JD 702

RIGHTS OF STOCKHOLDERS AND MEMBERS

Cases:
A. Right to Attend Meetings
1. Balinghasay vs. Castillo G.R. No. 185664, April 8, 2015 ESTEBAN
GUYS, IN TOPIC KO LATTTA TA QUORUM’N KASI ISSU PINAKA RELATED TO THE CASE
NGEM ADDA PAY OTHER CASE, CASTILLO V BALINGHASAY MET NAGAN NA, ISSU
TALAGA NANG DISCUSS JAY RIGHT TO ATTEND NGEM HAAN MET GAMIN ISSU INTED
NI MA’AM SO…
FACTS:
The MCPI, a domestic corporation organized in 1977, operates the Medical Center Parañaque
(MCP).

It has 4 minority stockholders, each of them holds 25 Class B shares. On the other hand, nine of
the herein petitioners, namely, Balinghasay, Oblepias, and others are holders of Class A shares
and were Board Directors of MCPI. The other eight petitioners are holders of Class B shares.

Before 1997, the ultrasound services in MCP were provided to patients by way of concessions
granted to independent entities. When the concessions expired in 1997, MCPI decided that it
would provide on its own the said services, except ultrasound.

In 1997, the MCPI’s Board of Directors awarded the operation of the ultrasound unit to a group
of investors (ultrasound investors).

In the meeting of the MCPI’s Board of Directors held on August 14, 1998, seven (7) of the
twelve (12) Directors present were part of the ultrasound investors. The Board Directors 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.

On February 5, 1999, twelve (12) Board Directors attended the Board meeting and eight (8) of
them were among the ultrasound investors. A Memorandum of Agreement (MOA) was entered
into by and between MCPI, represented by its President then, Bernabe, and the ultrasound
investors, represented by Oblepias. Per MOA, the gross income to be derived from the
operation of the ultrasound unit, minus the sonologists’ professional fees, shall be divided
between the ultrasound investors and MCPI, in the proportion of 60% and 40%, respectively.
Come April 1, 1999, MCPI’s share would be 45%, while the ultrasound investors would receive
55%. Further, the ownership of the ultrasound machine would eventually be transferred to
MCPI.

Flores manifested to MCPI’s Board of Directors and President his view regarding the illegality of
the MOA.

The RTC found that MCPI had, in effect, impliedly ratified the MOA by accepting or retaining
benefits flowing therefrom.
ISSUE:
Whether there is a quorum in the meetings held on August 14, 1998 and February 5, 1999.

RULING:
Yes. The Supreme Court held that the CA cannot be faulted for ruling against the petitioners.

The CA explained that:

“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 case at bar, the majority of the number of directors, if it is indeed thirteen (13), is seven
(7), while if it is eleven (11), the majority is six (6). During the meetings held by the MCPI Board
of Directors i.e., 1) 14 August 1998 meeting x x x, twelve (12) directors were present, and
of said number, seven (7) of them belong to the ultrasound investors x x x, and at which
meeting, the Board decided to make a counter-offer x x x to the ultrasound group and; 2)
05 February 1999 meeting x x x, twelve (12) directors were present, and of said number,
eight (8) of them belong to the ultrasound investors x x x, and at which meeting, the
Board decided to proceed with the signing of the MOA x x x. As can be gleaned from the
Minutes of said Board meetings, without the presence of the petitioners directors/ultrasound
investors, there can be no quorum. At any rate, during the Board meeting on 14 August
1998, the MOA was not approved as only a counter-offer was agreed upon. As to the 05
February 1999 Board meeting, without considering the votes of the
petitioners/directors/ultrasound investors, in connection with the signing of the MOA, no
valid decision can be made. It further appears that x x x Oblepias, who signed the MOA on
behalf of the ultrasound/Ob-Gyne group as OWNER of the ultrasound equipment, and x x x
President Dr. Bernabe, who signed the same on behalf of MCPI x x x, are both ultrasound
investors. Thus, the CA find that the MOA was not validly approved by the MCPI Board.

The presence of the petitioners directors/ultrasound investors who approved the signing of the
MOA was necessary to constitute a quorum for such meeting on 05 February 1999 and the
votes of the petitioners/directors/ultrasound investors were necessary in connection with the
decision to proceed with the signing of the MOA. Further, there is no clear and convincing
evidence that the MOA was ratified by the vote of 2/3 of the outstanding capital stock of MCPI in
a meeting called for the purpose and that a full disclosure of the interest of the petitioners
directors/ultrasound investors, was made at such meeting.

2. Lim vs. Moldex Land, G.R. No.206038, January 25, 2017 ESTEBAN
FACTS:
Lim is a registered unit owner of Golden Empire Tower, a condominium project of Moldex Land,
Moldex. Condocor, a nonstock, nonprofit corporation, is the registered condominium corporation
for the Golden Empire Tower. Lim, as a unit owner of Golden Empire Tower, is a member of
Condocor.

Moldex became a member of Condocor on the basis of its ownership of the 220 unsold units in
the Golden Empire Tower. The individual respondents acted as its representatives.

On July 21, 2012, Condocor held its annual general membership meeting. Its Corporate
secretary certified, and Jaminola, as Chairman, declared the existence of a quorum even
though only 29 of the 1088 unit buyers were present. The declaration of quorum was based on
the presence of the majority of the voting rights, including those pertaining to the 220 unsold
units held by Moldex through its representatives. Lim, through her attorney-in-fact, objected to
the validity of the meeting.

Despite the walkout, the annual general membership meeting proceeded and four (4) individual
respondents were voted as members of the board, together with three (3) others whose election
was conditioned on their subsequent confirmation.

Lim filed an election protest before the RTC. Said court, however, dismissed the complaint
holding that there was a quorum during the July 21, 2012 annual membership meeting; that
Moldex is a member of Condocor, being the registered owner of the unsold/unused
condominium units, parking lots and storage areas; and that the individual respondents, as
Moldex’s representatives, were entitled to exercise all membership rights, including the right to
vote and to be voted.11 In so ruling, the trial court explained that the presence or absence of a
quorum in the subject meeting was determined on the basis of the voting rights of all the units
owned by the members in good standing.

ISSUE:
1. Whether there was a quorum during the July 21, 2012 annual membership meeting.
2. Whether Moldex has the right to vote.
RULING:
1. No. One of the requirements for a stockholders’ or members’ meeting to be valid is the
existence of a quorum. Any act or transaction made during a meeting without quorum is
rendered of no force and effect, thus, not binding on the corporation or parties
concerned.

In relation thereto, Section 52 of the Corporation Code of the Philippines (Corporation

Code) provides:

Section 52. Quorum in meetings.—Unless otherwise provided for in this Code or in the
bylaws, a quorum shall consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the case of nonstock
corporations.
Thus, for stock corporations, the quorum is based on the number of outstanding voting
stocks while for nonstock corporations, only those who are actual, living members with
voting rights shall be counted in determining the existence of a quorum.

To be clear, the basis in determining the presence of quorum in nonstock corporations is

the numerical equivalent of all members who are entitled to vote, unless some other
basis is provided by the By-Laws of the corporation. The qualification “with voting rights”
simply recognizes the power of a nonstock corporation to limit or deny the right to vote of
any of its members.32 To include these members without voting rights in the total
number of members for purposes of quorum would be superfluous for although they may
attend a particular meeting, they cannot cast their vote on any matter discussed therein.

Similarly, Section 6 of Condocor’s By-Laws reads: “The attendance of a simple majority

of the members who are in good standing shall constitute a quorum. . . x x x.” The
phrase, “members in good standing,” is a mere qualification as to which members will be
counted for purposes of quorum. As can be gleaned from Condocor’s By-Laws, there
are two (2) kinds of members: 1) members in good standing; and 2) delinquent
members. Section 6 merely stresses that delinquent members are not to be taken into
consideration in determining quorum. In relation thereto, Section 733 of the By-Laws,
referring to voting rights, also qualified that only those members in good standing are
entitled to vote. Delinquent members are stripped off their right to vote. Clearly, contrary
to the ruling of the RTC, Sections 6 and 7 of Condocor’s By-Laws do not provide that
majority of the total voting rights, without qualification, will constitute a quorum.

It must be emphasized that insofar as Condocor is concerned, quorum is different from

voting rights. Applying the law and Condocor’s By-Laws, if there are 100 members in a
nonstock corporation, 60 of which are members in good standing, then the presence of
50% plus 1 of those members in good standing will constitute a quorum. Thus, 31
members in good standing will suffice in order to consider a meeting valid as regards the
presence of quorum. The 31 members will naturally have to exercise their voting rights.
It is in this instance when the number of voting rights each member is entitled to
becomes significant. If 29 out of the 31 members are entitled to 1 vote each, another
member (known as A) is entitled to 20 votes and the remaining member (known as B) is
entitled to 15 votes, then the total number of voting rights of all 31 members is 64. Thus,
majority of the 64 total voting rights, which is 33 (50% plus 1), is necessary to pass a
valid act. Assuming that only A and B concurred in approving a specific undertaking,
then their 35 combined votes are more than sufficient to authorize such act.

The By-Laws of Condocor has no rule different from that provided in the Corporation
Code with respect the determination of the existence of a quorum. The quorum during
the July 21, 2012 meeting should have been majority of Condocor’s members in good
standing. Accordingly, there was no quorum during the July 21, 2012 meeting
considering that only 29 of the 108 unit buyers were present.
 As there was no quorum, any resolution passed during the July 21, 2012 annual
membership meeting was null and void and, therefore, not binding upon the corporation
or its members. The meeting being null and void, the resolution and disposition of other
legal issues emanating from the null and void July 21, 2012 membership meeting has
been rendered unnecessary.

2. Yes. Section 2 of the Condominium Act states:

Sec. 2. A condominium is an interest in real property consisting of separate interest in

a unit in a residential, industrial or commercial building and an undivided interest in
common, directly or indirectly, in the land on which it is located and in other common
areas of the building. A condominium may include, in addition, a separate interest in
other portions of such real property. Title to the common areas, including the land, or the
appurtenant interests in such areas, may be held by a corporation specially formed for
the purpose (hereinafter known as the “condominium corporation”) in which the holders
of separate interest shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective units in the common
areas.

In Sunset View, the Court elucidated on what constitutes “separate interest,” in relation
to membership, as mentioned in the Condominium Act, to wit:

By necessary implication, the “separate interest” in a condominium, which entitles the

holder to become automatically a shareholder in the condominium corporation, as
provided in Section 2 of the Condominium Act, can be no other than ownership of a unit.
This is so because nobody can be a shareholder unless he is the owner of a unit and
when he ceases to be the owner, he also ceases automatically to be a shareholder.

Thus, law and jurisprudence dictate that ownership of a unit entitles one to become a
member of a condominium corporation. The Condominium Act does not provide a
specific mode of acquiring ownership. Thus, whether one becomes an owner of a
condominium unit by virtue of sale or donation is of no moment.

It is erroneous to argue that the ownership must result from a sale transaction between
the owner-developer and the purchaser. Such interpretation would mean that persons
who inherited a unit, or have been donated one, and properly transferred title in their
names cannot become members of a condominium corporation.

The next issue is — may Moldex appoint duly authorized representatives who will
exercise its membership rights, specifically the right to be voted as corporate
directors/officers?
 A corporation can act only through natural persons duly authorized for the purpose or by
a specific act of its board of directors. Thus, in order for Moldex to exercise its
membership rights and privileges, it necessarily has to appoint its representatives.

Section 58 of the Corporation Code mandates:

Section 58. Proxies.—Stockholders and members may vote in person or by proxy in

all meetings of stockholders or members. Proxies shall in writing, signed by the
stockholder or member and filed before the scheduled meeting with the corporate
secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be valid and effective for a period longer than five
(5) years at any one time.

Relative to the above provision is Section 1, Article II of Condocor’s By-Laws, which

grants registered owners the right to designate any person or entity to represent them in
Condocor, subject to the submission of a written notification to the Secretary of such
designation. Further, the owner’s representative is entitled to enjoy and avail himself of
all the rights and privileges, and perform all the duties and responsibilities of a member
of the corporation. The law and Condocor’s By-Laws evidently allow proxies in members’
meeting.

Prescinding therefrom, Moldex had the right to send duly authorized representatives to
represent it during the questioned general membership meeting. While Moldex may
rightfully designate proxies or representatives, the latter, however, cannot be elected as
directors or trustees of Condocor. First, the Corporation Code clearly provides that a
director or trustee must be a member of record of the corporation. Further, the power of
the proxy is merely to vote. If said proxy is not a member in his own right, he cannot be
elected as a director or proxy.

3. Lanuza vs. Court of Appeal, 454 SCRA 54 - Dan

Facts:

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation. However, private respondents and their predecessors who were
in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording
thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979,
a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of
twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued
and outstanding.

In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the
Securities and Exchange Commission (SEC) for the registration of their property rights over one
hundred (120) founders’ shares and twelve (12) common shares owned by their father. The SEC
hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a
special stockholders’ meeting to elect a new set of officers. The SEC En Bancaffirmed the decision.
As a result, the shares of Acayan were recorded in the stock and transfer book.

