the
president is presumed to have the authority to act within the
domain of the general objectives of its business and within
the scope of his or her usual duties."
In the present petition, we do not agree with the CA’s
findings that Arma Traders is not liable to pay the loans due
to the lack of board resolution authorizing Tan and Uy to
obtain the loans.
To begin with, Arma Traders’ Articles of Incorporation82
provides that the corporation may borrow or raise money to
meet the financial requirements of its business by the
issuance of bonds, promissory notes and other evidence of
indebtedness. Likewise, it states that Tan and Uy are not just
ordinary corporate officers and authorized bank signatories
because they are also Arma Traders’ incorporators along with
respondents Ng and Ting, and Pedro Chao. Furthermore, the
respondents, through Ng who is Arma Traders’ corporate
secretary, incorporator, stockholder and director, testified
that the sole management of Arma Traders was left to Tan
and Uy and that he and the other officers never dealt with
the business and management of Arma Traders for 14 years.
He also confirmed that since 1984 up to the filing of the
complaint against Arma Traders, its stockholders and board
of directors never had its meeting.
Thus, Arma Traders bestowed upon Tan and Uy broad powers
by allowing them to transact with third persons without the
necessary written authority from its non-performing board of
directors. Arma Traders failed to take precautions to prevent
its own corporate officers from abusing their powers.
Because of its own laxity in its business dealings, Arma
Traders is now estopped from denying Tan and Uy’s authority
to obtain loan from Advance Paper.
We also reject the respondents’ claim that Advance Paper,
through Haw, connived with Tan and Uy. The records do not
contain any evidence to prove that the loan transactions
were personal to Tan and Uy. A different conclusion might
have been inferred had the cashier’s checks been issued in
favor of Tan and Uy, and had the postdated checks in favor of
Advance Paper been either Tan and/or Uy’s, or had the
respondents presented convincing evidence to show how Tan
and Uy conspired with the petitioners to defraud Arma
Traders.84 We note that the respondents initially intended to
present Sharow Ong, the secretary of Tan and Uy, to testify
on how Advance Paper connived with Tan and Uy. As
mentioned, the respondents failed to present her on the
witness stand.
E. UNIVERSITY OF MINDANAO VS. BSP
Doctrine: A corporation may exercise its powers only within
those definitions. Corporate acts that are outside those
express definitions under the law or articles of incorporation
or those "committed outside the object for which a
corporation is created" are ultra vires.
FACTS: This is a Petition for Review on Certiorari1 of the
Court of Appeals.
University of Mindanao is an educational institution. For the
year 1982, its Board of Trustees was chaired by Guillermo B.
Torres. His wife, Dolores P. Torres, sat as University of
Mindanao's Assistant Treasurer.
Guillermo B. Torres and Dolores P. Torres incorporated and
operated two (2) thrift banks: (1) First Iligan Savings & Loan
Association, Inc. (FISLAI); and (2) Davao Savings and Loan
Association, Inc. (DSLAI). Guillermo B. Torres chaired both
thrift banks. He acted as FISLAI's President, while his wife,
Dolores P. Torres, acted as DSLAI's President and FISLAI's
Treasurer.
Upon Guillermo B. Torres' request, Bangko Sentral ng
Pilipinas issued a P1.9 million standby emergency credit to
FISLAI.
On May 25, 1982, University of Mindanao's Vice President
for Finance, Saturnino Petalcorin, executed a deed of real
estate mortgage over University of Mindanao's property in
Cagayan de Oro City in favor of Bangko Sentral ng Pilipinas.
"The mortgage served as security for FISLAI's P1.9 Million
loan" It was allegedly executed on University of Mindanao's
behalf. As proof of his authority to execute a real estate
mortgage for University of Mindanao, Saturnino Petalcorin
showed a Secretary's Certificate signed by University of
Mindanao's Corporate Secretary, Aurora de Leon.
The Secretary’s certificate states among others the
authorizing of the chairman to appoint Satunino Pactolerin to
represent the University of Mindanao to transact, transfer,
convey, lease, mortgage, or otherwise hypothecate the
subject properties. Saturnino Petalcorin executed another
deed of real estate mortgage, allegedly on behalf of
University of Mindanao, over its two properties in Iligan City.
This mortgage served as additional security for FISLAI's loans.
FISLAI and DSLAI eventually merged with DSLAI as the
surviving corporation in an effort to rehabilitate the thrift
banks due to the heavy withdrawals of depositors. DSLAI later
became known as Mindanao Savings and Loan Association,
Inc. (MSLAI). MSLAI failed to recover from its losses. Bangko
Sentral ng Pilipinas later on foreclosed the mortgaged
properties.
University of Mindanao filed two Complaints for nullification
and cancellation of mortgage. One Complaint was filed before
the Regional Trial Court of Cagayan de Oro City, and the other
Complaint was filed before the Regional Trial Court of Iligan
City.
University of Mindanao alleged that it did not obtain any loan
from Bangko Sentral ng Pilipinas and that Aurora De Leon’s
certification was anomalous. That it never authorized
Saturnino Petalcorin to execute real estate mortgage
contracts involving its properties to secure FISLAI's debts and
it never ratified the execution of the mortgage contracts. The
Regional Trial Courts ruled in favor of University of
Mindanao.
RTC found that there was no board resolution giving
Saturnino Petalcorin authority to execute mortgage contracts
on behalf of University of Mindanao.
RTC ruled that Saturnino Petalcorin was not authorized to
execute mortgage contracts for University of Mindanao.
Hence, the mortgage of University ofMindanao's Cagayan de
Oro City property was unenforceable. Saturnino Petalcorin's
unauthorized acts should be annulled.
CA ruled that "[although BSP failed to prove that the UM
Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real
properties,"48 Aurora de Leon's Secretary's Certificate
"clothed Petalcorin with apparent and ostensible authority to
execute the mortgage deed on its behalf[.]"49 Bangko Sentral
ng Pilipinas merely relied in good faith on the Secretary's
Certificate.50 University of Mindanao is estopped from
denying Saturnino Petalcorin's authority. Moreover, the
Secretary's Certificate was notarized. This meant that it
enjoyed the presumption of regularity as to the truth of its
statements and authenticity of the signatures. 52 Thus, "BSP
cannot be faulted for relying on the [Secretary's
Certificate.]"53
The annotations on University of Mindanao's certificates of
title also operate as constructive notice to it that its
properties were mortgaged.56 Its failure to disown the
mortgages for more than a decade was implied ratification.
ISSUE: Whether the execution of the mortgage contract was
ultra vires.
RULE: Yes, the execution of the mortgage contract was ultra
vires. Petitioner argues that the execution of the mortgage
contract was ultra vires. As an educational institution, it may
not secure the loans of third persons.73 Securing loans of third
persons is not among the purposes for which petitioner was
established.74
Petitioner, is correct.
Corporations are artificial entities granted legal personalities
upon their creation by their incorporators in accordance with
law. Unlike natural persons, they have no inherent powers.
Third persons dealing with corporations cannot assume that
corporations have powers. It is up to those persons dealing
with corporations to determine their competence as
expressly defined by the law and their articles of
incorporation.
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is
created" are ultra vires.
The only exception to this rule is when acts are necessary and
incidental to carry out a corporation's purposes, and to the
exercise of powers conferred by the Corporation Code and
under a corporation's articles of incorporation. This exception
is specifically included in the general powers of a corporation
under Section 36 of the Corporation Code (Now Sec 35 of
RCC)
SEC. 36. Corporate powers and capacity —Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period
of time stated in the articles of incorporation and the
certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks
to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to
admit members to the corporation if it be a non-
stock corporation;
7. To purchase, receive, take or grant, hold, convey,
sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including
securities and bonds of other corporations, as the
transaction of the lawful business of the corporation
may reasonably and necessarily require, subject to
the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for
the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes:
Provided, That no corporation, domestic or foreign,
shall give donations in aid of any political party or
candidate or for purposes of partisan political
activity;
10. To establish pension, retirement, and other plans
for the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation.
(Emphasis supplied)
In this case, Petitioner does not have the power to mortgage
its properties in order to secure loans of other persons. As an
educational institution, it is limited to developing human
capital through formal instruction. It is not a corporation
engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring
equipment and real estate; establishing housing facilities for
personnel and students; hiring a concessionaire; and other
activities that can be directly connected to the operations and
conduct of the education business may constitute the
necessary and incidental acts of an educational institution.
Securing FISLAI’s loans by mortgaging petitioner’s properties
does not appear to have even the remotest connection to the
operations of petitioner as an educational institution.
Securing loans is not an adjunct of the educational
institution’s conduct of business. It does not appear that
securing third-party loans was necessary to maintain
petitioner’s business of providing instruction to individuals.
This court upheld the validity of corporate acts when those
acts were shown to be clearly within the corporation’s
powers or were connected to the corporation’s purposes.
F. ARTURO CALUBAD VS. RICARCEN DEVELOPMENT
CORPORATION
Doctrine: When a corporation intentionally or negligently
clothes its agent with apparent authority to act in its behalf, it
is estopped from denying its agent's apparent authority as to
innocent third parties who dealt with this agent in good faith.
Facts:
 Respondent Ricarcen Development Corporation
(Ricarcen) was a domestic corporation engaged in
renting out real estate. It was the registered owner
of a parcel of land.
 Ricarcen was a family corporation. Marilyn R.
Soliman (Marilyn) was its president from 2001 to
August 2003. The other members of the board of
directors during that time were Marilyn's mother,
Erlinda Villanueva (Erlinda), her brother, Josefelix R.
Villanueva (Josefelix), her aunt, Maura Rico, and her
sisters, Ma. Elizabeth V. Chamorro (Elizabeth), Ma.
Theresa R. Villanueva, and Annabelle R. Villanueva.
 Marilyn, acting on Ricarcen's behalf as its president,
took out a P4,000,000.00 loan from Calubad. This
loan was secured by a real estate mortgage over
Ricarcen's Quezon City property.
 Ricarcen, through Marilyn, and Calubad amended
and increased the loan to P5,000,000.00 in the
Amendment of Deed of Mortgage (Additional Loan
of P1,000,000.00) with the same property used as
security and under the same terms and conditions.
 Ricarcen, again acting through Marilyn, took out an
additional loan of 2,000,000.00 from Calubad, as
evidenced by the executed Second Amendment of
Deed of Mortgage.
 To prove her authority to execute the three (3)
mortgage contracts in Ricarcen's behalf, Marilyn
presented Calubad with a Board Resolution dated
October 15, 2001. This Resolution empowered her to
borrow money and use the Quezon City property.
Marilyn also presented two (2) Secretary's
Certificates dated December 6, 2001 and May 8,
2002, executed by Marilyn's sister and Ricarcen's
corporate secretary, Elizabeth.
 Sometime in 2003, after Ricarcen failed to pay its
loan, Calubad initiated extrajudicial foreclosure
proceedings on the real estate mortgage.
 Calubad was the highest bidder during the scheduled
auction sale.
 The Certificate of Sale was annotated on TCT.
 Ricarcen claimed that it only learned of Marilyn's
transactions with Calubad sometime in July 2003.
  Upon confirming that the Quezon City property had
indeed been mortgaged, foreclosed, and sold to
Calubad as a result of Marilyn's actions, Ricarcen's
board of directors removed her as president and
appointed Josefelix as its new president. Josefelix
was also authorized to initiate the necessary court
actions to protect Ricarcen's interests over the
Quezon City property.
 Ricarcen filed its Complaint for Annulment of Real
Estate Mortgage and Extrajudicial Foreclosure of
Mortgage and Sale with Damages against Marilyn,
Calubad, and employees of the Registry of Deeds of
Quezon City and of the Regional Trial Court of
Quezon City.
 In its Complaint, Ricarcen claimed that it never
authorized its former president Marilyn to obtain
loans from Calubad or use the Quezon City property
as collateral for the loans.
 On the other hand, Calubad insisted that the
incidents which led to the foreclosure and sale of the
Quezon City property were all above board and were
not marked with irregularity. Furthermore, he
asserted that he exercised the necessary diligence
required under the circumstances by requiring
Marilyn to submit the necessary documents to prove
her authority from Ricarcen. Calubad likewise argued
that even if Ricarcen did not authorize Marilyn, it
was already estopped from denying her authority
since the loan proceeds had been released and
Ricarcen had benefited from them.
RTC Ruling:
Granted Ricarcen's complaint and annulled the mortgage
contracts, extrajudicial foreclosure, and sale by public
auction.
The Regional Trial Court held that Marilyn failed to present a
special power of attorney as evidence of her authority from
Ricarcen. The lack of a special power of attorney should have
been enough for Calubad to be put on guard and to require
further evidence of Marilyn's authority from Ricarcen.
Court of Appeals Ruling:
The Court of Appeals dismissed Calubad's appeal and
affirmed the Regional Trial Court Decision. The Court of
Appeals emphasized that the rule on the presumption of
validity of a notarized board resolution and of a secretary's
certificate is not absolute and may be validly overcome by
contrary evidence, thus:
In order to defeat the presumption, it is incumbent upon
RICARCEN to prove "with clear, convincing, strong and
irrefutable proof' that the board resolution and secretary's
certificates purportedly authorizing Marilyn Soliman to secure
a loan and mortgage the subject property in behalf of the
corporation are, in fact, invalid.
In the case at bench, RICARCEN was able to discharge this
burden. The truth of the contents of the board resolution and
secretary's certificates relied upon by Calubad had been
overthrown by the records of this case which clearly show
that such documents were not in fact executed by the board
of directors of RICARCEN, and are, therefore, fabricated.
Calubad’s Argument:
Petitioner claims that Ricarcen is barred by estoppel from
denying Marilyn's authority to enter into a contract of loan
and mortgage with Calubad for several reasons. He argues
that Ricarcen clothed Marilyn in apparent authority to act in
its behalf that it benefited from the loans proceeds and that it
impliedly agreed to the mortgage loans by paying the
monthly interest payments.
Petitioner avers that Elizabeth executed four (4) separate
document which gave Marilyn the authority to secure loans,
use the Quezon City property as collateral, and execute all
documents needed for those purposes.
Petitioner also points out that Marilyn had possession of the
owner's duplicate copy of TCT No. RT-84937 (166018), and
thus, he had no reason but to believe that she was authorized
by Ricarcen to deal and transact in its behalf.
Additionally, the loan proceeds were issued through checks
payable to Ricarcen, which were deposited in its bank
account and were cleared. As further evidence of Ricarcen's
receipt of the loan proceeds, petitioner presented several
checks drawn and issued by Elizabeth or Erlinda, jointly with
Marilyn, representing loan payments.
Petitioner likewise presented several checks drawn from
Ricarcen's bank account, issued by Elizabeth or Erlinda, jointly
with Marilyn, payable to third persons or to cash. Petitioner
maintains that the foregoing evidence is indubitable proof
that the loan proceeds have been used by Ricarcen.
Petitioner asserts that the acts of Elizabeth and Erlinda are
equivalent to clothing Marilyn with apparent authority to
deal with him and use the Quezon City property as collateral:
Their acts are also a manifestation of their acquiescence to
Marilyn Soliman's availment of loans and execution of real
estate mortgage with petitioner.
Thus, even if Marilyn Soliman had acted without or in excess
of her actual authority, if she acted within the scope of an
apparent authority with which [Ricarcen] has clothed her by
holding her out or permitting her to appear as having such
authority, [Ricarcen] is bound thereby in favor of petitioner
who in good faith relied on such apparent authority.
Ricarcen’s Contention:
Ricarcen asserts that while the documents it purportedly
issued enjoy the presumption of validity, this presumption is
not absolute and it has shown convincing evidence as to the
invalidity of the Board Resolution and of the Secretary's
Certificates.
Ricarcen points out that Marilyn clearly acted without
authority when she entered into a loan and mortgage
agreement with petitioner. Being void, the contracts of loan
and mortgage can never be ratified.
Ricarcen likewise claims that it cannot be held guilty of
estoppel in pais since it never induced nor led petitioner to
believe that Marilyn was duly authorized to take out a loan
and to mortgage the Quezon City property as collateral.
Additionally, "it did not knowingly accept any benefit" from
the loan proceeds.
Issue: Whether Marilyn acted with authority making Ricarcen
estopped from denying such authority
Ruling: Yes. As a corporation, Ricarcen exercises its powers
and conducts its business through its board of directors, as
provided for by Section 23 of the Corporation Code.
However, the board of directors may validly delegate its
functions and powers to its officers or agents. The authority
to bind the corporation is derived from law, its corporate by-
laws, or directly from the board of directors, "either expressly
or impliedly by habit, custom or acquiescence in the general
course of business.
The general principles of agency govern the relationship
between a corporation and its representatives. Article 1317
of the Civil Code similarly provides that the principal must
delegate the necessary authority before anyone can act on
his or her behalf.
Nonetheless, law and jurisprudence recognize actual
authority and apparent authority as the two (2) types of
authorities conferred upon a corporate officer or agent in
dealing with third persons.
Actual authority can either be express or implied. Express
actual authority refers to the power delegated to the agent
by the corporation, while an agent's implied authority can be
measured by his or her prior acts which have been ratified by
the corporation or whose benefits have been accepted by the
corporation.
On the other hand, apparent authority is based on the
principle of estoppel. The Civil Code provides:
Article 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon.
Article 1869. Agency may be express, or implied from the acts
of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Yao Ka Sin Trading v. Court of Appeals instructed that an
agent's apparent authority from the principal may also be
ascertained through:
(1) the general manner by which the corporation holds out an
officer or agent as having power to act or, in other words, the
apparent authority with which it clothes him to act in general,
or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or
without the scope of his ordinary powers.
The doctrine of apparent authority provides that even if no
actual authority has been conferred on an agent, his or her
acts, as long as they are within his or her apparent scope of
authority, bind the principal. However, the principal's liability
is limited to third persons who are reasonably led to believe
that the agent was authorized to act for the principal due to
the principal's conduct.
Apparent authority is determined by the acts of the principal
and not by the acts of the agent. Thus, it is incumbent upon
Calubad to prove how Ricarcen's acts led him to believe that
Marilyn was duly authorized to represent it.
As the former president of Ricarcen, it was within Marilyn's
scope of authority to act for and enter into contracts in
Ricarcen's behalf. Her broad authority from Ricarcen can be
seen with how the corporate secretary entrusted her with
blank yet signed sheets of paper to be used at her discretion.
She also had possession of the owner's duplicate copy of the
land title covering the property mortgaged to Calubad,
further proving her authority from Ricarcen.
Calubad could not be faulted for continuing to transact with
Marilyn, even agreeing to give out additional loans, because
Ricarcen clearly clothed her with apparent authority.
Likewise, it reasonably appeared that Ricarcen's officers knew
of the mortgage contracts entered into by Marilyn in
Ricarcen's behalf as proven by the issued Banco De Oro
checks as payments for the monthly interest and the principal
loan.
Ricarcen claimed that it never granted Marilyn authority to
transact with Calubad or use the Quezon City property as
collateral for the loans, but its actuations say otherwise. It
appears as if Ricarcen and its officers gravely erred in putting
too much trust in Marilyn. However, Calubad, as an innocent
third party dealing in good faith with Marilyn, should not be
made to suffer because of Ricarcen's negligence in conducting
its own business affairs. This finds support in Yao Ka Sin
Trading:
Also, "if a private corporation intentionally or negligently
clothes its officers or agents with apparent power to perform
acts for it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents.
VHEREFORE, the Petition is GRANTED. The assailed January
25, 2012 Decision and June 20, 2012 Resolution of the Court
of Appeals in CA-GR. CV No. 93185 are REVERSED and SET
ASIDE. Ricarcen Development Corporation's Amended
Complaint in. Civil Case No. Q-03-50584 before Branch 218,
Regional Trial Court, Quezon City is hereby DISMISSED for
lack of merit.
SO ORDERED.
G. FLORETE JR. V. FLORETE, G.R. NO. 174909,
JANUARY 20, 2016
DOCTRINE: A derivative suit “is an action filed by stockholders
to enforce a corporate action.” A derivative suit, therefore,
concerns “a wrong to the corporation itself.” The real party-
in-interest is the corporation, not the stockholders filing the
suit. The stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for and
on behalf of the corporation. They are intended to afford
reliefs to stockholders in instances where those responsible
for running the affairs of a corporation would not otherwise
act.
The distinction between individual and class/representative
suits on one hand and derivative suits on the other is crucial.
These are not discretionary alternatives. The fact that
stockholders suffer from a wrong done to or involving a
corporation does not vest in them a sweeping license to sue
in their own capacity
FACTS: This resolves consolidated cases assailing the
decisions of the CA. The Petition docketed as G.R. No. 174909
assails the CA Decision affirming the dismissal of the
Complaint and sustaining the award of moral and exemplary
damages in favor of Rogelio Florete, Sr. The Petition docketed
as G.R. No. 177275 assails the CA Decision that disallowed the
immediate execution of the same award of damages.
The stockholders of record of People's Broadcasting Service,
Inc. consisted of 2 groups, the Marcelino, Jr. Group and the
Rogelio, Sr. Group. The Marcelino, Jr. Group filed before the
RTC a Complaint for Declaration of Nullity of Issuances,
Transfers and Sale of Shares in People's Broadcasting Service,
Inc. and All Posterior Subscriptions and Increases thereto with
Damages against the Rogelio, Sr. Group. The Marcelino, Jr.
Group seeks to nullify transactions on the shares of stock of
People's Broadcasting as noted in the report of SGV. The
Marcelino, Jr. Group alleges the following: 1. The issuance of
shares in favor of Consolidated Broadcasting System, Inc., in
Resolution No. 4 was a forgery and made without a quorum;
2. A stockholder who transferred her shares was already dead
at the time; 3. The meeting which approved Resolution No. 4
was a sham and no member of the Board attended such
meeting; 4. The signature of Marcelino, Sr. was a forgery; 5.
Issuance of shares made to a company and subsequently
transferred to Rogelio, Sr. was procured by fraud. The
Rogelio, Sr. Group filed their Answer with compulsory
counterclaim for moral and exemplary damages. (GR No.
177275).
This Complaint was later dismissed for lack of cause of action
against the Rogelio, Sr. Group, estoppel from questioning the
assailed movement of shares of People's Broadcasting and
failure to join indispensable parties to the Complaint. As to
Rogelio, Sr.'s compulsory counterclaim, the RTC granted the
same. Rogelio, Sr. thereafter filed a Motion for the immediate
execution of the award of moral and exemplary damages
pursuant to the Interim Rules of Procedure Governing Intra-
Corporate Controversies.
ISSUE: Whether or not the Marcelino, Jr. Group have a cause
of action against those whom they have impleaded as
defendants?
RULING: No. It was upon People's Broadcasting itself that the
causes of action now claimed by the Marcelino, Jr. Group
accrued. While stockholders in the Marcelino, Jr. Group were
permitted to seek relief, they should have done so not in their
unique capacity as individuals or as a group of stockholders
but in place of the corporation itself through a derivative suit.
The sufficiency of the Marcelino, Jr. Group's plea for relief,
through their Complaint, hinges on a characterization of the
suit or action they initiated. This characterization requires a
determination of the cause of action through which the
Marcelino, Jr. Group came to court for relief.
A derivative suit "is an action filed by stockholders to enforce
a corporate action." A derivative suit, therefore, concerns "a
wrong to the corporation itself." The real party in interest is
the corporation, not the stockholders filing the suit. The
stockholders are technically nominal parties but are
nonetheless the active persons who pursue the action for and
on behalf of the corporation. They are intended to afford
reliefs to stockholders in instances where those responsible
for running the affairs of a corporation would not otherwise
act. The fact that stockholders suffer from a wrong done to or
involving a corporation does not vest in them a sweeping
license to sue in their own capacity. The recognition of
derivative suits as a vehicle for redress distinct from
individual and representative suits is an acknowledgment that
certain wrongs may be addressed only through acts brought
for the corporation.
The determination of the appropriate remedy hinges on the
object of the wrong done. When the object is a specific
stockholder or a definite class of stockholders, an individual
suit or class/representative suit must be resorted to. When
the object of the wrong done is the corporation itself or "the
whole body of its stock and property without any severance
or distribution among individual holders," it is a derivative
suit that a stockholder must resort to.