On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation.

Issue:

Whether or not the quorum should be based on the outstanding capital stock as indicated in the Articles
of Incorporation.

Held:

Yes. The articles of incorporation has been described as one that defines the charter of the corporation
and the contractual relationships between the State and the corporation, the stockholders and the State,
and between the corporation and its stockholders. When PMMSI was incorporated, the prevailing law
was Act No. 1459, otherwise known as “The Corporation Law.”

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In theinstant case, the articles of incorporation indicate that at
the time ofincorporation, the incorporators were bona fide stockholders of seven hundred (700) founders’
shares and seventy-six (76) common shares. Hence, at thattime, the corporation had 776 issued and
outstanding shares.

On the other hand, a stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock
made, the date thereof and by and to whom made; and such other entries as may be prescribed by law. A
stock and transfer book is necessary as a measure of precaution, expediency and convenience since it
provides the only certain and accurate method of establishing the various corporate acts and transactions
and of showing the ownership of stock and like matters. However, a stock and transfer book, like other
corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of
the matters and things which ordinarily are or should be written therein. In fact, it is generally held that the
records and minutes of a corporation are not conclusive even against the corporation but are prima facie
evidence only, and may be impeached or even contradicted by other competent evidence. Thus, parol
evidence may be admitted to supply omissions in the records or explain ambiguities, or to contradict such
records.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be
founders’ shares or common shares. In the instant case, two figures are being pitted against each other
— those contained in the articles of incorporation, and those listed in the stock and transfer book.

To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer
book, and completely disregarding the issued and outstanding shares as indicated in the articles of
incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary.
The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it
does not reflect the totality of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and outstanding as compared to that
listed in the stock and transfer book.

One who is actually a stockholder cannot be denied his right to vote by the corporation merely
because the corporate officers failed to keep its records accurately. In the instant case, no less than
the articles of incorporation declare the incorporators to have in their name the founders and several
common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend
that the basic document which legally triggered the creation of the corporation does not exist and
accordingly to allow great injustice to be caused to the incorporators and their heirs.

4. Cezar Yatco Real Estate Services Inc. vs. Bel Air Village Association, Inc., G R. No.
211780,LEVIIIII November 21, 2018
Facts:

Sometime in the 1950s, Makati Development Corporation (MDC) developed Bel-

Air Village, a residential subdivision in Makati City, and sold lots to interested buyers.
The contracts of sale between MDC and the lot buyers in Bel-Air Village were subjected
to specific conditions and easements embodied in the Deed Restrictions, which had a
lifetime of 50 years, or from January 15, 1957 to January 15, 2007.

Bel-Air Village Association, Inc. (Association/BAVA), Bel-Air Village's

homeowners' association, was constituted as a non-stock, non-profit association to
promote its members' best interests. Under its by-laws, all lot owners of Bel-Air
Vprimtheautomatically became members of the Association.

Sometime in 1998, the Association created the 2007 Committee to assess and
propose amendments to the Deed Restrictions, in anticipation of its impending
expiration. The 2007 Committee circulated questionnaires among the homeowners and
held meetings to gather input on the proposed amendments. In June 2006, the
Association had its annual meeting and discussed the proposed amendments and
revisions to the Deed Restrictions. In September 2006, the Association circulated copies
of the proposed amendments and revisions to the homeowners. In October 2006, in a
special board meeting, the Association passed a board resolution calling for the Deed
Restrictions' amendment.
 The Association agreed to set on December 12, 2006 a special membership
meeting to submit the board resolution to the homeowners for their ratification. On
December 12, 2006, 718 members out of a total of 934 members in good standing and
eligible to vote, attended the special membership meeting. Of the votes cast, 72%
chose to extend the period of the Deed Restrictions, 3% rejected the extension, and
25% abstained.

On February 8, 2007, Cezar Yatco Real Estate Services, GRD Property Resources,
Masterman Land Corporation (Masterman), Gamaliel, Lourdes, Sofia Limjap (Sofia), and
Pijuan (collectively, the complainants), who had all voted against the Deed Restrictions'
extension, filed a Verified Complaint before the Housing and Land Use Regulatory
Board. In their Verified Complaint, the complainants alleged that the Deed Restrictions
was only effective for 50 years, or from January 15, 1957 to January 15, 2007, as it did
not provide for its extension. Thus, the complainants contended that the Association's
resolution extending the Deed Restrictions' effectivity was illegally and arbitrarily
approved. They also averred that no quorum was reached in the December 12, 2006
special membership meeting. Finally, the complainants claimed that they had
individually resigned from the Association; however, they feared that the latter would
force them to keep their membership, abide by its illegal regulations, and extract
assessments, which would be considered as liens on their properties.

In its Opposition, the Association maintained that the period of effectivity was an
integral part of the Deed Restrictions as showed by its plain wording. Thus, it may be
extended upon a majority vote of the Association's members. It further denied that the
special membership meeting lacked quorum, pointing out that proxies need not be
notarized to be valid.

In its May 21, 2008 Decision, the Housing and Land Use Regulatory Board
Expanded National Capital Region Field Office (Regional Field Office) declared the
extension of the Deed Restrictions as null and void. R

The Association appealed this Decision to the Board of Commissioners of the

Housing and Land Use Regulatory Board, to which it granted the appeal, reversing the
Regional Field Office Decision. It declared that the Association may extend the Deed
Restrictions by a majority vote. Complainants moved for reconsideration but were
denied.

Then the complainants appealed to the Office of the President, to which it first
reversed the decision of the board but within the Motion for reconsideration of the
Association the Office of the President reversed its own decision and reinstated the
board’s decision.

The complainants filed an appeal to the CA but was later on denied; even the
motion for reconsideration is also denied.

Hence this petition.

Issue:
 1. Whether the private respondent Bel-Air Village Association, Inc.'s members can,
by majority vote, extend the Deed Restrictions' term of effectivity.
2. Whether the extension of the Deed Restrictions' term of effectivity was validly
voted upon by a majority of private respondent Bel-Air Village Association, Inc.'s
members

Ruling:

1. Yes.

Reading Article VI in its entirety will show that the restrictions embodied in the
Deed shall be enforceable for 50 years. This is immediately followed by the following
proviso, "However, the Association may, from time to time, add new ones,
amend or abolish particular restrictions or parts thereof by majority rule." The
proviso clearly states that [the Association] is empowered under a specific provision in
the Deed Restrictions to amend or abolish particular restrictions or parts thereof by
majority rule. Note that the term of restrictions is an integral part of the Deed.
Necessarily, when Article VI states that the restrictions may be amended, the
amendment can go as far as amending the entire Deed Restrictions including the term
or duration of the restrictions, which is part and parcel of the Deed.

Corollarily, when [the Association] extended the effectivity of the Deed

Restrictions, it did so in the context of amending particular restrictions as provided in
Article VI.

The import of Article VI is so clear that it precludes the Court from giving a
different interpretation. In many instances, the Supreme Court underscored that, as a
rule, if the statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without interpretation. (Emphasis in the original)

2. Yes

Corporation Code of the Philippines, recognizes a member's right to vote by proxy.

Section 58 then provides that a proxy shall be in writing, signed by the member, and
filed with the corporate secretary before the scheduled meeting:
ChanRoblesVirtualawlibrary

Section 58. Proxies. - Stockholders and members may vote in person

or by proxy in all meetings of stockholders or members. Proxies shall
be in writing, signed by the stockholder or member and filed before
the scheduled meeting with the corporate secretary. Unless otherwise
provided in the proxy, it shall be valid only for the meeting for which
it is intended. No proxy shall be valid and effective for a period longer
than five (5) years at any one time.
However, the Corporation Code also empowers the members to provide for their own
proxy requirements in their by-laws, as seen in Section 47(4), which provides:
ChanRoblesVirtualawlibrary

Section 47. Contents of by-laws. - Subject to the provisions of the

Constitution, this Code, other special laws, and the articles of
incorporation, a private corporation may provide in its by-laws for:
ChanRoblesVirtualawlibrary

....
 4. The form for proxies of stockholders and members and the manner
of voting them[.]

Nonetheless, in the absence of additional formal requirements for proxies in the by-
laws, the basic requirements for a written proxy submitted prior to the scheduled
meeting under Section 58 govern.

Again, the Court of Appeals did not err when it upheld the validity of the submitted
proxies and the overwhelming vote to extend the Deed Restrictions term of effectivity,
thus:
ChanRoblesVirtualawlibraryy

"In this regard, Section 47 (4) of the Corporation Code

categorically states that private corporations may provide in their
by-laws for the 'form of proxies of stockholders and members
and the manner of voting them.' Consistent therewith, Section
89 of the same Code provides: '[u]nless otherwise provided by
the articles of incorporation or by-laws, a member may vote by
proxy in accordance with the provisions of the Code.' In addition,
Section 30 of Resolution No. 770 of the HLURB Board of
Commissioners (Framework for Governance of Homeowners
Associations) states that (P)roxies shall be in writing and signed
by the member. . . . There is no requirement that the same
be notarized. Thus, the recognized rule and practice on
proxy form is summarized as follows . . . the formalities of
a proxy may be provided for in the [b]y-[l]aws. In the
absence of any provision in the [b]y-laws, the proxy need
not comply with the minimum requirements provided for
in Section 58 . . . Hence the by-laws of BAVA is controlling
insofar as execution of proxies is concerned . . . the entire
[b]y-laws of BAVA readily reveals that nowhere therein is
it required that the proxy forms be in any particular form,
much less be in a public document or through a special
power of attorney.”

5. F & S Velasco Company, Inc. vs. Madrid, et al. (G.R. No. 208844; November 10, 2015 MAX

FACTS:
FSVCI was duly organized and registered as a corporation with Francisco O. Velasco, Simona
J. Velasco, Angela V. Madrid, herein respondent Dr. Rommel L. Madrid, and petitioner
Saturnino O. Velasco as its incorporators. When Simona and Francisco died on June 12, 1998
and June 22, 1999, respectively, their daughter, Angela, inherited their shares, thereby giving
her control of 70.82% of FSVCI's total shares of stock.
On September 20, 2009 and during her tenure as Chairman of the Board of Directors of FSVCI
(the other members of the Board of Directors being Madrid, Scribner, Seva, and Sunico),
Angela died intestate and without issue. Madrid, as Angela's spouse, executed an Affidavit of
Self-Adjudication covering the latter's estate which includes her 70.82% ownership of FSVCI's
shares of stock. Believing that he is already the controlling stockholder of FSVCI by virtue of
such self-adjudication, Madrid called for a Special Stockholders' and Re-Organizational Meeting
to be held on November 18, 2009.

On November 10, 2009 and in preparation for said meeting, Madrid executed separate deeds of
assignment transferring one share each to Vitaliano B. Ricafort and to respondents Peter Paul
L. Danao (Danao), Maureen R. Labalan (Labalan), and Manuel L. Arimado (Arimado;
collectively, Madrid Group).

Meanwhile, as Madrid was performing the aforesaid acts, Seva, in his then-capacity as FSVCI
corporate secretary, sent a Notice of an Emergency Meeting to FSVCI's remaining stockholders
for the purpose of electing a new president and vice-president, as well as the opening of a bank
account. Such meeting was held on November 6, 2009 which was attended by Saturnino,
Seva, and Sunico (November 6, 2009 Meeting), during which, Saturnino was recognized as a
member of the FSVCI Board of Directors and thereafter, as FSVCI President, while Scribner
was elected FSVCI Vice-President (Saturnino Group).

Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with
the Special Stockholders' and Re-Organizational Meeting on November 18, 2009, wherein:
(a) the current members of FSVCI Board of Directors (save for Madrid) were ousted and
replaced by the members of the Madrid Group; and (b) Madrid, Danao, Arimado, and Labalan
were elected President, Vice-President, Corporate Secretary, and Treaurer, respectively, of
FSVCI (November 18, 2009 Meeting).

In view of the November 18, 2009 Meeting, the Saturnino Group filed a petition for Declaration
of Nullity of Corporate Election with Preliminary Injunction and Temporary Restraining Order
(TRO) against the Madrid Group before the RTC, which was acting as a Special Commercial
Court.

The RTC declared both the November 6, 2009 and November 18, 2009 Meetings null and void.
It found the November 6, 2009 Meeting invalid because: (a) it was conducted without a quorum
as only two (2) FSVCI Board Members (i.e., Seva and Sunico) attended the same, and that
Scribner cannot attend by proxy as the Corporation Code expressly prohibits proxy attendance
in Board meetings; and (b) merely recognizing Saturnino as an additional member of the FSVCI
Board of Directors - and not electing him to take the position vacated by Angela upon her death
- had the effect of increasing FSVCI's number of Directors to six (6), thus, exceeding the
number of Directors explicitly stated in the FSVCI Articles of Incorporation.
On the invalidity of the November 18, 2009 Meeting, the RTC held that until a probate court
conducting the settlement proceedings of Angela's estate determines the rightful owner of
Angela's properties, Madrid only has an equitable right over Angela's 70.82% ownership of
FSVCI's shares of stock. As such, Madrid cannot exercise the rights accorded to such
ownership, hence, making his call for a meeting, as well as the actual conduct of the November
18, 2009 Meeting, invalid.