The action should be a proper derivative suit even if the
assailed acts do not pertain to a corporation's transactions
with third persons. Cua, Jr. established that the pivotal
consideration is whether the wrong done as well as the cause
of action arising from it accrues to the corporation itself or to
the whole body of its stockholders. Ching and Wellington
states that if "[t]he causes of action pleaded . . . do not accrue
to a single shareholder or a class of shareholders but to the
corporation itself," the action should be deemed a derivative
suit. Also, in Go, an action "seeking to nullify and invalidate
the duly constituted acts [of a corporation]" entails a cause of
action that "rightfully pertains to [the corporation itself and
which stockholders] cannot exercise . . . except through a
derivative suit."
In this case, the Marcelino, Jr. Group anchored their
Complaint on violations of and liabilities arising from the
Corporation Code, The Marcelino, Jr. Group ultimately prays
that People's Broadcasting's entire capital structure be
reconfigured to reflect a status quo ante. The actions being
assailed by the Marcelino, Jr. Group pertain to parties that
are not extraneous to People's Broadcasting. They assail and
seek to nullify acts taken by various iterations of People's
Broadcasting's Board of Directors. All these acts and incidents
concern the capital structure of People's Broadcasting. What
the Marcelino, Jr. Group asks is the complete reversal of a
number of corporate acts undertaken by People'
Broadcasting's different boards of directors. These boards
supposedly engaged in outright fraud or, at the very least,
acted in such a manner that amounts to wanton
mismanagement of People's Broadcasting's affairs. The
ultimate effect of the remedy they seek is the reconfiguration
of People's Broadcasting's capital structure.
Also, the damage inflicted upon People's Broadcasting's
individual stockholders, if any, was indiscriminate. It was not
unique to those in the Marcelino, Jr. Group. It pertained to
"the whole body of [People's Broadcasting's] stock."
Accordingly, it was upon People's Broadcasting itself that the
causes of action now claimed by the Marcelino, Jr. Group
accrued. While stockholders in the Marcelino, Jr. Group were
permitted to seek relief, they should have done so not in their
unique capacity as individuals or as a group of stockholders
but in place of the corporation itself through a derivative suit.
As they, instead, sought relief in their individual capacity,
they did so bereft of a cause of action. Likewise, they did so
without even the slightest averment that the requisites for
the fi􏰀ling of a derivative suit, as spelled out in Rule 8, Section
1 of the Interim Rules of Procedure for Intra-Corporate
Controversies, have been satisfied. Since the Complaint
lacked a cause of action and failed to comply with the
requirements of the Marcelino, Jr. Group's vehicle for relief, it
was only proper for the Complaint to have been dismissed.
A stockholder may suffer from a wrong done to or involving a
corporation, but this does not vest in the aggrieved
stockholder a sweeping license to sue in his or her own
capacity. The determination of the stockholder's appropriate
remedy — whether it is an individual suit, a class suit, or a
derivative suit — hinges on the object of the wrong done.
When the object of the wrong done is the corporation itself
or "the whole body of its stock and property without any
severance or distribution among individual holders," it is a
derivative suit, not an individual suit or class/representative
suit, that a stockholder must resort to.
In derivative suits, the corporation concerned must be
impleaded as a party. Not only is the corporation an
indispensible party, but it is also the present rule that it must
be served with process. The reason given is that the judgment
must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring
a subsequent suit against the same defendants for the same
cause of action. In other words the corporation must be
joined as party because it is its cause of action that is being
litigated and because judgment must be a res ajudicata [sic]
against it.
H. VILLAMOR V. UMALE
G.R. No. 172843, September 24, 2014
DOCTRINE: Individual stockholders may be allowed to sue
on behalf of the corporation whenever the directors or
officers of the corporation refuse to sue to vindicate the
rights of the corporation or are the ones to be sued and are
in control of the corporation.59 It is allowed when the
"directors [or officers] are guilty of breach of . . . trust, [and]
not of mere error of judgment."60 � In derivative suits,
the real party in interest is the corporation, and the suing
stockholder is a mere nominal party.
FACTS: MC Home Depot occupied a prime property
(Rockland area) in Pasig. The property was part of the area
owned by Mid-Pasig Development Corporation (Mid-Pasig).
On March 1, 2004, Pasig Printing Corporation (PPC)
obtained an option to lease portions of MidPasig’s property,
including the Rockland area. On November 11, 2004, PPC’s
board of directors issued a resolution waiving all its rights,
interests, and participation in the option to lease contract in
favor of the law firm of Atty. Alfredo Villamor, Jr. (Villamor).
PPC received no consideration for this waiver in favor of
Villamor’s law firm.
On November 22, 2004, PPC, represented by Villamor,
entered into a memorandum of agreement (MOA) with MC
Home Depot wherein MC Home Depot would continue to
occupy the area as PPC’s sublessee for 4 years, renewable
for another 4 years.
In compliance with the MOA, MC Home Depot issued 20
post-dated checks representing rental payments for one
year and the goodwill money. The checks were given to
Villamor who did not turn these or the equivalent amount
over to PPC, upon encashment.
Respondent Hernando Balmores, a stockholder and director
of PPC, wrote a letter addressed to PPC’s directors on April
4, 2005. He informed them that Villamor should be made to
deliver to PPC and account for MC Home Depot’s checks or
their equivalent value.
Due to the alleged inaction of the directors, respondent
Balmores filed with the RTC an intra- corporate controversy
complaint under Rule 1, Section 1(a)(1) of the Interim Rules
for Intra- Corporate Controversies (Interim Rules) against
petitioners for their alleged devices or schemes amounting
to fraud or misrepresentation "detrimental to the interest
of the corporation and its stockholders." Respondent
Balmores prayed that a receiver be appointed from his list
of nominees , and prayed that petitioners be prohibited
from "selling, encumbering, transferring or disposing in any
manner any of [PPC’s] properties. However, the RTC
dismissed the complaint.
Thus, respondent Balmores filed with the CA a petition for
certiorari under Rule 65 of the Rules of Court and the same
was granted. It reversed the trial court’s decision, and
issued a new order placing PPC under receivership and
creating an interim management committee.
The CA characterized the assailed order/resolution of the trial
court as an interlocutory order that is not appealable. In
reversing tie trial court order/resolution, the CA considered
the danger of dissipation, wastage, and loss of PPC's assets if
the review of the trial court's judgment would be
delayed.35cralawlawlrary
The CA ruled that the case filed by respondent Balmores with
the trial court "[was] a derivative suit because there were
allegations of fraud or ultra vires acts ... by [PPC's directors]."
According to the CA, the trial court abandoned its duty to
the stockholders in a derivative suit when it refused to
appoint a receiver or create a management committee, all
during the pendency of the proceedings. The assailed order
of the trial court removed from the stockholders their right,
in an intra-corporate controversy, to be allowed the remedy
of appointment of a receiver during the pendency of a
derivative suit, leaving the corporation under the control of
an outsider and its assets prone to dissipation.
Hence, this petition assailing the CA Decision. PPC's
directors argued that the CA erred in characterizing
respondent Balmores' suit as a derivative suit because of his
failure to implead PPC as party in the case. Hence, the
appellate court did not acquire jurisdiction over the
corporation, and the appointment of a receiver or
management committee is not valid
ISSUE: Whether or not the CA correctly characterized
respondent Balmores’ action as a derivative suit.
RULING: NO, the CA was incorrect in characterizing
respondent Balmores’ action as a derivative suit.
A derivative suit is an action filed by stockholders to enforce a
corporate action.56 It is an exception to the general rule that
the corporation's power to sue57 is exercised only by the
board of directors or trustees.58cralawlawlibrary
Individual stockholders may be allowed to sue on behalf of
the corporation whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the
corporation or are the ones to be sued and are in control of
the corporation.59 It is allowed when the "directors [or
officers] are guilty of breach of . . . trust, [and] not of mere
error of judgment."60 � In derivative suits, the real party in
interest is the corporation, and the suing stockholder is a
mere nominal party.61
Rule 8, Section 1 of the Interim Rules of Procedure for Intra
Corporate Controversies (Interim Rules) provides the 5
requisites for filing derivative suits:
SECTION 1. Derivative action. – A stockholder or member
may bring an action in the name of a corporation or
association, as the case may be, provided that:
1. He was a stockholder or member at the time the
acts or transactions subject of the action
occurred and at the time the action was filed;
2. He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to
exhaust all remedies available under the articles
of incorporation, by-laws, laws or rules
governing the corporation or partnership to
obtain the relief he desires;
3. No appraisal rights are available for the act or acts
complained of; and
4. The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not
included in the enumeration, is implied in the first
paragraph of Rule 8, Section 1 of the Interim Rules: The
action brought by the stockholder or member must be "in
the name of [the] corporation or association. " This
requirement has already been settled in jurisprudence.
It is important that the corporation be made a party to the
case. As explained in Asset Privatization Trust v. Court of
Appeals, to wit: “the corporation must be joined as party
because it is its cause of action that is being litigated and
because judgment must be a res judicata against it.”
In the same case, this court enumerated the reasons for
disallowing a direct individual suit. The reasons given for not
allowing direct individual suit are:chanRoblesvirtualLawlibrary
(1) . . . "the universally recognized doctrine that a stockholder
in a corporation has no title legal or equitable to the
corporate property; that both of. these are in the
corporation itself for the benefit of the stockholders." In
other words, to allow shareholders to sue separately
would conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the case
 of Evangelista v. Santos, that 'the stockholders may not
directly claim those damages for themselves for that
would result in the appropriation by, and the distribution
among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally
done in view of Section 16 of the Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of
partial recovery by an individual on the damages
recoverable by the corporation for the same act.72
In this case, respondent Balmores’ action in the trial court
failed to satisfy all the requisites of a derivative suit.
Respondent failed to exhaust all available remedies to
obtain the reliefs he prayed for. He also failed to allege
that appraisal rights were not available for the acts
complained of. Neither did respondent Balmores implead
PPC as party in the case nor did he allege that he was filing
on behalf of the corporation.
The non-derivative character of respondent Balmores’
action may also be gleaned from his allegations in the trial
court complaint. In the complaint, he described the nature
of his action as an action under Rule 1, Section 1(a)(1) of
the Interim Rules, and not an action under Rule 1, Section
1(a)(4) of the Interim Rules, which refers to derivative
suits.
Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of
the board, associates, and officers, amounting to fraud or
misrepresentation, which may be detrimental to the
interest of the stockholders. This is different from a
derivative suit.
While devices and schemes of the board of directors,
business associates, or officers amounting to fraud under
Rule 1, Section 1(a)(1) of the Interim Rules are causes of a
derivative suit, it is not always the case that derivative
suits are limited to such causes or that they are necessarily
derivative suits. Hence, they are separately enumerated in
Rule 1, Section 1(a) of the Interim Rules:
SECTION 1. (a) Cases covered. – These Rules shall govern
the procedure to be observed in civil cases involving the
following:
1. Devices or schemes employed by, or any act of,
the board of directors, business associates,
officers or partners, amounting to fraud or
misrepresentation which may be detrimental to
the interest of the public and/or of the
stockholders, partners, or members of any
corporation, partnership, or association;
2. Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
stockholders, members, or associates,
respectively;
3. Controversies in the election or appointment of
directors, trustees, officers, or managers of
corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
Stockholder/s’ suits based on fraudulent or wrongful acts
of directors, associates, or officers may also be individual
suits or class suits.
Individual suits are filed when the cause of action belongs
to the individual stockholder personally, and not to the
stockholders as a group or to the corporation. , e.g., denial
of right to inspection and denial of dividends to a
stockholder.76 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.
In this case, respondent Balmores filed an individual suit.
His intent was very clear from his manner of describing the
nature of his action. He was alleging that the acts of PPC’s
directors, specifically the waiver of rights in favor of
Villamor’s law firm and their failure to take back the MC
Home Depot checks from Villamor, were detrimental to his
individual interest as a stockholder.
WHEREFORE, the petitions are GRANTED. The decision of
the Court of Appeals dated March 2, 2006 and its
resolution dated May 29, 2006 are SET ASIDE.
SO ORDERED.
Notes:
An allegation that appraisal rights were not available for the
acts complained of is another requisite for filing derivative
suits under Rule 8, Section 1(3) of the Interim Rules.
Section 81 of the Corporation Code provides the instances of
appraisal right:chanRo
SEC. 81. Instances of appraisal right.� Any stockholder of a
corporation shah1 have the right to dissent and demand
payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholders or
class of shares, or of authorizing
preferences in any respect superior to those
of outstanding shares of any class, or of
extending or shortening the term of
corporate existence;
 2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all
or substantially all of the corporate
property and assets as provided in this
Code; and
3. In case of merger or consolidation.
Section 82 of the Corporation Code provides that the
stockholder may exercise the right if he or she voted against
the proposed corporate action and if he made a written
demand for payment on the corporation within thirty (30)
days after the date of voting.
Respondent Balmores complained about the alleged inaction
of PPC's directors in his letter informing them that Villamor
should be made to deliver to PPC and account for MC Home
Depot's checks or their equivalent value. He alleged that
these are devices or schemes amounting to fraud or
misrepresentation detrimental to the corporation's and the
stockholders' interests. He also alleged that the directors'
inaction placed PPC's assets in imminent and/or actual
dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores' attempt to
communicate with the other PPC directors already comprised
all the available remedies that he could have exhausted and
(b) the corporation was under full- control of petitioners that
exhaustion of remedies became impossible or
futile,74 respondent Balmores failed to allege that appraisal
rights were not available for the acts complained of here.
A. CUA JR., V. TAN, G.R. NO. 181455-56, DECEMBER 4,
2009
Doctrine: Suits by stockholders or members of a corporation
based on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits, and
derivative suits. Where a stockholder or member is denied
the right of inspection, his suit would be individual because
the wrong is done to him personally and not to the other
stockholders or the corporation. Where the wrong is done to
a group of stockholders, as where preferred stockholders’
rights are violated, a class or representative suit will be
proper for the protection of all stockholders belonging to the
same group. But where the acts complained of constitute a
wrong to the corporation itself, the cause of action belongs to
the corporation and not to the individual stockholder or
member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected because
the value of his interest therein would be impaired, this fact
of itself is not sufficient to give him an individual cause of
action since the corporation is a person distinct and separate
from him, and can and should itself sue the wrongdoer.
Otherwise, not only would the theory of separate entity be
violated, but there would be multiplicity of suits as well as a
violation of the priority rights of creditors. Furthermore, there
is the difficulty of determining the amount of damages that
should be paid to each individual stockholder.
Facts:
· PRCI holds a franchise granted under RA 6632 , to operate a
horse racetrack and manage betting stations. Under its
franchise, PRCI may operate only one racetrack.
· The Articles of Incorporation of PRCI was amended to include
a secondary purpose, to acquire real properties and/or
develop real properties into mix-use realty projects including
but not limited to leisure, recreational and memorial parks
and to own, operate, manage and/or sell these real estate
projects.
· PRCI is publicly listed with the Philippine Stock Exchange
(PSE).
· PRCI owns only two real properties, each covered by several
transfer certificates of title, which are the Makati and Cavite
property.
· PRCI management decided to transfer its racetrack from
Makati to Cavite. PRCI began developing its Cavite property
as a racetrack, planning to make the Makati property to
urban and commercial use.
· PRCI acquired another domestic corporation, JTH Davies
Holdings, Inc. (JTH).
· To determine the value of JTH, PRCI engaged the services of
SGV to conduct a due diligence study. The PRCI Board of
Directors held a meeting voting affirmatively to pass and
approve the acquisition of JTH.
· Atty. Pagunsan his vote as "NO" which the Vice-Chairman
duly noted. Notwithstanding the objection of Atty. Pagunsan,
the Corporate Secretary declared the resolution as duly
approved and ratified.
· All the Directors present approved and passed the exchange
of its Makati property with shares of JTH Davies Holdings,
except Director Brigido Dulay who registered a negative vote.
· Before the Annual Stockholder’s meeting of PRCI
commenced, respondents filed a derivative suit against the
majority stockholders of PRCI praying that Cua et al be
enjoined in the presentation, discussion, and approval of
three of the 13 items on the Agenda of the 2007 Annual
Stockholders’ Meeting.
· The RTC judge issued a TRO against the Annual stockholder’s
meeting. Cua et al filed a petition for certiorari against the
order of the lower court.
· The CA denied the petition of Cua et al stating that the TRO
issued by the RTC enjoined the presentation, discussion, and
approval of only three of the 13 items on the Agenda of the
2007 Annual Stockholders’ Meeting.
Issue: Whether the derivative suit should be dismissed.
Ruling: It is well settled in this jurisdiction that where
corporate directors are guilty of a breach of trust — not of
mere error of judgment or abuse of discretion — and
intracorporate remedy is futile or useless, a stockholder may
institute a suit in behalf of himself and other stockholders
and for the benefit of the corporation, to bring about a
redress of the wrong inflicted directly upon the corporation
and indirectly upon the stockholders.
However, in cases of mismanagement where the wrongful
acts are committed by the directors or trustees themselves, a
stockholder or member may find that he has no redress
because the former are vested by law with the right to decide
whether or not the corporation should sue, and they will
never be willing to sue themselves. The corporation would
thus be helpless to seek remedy. Because of the frequent
occurrence of such a situation, the common law gradually
recognized the right of a stockholder to sue on behalf of a
corporation in what eventually became known as a
"derivative suit." It has been proven to be an effective
remedy of the minority against the abuses of management.
Thus, an individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights,
whenever officials of the corporation refuse to sue or are the
ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as the nominal
party, with the corporation as the party in interest.
In the case Nelson v. Anderson , the appellate court
concluded that the plaintiff could not maintain the suit as a
direct action: "Because the gravamen of the complaint is
injury to the whole body of its stockholders, it was for the
corporation to institute and maintain a remedial action. A
derivative action would have been appropriate if its
responsible officials had refused or failed to act." The court
went on to note that the damages shown at trial were the
loss of corporate profits. Since "[s]hareholders own neither
the property nor the earnings of the corporation," any
damages that the plaintiff alleged that resulted from such loss
of corporate profits "were incidental to the injury to the
corporation."
Based on allegations in the Complaint of Miguel, et al., in Civil
Case No. 07-610, the Court determines that there is only a
derivative suit, based on the devices and schemes employed
by the PRCI Board of Directors that amounts to
mismanagement, misrepresentation, fraud, and bad faith.
It is important for the Court to mention that the 26
September 2006 Resolution of the PRCI Board of Directors
not only authorized the acquisition by PRCI of up to 100% of
the common stock of JTH, but it also specifically appointed
petitioner Santiago Sr. to act as attorney-in-fact and proxy
who could vote all the shares of PRCI in JTH, as well as
nominate, appoint, and vote into office directors and/or
officers during regular and special stockholders’ meetings of
JTH. It was by this authority that PRCI directors were able to
constitute the JTH Board of Directors. Thus, the protest of
respondents Miguel, et al., against the interlocking directors
of PRCI and JTH is also rooted in the 26 September 2006
Resolution of the PRCI Board of Directors.
After a careful study of the allegations concerning this
derivative suit, the Court rules that it is dismissible for being
moot and academic.
The Resolution dated 26 September 2006 of the PRCI Board
of Directors was approved and ratified by the stockholders,
holding 74% of the outstanding capital stock in PRCI, during
the Special Stockholders’ Meeting held on 7 November 2006.
Respondents Miguel, et al., instituted the civil case, against
herein petitioners Santiago Sr., et al., in their capacity as
directors of PRCI and/or JTH. Clearly, the acquisition by PRCI
of JTH and the constitution of the JTH Board of Directors are
no longer just the acts of the majority of the PRCI Board of
Directors, but also of the majority of the PRCI stockholders.
By ratification, even an unauthorized act of an agent becomes
the authorized act of the principal. To declare the Resolution
dated 26 September 2006 of the PRCI Board of Directors null
and void will serve no practical use or value, or affect any of
the rights of the parties, because the Resolution dated 7
November 2006 of the PRCI stockholders -- approving and
ratifying said acquisition and the manner in which PRCI shall
constitute the JTH Board of Directors -- will still remain valid
and binding.
In fact, if the derivative suit, insofar as it concerns the
Resolution dated 26 September 2006 of the PRCI Board of
Directors, is not dismissible for mootness, it is still vulnerable
to dismissal for failure to implead indispensable parties,
namely, the majority of the PRCI stockholders.
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-
Corporate Controversies (IRPICC) lays down the following
requirements which a stockholder must comply with in filing
a derivative suit:
Sec. 1. Derivative action. – A stockholder or member may
bring an action in the name of a corporation or association, as
the case may be, provided, that:
(1) He was a stockholder or member at the time the
acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust
all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or
acts complained of; and
(4) The suit is not a nuisance or harassment suit.
It bears to point out that every derivative suit is necessarily
grounded on an alleged violation by the board of directors of
its fiduciary duties, committed by mismanagement,
misrepresentation, or fraud, with the latter two situations
already implying bad faith. If the Court upholds the position
of respondents Miguel, et al. – that the existence of
mismanagement, misrepresentation, fraud, and/or bad faith
renders the right of appraisal unavailable – it would give rise
to an absurd situation. Inevitably, appraisal rights would be
unavailable in any derivative suit. This renders the
requirement in Rule 8, Section 1(3) of the IPRICC superfluous
and effectively inoperative; and in contravention of an
elementary rule of legal hermeneutics that effect must be
given to every word, clause, and sentence of the statute, and
that a statute should be so interpreted that no part thereof
becomes inoperative or superfluous.
The import of establishing the availability or unavailability of
appraisal rights to the minority stockholder is further
highlighted by the fact that it is one of the factors in
determining whether or not a complaint involving an intra-
corporate controversy is a nuisance and harassment suit.
Section 1(b), Rule 1 of IRPICC provides:
(b) Prohibition against nuisance and harassment suits. -
Nuisance and harassment suits are prohibited. In determining
whether a suit is a nuisance or harassment suit, the court
shall consider, among others, the following:
 (1) The extent of the shareholding or interest of the
initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts
complained of; and
(5) Prejudice or damage to the corporation,
partnership, or association in relation to the relief
sought.
The availability or unavailability of appraisal rights should be
objectively based on the subject matter of the complaint, i.e.,
the specific act or acts performed by the board of directors,
without regard to the subjective conclusion of the minority
stockholder instituting the derivative suit that such act
constituted mismanagement, misrepresentation, fraud, or
bad faith.
[Appraisal right] means that a stockholder who dissented and
voted against the proposed corporate action, may choose to
get out of the corporation by demanding payment of the fair
market value of his shares. When a person invests in the
stocks of a corporation, he subjects his investment to all the
risks of the business and cannot just pull out such investment
should the business not come out as he expected. He will
have to wait until the corporation is finally dissolved before
he can get back his investment, and even then, only if
sufficient assets are left after paying all corporate creditors.
His only way out before dissolution is to sell his shares should
he find a willing buyer. If there is no buyer, then he has no
recourse but to stay with the corporation. However, in certain
specified instances, the Code grants the stockholder the right
to get out of the corporation even before its dissolution
because there has been a major change in his contract of
investment with which he does not agree and which the law
presumes he did not foresee when he bought his shares.
Since the will of two-thirds of the stocks will have to prevail
over his objections, the law considers it only fair to allow him
to get back his investment and withdraw from the
corporation.
Sec. 81. Instances of appraisal right. – Any stockholder of a
corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholders or class of
shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class,
or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets
as provided in this Code; and
3. In case of merger or consolidation.
The Court finds specious the averment of respondents
Miguel, et al., that appraisal rights were not available to
them, because appraisal rights may only be exercised by
stockholders who had voted against the proposed corporate
action; and that at the time respondents Miguel, et al.,
instituted Civil Case No. 07-610, PRCI stockholders had yet to
vote on the intended property-for-shares exchange between
PRCI and JTH. Respondents Miguel, et al., themselves caused
the unavailability of appraisal rights by filing the Complaint in
Civil Case No. 07-610, in which they prayed that the 11 May
2007 Resolution of the Board of Directors approving the
property-for-shares exchange between PRCI and JTH be
declared null and void, even before the said Resolution could
be presented to the PRCI stockholders for approval or
rejection. More than anything, the argument of respondents
Miguel, et al., raises questions of whether their derivative suit
was prematurely filed for they had failed to exert all
reasonable efforts to exhaust all other remedies available
under the articles of incorporation, by-laws, laws, or rules
governing the corporation or partnership, as required by Rule
8, Section 1(2) of the IRPICC. The obvious intent behind the
rule is to make the derivative suit the final recourse of the
stockholder, after all other remedies to obtain the relief
sought have failed.