Aggrieved, the Madrid Group appealed before the CA contesting the RTC's declaration of
invalidity of the November 18, 2009 Meeting, as well as the denial of the appointment of a
Management Committee for FSVCI.

The CA modified the RTC ruling: (a) declaring the November 18, 2009 Meeting conducted by
the Madrid Group valid; and (b) remanding the case to the court a quo and directing it to appoint
or constitute a Management Committee to take over the corporate and business affairs of
FSVCI. Madrid's execution of the Affidavit of Self-Adjudication already conferred upon him the
ownership of Angela's 70.82% ownership of FSVCI's shares of stock, resulting in total
ownership of 74.98% shares of stock inclusive of his original 4.16% ownership.

In this relation, Madrid had already complied with the registration requirement of such transfer in
the books of the corporation through the November 18, 2009 General Information Sheet (GIS)
of the corporation duly filed with the Securities and Exchange Commission (SEC). As such, he
validly made the call for the November 18, 2009 Meeting.

Further, the CA ruled that the creation of a Management Committee is appropriate in view of the
persisting conflict between the Saturnino and Madrid Groups, the allegations of embezzlement
of corporate funds among the parties, and the uncertainty in the leadership and direction of the
corporation which had created an imminent danger of dissipation, loss, and wastage of FSVCI's
assets and the paralyzation of its business operations which may be prejudicial to the minority
stockholders, parties-litigants, or the general public.

Dissatisfied, the Saturnino Group moved for reconsideration which was denied in a Resolution.
Hence, the instant petition.

ISSUES:

1. Whether or not the CA correctly ruled that the November 18, 2009 Meeting organized by
Madrid is legal and valid.
2. Whether or not the CA correctly ruled that a Management Committee should be
appointed or constituted to take over the corporate and business affairs of FSVCI.

HELD:
1. No. Madrid is indeed Angela's sole heir and her death caused the immediate transfer of her
properties, including her 70.82% ownership of FSVCI's shares of stock, to Madrid. As such,
Madrid may compel the issuance of certificates of stock in his favor, as well as the registration
of Angela's stocks in his name in FSVCI's Stock and Transfer Book. Be that as it may, it must
be clarified that Madrid's inheritance of Angela's shares of stock does not ipso facto afford him
the rights accorded to such majority ownership of FSVCI's shares of stock.

Verily, all transfers of shares of stock must be registered in the corporate books in order to be
binding on the corporation. Specifically, this refers to the Stock and Transfer Book, which is
described in Section 74 of the RCC.

In this regard, the case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga instructs that an
owner of shares of stock cannot be accorded the rights pertaining to a stockholder - such as the
right to call for a meeting and the right to vote, or be voted for - if his ownership of such shares
is not recorded in the Stock and Transfer Book, viz.:

Indeed, until registration is accomplished, the transfer, though valid between the parties, cannot
be effective as against the corporation. Thus, the unrecorded transferee, the Bitanga group in
this case, cannot vote nor be voted for. The purpose of registration, therefore, is two-fold:
to enable the transferee to exercise all the rights of a stockholder, including the right to
vote and to be voted for, and 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. Until challenged in a proper proceeding, a stockholder of record has a right to
participate in any meeting; his vote can be properly counted to determine whether a
stockholders' resolution was approved, despite the claim of the alleged transferee. On the other
hand, a person who has purchased stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure such a standing by having the
transfer recorded on the corporate books. Until the transfer is registered, the transferee
is not a stockholder but an outsider.

In the case at bar, records reveal that at the time Madrid called for the November 18, 2009
Meeting, as well as the actual conduct thereof, he was already the owner of 74.98% shares of
stock of FSVCI as a result of his inheritance of Angela's 70.82% ownership thereof. However,
records are bereft of any showing that the transfer of Angela's shares of stock to Madrid had
been registered in FSVCFs Stock and Transfer Book when he made such call and when the
November 18, 2009 Meeting was held. Thus, the CA erred in holding that Madrid complied with
the required registration of transfers of shares of stock through mere reliance on FSVCI's GIS
dated November 18, 2009.

In this relation, it is noteworthy to point out that the submission of a GIS of a corporation before
the SEC is pursuant to the objective sought by Section 2640 of the Corporation Code which is to
give the public information, under sanction of oath of responsible officers, of the nature of
business, financial condition, and operational status of the company, as well as its key officers
or managers, so that those dealing and who intend to do business with it may know or have the
means of knowing facts concerning the corporation's financial resources and business
responsibility. The contents of the GIS, however, should not be deemed conclusive as to the
identities of the registered stockholders of the corporation, as well as their respective ownership
of shares of stock, as the controlling document should be the corporate books, specifically the
Stock and Transfer Book.

In light of the foregoing, Madrid could not have made a valid call of the November 18, 2009
Meeting as his stock ownership of FSVCI as registered in the Stock and Transfer Book is
only 4.16% in view of the non-registration of Angela's shares of stock in the FSVCI Stock
and Transfer Book in his favor.

As there was no showing that he was able to remedy the situation by the time the meeting was
held, the conduct of such meeting, as well as the matters resolved therein, including the
reorganization of the FSVCI Board of Directors and the election of new corporate
officers, should all be declared null and void.

Thus, in view of the nullity of the November 6, 2009 Meeting conducted by the Saturnino Group
which ruling of the RTC had already attained finality, as well as the November 18, 2009 Meeting
conducted by the Madrid Group - both of which attempted to wrest control of FSVCI by
reorganizing the Board of Directors and electing a new set of corporate officers - the FSVCI
Board of Directors at the time of Angela's death (i.e. Madrid, Seva, Scribner, and Sunico) should
be reconstituted, and thereafter, fill the vacant seat left by Angela in accordance with Section
2944 of the Corporation Code. Such Board of Directors shall only act in a hold-over capacity
until their successors are elected and qualified, pursuant to Section 2345 of the Corporation
Code.

2. Yes. The CA merely based its directive of creating a Management Committee for FSVCI on
its finding of "the persisting conflict between [the Saturnino and Madrid Groups], the allegations
of embezzlement of corporate funds among the parties, and the uncertainty in the leadership
and direction of the corporation had created an imminent danger of dissipation, loss[,] and
wastage of FSVCI's assets and the paralyzation of its business operations which may be
prejudicial to the minority stockholders, parties-litigants or the general public."50 However,
absent any actual evidence from the records showing such imminent danger, the CA's findings
have no legal or factual basis to support the appointment/constitution of a Management
Committee for FSVCI. Accordingly, the CA erred in ordering the creation of a Management
Committee in this case. Hence, in the event a Management Committee had already been
constituted pursuant to the CA ruling, as what herein respondents point out, then it should be
immediately dissolved for the reasons aforestated.

Note: A corporation may be placed under the care of a Management Committee specifically
created by a court and, thus, under the latter's control and supervision, for the purpose of
preserving properties involved in a suit and protecting the rights of the parties.46 However, case
law is quick to point out that "the creation and appointment of a management committee x x x is
an extraordinary and drastic remedy to be exercised with care and caution; and only when the
requirements under the Interim Rules [of Procedure Governing Intra-Corporate Controversies]
are shown.
In view of the extraordinary nature of such a remedy, Section 1, Rule 9 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies48 provides the elements needed for the
creation of a Management Committee:
SEC. 1. Creation of a management committee. - As an incident to any of the cases filed under
these Rules or the Interim Rules on Corporate Rehabilitation, a party may apply for the
appointment of a management committee for the corporation, partnership or association, when
there is imminent danger of:chanRoblesvirtualLawlibrary

(1) Dissipation, loss, wastage or destruction of assets or other properties; and

(2) Paralyzation of its business operations which may be prejudicial to the interest of the
minority stockholders, parties-litigants or the general public.

Thus, applicants for the appointment of a management committee need to establish the
confluence of these two (2) requisites. This is because appointed management committees will
immediately take over the management of the corporation and exercise the management
powers specified in the law. This may have a negative effect on the operations and affairs of the
corporation with third parties, as persons who are more familiar with its operations are
necessarily dislodged from their positions in favor of appointees who are strangers to the
corporation's operations and affairs.

6. Caroline Que Villongco, et al. vs. Cecilia Que Yabut, et al. (G.R. No. 225024; February 5,
2018) LAZAGA

FACTS:
Phil-Ville is a family corporation founded by Geronima Que engaged in real estate business.
The authorized capital stock of Phil-Ville is Php 20 million divided into 200,000 shares with a par
value of Php100 per share.
During her lifetime, Geronima owned 3,140 shares while the remaining shares were equally
distributed among her 6 children - Carolina, Ana Maria, Angelica, Cecilia, Corazon and Maria
Luisa.
When Geronima died, her daughter Cecilia purportedly executed a Sale of Shares of Stock as
the attomey-in-fact of Geronima which effected an inequitable distribution of the 3,410 shares.
Such distribution was reflected in the General Information Sheets filed in 2010 and 2011.

Cecilia Que, et al. wrote a letter to Ana Maria, corporate secretary, to send out notices for the
holding of the annual stockholders' meeting.
However, before the corporate secretary could reply, several letters were sent to the
stockholders containing a document captioned "Notice of Annual Stockholders' Meeting" signed
by Cecilia and Ma. Corazon as directors.
Thereafter, Carolina, Ana Maria, Angelica, comprising of the majority of BOD held an
emergency meeting and made a decision to postpone the annual stockholders' meeting until the
issue of distribution of the 3,410 shares is settled. All the stockholders were appraised of the
postponement.

Despite the postponement and pendency of a civil case for annulment of sale/distribution of
shares, Cecilia et al proceeded with the scheduled annual stockholders' meeting participated
only by a few stockholders. In the said meeting were elected new members of the Board of
Directors and officers of
Consequently, an election case before the RTC was filed questioning the validity of the holding
of the meeting, lack of quorum and the manner it was conducted, including the invalid inclusion
in the voting of the shares of the late Geronima, the representation and exercise of voting rights
by alleged proxies and proclamation of winners.

RTC declared the election of Cecilia, et al. as void and of no effect considering the lack of
quorum during the annual stockholders meeting. CA affirmed in such aspect the declaration of
the void election.

Issue: Whether the total undisputed shares should be the basis of determining the presence of
a quorum?

Ruling: Yes, total outstanding capital stocks, without distinction as to disputed or undisputed
shares of stock, is the basis in determining the presence of quorum.

Right to Vote

The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled
that unissued stocks may not be voted or
stockholders' meeting. Only stocks actually issued and outstanding may be voted. Thus, for
stock corporations, the quorum is based on the
outstanding voting stocks. The distinction of undisputed or
disputed shares of stocks is not provided for in the law or the jurisprudence.
When the law does not distinguish, we should not distinguish. Thus, the 200,000 outstanding
capital stocks of Phil-Ville should be the basis for determining the presence of a quorum, without
any
Therefore, to constitute a quorum, the presence of 100,001 shares of stocks in Phil-Ville is
necessary.

CA is correct when it held that only 98,430 shares of stocks were present during the
stockholders meeting, therefore, no quorum had been established.
There is no evidence that the 3,140 shares which allegedly had been transferred to the
grandchildren of the Geronima were transferred and recorded in the stocks and transfer book of
Phil-Ville.
A transfer of shares of stock not recorded in the stock and transfer bonenthe operation ise
copiston fane one corporation is
shareholders and third persons on the other, the corporation looks only to its
When the trnster has been tecoded in the stsk and ranste book that 4
corporation may rightfully regard the transferee as one of its stockholders.
From this time, the consequent obligation on the part of the corporation to recognize such rights
as it is mandated by law to recognize arises.

Right to inspect or examine the books

The claim that Cecilia et al should not be faulted for their failure to present the stock and
transfer book because it was in the possession of Ana Marie, as a corporate secretary who has
an interest adverse them has no merit. It is basic that a stotckholder has the right to inspect the
books of the corporation and if the stockholder is refused by an officer of the corporation to
inspect or examine the books of the corporation, the stockholder is not without any remedy. The
Corporation Code grants the stockholder a remedy —to file a case on accordance with Section
144.

In this case, there is no evidence that the disputed shares were recorded in the stocks snd
transfer book of Phil-Ville. Thus, insofar as Phil-Ville is concerned, the 3,140 shares of the late
Geronima allegedly transferred to several persons is non-existent. Therefore, the transferees of
the said shares cannot exercise the rights granted unto stockholders of a corporation, including
the right to vote and to be voted upon.
B. Right to Vote
1. Lopez Realty vs. Tanjangco (G.R. No.154291; November 12, 2014) - DAN

FACTS:

Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-owners of three
parcels of land and the building erected thereon known as the "Trade Center Building". Jose’s
one-half share in the subject properties were later transferred and registered in the name of his
son Reynaldo Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).