ASSET PRIVATIZATION TRUST vs. COURT OF APPEALS, et. al.
G.R. No. 121171, December 29, 1998
Kapunan, J.:
DOCTRINE: (Case is under derivative suits in the syllabus)
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the stockholder
filing suit for the corporation’s behalf is only nominal party.
The corporation should be included as a party in the suit.
FACTS:
The Marinduque Mining and Industrial Corporation, hereafter
known as MMIC, is a domestic corporation authorized by law
to have the exclusive right to develop, explore, and utilize
mineral deposits in the Surigao Mineral Reservation. The
Philippine Government provided support in the financing of
MMIC through DBP and PNB.
MMIC, PNB, and DBP executed a mortgage trust agreement
whereby MMIC, as the mortgagor, agreed to constitute a
mortgage in favor of PNB and DBP as mortgagees, over all
MMIC’s assets. The Trust Agreement also provides the
procedure if the mortgagor shall fail to pay any amount
secured by the agreement.
A few years later, MMIC’s outstanding loans with DBP
ballooned to 22 billion. A financial restructuring plan (FRP)
was drafted and approved by its Board of Directors, but it was
never formally adopted, approved, or ratified by DBP and
PNB.
DBP and PNB then decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with
the Mortgage Trust Agreement. The assets were sold to PNB
as the lone bidder, and were transferred to the Asset
Privatization Trust (APT), herein petitioner.
In 1985, herein private respondents who were the original
stockholder of MMIC, filed a derivative suit against DBP and
PNB before the RTC of Makati Branch 62 for the annulment of
the foreclosure.
In the course of the trial, private respondents and petitioner
APT mutually agreed to submit the case to arbitration by
entering into a Compromise and Arbitration Agreement. The
agreement limited the issues to the following: (1) whether
plaintiffs (herein private respondents) have the capacity or
the personality to institute a derivative suit in behalf of MMIC
or its directors; and (2) whether or not the actions leading to
the foreclosure of the MMIC assets were proper, valid, and in
good faith.
The RTC approved the agreement and dismissed the initial
complaint. The arbitration committee rendered a majority
decision in favor of MMIC, holding that:
Since, as this Committee finds, there is
no foreclosure at all was not legally
and validly done, the Committee holds
and so declares that the loans of PNB
and DBP to MMIC, for the payment
and recovery of which the void
foreclosure sales were undertaken,
continue to remain outstanding and
unpaid. Defendant APT as the
successor-in-interest of PNB and DBP
to the said loans is therefore entitled
and retains the right, to collect the
same from MMIC pursuant to and
based on the loan documents signed
by MMIC, subject to the legal and valid
defenses that the latter may duly and
seasonably interpose. Such loans shall,
however, be reduced by the amount
which APT may have realized from the
sale of the seized assets of MMIC
which by agreement should no longer
be returned even if the foreclosure
were found to be null and void.
The documentary evidence submitted
and adopted by both parties (Exhibits
"3", "3-B"; Exhibits "100"; and also
Exhibit "ZZZ") as their exhibits would
show that the total outstanding
obligation due to DBP and PNB as of
the date of foreclosure is
P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is
still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP
amounting to P22,668.537,770.05,
more or less, with interest thereon as
stipulated in the loan documents from
the date of foreclosure up to the time
they are fully paid less the
proportionate liability of DBP as owner
of 87% of the total capitalization of
MMIC under the FRP. Simply put, DBP
shall share in the award of damages to,
and in obligations of MMIC in
proportion to its 87% equity in the
total capital stock of MMIC.
x x x.
As this Committee holds that the FRP is
valid, DBP’s equity in MMIC is raised to
87%. So pursuant to the above
provision of the Compromise and
Arbitration Agreement, the 87% equity
of DBP is hereby deducted from the
actual damages of P19,486,118,654.00
resulting in the net actual damages of
P2,531,635,425.02 plus interest.
Motions for reconsiderations were filed by both parties, but
the same were denied. Private respondents file a Motion for
Confirmation of Arbitration Award before the RTC, which was
granted. The RTC held that the dismissal of the original civil
case was merely a “qualified dismissal” to pave way for the
submission of the controversy to arbitration, and operated
simply as a “mere suspension of the proceedings”.
APT then filed a petition for certiorari before the Court of
Appeals, which denied due course and dismissed the petition.
Hence, this petition for review on certiorari.
ISSUE:
1. Did the RTC have jurisdiction to confirm the arbitral
award?
2. Did the arbiters exceed their powers and authority?
3. Was the derivative suit proper?
RULING:
1. No. Admittedly the correct procedure was for the
parties to go back to the court where the case was
pending to have the award confirmed by said court.
However, Branch 62 made the fatal mistake of
issuing a final order dismissing the case. While
Branch 62 should have merely suspended the case
and not dismissed it, neither of the parties
questioned said dismissal. Thus, both parties as well
as said court are bound by such error.
It is erroneous then to argue, as private respondents
do, that petitioner APT was charged with the
knowledge that the "case was merely stayed until
arbitration finished," as again, the order of Branch
62 in very clear terms stated that the "complaint was
dismissed." By its own action, Branch 62 had lost
jurisdiction over the vase. It could not have validly
reacquired jurisdiction over the said case on mere
motion of one of the parties. The Rules of Court is
 specific on how a new case may be initiated and
such is not done by mere motion in a particular
branch of the RTC. Consequently, as there was no
"pending action" to speak of, the petition to confirm
the arbitral award should have been filed as a new
case and raffled accordingly to one of the branches
of the Regional Trial Court.
2. Yes. As a rule, the award of an arbitrator cannot be
set aside for mere errors of judgment either as to
the law or as to the facts. Courts are without power
to amend or overrule merely because of
disagreement with matters of law or facts
determined by the arbitrators. They will not review
the findings of law and fact contained in an award,
and will not undertake to substitute their judgment
for that of the arbitrators, since any other rule would
make an award the commencement, not the end, of
litigation. Errors of law and fact, or an erroneous
decision of matters submitted to the judgment of the
arbitrators, are insufficient to invalidate an award
fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial review
of a trial.
Nonetheless, the arbitrators’ awards is not absolute
and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission
agreement. The parties to such an agreement are
bound by the arbitrators’ award only to the extent
and in the manner prescribed by the contract and
only if the award is rendered in conformity
thereto. Thus, Sections 24 and 25 of the Arbitration
Law provide grounds for vacating, rescinding or
modifying an arbitration award. Where the
conditions described in Articles 2038, 2039 and
2040 of the Civil Code applicable to compromises
and arbitration are attendant, the arbitration award
may also be annulled.
Finally, it should be stressed that while a court is
precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an
examination of the record reveals no support
whatever for the arbitrators’ determinations, their
award must be vacated. In the same manner, an
award must be vacated if it was made in "manifest
disregard of the law."
Against the backdrop of the foregoing provisions and
principles, we find that the arbitrators came out with
an award in excess of their powers and palpably
devoid of factual and legal basis.
3. No. Civil Code No. 9900 filed before the RTC being a
derivative suit, MMIC should have been impleaded
as a party. It was not joined as a party plaintiff or
party defendant at any stage of the proceedings. As
it is, the award of damages to MMIC, which was not
a party before the Arbitration Committee, is a
complete nullity.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is
only nominal party. The corporation should be
included as a party in the suit.
An individual stockholder is permitted
to institute a derivative suit on behalf
of the corporation wherein he holds
stock in order to protect or vindicate
corporate rights, whenever the officials
of the corporation refuse to sue, or are
the ones to be sued or hold the control
of the corporation. In such actions, the
suing stockholder is regarded as a
nominal party, with the corporation as
the real party in interest. x x x.
It is a condition sine qua non that the corporation be
impleaded as a party because-
x x x. Not only is the corporation an
indispensable party, but it is also the
present rule that it must be served
with process. The reason given is that
the judgment must be made binding
upon the corporation and in order that
the corporation may get the benefit of
the suit and may not bring a
subsequent suit against the same
defendants for the same cause of
action. In other words the corporations
must be joined as party because it is its
cause of action that is being litigated
and because judgment must be a res
adjudicata against it.
The reasons given for not allowing direct individual
suit are:
1. x x x "the universally recognized doctrine
that a stockholder in a corporation has no
title legal or equitable to the corporate
property; that both of these are in the
corporation itself for the benefit of the
stockholders." In other words, to allow
shareholders to sue separately would
conflict with the separate corporate entity
principle;
 2. x x x that the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that "the stockholders may
not directly claim those damages for themselves for
that would result in the appropriation by, and the
distribution among them of part of the corporate
assets before the dissolution of the corporation and
the liquidation of its debts and liabilities, something
which cannot be legally done in view of section 16 of
the Corporation Law xxx;"
3. the filing of such suits would conflict with the duty of
the management to sue for the protection of all
concerned;
4. it would produce wasteful multiplicity of suits; and
5. it would involve confusion in a ascertaining the
effect of partial recovery by an individual on the
damages recoverable by the corporation for the
same act.
If at all an award was due MMIC, which it was not,
the same should have been given sans deduction,
regardless of whether or not the party liable had
equity in the corporation, in view of the doctrine
that a corporation has a personality separate and
distinct from its individual stockholders or members.
DBP’s alleged equity, even if it were indeed 87%, did
not give it ownership over any corporate property,
including the monetary award, its right over said
corporate property being a mere expectancy or
inchoate right. Notably, the stipulation even had the
effect of prejudicing the other creditors of MMIC.
Ching vs Subic Bay Golf And Country Club
Derivative Suits
G.R. No. 174353, 10 September 2014
LEONARDO-DE CASTRO, J.:
FACTS:
Petitioners Nestor Ching and Andrew Wellington
filed a Complaint with the RTC of Olongapo City on behalf of
the members of Subic Bay Golf and Country Club, Inc.
(SBGCCI) against the said country club and its Board of
Directors and officers.
The complaint alleged that the defendant
corporation sold shares to plaintiffs at US$22,000.00 per
share, presenting to them the Articles of Incorporation, which
amendment was not disclosed to them, allegedly making the
shares non-proprietary, as it takes away the right of the
shareholders to participate in the pro-rata distribution of the
assets of the corporation after its dissolution. Complaint
furthermore enumerated several instances of fraud in the
management of the corporation.
The RTC dismissed the Complaint, holding that the
action is a derivative suit; that petitioners failed to exhaust
their remedies within the respondent corporation itself.
CA affirmed.
ISSUE: Is the Complaint indeed a derivative suit?
RULING: No.
Indeed, the Court notes American jurisprudence to
the effect that a derivative suit, on one hand, and individual
and class suits, on the other, are mutually exclusive, viz.:
"As the Supreme Court has explained: "A
shareholder’s derivative suit seeks to recover for the benefit
of the corporation and its whole body of shareholders when
injury is caused to the corporation that may not otherwise
be redressed because of failure of the corporation to act.
Thus, ‘the action is derivative, i.e., in the corporate right, if
the gravamen of the complaint is injury to the corporation, or
to the whole body of its stock and property without any
severance or distribution among individual holders, or it
seeks to recover assets for the corporation or to prevent the
dissipation of its assets.’ x x x. In contrast, "a direct action [is
one] filed by the shareholder individually (or on behalf of a
class of shareholders to which he or she belongs) for injury to
his or her interest as a shareholder. x x x. [T]he two actions
are mutually exclusive: i.e., the right of action and recovery
belongs to either the shareholders (direct action)
Upon a careful examination of the Complaint, this
Court finds that the same should not have been dismissed on
the ground that it is a nuisance or harassment suit. Although
the shareholdings of petitioners are indeed only two out of
the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a
corporation.
With regard, however, to the second requisite, we
find that petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to
exhaust all remedies available under the articles of
incorporation, by-laws, and laws or rules governing the
corporation to obtain the relief they desire. The Complaint
contained no allegation whatsoever of any effort to avail of
intra-corporate remedies. Indeed, even if petitioners thought
it was futile to exhaust intra-corporate remedies, they should
have stated the same in the Complaint and specified the
reasons for such opinion. Failure to do so allows the RTC to
dismiss the Complaint, even motu proprio, in accordance with
the Interim Rules.
Therefore, petition is denied.
Hi-Yield Realty, Inc. v. CA
G.R. No. 168863, June 23, 2009
Even then, not every suit filed on behalf of the corporation is
a derivative suit. For a derivative suit to prosper, the minority
stockholder suing for and on behalf of the corporation must
allege in his complaint that he is suing on a derivative cause
of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in
the suit.
Facts:
Roberto H. Torres (Roberto), for and on behalf of Honorio
Torres & Sons, Inc. (HTSI), filed a Petition for Annulment of
Real Estate Mortgage and Foreclosure Sale over two parcels
of land located in Marikina and Quezon City. The suit was
filed against Leonora, Ma. Theresa, Glenn and Stephanie, all
surnamed Torres, the Register of Deeds of Marikina and
Quezon City, and petitioner Hi-Yield Realty, Inc. (Hi-Yield). On
September 15, 2003, petitioner moved to dismiss the petition
on grounds of improper venue and payment of insufficient
docket fees.
The RTC denied said motion in an Order dated January 22,
2004. The trial court held that the case was, in nature, a real
action in the form of a derivative suit cognizable by a special
commercial court pursuant to Administrative Matter No. 00-
11-03-SC. Petitioner sought reconsideration, but its motion
was denied in an Order dated April 27, 2004. Thereafter,
petitioner filed a petition for certiorari and prohibition before
the Court of Appeals but the appellate court agreed with the
RTC that the case was a derivative suit. Thereby, dismissing
the Petition. Hence, this petition.
Issue:
Whether the action to annul the real estate mortgage and
foreclosure sale is a mere incident of the derivative suit?
Ruling:
No, it is not. A derivative action is a suit by a shareholder to
enforce a corporate cause of action. Under the Corporation
Code, where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees. But an
individual stockholder may be permitted to institute a
derivative suit on behalf of the corporation in order to
protect or vindicate corporate rights whenever the officials of
the corporation refuse to sue, or are the ones to be sued, or
hold control of the corporation. In such actions, the
corporation is the real party-in-interest while the suing
stockholder, on behalf of the corporation, is only a nominal
party.
The requisites before a stockholder can file a derivative suit:
a) the party bringing suit should be a shareholder as of the
time of the act or transaction complained of, the number of
his shares not being material; b) he has tried to exhaust intra-
corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or
refused to heed his plea; and c) the cause of action actually
devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the
particular stockholder bringing the suit.
The Court finds that Roberto had satisfied this requirement in
his petition. Further, while it is true that the complaining
stockholder must satisfactorily show that he has exhausted all
means to redress his grievances within the corporation; such
remedy is no longer necessary where the corporation itself is
under the complete control of the person against whom the
suit is being filed. The reason is obvious: a demand upon the
board to institute an action and prosecute the same
effectively would have been useless and an exercise in futility.
Here, Roberto alleged in his petition that earnest efforts were
made to reach a compromise among family
members/stockholders before he filed the case. He also
maintained that Leonora Torres held 55% of the outstanding
shares while Ma. Theresa, Glenn and Stephanie excluded him
from the affairs of the corporation. Even more glaring was the
fact that from June 10, 1992, when the first mortgage deed
was executed until July 23, 2002, when the properties
mortgaged were foreclosed, the Board of Directors of HTSI
did nothing to rectify the alleged unauthorized transactions
of Leonora. Clearly, Roberto could not expect relief from the
board.
Thus, the Court of Appeals did not commit grave abuse of
discretion when it found that respondents correctly filed the
derivative suit before the Makati RTC where HTSI had its
principal office.
WHEREFORE, the instant petition is hereby DISMISSED. The
Decision of the Court of Appeals in are AFFIRMED.
Ago Realty & Development Corp. v. Ago
G.R. No. 210906, October 16, 2019
Topics: Remedial Rights >> Derivative Suit
DOCTRINE:
Rule 8
DERIVATIVE SUITS
Section 1. Derivative action. - A stockholder or member may
bring an action in the name of a corporation or association,
as the case may be, provided, that:
1. He was a stockholder or member at the time the acts
or transactions subject of the action occurred and
the time the action was filed;
2. He exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust
all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
3. No appraisal rights are available for the acts or acts
complained of; and
4. The suits is not a nuisance or harassment suit.
FACTS:
1. The case involves a dispute within Ago Realty &
Development Corporation (ARDC), a close
corporation owned by Emmanuel F. Ago, Corazon C.
Ago, their children, and Angelita F. Ago.
 2. The issue arose when Angelita introduced
unauthorized improvements on ARDC's property
that encroached on other lots owned by ARDC. ARDC
and Emmanuel filed a complaint alleging
unauthorized actions by Angelita, Teresita P. Apin,
Maribel Amaro, and local officials. The defendants
argued that ARDC never authorized the lawsuit, and
the plaintiffs lacked legal standing. Teresita denied
the allegations and claimed her restaurant was on a
different property.
3. The trial court dismissed the complaint, holding
Emmanuel and Corazon liable for damages due to
unauthorized filing. The court ruled that the plaintiffs
were not authorized to sue on behalf of ARDC. The
Court of Appeals (CA) affirmed this ruling, stating the
case was like a derivative suit requiring authorization
from ARDC's Board of Directors. The CA deleted the
awards for moral damages and attorney's fees.
4. After the CA denied their respective motions for
reconsideration through the herein assailed
Resolution, ARDC, Emmanuel, and Corazon, on the
one hand, and Angelita, on the other, filed the
instant consolidated petitions for review on
certiorari.
ISSUES:
Whether the derivative suit is properly filed by Emmanuel et
al., and if so, should they be required to secure first the
necessary board resolution granting them authority from
BOD to institute the case.
RULING:
No. Although board resolution is not necessary, the derivative
suit still fails for lack of the 2nd requisite.
One of the powers expressly granted by law to corporations is
the power to sue. As with other corporate powers, the power
to sue is lodged in the board of directors, acting as a collegial
body. Thus, in the absence of any clear authority from the
board, charter, or by-laws, no suit may be maintained on
behalf of the corporation. A case instituted by a corporation
without authority from its board of directors is subject to
dismissal on the ground of failure to state a cause of action.
As an exception to the foregoing rule, jurisprudence has
recognized certain instances when minority stockholders may
bring suits on behalf of corporations. Where the board of
directors itself is a party to the wrong, either because it is the
author thereof or because it refuses to take remedial action,
equity permits individual stockholders to seek redress. These
actions have come to be known as derivative suits. In Chua v.
Court of Appeals, the Court defined a derivative suit as "a suit
by a shareholder to enforce a corporate cause of action."
In derivative suits, it is the corporation that is the victim of
the wrong. As such, it is the corporation that is properly
regarded as the real party in interest, while the relator-
stockholder is merely a nominal party. The corporation must
be impleaded so that the benefits of the suit accrue to it and
also because it must be barred from bringing a subsequent
case against the same defendants for the same cause of
action. Stated otherwise, the judgment rendered in the suit
must constitute res judicata against the corporation, even
though it refuses to sue through its board of directors.
That said, not every wrong suffered by a stockholder
involving a corporation will vest in him or her the standing to
commence a derivative suit. In Cua, Jr., et al. v. Tan, et al., the
Court explained when such actions lie, viz.:
Suits by stockholders or members of a
corporation based on wrongful or
fraudulent acts of directors or other
persons may be classified into individual
suits, class suits, and derivative suits. Where
a stockholder or member is denied the right
of inspection, his suit would be individual
because the wrong is done to him
personally and not to the other
stockholders or the corporation. Where the
wrong is done to a group of stockholders, as
where preferred stockholders' rights are
violated, a class or representative suit will
be proper for the protection of all
stockholders belonging to the same group.
But where the acts complained of
constitute a wrong to the corporation
itself, the cause of action belongs to the
corporation and not to the individual
stockholder or member. Although in most
every case of wrong to the corporation,
each stockholder is necessarily affected
because the value of his interest therein
would be impaired, this fact of itself is not
sufficient to give him an individual cause of
action since the corporation is a person
distinct and separate from him, and can and
should itself sue the wrongdoer. Otherwise,
not only would the theory of separate
entity be violated, but there would be
multiplicity of suits as well as a violation of
the priority rights of creditors. Furthermore,
there is the difficulty of determining the
amount of damages that should be paid to
each individual stockholder.
However, in cases of mismanagement
where the wrongful acts are committed by
the directors or trustees themselves, a
stockholder or member may find that he
has no redress because the former are
vested by law with the right to decide
whether or not the corporation should sue,
and they will never be willing to sue
themselves. The corporation would thus be
helpless to seek remedy. Because of the
frequent occurrence of such a situation, the
common law gradually recognized the right
 of a stockholder to sue on behalf of a
corporation in what eventually became
known as a "derivative suit." It has been
proven to be an effective remedy of the
minority against the abuses of
management. Thus, an individual
stockholder is permitted to institute a
derivative suit on behalf of the corporation
wherein he holds stock in order to protect
or vindicate corporate rights, whenever
officials of the corporation refuse to sue or
are the ones to be sued or hold the control
of the corporation. In such actions, the
suing stockholder is regarded as the
nominal party, with the corporation as the
party in interest.80 (Emphasis and
underscoring supplied)
However, the SC agrees with Emmanuel et al. in their
contention that a derivative suit does not require the
imprimatur of the board of directors. Since, in derivative
suits, the corporation is usually under the control of the
wrongdoers, it would be absurd to require the stockholders
to obtain board authority prior to the commencement of
litigation.
Since the board is guilty of breaching the trust reposed in it
by the stockholders, it is but logical to dispense with the
requirement of obtaining from it authority to institute the
case and to sign the certification against forum shopping. It
has been held that when "the corporation x x x is under the
complete control of the principal defendants in the case, x x x
it is obvious that a demand upon the [board] to institute an
action and prosecute the same effectively would [be] useless,
and the law does not require litigants to perform useless
acts." Thus, the institution of a derivative suit need not be
preceded by a board resolution.
BUT, Despite derivative suits being grounded on equity, they
cannot prosper in the absence of any or some of the
requisites enumerated in the Interim Rules of Procedure for
Intra-Corporate Controversies. The 2nd requisite does not
obtained in this case.
Before instituting a derivative suit, the relator-stockholder
must exert all reasonable efforts to exhaust all remedies
available under the articles of incorporation, the by-laws, and
the laws or rules governing the corporation or partnership to
obtain the relief he or she desires. Such fact must then be
alleged with particularity in the complaint. "The obvious
intent behind the rule is to make the derivative suit the final
recourse of the stockholder, after all other remedies to obtain
the relief sought had failed."
In their petition, Emmanuel, et al. claim they made
reasonable efforts to resolve the dispute with Angelita, but
their attempt at an amicable settlement failed. They held a
stockholders' meeting, but Angelita left before it began.
However, this doesn't qualify as "exhausting all remedies
available." A viable remedy would have been to elect a board
of directors for ARDC, through which they could have
instituted the case. The derivative suit is a remedy for
minority shareholders when the board fails to act.
The majority shareholders' controlling interest should
generally lead them to use the board for corporate actions,
not derivative suits. The law emphasizes that corporations
should exercise their powers through the board of directors,
especially when a wrong is committed against the
corporation. Emmanuel, et al. could have elected a board to
act on ARDC's behalf, but their omission led to their failure to
exhaust legal remedies.
ARDC's status as a close corporation doesn't excuse them
from complying with requirements for derivative suits. The
argument that Emmanuel, as President, had authority to
institute the case is flawed because he didn't concurrently
hold office as a director, as mandated by law. The courts
rightly didn't award damages since the case wasn't
maliciously prosecuted; it was based on Angelita's
unauthorized actions, even though it was wrongly brought by
shareholders instead of through the proper channels. The
dismissal of the case doesn't automatically warrant damages
or attorney's fees against the plaintiffs who acted in good
faith.