At the time material to this case, the stockholders of record of LRI were the following:
a. Asuncion Lopez-Gonzalez (Asuncion) – 7,831 shares;
b. Arturo F. Lopez (Arturo) – 7,830 shares;
c. Teresita Lopez-Marquez (Teresita) – 7,830 shares;
d. Rosendo de Leon (Rosendo) – 5 shares
e. Benjamin Bernardino (Benjamin) – 1 share;
f. Augusto de Leon (Augusto) – 1 share; and
g. Leo Rivera (Leo) – 1 share
Except for Arturo and Teresita, the rest of the stockholders were members of the Board of
Directors. Asuncion was LRI’s Corporate Secretary. In a special meeting of the stockholders
held on July 27, 1981, the sale of the one-half share of LRI in the Trade Center Building was
discussed.

The matter of the sale of ½ share of Lopez Realty, Inc., in the Trade Center Building was taken
up. Atty. Benjamin B. Bernardino informed the body that the selling price is pegged at 4 Million
Pesos, and the Tanjangcos are offering 3.6 Million Pesos plus 50% of the receivables or a total
of 3.8 Million Pesos payable under different terms.

ASUNCION F. LOPEZ countered for a selling price of 5 Million Pesos, LOPEZ REALTY, INC.,
clean and of everything. At this point, TERESITA L. MARQUEZ and BENJAMIN B.
BERNARDINO offered to ASUNCION F. LOPEZ that they (she) accept (equal) the
TANJANGCO’s offer as stated above. At this juncture, ASUNCION F. LOPEZ called and talked
with TANJANGCO over the phone three (3) times and offered the selling price at 5 Million
Pesos but the latter did not move from their original offer as above-stated.

It was finally agreed by the body that ASUNCION F. LOPEZ be given the priority to accept
[equal] the TANJANGCO offer and the same to be exercised within ten (10 accept) days.
Failure on her part to act on the offer, the said offer will be deemed accepted.On July 28, 1981,
Teresita died.

Asuncion failed to exercise her option to purchase the subject properties within the stated
period. Thus, on August 17, 1981, while Asuncion was abroad, the remaining directors:
Rosendo, Benjamin and Leo convened in a special meeting, where the following resolution was
passed and approved:

Upon motion duly seconded, Mr. ARTURO F. LOPEZ had been authorized by the Board to
immediately negotiate with the Tanjangcos on the matter of the latter’s offer to purchase ½ of
the Trade Center Building and in connection there with he is given full power and authority by
the Boardto carry out the complete termination of the sale terms and conditions as embodied in
the Resolution of July 27, 1981 and in connection therewith is likewise authorized to sign for and
in behalf of Lopez Realty Incorporated.

ISSUE:

W/N the sale was valid.

HELD:

The sale was valid. The 17 August 1981 Board Resolution did not give Arturo the authority to
act as LRI’s representative in the sale “as the meeting of the board of directors where such was
passed was conducted without giving any notice to Asuncion.” This is in violation of Section 53
of the Corporation Code which requires sending of notices for regular or special meetings to
every director.
As a result, “a meeting of the board of directors is legally infirm if there is failure to comply with
the requirements or formalities of the law or the corporation’s by laws and any action taken on
such meeting may be challenged as a consequence.”

Notwithstanding, “the actions taken in such a meeting by the directors or trustees may be
ratified expressly or impliedly.” In the case of ratification, it means that “the principal voluntarily
adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf.”

Here, “the ratification was expressed through the July 30, 1982 Board Resolution.” Regarding
Asuncion’s claims that the 30 July 1982 Board Resolution did not ratify the 17 August 1981
Resolution due to Juanito’s disqualification and Leo’s negative vote. “Asuncion assails the
authority of Juanito to vote because he was not a director and he did not own any share of stock

which would qualify him to be one. On the contrary, Juanito defends his right to vote as the
representative of Teresita’s estate. Upon examination of the July 30, 1982 minutes of the
meeting, it can be deduced that the meeting is a joint stockholders and directors’ meeting. The
Court takes into account that majority of the board of directors except for Asuncion, had already
approved of the sale to the spouses Tanjangco prior to this meeting. As a consequence, the
power to ratify the previous resolutions and actions of the board of directors in this case lies in
the stockholders, not in the board of directors. It would be absurd to require the board of
directors to ratify their own acts—acts which the same director has already approved of
beforehand. Hence, Juanito, as the administrator of Teresita’s estate even though not a director,
is entitled to vote on behalf of Teresita’s estate as the administrator thereof.”

Citing jurisprudence, in stock corporations, “shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court
is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of
the estate is effected, the stocks of the decedent are held by the administrator or executor.” As
there exists no corporate secretary’s certification of the minutes of the meeting, “only Juanito,
Benjamin and Roseno, whose signature appeared on the minutes, could be considered as to
have ratified the sale to the spouses Tanjangco.” As Leo owns only 1 share, the results are the
same against the overwhelming shares who voted in favor of ratification.

“In sum, whatever defect there was on the sale to the spouses Tanjangco pursuant to the
August 17, 1981 Board Resolution, the same was cured through its ratification in the July 30,
1982 Board Resolution. It is of no moment whether Arturo was authorized to merely negotiate or
to enter into a contract of sale on behalf of LRI as all his actions in connection to the sale were
expressly ratified by the stockholders holding 67% of the outstanding capital stock.”

Citing jurisprudence, “the Court held that by virtue of ratification, the acts of the board of
directors become the acts of the stockholders themselves, even if those acts were, at the
outset, unauthorized.”

2. Republic vs. Sandiganbayan (G.R. Nos. 107789 & 147214; April 30, 2003)(Lazaga)
FACTS:

Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI)
were elected, one by the Presidential Commission on Good Government (PCGG) and the
other by the registered ETPI stockholders.Victor Africa, a stockholder of ETPI filed a
petition for Certiorari before the Sandiganbayan alleging that the PCGG had been
“illegally exercising the rights of stockholders of ETPI,” in the election of the members of
the board of directors. The Sandiganbayan ruled that only the registered owners, their
duly authorized representatives or their proxies may vote their corresponding shares.
The PCGG filed a petition for certiorari, mandamus and prohibition before the Court
which was granted. The Court referred the PCGG’s petition to hold the special
stockholders’ meeting to the Sandiganbayan for reception of evidence and resolution.
The Sandiganbayan granted the PCGG “authority to cause the holding of a special
stockholders’ meeting of ETPI and held that there was an urgent necessity to increase
ETPI’s authorized capital stock; there existed a prima facie factual foundation for the
issuance of the writ of sequestration covering the Class “A” shares of stock; and the
PCGG was entitled to vote the sequestered shares of stock. The PCGG-controlled ETPI
board of directors held a meeting and the increase in ETPI’s authorized capital stock
from P250 Million to P2.6 Billion was “unanimously approved”. Africa filed a motion to
nullify the stockholders meeting, contending that only the Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and
vote the sequestered shares. The Sandiganbayan denied the motions for reconsideration
of prompting Africa to file before the Court a second petition, challenging the
Sandiganbayan Resolutions authorizing the holding of a stockholders meeting and the
one denying the motion for reconsideration.

ISSUES:

1. Whether or not the Sandiganbayan gravely abused its discretion in ordering the
holding of a stockholders meeting to elect the ETPI board of directors without first
setting in place, through the amendment of the articles of incorporation and the by-laws
of ETPI

2. Whether the PCGG can vote the sequestered ETPI Class “A” shares in the
stockholders meeting for the election of the board of directors.

HELD:

First Issue :
On the PCGG’s imputation of grave abuse of discretion upon the Sandiganbayan for
ordering the holding of a stockholders meeting to elect the ETPI board of directors
without first setting in place, through the amendment of the articles of incorporation
and the by-laws of ETPI, the safeguards prescribed in Cojuangco, Jr. v. Roxas. The Court
laid down those safeguards because of the obvious need to reconcile the rights of the
stockholder whose shares have been sequestered and the duty of the conservator to
preserve what could be ill-gotten wealth. There is nothing in the Cojuangco case that
would suggest that the above measures should be incorporated in the articles and by-
laws before a stockholders meeting for the election of the board of directors is held. The
PCGG nonetheless insists that those measures should be written in the articles and by-
laws before such meeting, “otherwise, the {Marcos] cronies will elect themselves or their
representatives, control the corporation, and for an appreciable period of time, have
every opportunity to disburse funds, destroy or alter corporate records, and dissipate
assets.” That could be a possibility, but the peculiar circumstances of the case require
that the election of the board of directors first be held before the articles of
incorporation are amended. Section 16 of the Corporation Code requires the majority
vote of the board of directors to amend the articles of incorporation. At the time Africa
filed his motion for the holding of the annual stockholders meeting, there were two sets
of ETPI directors, one controlled by the PCGG and the other by the registered
stockholders. Which of them is the legitimate board of directors? Which of them may
rightfully vote to amend the articles of incorporation and integrate the safeguards laid
down in Cojuangco? It is essential, therefore, to cure the aberration of two boards of
directors sitting in a single corporation before the articles of incorporation are amended
to set in place the Cojuangco safeguards. The danger of the so-called Marcos cronies
taking control of the corporation and dissipating its assets is, of course, a legitimate
concern of the PCGG, charged as it is with the duties of a conservator. Nevertheless,
such danger may be averted by the “substantially contemporaneous” amendment of the
articles after the election of the board.

Second Issue :
The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent
cases of Cojuangco v. Calpo and Presidential Commission on Good Government v.
Cojuangco, Jr., where the Court developed a “two-tiered” test in determining whether
the PCGG may vote sequestered shares. The issue of whether PCGG may vote the
sequestered shares in SMC necessitates a determination of at least two factual matters:
a.) whether there is prima facie evidence showing that the said shares are ill-gotten and
thus belong to the state; and b.) whether there is an immediate danger of dissipation
thus necessitating their continued sequestration and voting by the PCGG while the main
issue pends with the Sandiganbayan. The two-tiered test, however, does not apply in
cases involving funds of “public character.” In such cases, the government is granted the
authority to vote said shares, namely: (1) Where government shares are taken over by
private persons or entities who/which registered them in their own names, and (2)
Where the capitalization or shares that were acquired with public funds somehow
landed in private hands. In short, when sequestered shares registered in the names of
private individuals or entities are alleged to have been acquired with ill-gotten wealth,
then the two-tiered test is applied. However, when the sequestered shares in the name
of private individuals or entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those affected with public
interest, then the two-tiered test does not apply. The rule in the jurisdiction is, therefore,
clear. The PCGG cannot perform acts of strict ownership of sequestered property. It is a
mere conservator. It may not vote the shares in a corporation and elect members of the
board of directors. The only conceivable exception is in a case of a takeover of a business
belonging to the government or whose capitalization comes from public funds, but
which landed in private hands as in BASECO. In short, the Sandiganbayan held that the
public character exception does not apply, in which case it should have proceeded to
apply the two-tiered test. This it failed to do. The questions thus remain if there is prima
facie evidence showing that the subject shares are ill- gotten and if there is imminent
danger of dissipation. The Court is not, however, a trier of facts, hence, it is not in a
position to rule on the correctness of the PCGG’s contention. Consequently, the issue
must be remanded to the Sandiganbayan for resolution.

3. Lee vs. CA (G.R. No. 93695; February 4, 1992) Gagto

ALFA - Alfa Integrated Textile Mills

DBP- Development Bank of the Philippines

FACTS: A complaint for a sum of money was filed by the International Corporate Bank, Inc.
against the private respondents who, in turn, filed a third party complaint against ALFA and the
petitioners. The trial court issued an order requiring the issuance of an alias summons upon
ALFA through the DBP as a consequence of the petitioner's letter informing the court that the
summons for ALFA was erroneously served upon them considering that the management of
ALFA had been transferred to the DBP. The DBP claimed that it was not authorized to receive
summons on behalf of ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence.

Subsequently, the trial court issued an order advising the private respondents to take the
appropriate steps to serve the summons to ALFA.

The petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of
the Revised Rules of Court is not applicable since they were no longer officers of ALFA
and that the private respondents should have availed of another mode of service under
Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service
upon ALFA.

The private respondents argued that the voting trust agreement dated March 11, 1981
did not divest the petitioners of their positions as president and executive vice-president
of ALFA so that service of summons upon ALFA through the petitioners as corporate
officers was proper.

The trial court upheld the validity of the service of summons on ALFA through the
petitioners.
 A second motion for reconsideration was filed by the petitioners reiterating their stand
that by virtue of the voting trust agreement they ceased to be officers and directors of
ALFA, hence, they could no longer receive summons or any court processes for or on
behalf of ALFA and in support thereof, they attached a copy of the voting trust
agreement between all the stockholders of ALFA and the DBP whereby the
management and control of ALFA became vested upon the DBP. The trial court then
reversed itself and declared that service upon the petitioners cannot be considered as
proper service of summons on ALFA. The case was elevated to the CA which reversed
the above-mentioned Orders holding that there was proper service of summons on
ALFA through the petitioners.

ISSUES:
(1) Whether or not the execution of the voting trust agreement by a stockholder whereby all his
shares to the corporation have been transferred to the trustee deprives the stockholder of his
position as director of the corporation;

(2) Whether or not the service of summons on ALFA effected through the petitioners, as
president and vice-president, of the subject corporation after the execution of the voting trust
agreement valid and effective;

RULING:

1. Yes. By its very nature, a voting trust agreement results in the separation of the voting rights
of a stockholder from his other rights. The execution of a voting trust agreement, therefore, may
create a dichotomy between the equitable or beneficial ownership of the corporate shares of
stockholders, on the one hand, and the legal title thereto on the other hand.

In the instant case, the petitioners maintain that with the execution of the voting trust agreement
between them and the other stockholders of ALFA, as one party, and the DBP, as the other
party, the former assigned and transferred all their shares in ALFA to DBP, as trustee and thus,
they can no longer be considered directors of ALFA.

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be
adversely affected by the simple act of such director being a party to a voting trust
agreement inasmuch as he remains owner (although beneficial or equitable only) of the
shares subject of the voting trust agreement pursuant to which a transfer of the
stockholder's shares in favor of the trustee is required. No disqualification arises by
virtue of the phrase "in his own right" provided under the old Corporation Code. With the
omission of the phrase "in his own right" the election of trustees and other persons who
in fact are not beneficial owners of the shares registered in their names on the books of
the corporation becomes formally legalized. Hence, this is a clear indication that in order
to be eligible as a director, what is material is the legal title to, not beneficial ownership
of, the stock as appearing on the books of the corporation.
 The facts of this case show that the petitioners, by virtue of the voting trust agreement
executed in 1981 disposed of all their shares through assignment and delivery in favor
of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share
standing in their names on the books of ALFA as required under Section 23 of the new
Corporation Code. They also ceased to have anything to do with the management of the
enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners'
shares to the DBP created vacancies in their respective positions as directors of ALFA.
Considering that the voting trust agreement between ALFA and the DBP transferred
legal ownership of the stock covered by the agreement to the DBP as trustee, the latter
became the stockholder of record with respect to the said shares of stocks. Both parties,
ALFA and the DBP, were aware at the time of the execution of the agreement that by
virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were
stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust
agreement in question had lapsed in 1986 so that the legal title to the stocks covered by
the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners
pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

"Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust
certificate as well as the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new certificates of stock shall be
reissued in the name of the transferors."

On the contrary, it is manifestly clear from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP. There is evidence on record that at the time of the
service of summons on ALFA through the petitioners on August 21, 1987, the voting trust
agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then,
still belonged to the DBP.

2. No. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
"Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a
corporation organized under the laws of the Philippines or a partnership duly registered, service
may be made on the president, manager, secretary, cashier, agent or any of its directors."

It is a basic principle in Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it. Thus, the above rule on service of
processes of a corporation enumerates the representatives of a corporation who can validly
receive court processes on its behalf. Not every stockholder or officer can bind the corporation
considering the existence of a corporate entity separate from those who compose it. The
petitioners in this case do not fall under any of the enumerated officers. The service of
summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as
correctly argued by the petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or agent's authority.
WHEREFORE, the petition is hereby GRANTED.

4. Lim Tay vs. Court of Appeals (G.R. No. 126891; August 5, 1998) maui

FACTS:

Private respondent Sy Guiok and Alfonso Sy Lim each obtained a loan in the amount of P40,000
payable within six months from petitioner Lim Tay. To secure the payment of their, they each
executed a contract of pledge in favor of petitioner whereby they each pledged 300 shares of
stock in respondent corporation Go Fay & Company, Inc. Under said contracts of pledge, Guiok
and Sy Lim agreed that in the event of their failure to pay the amount within the period agreed
upon, the pledgee, Lim Tay, was authorized to foreclose the pledge upon the said shares of stock.

Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered
the same to Lim Tay. Guiok and Lim, however, failed to pay their respective loans to Lim Tay.

Lim Tay filed a petition for mandamus with the Securities and Exchange Commission (SEC)
against Go Fay & Company, praying that an order be issued directing the corporate secretary of
the company to register the stock transfers and issue new certificates in his favor. Lim Tay
alleged in his petition that the controversy between him as stockholder and the company was
intra-corporate in view of the obstinate refusal of the corporate secretary of the company to
record the transfer of the shares of stock of Guiok and Sy Lim in favor of petitioner.

After due proceedings, the hearing officer promulgated a Decision dismissing petitioner’s
Complaint on the ground that although the SEC had jurisdiction over the action, 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 petitioner and to issue new certificates of stock under his name.

The petitioner appealed the Decision of the hearing officer to the SEC, but the SEC dismissed
said appeal on the grounds that: (a) the issue between the petitioner and the respondents 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; and (b) the latter had no cause of action for mandamus
against the Respondent Corporation since the right of ownership of the petitioner over the 300
shares of stock pledged by Respondent Guiok and Sy Lim has not yet been established, which is
preparatory to the institution of said Petition for Mandamus with the SEC.

ISSUES:

(1) Whether the SEC has jurisdiction over the controversy; and

(2) Whether a writ of Mandamus may be issued to compel the secretary of Respondent
Corporation to register stock transfers in favor of petitioner.
RULING:

(1) 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.

As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by
the allegations in the complaint. In the present case, however, petitioner's claim that he was the
owner of the shares of stock in question has no prima facie basis. In his Complaint, petitioner
alleged that, pursuant to the contracts of pledge, he became the owner of the shares when the
term for the loans expired. However, the contracts of pledge, which were made integral parts of
the Complaint, contain this common proviso: In the event of the failure of the PLEDGOR to pay
the amount within a period of six (6) months from the date hereof, the PLEDGEE is hereby
authorized to foreclose the pledge upon the said shares of stock . . ..”

The contractual stipulation 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.

(2) No. 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.
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. At the outset, it must be underscored that petitioner did not
acquire ownership of the shares by virtue of the contracts of pledge.

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.

C. Right of Inspection
1. Gokongwei Jr. vs. Securities and Exchange Commission, (G.R. No. L-45911, April 11,
1979)OMLI

Wow besko wow ka talaga,,,gokongwei idol wow gokongwei gods bagik man idi besko
biyangmo hahahhahahha levi ducks ng sinait wow luv it —-DOGSHOW LATTA A BESKO
HAHAHHAHHA

The right of stockholder to inspect corporate books extends to a wholly-owned

subsidiary.

FACTS:
Petitioner John Gokongwei, Jr. is the president and substantial stockholder of Universal Robina
Corporation and CFC Corporation, both of which are allegedly controlled by Gokongwei and
members of his family. Further, Universal Robina Corporation and CFC Corporation are directly
and substantially competing with the alleged businesses of San Miguel Corporation, and of
corporations in which SMC has substantial investments.

Petitioner Gokongwei filed with the SEC a petition for “declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a
preliminary injunction” against the majority of the members of the BOD and SMC as an unwilling
petitioner.

In connection with the same case, Gokongwei filed with the Securities and Exchange
Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the
Secretary of respondent corporation refused to allow him to inspect its records despite request
made by petitioner for production of certain documents enumerated in the request, and that
respondent corporation had been attempting to suppress information from its stockholders
despite a negative reply by the SEC to its query regarding their authority to do so.

Among the documents requested to be copied were

(a) minutes of the stockholder's meeting field on March 13, 1961;
(b) copy of the management contract between San Miguel Corporation and A. Soriano
Corporation (ANSCOR);
(c) latest balance sheet of San Miguel International, Inc.;
(d) authority of the stockholders to invest the funds of respondent corporation in San Miguel
International, Inc.; and
(e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres
M. Soriano, Jr. and/or its successor-in-interest.

The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents,
alleging, among others that the motion has no legal basis; that the demand is not based on
good faith; that the motion is premature since the materiality or relevance of the evidence
sought cannot be determined until the issues are joined, that it fails to show good cause and
constitutes continued harrasment, and that some of the information sought are not part of the
records of the corporation and, therefore, privileged.

The Securities and Exchange Commission resolved the motion for production and inspection of
documents. The SEC ordered:

As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries,
allowances, bonuses, compensation and/or remuneration received by respondent Jose M.
Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in-
interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant
is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to
inspect said documents.

ISSUE:
Whether the SEC gravely abused its discretion in denying Gokongwei’s request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.

RULING:
Yes.

Pursuant to the second paragraph of section 51 of the Corporation Law, “(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours.”

Under RCC, section 71 par. 2:

Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person
or by a representative at reasonable hours on business days, and a demand in writing
may be made by such director, trustee or stockholder at their expense, for copies of
such records or excerpts from said records. The inspecting or reproducing party shall
remain bound by confidentiality rules under prevailing laws, such as the rules on trade secrets
or processes under Republic Act No. 8293, otherwise known as the “Intellectual Property Code
of the Philippines”, as amended, Republic Act No. 10173, otherwise known as the “Data Privacy
Act of 2012”, Republic Act No. 8799, otherwise known as “The Securities Regulation Code”,
and the Rules of Court.

The stockholder’s right of inspection of the corporation’s books and records is based
upon their ownership of the assets and property of the corporation. It is, therefore, an
incident of ownership of the corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated upon
the necessity of self-protection. It is generally held by majority of the courts that where the right
is granted by statute to the stockholder, it is given to him as such and must be exercised by him
with respect to his interest as a stockholder and for some purpose germane thereto or in the
interest of the corporation.

In other words, the inspection has to be germane to the petitioner’s interest as a

stockholder, and has to be proper and lawful in character and not inimical to the interest
of the corporation.

In Grey v. Insular Lumber, the Court held that "the right to examine the books of the corporation
must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or
for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious
purposes.”

The weight of judicial opinion appears to be, that on application for mandamus to enforce the
right, it is proper for the court to inquire into and consider the stockholder's good faith and his
purpose and motives in seeking inspection. Thus, it was held that "the right given by statute is
not absolute and may be refused when the information is not sought in good faith or is used to
the detriment of the corporation." But the "impropriety of purpose such as will defeat
enforcement must be set up the corporation defensively if the Court is to take cognizance of it
as a qualification. In other words, the specific provisions take from the stockholder the burden of
showing propriety of purpose and place upon the corporation the burden of showing impropriety
of purpose or motive. It appears to be the general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of
its funds, and to inspection to obtain such information, especially where it appears that
the company is being mismanaged or that it is being managed for the personal benefit of
officers or directors or certain of the stockholders to the exclusion of others."

While the right of a stockholder to examine the books and records of a corporation for a lawful
purpose is a matter of law, the right of such stockholder to examine the books and records of a
wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.

In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San
Miguel Corporation and, therefore, under its control, it would be more in accord with equity,
good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect
the books and records of the corporation as extending to books and records of such wholly
owned subsidiary which are in respondent corporation’s possession and control.
2. Philippine Associated Smelting and Refining Corporation (PASAR) vs. Lim (G.R. No.172948;
October 5, 2016) Dale

An action for injunction filed by a corporation generally does not lie to prevent the
enforcement by a stockholder of his or her right to inspection.

FACTS:

Philippine Associated Smelting and Refining Corporation (PASAR) is a corporation duly

organized and existing under the laws of the Philippines and is engaged in copper smelting and
refining.

On the other hand, Pablito Lim, Manuel Agcaoili and Consuelo Padilla (collectively referred to
as petitioners) were former senior officers and presently shareholders of PASAR holding 500
shares each.

An Amended Petition for Injunction and Damages with prayer for Preliminary Injunction and/or
Temporary Restraining Order, dated February 4, 2004 was filed by PASAR seeking to restrain
petitioners from demanding inspection of its confidential and inexistent records.

On February 23, 2004, petitioners moved for the dismissal of the petition on the following
grounds: 1) the petition states no cause of action; 2) the petition should be dismissed on
account of litis pendentia; 3) the petition is a nuisance or harassment suit; and 4) the petition
should be dismissed on account of improper venue.

On April 14, 2004, the RTC issued an Order granting PASAR's prayer for a writ of preliminary
injunction. The RTC held that the right to inspect book should not be denied to the stockholders,
however, the same may be restricted. The right to inspect should be limited to the ordinary
records as identified and classified by PASAR. Thus, pending the determination of which
records are confidential or inexistent, the petitioners should be enjoined from inspecting the
books.

Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of Appeals a Petition for Certiorari
questioning the propriety of the writ of preliminary injunction.

The Court of Appeals held that:

There was no basis to issue an injunctive writ, thus the act of PASAR in filing a petition for
injunction with prayer for writ of preliminary injunction is uncalled for. The petition is a pre-
emptive action unjustly intended to impede and restrain the stockholders' rights. If a
stockholder demands the inspection of corporate books, the corporation could refuse to
heed to such demand. When the corporation, through its officers, denies the stockholders of
such right, the latter could then go to court and enforce their rights. It is then that the
corporation could set up its defenses and the reasons for the denial of such right. Thus, the
proper remedy available for the enforcement of the right of inspection is undoubtedly the writ
of mandamus to be filed by the stockholders and not a petition for injunction filed by the
corporation.
Hence, Philippine Associated Smelting and Refining Corporation filed this Petition praying that
this Court render judgment.