ANNA TENG, versus SECURITIES AND EXCHANGE
COMMISSION (SEC) and TING PING LAY,
G.R. No. 184332; Feb. 17, 2016
REYES, J.
Doctrine:
Section 63 of the Corporation Code prescribes the manner by
which a share of stock may be transferred. Under the
provision, certain minimum requisites must be complied
with for there to be a valid transfer of stocks, to wit:
a. there must be delivery of the stock certificate;
b. the certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized
to make the transfer; and
c. to be valid against third parties, the transfer must be
recorded in the books of the corporation.
Facts:
Respondent Ting Ping purchased 480 shares of TCL Sales
Corporation (TCL) from Peter Chiu (Chiu) on February 2, 1979;
1,400 shares on September 22, 1985 from his brother Teng
Ching Lay (Teng Ching), who was also the president and
operations manager of TCL; and 1,440 shares from Ismaelita
Maluto (Maluto) on September 2, 1989.
Upon Teng Ching's death in 1989, his son Henry Teng (Henry)
took over the management of TCL. To protect his
shareholdings with TCL, Ting Ping on August 31, 1989
requested TCL's Corporate Secretary, herein petitioner Teng,
to enter the transfer in the Stock and Transfer Book of TCL for
the proper recording of his acquisition. He also demanded the
issuance of new certificates of stock in his favor. TCL and
Teng, however, refused despite repeated demands. Because
of their refusal, Ting Ping filed a petition for mandamus with
the SEC against TCL and Teng. The SEC granted Ting Ping's
petition.
SEC en banc, which, in its Order dated June 11, 1996, affirmed
the SEC decision with modification, in that Teng was held
solely liable for the payment of moral damages and attorney's
fees.
TCL and Teng filed a petition for review with the CA which
dismissed the petition for having been filed out of time and
for finding no cogent and justifiable grounds to disturb the
findings of the SEC en banc.
After the finality of the Court's decision, the SEC issued a writ
of execution. Teng, however, filed a complaint for
interpleader with the RTC of Manila where Teng sought to
compel Henry and Ting Ping to interplead and settle the issue
of ownership over the 1,400 shares, which were previously
owned by Teng Ching.
The RTC of Manila, Branch 46, rendered its Decision, finding
Henry to have a better right to the shares of stock formerly
owned by Teng Ching, except as to those covered by Stock
Certificate No. 011 covering 262.5 shares.
An Ex Parte Motion for the Issuance of Alias Writ of Execution
was filed by Ting Ping where he sought the partial satisfaction
of SEC en banc Order dated June 11, 1996 ordering TCL and
Teng to record the 480 shares he acquired from Chiu and the
1,440 shares he acquired from Maluto, and for Teng's
payment of the damages awarded in his favor.
Acting upon the motion, the SEC issued an Order dated
August 9, 2006 granting partial enforcement and satisfaction
of the Decision dated July 20, 1994, as modified by the SEC en
banc's Order dated June 11, 1996. On the same date, the SEC
issued an alias writ of execution.
The CA affirmed the orders of the Securities and Exchange
Commission (SEC) granting the issuance of an alias writ of
execution, compelling petitioner Anna Teng (Teng) to register
and issue new certificates of stock in favor of respondent Ting
Ping Lay (Ting Ping).
Petitioner’s contention:
Teng argues, among others, that the CA erred when it held
that the
surrender of Maluto's stock certificates is not necessary
before their registration in the corporate books and before
the issuance of new stock certificates. She contends that prior
to registration of stocks in the corporate books, it is
mandatory that the stock certificates are first surrendered
because a corporation will be liable to a bona fide holder of
the old certificate if, without demanding the said certificate, it
issues a new one.
Respondent’s contention:
Ting Ping contends that Section 63 of the Corporation Code
does not require the surrender of the stock certificate to the
corporation, nor make such surrender an indispensable
condition before any transfer of shares can be registered in
the books of the corporation. Ting Ping considers Section 63
as a permissive mode of transferring shares in the
corporation. Thus, for as long as the shares of stock are
validly transferred, the corporate secretary has the
ministerial duty to register the transfer of such shares in the
books of the corporation, especially in this case because no
less than this Court has affirmed the validity of the transfer of
the shares in favor of Ting Ping.
Issue:
Whether or not the surrender of the certificates of stock is a
requisite before registration of the transfer may be made in
the corporate books and for the issuance of new certificates
in its stead.
Ruling:
No. To compel Ting Ping to deliver to the corporation the
certificates as a condition for the registration of the transfer
would amount to a restriction on the right of Ting Ping to
have the stocks transferred to his name, which is not
sanctioned by law.
A certificate of stock is a written instrument signed by the
proper officer of a corporation stating or acknowledging that
the person named in the document is the owner of a
designated number of shares of its stock. It is prima facie
evidence that the holder is a shareholder of a corporation. A
certificate, however, is merely a tangible evidence of
ownership of shares of stock. It is not a stock in the
corporation and merely expresses the contract between the
corporation and the stockholder. The shares of stock
evidenced by said certificates, meanwhile, are regarded as
property and the owner of such shares may, as a general rule,
dispose of them as he sees fit, unless the corporation has
been dissolved, or unless the right to do so is properly
restricted, or the owner's privilege of disposing of his shares
has been hampered by his own action.
Section 63 of the Corporation Code prescribes the manner by
which a share of stock may be transferred. Under the
provision, certain minimum requisites must be complied
with for there to be a valid transfer of stocks, to wit:
d. there must be delivery of the stock certificate;
d. the certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized
to make the transfer; and
d. to be valid against third parties, the transfer must be
recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the
endorsement by the owner or his duly authorized
representative that is the operative act of transfer of shares
from the original owner to the transferee. The delivery
contemplated in Section 63, however, pertains to the delivery
of the certificate of shares by the transferor to the transferee,
that is, from the original stockholder named in the certificate
to the person or entity the stockholder was transferring the
shares to, whether by sale or some other valid form of
absolute conveyance of ownership.
"[S]hares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be
vested in the transferee by the delivery of the duly indorsed
certificate of stock."
It is thus clear that Teng's position - that Ting Ping must first
surrender Chiu's and Maluto's respective certificates of stock
before the transfer to Ting Ping may be registered in the
books of the corporation - does not have legal basis. The
delivery or surrender adverted to by Teng, i.e., from Ting Ping
to TCL, is not a requisite before the conveyance may be
recorded in its books. The only limitation imposed by Section
63 is when the corporation holds any unpaid claim against the
shares intended to be transferred.
In Rural Bank of Salinas, the Court ruled that the right of a
transferee/assignee to have stocks transferred to his name is
an inherent right flowing from his ownership of the stocks. In
ruling favorably for the private respondent, the Court
stressed that a of new certificates in his name.
corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers. In
transferring stock, the secretary of a corporation acts in
purely ministerial capacity, and does not try to decide the
question of ownership. If a corporation refuses to make such
transfer without good cause, it may, in fact, even be
compelled to do so by mandamus.
In the same vein, Teng cannot refuse registration of the
transfer on the pretext that the photocopies of Maluto's
certificates of stock submitted by Ting Ping covered only
1,305 shares and not 1,440. As earlier stated, the respective
duties of the corporation and its secretary to transfer stock
are purely ministerial.
Nevertheless, to be valid against third parties and the
corporation, the transfer must be recorded or registered in
the books of corporation. There are several reasons why
registration of the transfer is necessary:
 one, to enable the transferee to exercise all the
rights of a stockholder;
 two, to inform the corporation of any change in
share ownership so that it can ascertain the persons
entitled to the rights and subject to the liabilities of a
stockholder; and
 three, to avoid fictitious or fraudulent transfers,
among others.
Upon registration of the transfer in the books of the
corporation, the transferee may now then exercise all the
rights of a stockholder, which include the right to have stocks
transferred to his name.
The manner of issuance of certificates of stock is generally
regulated by the corporation's by-laws. Section 47 of the
Corporation Code states: "a private corporation may provide
in its by-laws for x x x the manner of issuing stock
certificates." Section 63, meanwhile, provides that "[t]he
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be
issued in accordance with the by-laws."
The surrender of the original certificate of stock is necessary
before the issuance of a new one so that the old certificate
may be cancelled. A corporation is not bound and cannot be
required to issue a new certificate unless the original
certificate is produced and surrendered. Surrender and
cancellation of the old certificates serve to protect not only
the corporation but the legitimate shareholder and the public
as well, as it ensures that there is only one document
covering a particular share of stock.
In the case at bench, Ting Ping manifested from the start his
intention to surrender the subject certificates of stock to
facilitate the registration of the transfer and for the issuance
On the other hand, Teng, and TCL for that matter, have
already deterred for so long Ting Ping's enjoyment of his
rights as a stockholder. As early as 1989, Ting Ping already
requested Teng to enter the transfer of the subject shares in
TCL's Stock and Transfer Book; in 2001, the Court, in G.R. No.
129777, resolved Ting Ping's rights as a valid transferee and
shareholder; in 2006, the SEC ordered partial execution of the
judgment; and in 2008, tμe CA affirmed the SEC's order of
execution. The Court will not allow Teng and TCL to frustrate
Ting Ping's rights any longer. Also, the Court will not dwell on
the other issues raised by Teng as it becomes irrelevant in
light of the Court's disquisition.
WHEREFORE, the petition is DENIED. The Decision dated April
29, 2008 and Resolution dated August 28, 2008 of the Court
of Appeals in CA-G.R. SP No. 99836 are AFFIRMED.
Respondent Ting Ping Lay is hereby ordered to surrender the
certificates of stock covering the shares respectively
transferred by Ismaelita Maluto and Peter Chiu. Petitioner
Anna Teng or the incumbent corporate secretary of TCL Sales
Corporation, on the other hand, is hereby ordered, under
pain of contempt, to immediately cancel Ismaelita Maluto's
and Peter Chiu's certificates of stock and to issue new ones in
the name of Ting Ping Lay, which shall include Ismaelita
Maluto's shares not covered by any existing certificate of
stock but otherwise validly transferred to Ting Ping Lay.
Rural Bank of Salinas v. CA
GR No. 96674, June 26, 1992
Paras, J.
DOCTRINE: The right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing from his
ownership of the stocks. Thus, whenever a corporation
refuses to transfer and register stock in cases like the
present, mandamus will lie to compel the officers of the
corporation to transfer said stock in the books of the
corporation.
FACTS: On June 10, 1979, Clemente G. Guerrero, President of
the Rural Bank of Salinas, Inc., executed a Special Power of
Attorney in favor of his wife, private respondent Melania
Guerrero, giving and granting the latter full power and
authority to sell or otherwise dispose of and/or mortgage 473
shares of stock of the Bank registered in his name, to execute
the proper documents therefor, and to receive and sign
receipts for the dispositions.
On February 27, 1980, and pursuant to said Special Power of
Attorney, private respondent Melania Guerrero, as Attorney-
in-Fact, executed a Deed of Assignment for 472 shares out of
the 473 shares, in favor of private respondents Luz Andico
(457 shares), Wilhelmina Rosales (10 shares) and Francisco
Guerrero, Jr. (5 shares).
Almost four months later, or two (2) days before the death of
Clemente Guerrero on June 24, 1980, private respondent
Melania Guerrero, pursuant to the same Special Power of
Attorney, executed a Deed of Assignment for the remaining
one (1) share of stock in favor of private respondent Francisco
Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of respondent
Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero
filed with the Securities and Exchange Commission" (SEC) an
action for mandamus against petitioners Rural Bank of
Salinas, its President and Corporate Secretary.
Petitioners filed their Answer with counterclaim on December
19, 1980 alleging the upon the death of Clemente G.
Guerrero, his 473 shares of stock became the property of his
estate, and his property and that of his widow should first be
settled and liquidated in accordance with law before any
distribution can be effected so that petitioners may not be a
party to any scheme to evade payment of estate or
inheritance tax and in order to avoid liability to any third
persons or creditors of the late Clemente G. Guerrero.