Petitioner argues that the right of a stockholder to inspect corporate books and records is limited
in that any demand must be made in good faith or for a legitimate purpose. Respondents,
however, have no legitimate purpose in this case. If respondents gain access to petitioner's
confidential records, petitioner's trade secrets and other confidential information will be used by
its former officers to give undue commercial advantage to third parties. Petitioner insists that to
hold that objections to the right of inspection can only be raised in an action for mandamus
brought by the stockholder, would leave a corporation helpless and without an adequate legal
remedy. To leave the corporation helpless negates the doctrine that where there is a right, there
is a remedy for its violation.

Petitioner argues that it has the right to protect itself against all forms of embarrassment or
harassment against its officers, including the filing of criminal cases against them. Moreover,
respondents' request for inspection of confidential corporate records and documents violates
and breaches petitioner's right to peaceful and continuous possession of its confidential records
and documents.

Petitioner further argues that respondents' Motion for Dissolution before the Court of Appeals
did not comply with Rule 58, Section 6 of the Rules of Court. Therefore, the Motion should not
have been granted. Likewise, respondents' Motion to Dismiss is a prohibited pleading under
Rule 1, Section 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies
and should not have been granted. In any case, the Court of Appeals should have remanded
the case to the trial court for further disposition.

ISSUE:

Whether or not Injunction was proper to prevent respondents the right to inspect corporate
records.

RULING:

No. For an action for injunction to prosper, the applicant must show the existence of a right, as
well as the actual or threatened violation of this right provided under Rule 58, Section 3.

Anent the issue, the requisites for preliminary injunctive relief are: (a) the invasion of the right
sought to be protected is material and substantial; (b) the right of the plaintiff is clear and
unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent serious
damage. As such, a writ of preliminary injunction may be issued only upon clear showing of an
actual existing right to be protected during the pendency of the principal action. The twin
requirements of a valid injunction are the existence of a right and its actual or threatened
violation. Thus, to be entitled to an injunctive writ, the right to be protected and the violation
against that right must be shown.

An injunctive remedy may only be resorted to when there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any standard compensation. The
possibility of irreparable damage without proof of an. actual existing right would not justify
injunctive relief in his favor. Thus, an injunction must fail where there is no clear showing of both
an actual right to be protected and its threatened violation, which calls for the issuance of an
injunction.

The Corporation Code provides that a stockholder has the right to inspect the records of all
business transactions of the corporation and the minutes of any meeting at reasonable hours on
business days. The stockholder may demand in writing for a copy of excerpts from these
records or minutes, at his or her expense as provided under Section 74 of the Corporation
Code.
SECTION 74. Books to be Kept; Stock Transfer Agent. — Every corporation shall, at its
principal office, keep and carefully preserve a record of all business transactions, and
minutes of all meetings of stockholders or members, or of the board of directors or trustees,
in which shall be set forth in detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting was regular or special, if special its object,
those present and absent, and every act done or ordered done at the meeting. Upon the
demand of any director, trustee, stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be taken on any motion or proposition, and a
record thereof carefully made. The protest of any director, trustee, stockholder or member
on any action or proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and the minutes of any meetings
shall be open to the inspection of any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may demand, in writing, for a
copy of excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be liable to such director,
trustee, stockholder or member for damages, and in addition, shall be guilty of an offense
which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
pursuant to a resolution or order of the Board of Directors or Trustees, the liability under this
section for such action shall be imposed upon the directors or trustees who voted for such
refusal: and Provided, further, That it shall be a defense to any action under this section
that the person demanding to examine and copy excerpts from the corporation's records
and minutes has improperly used any information secured through any prior examination of
the records or minutes of such corporation or of any other corporation, or was not acting in
good faith or for a legitimate purpose in making his demand.

Among the purposes held to justify a demand for inspection are the following: (1) To
ascertain the financial condition of the company or the propriety of dividends; (2) the value of
the shares of stock for sale or investment; (3) whether there has been mismanagement; (4) in
anticipation of shareholders' meetings to obtain a mailing list of shareholders to solicit proxies or
influence voting; (5) to obtain information in aid of litigation with the corporation or its officers as
to corporate transactions.

Among the improper purposes which may justify denial of the right of inspection are: (1)
Obtaining of information as to business secrets or to aid a competitor; (2) to secure business
"prospects" or investment or advertising lists; (3) to find technical defects in corporate
transactions in order to bring "strike suits" for purposes of blackmail or extortion.
In this case, petitioner invokes its right to raise the limitations provided under Section 74 of the
Corporation Code. However, petitioner provides scant legal basis to claim this right because it
does not raise the limitations as a matter of defense.

As properly appreciated by the Court of Appeals:

The petition is a pre-emptive action unjustly intended to impede and restrain the
stockholders' rights. If a stockholder demands the inspection of corporate books, the
corporation could refuse to heed to such demand. When the corporation, through its officers,
denies the stockholders of such right, the latter could then go to court and enforce their
rights. It is then that the corporation could set up its defenses and the reasons for the denial
of such right. Thus, the proper remedy available for the enforcement of the right of
inspection is undoubtedly the writ of mandamus to be filed by the stockholders and not a
petition for injunction filed by the corporation.

The clear provision in Section 74 of the Corporation Code is sufficient authority to conclude that
an action for injunction and, consequently, a writ of preliminary injunction filed by a corporation
is generally unavailable to prevent stockholders from exercising their right to inspection.
Specifically, stockholders cannot be prevented from gaining access to the (a) records of all
business transactions of the corporation; and (b) minutes of any meeting of stockholders or the
board of directors, including their various committees and subcommittees.

The confidentiality of business transactions is not a magical incantation that will defeat the
request of a stockholder to inspect the records. Although it is true that the business is entitled to
the protection of its trade secrets and other intellectual property rights, facts must be pleaded to
convince the court that a specific stockholder's request for inspection, under certain conditions,
would violate the corporation's own legal right.

Furthermore, the discomfort caused to the management of a corporation when a request for
inspection is claimed is part of the regular matters that a business wanting to ensure good
governance must endure. The range between discomfort and vexation is a broad one, which
may tend to be located in the personalities of those involved.

Certainly, by themselves, these are not sufficient factual basis to conclude bad faith on the part
of the requesting stockholder. Courts must be convinced that the scope or manner of the
request and the conditions under which it was made are so frivolous that the huge cost to the
business will, in equity, be unfair to the other stockholders. There is no iota of evidence that this
happened here.
3. Roque vs. People (G.R. No. 211108; June 7, 2017) MAX

FACTS:

Roque assails the Decision dated August 31, 2012 and the Resolution dated January 22, 2014 of
the Court of Appeals (CA), which set aside and annulled the Order dated November 12, 2008 of the
Regional Trial Court (RTC)[5], Third Judicial Region, Branch 11, Malolos City, Bulacan in Criminal
Case No. 1011-M- 2005. Said Order granted the motion for leave of court to file demurrer to
evidence filed by Rosalyn Singson (Singson), herein petitioner's co-accused.

Barangay Mulawin Tricycle Operators and Drivers Association, Inc. (BMTODA) became a
corporation duly registered with the Securities and Exchange Commission (SEC). Sometime in
August 2003, Oscar Ongjoco, a member of BMTODA, learned that BMTODA's funds were missing.
In a letter, Ongjoco requested copies of the Association's documents pursuant to his right to
examine records under Section 74 of the Corporation Code of the Philippines. However, Singson,
the Secretary of BMTODA, denied his request.

Ongjoco also learned that the incumbent officers were holding office for three years already, in
violation of the one-year period provided for in BMTODA's by-laws. He requested from Roque, the
President of BMTODA, a copy of the list of its members with the corresponding franchise numbers of
their respective tricycle fees and the franchise fees paid by each member, but Roque denied
Ongjoco's request.
Ongjoco filed an Affidavit-Complaint against Roque and Singson for violation of Section 74 in
relation to Section 144 of the Corporation Code because of their refusal to furnish him copies of
records pertaining to BMTODA.

After the prosecution rested its case, Roque and Singson filed a Motion for Leave of Court to File
Demurrer to Evidence with Motion to Dismiss by way of Demurrer to Evidence. The prosecution
failed to file any comment thereon. In an Order dated November 12, 2008, the RTC granted the
motion and gave due course to Roque and Singson's demurrer to evidence. The RTC ruled that said
association failed to prove its existence as a corporation.

Hence, a violation under the Corporation Code cannot be made applicable against its officers. The
fallo thereof reads: Accordingly, this demurrer is GIVEN DUE COURSE and the instant case is
hereby DISMISSED. SO ORDERED.

On appeal, the CA reversed and set aside the Order dated November 12, 2008 of the RTC. The CA
ruled that BMTODA is a duly registered corporation. The CA stated that a Petition to Lift Order of
Revocation and the SEC Order Lifting the Revocation were presented in evidence; and that logic
dictates that such documentary evidence presupposes a duly registered and existing entity.

Petitioner contends that there is want of evidence to prove that BMTODA is a corporation duly
established and organized under the Corporation Code; thus, he cannot be prosecuted under the
penal provisions of the said code.

Further, he argues that when the letters were received by him and Singson, BMTODA's registration
was already revoked. Hence, BMTODA ceased to exist as a corporation.

ISSUE:

1. Whether Ongjoco, as a member of BMTODA, had a right to examine documents and records
pertaining to said association.
2. Whether BMTODA's registration was already revoked when the letters were received by
Roque and Singson.

HELD:
1. Yes. Clearly, Ongjoco, as a member of BMTODA, had a right to examine documents and records
pertaining to said association. To recall, Ongjoco made a prior demand in writing for copy of
pertinent records of BMTODA from Roque and Singson. Ongjoco sent his letters dated December
13, 2003 and August 29, 2004 to Roque and Singson, respectively. However, both of them refused
to furnish Ongjoco copies of such pertinent records.

Section 7410 of the Corporation Code provides for the liability for damages of any officer or agent of
the corporation for refusing to allow any director, trustee, stockholder or member of the corporation
to examine and copy excerpts from its records or minutes. Section 144 of the same Code further
provides for other applicable penalties in case of violation of any provision of the Corporation Code.

Hence, to prove any violation under the aforementioned provisions, it is necessary that:
(1) a director, trustee, stockholder or member has made a prior demand in writing for a copy of
excerpts from the corporations records or minutes;
(2) any officer or agent of the concerned corporation shall refuse to allow the said director, trustee,
stockholder or member of the corporation to examine and copy said excerpts;

(3) if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the
liability under this section for such action spall be imposed upon the directors or trustees who voted
for such refusal;· and

(4) where the officer or agent of the corporation sets up the defense that the person demanding to
examine and copy excerpts from the corporation's records and minutes has improperly used any
information secured through any prior examination of the records or minutes of such corporation or
of any other corporation, or was not acting in good faith or for a legitimate purpose in making his
demand, the contrary must be shown or proved.

2. No. While it appears that the registration of BMTODA as a corporation with the SEC was revoked
on September 30, 2003, the letter-request of Ongjoco to Singson, which was dated while BMTODA's
registration was revoked, was actually received by Singson after the revocation was lifted. In a Letter
dated October 11, 2004, the General Counsel of the SEC made it clear that the SEC lifted the
revocation of BMTODA's registration on August 30, 2004. As the CA correctly observed, the letter-
request was received by Singson on September 23, 2004 when BMTODA had regained its
active status.

In any case, the revocation of a corporation's Certificate of Registration does not

automatically warrant the extinction of the corporation itself such that its rights and liabilities
are likewise altogether extinguished. In the case of Clemente v. Court of Appeals, the Court
explained that the termination of the life of a juridical entity does not, by itself, cause the
extinction or diminution of the rights and liabilities of such entity nor those of its owners and
creditors.

Thus, the revocation of BMTODA's registration does not automatically strip off Ongjoco of his right to
examine pertinent documents and records relating to such association.
Also, since Roque admitted the revocation of BMTODA's Registration, he cannot come forward and
disclaim BMTODA's registration with the SEC as a corporation. It is logical to presume that a
registration precedes the revocation thereof; as any registration cannot be revoked without its valid
existence.

Moreover, Roque also tries to exculpate himself from liability by claiming Singson's denial of the
request of Ongjoco as Singson's personal act.

The Court does not agree. A reading of this present Petition reveals that Roque admitted his denial
of Ongjoco's request, i.e., to furnish him a copy of BMTODA's list of its members with the
corresponding franchise body numbers of their respective tricycles and franchise fees paid by each
member. Also, what was requested from Singson pertains to an entirely different document. Thus,
Singson' s denial is immaterial, and does not detract from Roque' s denial of Ongjoco's request to
access the above-mentioned document. For his individual and separate act, Roque should be held
accountable. Hence, Roque's denial is unquestionably considered as a violation under the
Corporation Code.