SEC Hearing Officer rendered a Decision granting the writ of
Mandamus prayed for and directing petitioners to cancel
stock certificates of the Bank all in the name of Clemente and
to issue new certificates in the names of private respondents.
ISSUE: Whether CA erred in sustaining the SEC when it
compelled by Mandamus the Rural Bank of Salinas to register
in its stock and transfer book the transfer of 473 shares of
stock to private respondents.
RULING: The CA did not err at all.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original
and exclusive jurisdiction to hear and decide cases involving
intracorporate controversies. An intracorporate controversy
has been defined as one which arises between a stockholder
and the corporation. The case at bar involves shares of stock,
their registration, cancellation and issuances thereof by
petitioner Rural Bank of Salinas. It is therefore within the
power of respondent SEC to adjudicate.
Respondent SEC correctly ruled in favor of the registering of
the shares of stock in question in private respondent's names.
Such ruling finds support under Section 63 of the Corporation
Code.
Said Section contemplates no restriction as to whom the
stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of,
or against a certain purchaser. The owner of shares, as owner
of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases, without
limitation in this respect, than the general provisions of law.
The only limitation imposed by Section 63 of the Corporation
Code is when the corporation holds any unpaid claim against
the shares intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers, because
restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create
such impediment. By-laws are intended merely for the
protection of the corporation, and prescribe regulation, not
restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a
sale is based.
The right of a transferee/assignee to have stocks transferred
to his name is an inherent right flowing from his ownership of
the stocks. Thus, whenever a corporation refuses to transfer
and register stock in cases like the present, mandamus will lie
to compel the officers of the corporation to transfer said
stock in the books of the corporation.
The corporation's obligation to register is ministerial. In
transferring stock, the secretary of a corporation acts in
purely ministerial capacity, and does not try to decide the
question of ownership. The duty of the corporation to
transfer is a ministerial one and if it refuses to make such
transaction without good cause, it may be compelled to do so
by mandamus.
CA did not err in upholding the Decision of respondent SEC
affirming the Decision of its Hearing Officer.
Petition is dismissed for lack of merit.
LIM TAY v. CA; G.R. No. 126891, August 05, 1998
PANGANIBAN, J.
Facts:
 On January 8, 1980, Respondent-Appellee Sy Guiok
secured a loan from the [p]etitioner in the amount
of P40,000 payable within six (6) months. To secure
the payment of the aforesaid loan and interest
thereon, Respondent Guiok executed a Contract of
Pledge in favor of the [p]etitioner whereby he
pledged his three hundred (300) shares of stock in
the Go Fay & Company Inc., Respondent
Corporation, for brevity's sake. Respondent Guiok
obliged himself to pay interest on said loan at the
rate of 10% per annum from the date of said
contract of pledge. On the same date, Alfonso Sy Lim
secured a loan from the [p]etitioner in the amount
of P40,000 payable in six (6) months. To secure the
payment of his loan, Sy Lim executed a 'Contract of
Pledge' covering his three hundred (300) shares of
stock in Respondent Corporation. Under said
contract, Sy Lim obliged himself to pay interest on
his loan at the rate of 10% per annum from the date
of the execution of said contract.
 Respondent Guiok and Sy Lim endorsed their
respective shares of stock in blank and delivered the
same to the [p]etitioner." However, Respondent
Guiok and Sy Lim failed to pay their respective loans
and the accrued interests thereon to the
[p]etitioner. In October, 1990, the [p]etitioner filed a
'Petition for Mandamus' against Respondent
Corporation
 After due proceedings, the [h]earing [o]fficer
promulgated a Decision dismissing [p]etitioner's
Complaint on the ground that although the SEC had
jurisdiction over the action, pursuant to the Decision
of the Supreme Court in the case of 'Rural Bank of
Salinas, et al. versus Court of Appeals, et al., 210
SCRA 510', he failed to prove the legal basis for the
secretary of the Respondent Corporation to be
compelled to register stock transfers in favor of the
[p]etitioner and to issue new certificates of stock
under his name
 The [p]etitioner appealed the Decision of the
[h]earing [o]fficer to the SEC, but, on March 7, 1996,
the SEC promulgated a Decision, dismissing
[p]etitioner's appeal on the grounds that: (a) the
issue between the [p]etitioner and the [r]espondents
being one involving the ownership of the shares of
stock pledged by Respondent Guiok and Sy Lim, the
SEC had no jurisdiction over the action filed by the
[p]etitioner; (b) the latter had no cause of action for
mandamus against the Respondent Corporation, the
right of ownership of the [p]etitioner over the 300
shares of stock pledged by Respondent Guiok and Sy
Lim not having been as yet, established, preparatory
to the institution of said Petition for Mandamus with
the SEC."
 The Court of Appeals debunked petitioner's claim
that he had acquired ownership over the shares by
virtue of novation, holding that respondents'
indorsement and delivery of the shares were
pursuant to Articles 2093 and 2095 of the Civil Code
and that petitioner's receipt of dividends was in
compliance with Article 2102 of the same Code.
 In addition, petitioner contends that it has acquired
ownership of the shares "through extraordinary
prescription," pursuant to Article 1132 of the Civil
Code, and through respondents' subsequent acts,
which amounted to a novation of the contracts of
pledge. Petitioner also claims that there was dacion
en pago, in which the shares of stock were deemed
sold to petitioner, the consideration for which was
the extinguishment of the loans and the interests
thereon. Petitioner likewise claims that laches bars
respondents from recovering the subject shares.
Issues:
1. Can a certificate of stock be issued in favor of the
respondent?
2. Can shares of stock be acquired thru prescription,
laches, novation?
Ruling:
1. Can a certificate of stock be issued in favor of the
respondent?
 No
The registration of shares in a stockholder's name, the
issuance of stock certificates, and the right to receive
dividends which pertain to the said shares are all rights that
flow from ownership. The determination of whether or not a
shareholder is entitled to exercise the above-mentioned
rights falls within the jurisdiction of the SEC. However, if
ownership of the shares is not clearly established and is still
unresolved at the time the action for mandamus is filed, then
jurisdiction lies with the regular courts.
This contractual stipulation, which was part of the Complaint,
shows that plaintiff was merely authorized to foreclose the
pledge upon maturity of the loans, not to own them. Such
foreclosure is not automatic, for it must be done in a public or
private sale. Nowhere did the Complaint mention that
petitioner had in fact foreclosed the pledge and purchased
the shares after such foreclosure. His status as a mere
pledgee does not, under civil law, entitle him to ownership of
the subject shares. It is also noteworthy that petitioner's
Complaint did not aver that said shares were acquired
through extraordinary prescription, novation or laches.
Moreover, petitioner's claim, subsequent to the filing of the
Complaint, that he acquired ownership of the said shares
through these three modes is not indubitable and still has to
be resolved. In fact, as will be shown, such allegation has no
merit. Manifestly, the Complaint by itself did not contain any
prima facie showing that petitioner was the owner of the
shares of stocks. Quite the contrary, it demonstrated that he
was merely a pledgee, not an owner. Accordingly, it failed to
lay down a sufficient basis for the SEC to exercise jurisdiction
over the controversy. In fact, the very allegations of the
Complaint and its annexes negated the jurisdiction of the SEC.
Petitioner prays for the issuance of a writ of mandamus,
directing the corporate secretary of respondent corporation
to have the shares transferred to his name in the corporate
books, to issue new certificates of stock and to deliver the
corresponding dividends to him. "In order that a writ of
mandamus may issue, it is essential that the person
petitioning for the same has a clear legal right to the thing
demanded and that it is the imperative duty of the
respondent to perform the act required. It neither confers
powers nor imposes duties and is never issued in doubtful
cases. It is simply a command to exercise a power already
possessed and to perform a duty already imposed." In the
present case, petitioner has failed to establish a clear legal
right. Petitioner's contention that he is the owner of the said
shares is completely without merit. Quite the contrary and as
already shown, he does not have any ownership rights at all.
At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie leg to stand on. At best,
his contention was disputable and uncertain. Mandamus will
not issue to establish a legal right, but only to enforce one
that is already clearly established.
2. Can shares of stock be acquired thru prescription,
laches, novation and dacion en pago?
 No
Petitioner initially argued that ownership of the shares
pledged had passed to him, upon Respondents Sy Guiok and
Sy Lim's failure to pay their respective loans. But on appeal,
petitioner claimed that ownership over the shares had passed
to him, not via the contracts of pledge, but by virtue of
prescription and by respondents' subsequent acts which
amounted to a novation of the contracts of pledge. We do
not agree.
There is no showing that petitioner made any attempt to
foreclose or sell the shares through public or private auction,
as stipulated in the contracts of pledge and as required by
Article 2112 of the Civil Code. Therefore, ownership of the
shares could not have passed to him. The pledgor remains the
owner during the pendency of the pledge and prior to
foreclosure and sale.
Petitioner did not acquire the shares by prescription either.
The period of prescription of any cause of action is reckoned
only from the date the cause of action accrued.
Thus, the right to recover the shares based on the written
contract of pledge between petitioner and respondents
would arise only upon payment of their respective loans.
Therefore, the prescriptive period within which to demand
the return of the thing pledged should begin to run only after
the payment of the loan and a demand for the thing has been
made, because it is only then that respondents acquire a
cause of action for the return of the thing pledged.
Prescription should not begin to run on the action to demand
the return of the thing pledged while the loan still exists. This
is because the right to ask for the return of the thing pledged
will not arise so long as the loan subsists. In the present case,
the prescriptive period did not begin to run when the loan
became due. On the other hand, it is petitioner's right to
demand payment that may be in danger of prescription.
Neither did petitioner acquire the shares by virtue of a
novation of the contract of pledge. Novation is defined as
"the extinguishment of an obligation by a subsequent one
which terminates it, either by changing its object or principal
conditions, by substituting a new debtor in place of the old
one, or by subrogating a third person to the rights of the
creditor." Novation of a contract must not be presumed. "In
the absence of an express agreement, novation takes place
only when the old and the new obligations are incompatible
on every point." In the present case, novation cannot be
presumed by (a) respondents' indorsement and delivery of
the certificates of stock covering the 600 shares, (b)
petitioner's receipt of dividends from 1980 to 1983, and (c)
the fact that respondents have not instituted any action to
recover the shares since 1980.
Novation cannot be inferred from the mere fact that
petitioner has not, since 1980, instituted any action to
recover the shares. Such action is, in fact, premature, as the
loan is still outstanding. Besides, as already pointed out,
novation is never presumed or inferred.
Neither can there be dacion en pago, in which the certificates
of stock are deemed sold to petitioner, the consideration for
which is the extinguishment of the loans and the accrued
interests thereon. Dacion en pago is a form of novation in
which a change takes place in the object involved in the
original contract. Absent an explicit agreement, petitioner
cannot simply presume dacion en pago.
Petitioner submits that "the inaction of the individual
respondents with respect to the recovery of the shares of
stock serves to bar them from asserting rights over said
shares on the basis of laches." Laches has been defined as
"the failure or neglect, for an unreasonable length of time, to
do that which by exercising due diligence could or should
have been done earlier; it is negligence or omission to assert
a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or
declined to assert it." In this case, it is in fact petitioner who
may be guilty of laches. Petitioner had all the time to demand
payment of the debt. More important, under the contracts of
pledge, petitioner could have foreclosed the pledges as soon
as the loans became due. But for still unknown or
unexplained reasons, he failed to do so, preferring instead to
pursue his baseless claim to ownership. WHEREFORE, the
petition is hereby DENIED and the assailed Decision is
AFFIRMED. Costs against petitioner. SO ORDERED.
Principles
The duty of a corporate secretary to record transfers of
stocks is ministerial. However, he cannot be compelled to do
so when the transferee's title to said shares has no prima
facie validity or is uncertain. More specifically, a pledgee,
prior to foreclosure and sale, does not acquire ownership
rights over the pledged shares and thus cannot compel the
corporate secretary to record his alleged ownership of such
shares on the basis merely of the contract of pledge.
Similarly, the SEC does not acquire jurisdiction over a dispute
when a party's claim to being a shareholder is, on the face of
the complaint, invalid or inadequate or is otherwise negated
by the very allegations of such complaint. Mandamus will not
issue to establish a right, but only to enforce one that is
already established.