The petition is denied.

4. James Ient and Maharlika Schulze versus Tullett Prebon (Philippines) Inc. (G.R. No. 189158;
January 11, 2017) Gagto

FACT: James Ient a British national and Maharlika Schulze a Filipino German filed with
consolidated Petitions for Review assailing the Court of Appeals Decision dated August 12,
2009 (CA-GR SP-No. 109094) affirming the Resolutions of the Secretary of Justice dated April
23, 2009 and May 15, 2009. The SOJ ruled that there was a probable cause to hold petitioners
criminally liable under Section 31 and 34 in relation to Section 144 of the Corporation Code.

October 15, 2008 Tullet filed a Complaint Affidavit with City Prosecutor Office of Makati against
the officers of Tradition Group Philippines Inc. for violation of Corporation Code. Impleded
were Ient, Schulze, Jaime Villalon and Mercedes Chuidian, former officers of Tullet Prebon
Philippines Inc.

State Prosecutor Cresencio F. Delos Trinos, Jr. , dismissed the criminal complaints, ruling that
the respondents merely induced the brokers to transfer to Tradition. Respondents acts were
not prohibited acts of directors or trustees as enunciated under Section 31. Inducements may
only give rise to civil liability but no criminal liability.
Tullet assailed the resolution of State Prosecutor Delos Trinos and went to the Secretary of
Justice who in turn reverses the State Prosecutor’s resolution and directed him to file with the
proper court, the information for violation of Section 31 and 34 in relation to Section 144 of the
Corporation Code against Ient and others.

Ient and Schulze moved for reconsideration with the Secretary of Justice, but two information
were filed at the Metropolitan Trial Court of Makati City. The Secretary of Justice denied the
Motion for Reconsideration. This prompted the Ient and Schulze to file for Certiorari with the
Court of Appeals which in turn affirmed the Secretary of Justice Resolution (CA G.R. SP No.
109094)

ISSUE : Whether or not Ient and others are criminallly liable under Section 31 and 34 of the
Corporation Code.

HELD: No.

Respondent Tullet commented that the petition is dismissable due to forum shopping. The
Court held there is no cause to dismiss the petition and defined forum shopping as an act of a
party against whom an adverse judgment order has been rendered in one forum, of seeking
and possibly getting a favorable opinion in another forum, other than by appeal or special
civil action for certiorari.

The Corporation Code was intended as a regulatory measure, not as a penal statue. Section 31
and 34 were intended to impose exacting standard of fidelity on corporate officers and
directors without unduly impeding them to the discharge of their work with concerns of
litigation.

When Congress intends to criminalize certain acts, it does so in plain language.

D. Pre-emptive Right
1. Majority Stockholders of Ruby Industrial Corp. v. Lim (G.R. Nos. 165887 & 165929, June 6,
2011)BILAS dd. :(

G.R. No. 165887

June 6, 2011
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioners,

VS.
MIGUEL LIM, in his personal capacity as Stockholder of Ruby Industrial Corporation and
representing the MINORITY STоCKHOLDERS OF RUBY INDUSTRIAL cORPORATION and
theMANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION, Respondents.

G.R. No. 165929

CHINA BANKING CORPORATION, Petitioner,

vs

MIGUEL LIM, in his personal capacity as a stockholder of Ruby Industrial Corporation and
representing the MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION,
Respondent. MAJORITY STOСKHOLDERS OF RUBY INDUSTRIAL CORPORATION,
Petitioners, vs, MIGUEL LIM in his personal capacity as Stockholder of Ruby Industrial
Corporation and representing the MINORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION and the MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL
CORPORATION. Respodents. [J. Villarama, 2011]

Short Summary:
This lengthy case involves the validity of the infusion of additional capital effected by the board
of directors, the questionable issuance of shares of stock by the majority stockholders and the
extension of RUBY's corporate term. As described by the SC, the present action has been
instituted for the purpose of protecting the true and legitimate interests of Ruby against the
Majority Stockholders. RUBY has been experiencing severe liquidity problem.

The majority stockholders wanted to infuse more capital into the corporation through issuance of
additional shares. Hence, the Revised BENHAR/RUBY Rehabilitation Plan of the majority
stockholders proposed to call for subscription of unissued shares for P11.814M. This led to the
special meeting of RUBY's board meeting whose resolution authorized the issuance of the
unissued portion of the authorized capitall stocks of the corporation in the form of common
stocks.

However, the minority stockholders contended, among others, that they were not given notice
as required and reasonable time to exercise their pre-emptive rights. Hence, the minority
stockholders wanted to nullify the acts of the majority stockholders in implementing the capital
infusion. Pre-emptive right refers to the right of a stockholder of a stock corporation to subscribe
to all issues or disposition of shares of any class, in proportion to their respective shareholdings.
SC ruled in favor of the minority stockholders.

FACTS:

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.

Reeling from severe liquidity problems beginning in 1980, RUBY filed on December 13, 1983 а
petition for suspension of payments with the SEC which was granted.
On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM)
for RUBY, composed of representatives from Ruby's creditors. One of the many task of
MANCOM is study, review and evaluate the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC the BENHAR/RUBY
Rehabilitation Plan of the majority stockholders led by Yu Kim Giang, and the Alternative
Plan of the minority stockholders represented by Miquel Lim (Lim).But the implementation
of both majority plans has been enjoined by the SEC and CA. Later, the SC issued a final
injunction on the implementation.

Sept 18, 1991: Notwithstanding the injunction order, SEC issued an Order approving the
Revised BENHAR/RUBY Plan and creating a new management committee to oversee its
implementation. It also dissolves the MANCOM.

The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued
shares through a Board Resolution from the P11.814 million of theP23.7 million ACS "in
order to allow the long overdue program of the REHAB Program.'

Oct 2, 1991: To implement the Revised plan, RUBY's board of directors held a special meeting
and took up the capital infusion of P11.814 Million representing the unissued and unsubscribed
portion of the present ACS of P23.7 Million.

The Board resolved that: The corporation be authorized to issue out of the unissued portion of
the authorized capital stocks of the corporation in the form of common stocks 11.8134.00
[Million] to be subscribed and paid in full by the present stockholders in proportion to their
present stockholding in the corporation on staggered basis...and that should any of the
stockholders fail to exercise their rights to buy the number of shares they are qualified to buy by
making the first installment payment of 25% on or before October 13, 1991, then the other
stockholders may buy the same and that only when none of the present stockholders are
interested in the shares may there be a resort to selling them by public auction.The minority
directors claimed they were not notified of said board meeting.

Sept 1, 1996: Lim receive a Notice of Stockholders' Meeting scheduled on September 3, 1996.
The matters that will be taken up in said meeting include the extension of RUBY's corporate
term for another twenty -five (25) years and election of Directors.

Sept 3, 1996: Lim together with other minority stockholders, appeared in order to put on record
their objections on the validity of holding thereof and the matters to be taken therein.
Specifically, they questioned the percentage of stockholders present in the meeting which the
majority claimed stood at 74.75% (from 59.829%) of the outstanding capital stock of RUBY. Lim
argued that the majority stockholders claimed to have increased their shares to 74.75% by
subscribing to the unissued shares of the authorized capital stock (ACS). Lim pointed out that
such move of the majority was in implementation of the BENHAR/RUBY Plan which calls for
capital infusion of P11.814 Million representing the unissued and unsubscribed portion of the
present ACS of P23.7 Million.

Jan 20. 1998: the SC affirmed CA decision setting aside the SEC orders approving the
Revised BENHAR/RUBY Plan because it not only recognized the void deeds of assignments
entered into with some of RUBY's creditors in violation of the CA's decision in CA-G.R. SP No.
18310, but also maintained a financing scheme which will just make the rehabilitation plan more
costly and create a worse situation for RUBY.

Mar 17, 2000, Lim filed a Motion informing the SEC of acts being performed by BENHAR and
RUBY. Allegedly, the implementation of the new percentage stockholdings of the majority
stockholders and the calling of stockholders' meeting and the subsequent resolution approving
the extension of corporate life of RUBY for another twenty-five (25) years, were all done in
violation of the decisions of the CA and this Court, and without compliance with the legal
requirements under the Corporation Code. There being no valid extension of corporate term,
RUBY's corporate life had legally ceased. Consequently, Lim moved that the SEC:
(1) declare as null and void the infusion of additional capital made by the majority stockholders
and restore the capital structure of RUBY to its original structure prior to the time injunction was
issued; and

(2) declare as null and void the resolution of the majority stockholders extending the corporate
life of RUBY for another twenty-five (25) years.

Sept 18, 2002, the SEC overruled the objections raised by the minority stockholders regarding
the questionable issuance of shares of stock by the majority stockholders and extension of
RUBY's corporate term because the filing of the amendment of articles of incorporation by
RUBY in 1996 complied with all the legal requisites and hence the the presumption of regularity
in the act of a government entity stands. It pointed out that Lim raised the issue only in the year
2000. Moreover, the SEC found that notwithstanding his allegations of fraud, Lim never proved
the illegality of the additional infusion of the capitalization by RUBY so as to warrant a finding
that there was indeed an unlawful act.

Before the CA, Lim demonstrated the following evidence to rebut the presumption of regularity:

(1) it was the board of directors and not the stockholders which conducted the meeting without
the approval of the MANCOM;

(2) there was no written waivers of the minority stockholders' pre-emptive rights and thus it was
irregular to merely notify them of the board of directors' meeting and ask them to exercise their
option;

(3) there was an existing permanent injunction against any additional capital infusion on the
BENHAR/RUBY Plan, while the CA and this Court both rejected the Revised BENHAR/RUBY
Plan; (4) there was no General Information Sheet reports made to the SEC on the alleged
capital infusion, as per certification by the SEC.

CA Decision (which is cited by SC in its decision):

SEC erred in not finding that the October 2, 1991 meeting held by RUBY's board of directors
was illegal because the MANCOM was neither involved nor consulted in the resolution
approving the issuance of additional shares of RUBY. The CA further noted that the October 2,
1991 board meeting was conducted on the basis of the September 18, 1991 order of the SEC
Hearing Panel approving the Revised BENHAR/RUBY Plan, which plan was set by CA and SC.

The CA pointed out that records confirmed the proposed infusion of additional capital for
RUBY's rehabilitation approved during said meeting, as implementing the Revised
BENHAR/RUBY Plan. Necessarily then, such capital infusion is covered by the final injunction
against the implementation of the revised plan.

The CA likewise faulted the SEC in relying on the presumption of regularity on the matter of the
extension of RUBY's corporate term through the filing of amended articles of incorporation. SÉC
should have invalidated the resolution extending the corporate term of RUBY for another
twenty-five (25) years. With the expiration of the RUBY's corporate term, the CA ruled that it
was error for the SEC in not commencing liquidation proceedings.

ISSUE:

1.Whether the stockholders exercise their pre-emptive right?

RULING:

NO. because the issuance of additional shares was done in breach of trust by the controlling
stockholders. Here, the majority sought to impose their will and, through fraudulent means,
attempt to siphon off Ruby's valuable assets to the great prejudice of Ruby itself, as well as the
minority stockholders and the unsecured creditors.

A stock corporation is expressly granted the power to issue or sell stocks. The power to issue
shares of stock in a corporation is lodged in the board of directors and no stockholders' meeting
is required to consider it because additional issuances of shares of stock do not need approval
of the stockholders. What is only required is the board resolution approving the additional
issuance of shares. The corporation shall also file the necessary application with the SEC to
exempt these from the registration requirements under the Revised Securities Act (now the
Securities Regulation Code)
But CA found, which the Court affirmed, that: the foregoing payment schedules as embodied in
the said Revised plan which gives Benhar undue advantage over the other creditors goes
against the very essence of rehabilitation, which requires that no creditor should be preferred
over the other. One of the salient features of the Revised Benhar/Ruby Plan is to Call on
unissued shares forP11.814 M and if minority will take u their pre-emptie rights and dilte
minority shareholdings.

With the nullification of the Revised BENHAR/RUBY Plan by both CA and SC on Jan 20, 1998,
the legitimate concerns of the minority stockholders and MANCOM who objected to the capital
infusion which resulted in the dilution of their shareholdings, the expiration of RUBY's corporate
term and the pending incidents on the void deeds of assignment of credit - all these should have
been duly considered and acted upon by the SEC when the case was remanded to it for further
proceedings. With the final rejection of the courts of the Revised BENHAR/RUBY Plan, it was
grave error for the SEC not to act decisively on the motions filed by the minority stockholders
who have maintained that the issuance of additional shares did not help improve the situation of
RUBY except to stifle the opposition coming from te MANCOM and minority stockholders by
diluting the latter's shareholdings. Worse, the SEC ignored the evidence adduced by the
minority stockholders indicating that the correct amount of subscription of additional shares was
not paid by the majority stockholders and that SEC official records still reflect the 60%-40%
percentage of ownership of RUBY.

The SEC remained indifferent to the reliefs sought by the minority stockholders, saying that the
issue of the validity of the additional capital infusion was belatedly raised. Even assuming the
October 2, 1991 board meeting indeed took place, the SEC did nothing to ascertain whether
indeed, as the minority claimed:

(1) the minority stockholders were not given notice as required and reasonable time to exercise
their pre-emptive rights; and
(2) the capital infusion was not for the purpose of rehabilitation but a mere ploy to divest the
minority stockholders of their 40.172% shareholding and reduce it to a mere 25.25%.

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder
of a stock corporation to subscribe to all issues or disposition of shares of any cass, in
proportion to their respective shareholdings. The right may be restricted or denied under the
articles of incorporation, and subject to certain exceptions and limitations. The stockholder must
be given a reasonable time within which to exercise their preemptive rights. Upon the expiration
of said period, any stockholder who has not exercised such right will be deemed to have waived
it.

The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist. either because the
issue comes within the exceptions in Section 39 or because it is denied or limited in the articles
of incorporation, an issue of shares may still be objectionable if the directors acted in breach of
trust and their primary purpose is to perpetuate or shift control of the corporation, or to "freeze
out" the minority interest. In this case, the following relevant observations should have signaled
greater circumspection on the part of the SEC upon the third and last remand to it pursuant to
our January 20, 1998 decision to demand transparency and accountability from the majority
stockholders, in view of the illegal assignments and objectionable features of the Revised
BENHAR/RUBY Plan, as found by the CA and as affirmed by this Court:

There can be no gainsaying the well-established rule in corporate practice and procedure that
the will of the majority shall govern in all matters within the limits of the act of incorporation and
lawfully enacted by-laws not proscribed by law. It is, however, equally true that other
stockholders are afforded the right to intervene especially during critical periods in the life of a
corporation like reorganization, or in this case, suspension of payments, more so, when the
majority seek to impose their will and through fraudulent means, attempt to siphon off Ruby's
valuable assets to the great prejudice of Ruy itself, as well as the minority stockholders and the
unsecured creditors.

Certainly, the minority stockholders and the unsecured creditors are given some measure of
protection by the law from the abuses and impositions of the majority, more so in this case,
considering the give-away signs of private respondents' perfidy strewn all over the factual
landscape, Indeed, equity cannot deprive the minority of a remedy against the abuses of the
majority, and the present action has been instituted precisely for the purpose of protecting the
true and legitimate interests of Ruby against the Majority Stockholders.

On this score, the Supreme Court, has ruled that:

"Generally speaking, the voice of the majority of the stockholders is the law of the corporation,
but there are exceptions to this rule. There must necessarily be a limit upon the power of the
majority. Without such a limit the will of the majority will be absolute and irresistible and might
easily degenerate into absolute tyranny.

Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for
the SEC to order RUBY to commence liquidation proceedings, which is allowed under Sec. 4-9
of the Rules on Corporate Recovery. Under the circumstances, liquidation was the only hope of
the minority stockholders for effecting an orderly and equitable settlement of RUBY's
obligations, and compelling the majority stockholders to account for all funds, properties and
documents in their possession, and make full disclosure on the nullified credit assignments.

In fine, no error was committed by the CA when it set aside the September 18, 2002 Order of
the SEC and declared the nullity of the acts of majority stockholders in implementing capital
infusion through issuance of additional shares in October 1991 and the board resolution
approving the extension of RUBY's corporate term for another 25 years.

IMPORTANT NOTES:
On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87.
Thus: We hold that private respondents are not guilty of forum-shopping. In the case at bar,
private respondents represent different groups with different interests—the minority
stockholders’ group, represented by private respondent Lim; the unsecured creditors group,
Allied Leasing & Finance Corporation; and the old management group. Each group has distinct
rights to protect. In line with our ruling in Ramos, the cases filed by private respondents should
be consolidated. In fact, BENHAR and RUBY did just that—in their urgent motions filed on
December 1, 1993 and December 6, 1993, respectively, they prayed for the consolidation of the
cases before the Court of Appeals.

Derivative Suits; 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.—A derivative action is a suit by a shareholder to enforce
a corporate cause of action. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority. For this purpose, it is
enough that a member or a minority of stockholders file a derivative suit for and in behalf of a
corporation. 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.

Shares of Stock; The power to issue shares of stock in a corporation is lodged in the board of
directors and no stockholders’ meeting is required to consider it because additional issuances of
shares of stock does not need approval of the stockholders—what is only required is the board
resolution approving the additional issuance of shares.—A stock corporation is expressly
granted the power to issue or sell stocks. The power to issue shares of stock in a corporation is
lodged in the board of directors and no stockholders’ meeting is required to consider it because
additional issuances of shares of stock does not need approval of the stockholders. What is only
required is the board resolution approving the additional issuance of shares. The corporation
shall also file the necessary application with the SEC to exempt these from the registration
requirements under the Revised Securities Act (now the Securities Regulation Code).

PRE-EMPTIVE RIGHT: The right may be restricted or denied under the articles of incorporation,
and subject to certain exceptions and limitations. The stockholder must be given a reasonable
time within which to exercise their preemptive rights. Upon the expiration of said period, any
stockholder who has not exercised such right will be deemed to have waived it.

The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Section 39 or because it is denied or limited in the articles
of incorporation, an issue of shares may still be objectionable if the directors acted in breach of
trust and their primary purpose is to perpetuate or shift control of the corporation, or to “freeze
out” the minority interest. In this case, the following relevant observations should have signaled
greater circumspection on the part of the SEC—upon the third and last remand to it pursuant to
our January 20, 1998 decision—to demand transparency and accountability from the majority
stockholders, in view of the illegal assignments and objectionable features of the Revised
BENHAR/RUBY Plan, as found by the CA and as affirmed by this Court.

Liquidation; Liquidation, or the settlement of the affairs of the corporation, consists of adjusting
the debts and claims, that is, of collecting all that is due the corporation, the settlement and
adjustment of claims against it and the payment of its just debts. It involves the winding up of
the affairs of the corporation, which means the collection of all assets, the payment of all its
creditors, and the distribution of the remaining assets, if any, among the stockholders thereof in
accordance with their contracts, or if there be no special contract, on the basis of their
respective interests.

Where the corporate life of a corporation as stated in its articles of incorporation expired, without
a valid extension having been effected, it was deemed dissolved by such expiration without
need of further action on the part of the corporation of the State.—Since the corporate life of
RUBY as stated in its articles of incorporation expired, without a valid extension having been
effected, it was deemed dissolved by such expiration without need of further action on the part
of the corporation or the State. With greater reason then should liquidation ensue considering
that the last paragraph of Sec. 4-9 of the Rules of Procedure on Corporate Recovery mandates
the SEC to order the dissolution and liquidation proceedings under Rule VI. Sec. 6-1, Rule VI
likewise authorizes the SEC on motion or motu proprio, or upon recommendation of the
management committee, to order dissolution of the debtor corporation and the liquidation of its
remaining assets, appointing a Liquidator for the purpose, if “the continuance in business of the
debtor is no longer feasible or profitable or no longer works to the best interest of the
stockholders, parties-litigants, creditors, or the general public.”

E. Right of Appraisal
1. Philippines Turner and Elnora Turner vs. Lorenzo Shipping Corporation (G.R. No. 147479;
November 24, 2010)leviiiiiiiii

Facts:

The petitioners held 1,010,000 shares of stock of the respondent, a domestic

corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent decided to amend its AOI to remove the stockholders' pre-emptive rights
to newly issued shares of stock, in which the petitioners voted against the amendment
and demanded payment of their shares at the rate of P2.276/share based on the book
value of the shares, or a total of P2,298,760.00.
 The respondent found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date before the action to remove
the pre-emptive right was taken should be the value, or P0.41/share, considering that
its shares were listed in the Philippine Stock Exchange, and that the payment could be
made only if the respondent had unrestricted retained earnings in its books to cover the
value of the shares, which was not the case.

The disagreement on the valuation of the shares led the parties to constitute an
appraisal committee pursuant to Section 82 of the Corporation Code. Thus, the
appraisal committee came to be made up of Reynaldo Yatco, the petitioners' nominee;
Atty. Antonio Acyatan, the respondent's nominee; and Leo Anoche of the Asian
Appraisal Company, Inc., the third member/chairman. The appraisal committee
reported its valuation of P2.54/share, for an aggregate value of P2,565,400.00 for the
petitioners.

The petitioners demanded payment based on the valuation of the appraisal

committee, plus 2%/month penalty from the date of their original demand for payment,
as well as the reimbursement of the amounts advanced as professional fees to the
appraisers, in which the respondent refused the petitioners' demand, explaining that
pursuant to the Corporation Code, the dissenting stockholders exercising their appraisal
rights could be paid only when the corporation had unrestricted retained earnings to
cover the fair value of the shares, but that it had no retained earnings at the time of
the petitioners' demand, as borne out by its Financial Statements for Fiscal Year 1999
showing a deficit of more than P72 million as of December 31, 1999.

Upon the respondent's refusal to pay, the petitioners sued the respondent for
collection and damages in the RTC in Makati on 2001.

On June 26, 2002, the petitioners filed their motion for partial summary
judgment: l law library

7) xxx the defendant has an accumulated unrestricted retained

earnings of ELEVEN MILLION NINE HUNDRED SEVENTY FIVE
THOUSAND FOUR HUNDRED NINETY (P11,975,490.00) PESOS,
Philippine Currency, evidenced by its Financial Statement as of
the Quarter Ending March 31, 2002; xxx

8) xxx the fair value of the shares of the petitioners as fixed by

the Appraisal Committee is final, that the same cannot be
disputed xxx

9) xxx there is no genuine issue to material fact and therefore,

the plaintiffs are entitled, as a matter of right, to a summary
judgment. Xxx

The respondent opposed the motion for partial summary judgment, stating that
the determination of the unrestricted retained earnings should be made at the end of
the fiscal year of the respondent, and that the petitioners did not have a cause of action
against the respondent.
 After the conference in Civil Case No. 01-086 set on October 23, 2002, which the
petitioners' counsel did not attend, Judge Tipon issued an order, granting the
petitioners' motion for partial summary judgment.

The evidence submitted by plaintiffs shows that in its quarterly financial

statement it submitted to the Securities and Exchange Commission, the defendant has
retained earnings of P11,975,490 as of March 21, 2002. This is not disputed by the
defendant. Its only argument against paying is that there must be unrestricted retained
earning at the time the demand for payment is made.

On November 12, 2002, the respondent filed a motion for reconsideration. On

the scheduled hearing of the MR, the petitioners filed a motion for immediate execution
and a motion to strike out motion for reconsideration. Judge Tipon denied the motion
for reconsideration and granted the petitioners' motion for immediate execution.
Subsequently, on November 28, 2002, the RTC issued a writ of execution.

Aggrieved, the respondent commenced a special civil action for certiorari in the
CA to challenge the two aforecited orders of Judge Tipon.

Upon the respondent's application, the CA issued a temporary restraining order

(TRO), enjoining the petitioners, and their agents and representatives from enforcing
the writ of execution. In which the CA ruled in favor of the respondent and ruled that
Judge Tipon acted in excess of jurisdiction.

Issue

Whether the Turners have the right to demand the Fair Value of their share (i.e.
right of appraisal)?

Whether the petition of the Turners is premature?

Ruling

No. Because the corporation has no unrestricted retained earnings at the time of the
filing of Complaint.

Under Section 81 of CC, if there is a fundamental change in the AOI prejudicing the
rights of stockholders, any stockholder who has voted against the proposed corporate action
have the right to exercise right of appraisal. But if the fair value is not agreed, it shall be
appraised by 3 disinterested persons.

Section 83 provides that payment must be sourced from the corporation’s

unrestricted retained earnings.
 Unrestricted Retained Earnings Ratio is the trust fund doctrine where the capital
stock, corporation property and assets are held in trust preferably for the corporate
creditors. The creditors can assume that the BOD will not use assets to purchase its own
stock as long as a corporation has outstanding debts and liabilities.

Yes. Because the corporation has no (URE) unretained retained earnings when the
Turners commenced the case on 22 Jan 2001. The Turners have a right of action, but no
cause of action.

Essential Elements of a Cause of Action

1. Existence of a legal right of the plaintiff;

2. Correlative duty of the defendant to respect such right;
3. An act or omission by such defendant violating the right of the plaintiff with a
resulting injury or damage.

The subsequent existence of the URE will not cure the lack of cause of action. This is
because the right of action can only spring from an existing cause of action.

Without a cause of action at filing, the case filed by the Turners is a groundless suit. It
should be dismissed.

Ratio: The case should be dismissed because it was prematurely brought, and the public
policy that there should be no needless haste in instituting actions.

What is the error of the court if it takes cognizance of a case that has no cause of action?
Guilty of error of jurisdication or lack of jurisdiction (the power to hear and decide cases).

SC favored Lorenzo Shipping. Dismissed Turner’s appeal.