Corpo Case Digest Josue

• 1. [G.R. No. 126200.August 16, 2001]DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents. • 2. G.R. No. 168918, March 2, 2009People, petitioner • v Hermenegildo Dumlao y Castiliano and Emilio La'o y Gonzales, respondents • 3. G.R. 91478 Rosita Peña vs Court of Appeals • 4. GSIS v. CA (G.R. No. 183905) April 16, 2009 • 5. G.R.157479, NOVEMBER 24, 2010Turner vs. Lorenzo Shipping • 6. Gokongwei v. SEC • GR NO. L- 45911 April 11, 1979 • Antonio, J.: • 7. AFRICA v PCGG • 8. G.R. No. 165887: June 7, 2011 MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioner, v. MIGUEL LIM et al., Respondents. • 9. Bitong v. CA (G.R. No. 123553) July 13, 1998 • 10. JG Summit Holdings Inc. vs. CA G.R. No. 124293, November 20, 2000 • 11. Lim v. Lim-Yu (G.R. No. 138343) February 19, 2001 • 12. Tam Wing Tak vs Ramon Makasiar G.R. 122452 , January 29, 2001 • 13. Reyes v. RTC of Makati [G.R. No. 165744. August 11, 2008] • 14. Juanito Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang, G.R. No. 201675, June 19, 2013. • 15. Lanuza vs. CA GR No. 131394 | March 28, 2005 • 16. Ong Yong v. Tiu, G.R.144476, April 8, 2003 • 17. JOSELITO MUSNI PUNO VS PUNO ENTERPRISES, INC. G.R. 177066, SEPTEMBER 11, 2013 • 18. G.R. No. 172222, November 11, 2013 ,VICTOR AFRICA vs. SANDIGANBAYAN and BARBARA ANNE C. MIGALLOS [G.R. No. 126200. August 16, 2001] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents. FACTS: Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides, copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque Minings real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges.[1] On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Minings chattels, as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges.[2] On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining.[3] For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties. ISSUE/S: 1. Whether or not Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction. HELD: The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP). The second principle invoked by respondent court involves directors who are creditors which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining. To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.[14] To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed.[15] In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. G.R. No. 168918, March 2, 2009 People, petitioner v Hermenegildo Dumlao y Castiliano and Emilio La'o y Gonzales, respondents FACTS: This is an appeal to the Sandiganbayan resolution which granted the motion to dismiss/quash of respondent Dumlao and dismissed the case against him. On July 1991 an information was filed before the Sandiganbayan charging respondents Dumlao and others with violation of section 3 of republic act no. 3019 known as anti-graft and corrupt practices act. The accused are members of the board of trustees of GSIS charged with unlawful entry to contract of lease-purchase with La'o private person. When arraigned, Dumlao pleaded not guilty, and as agreed a joint stipulation of facts and admission of exhibit was submitted to the court on January 2005 After the pre-trial, Dumlao filed a motion to dismiss/quash on the ground that the facts charged do not constitute an offense, that the alleged board resolution was not approved by the GSIS board of trustees because some signatures did not appear in the minutes therefore concluding that there was no qourum. And was held meritorious. But on September 2005, people of the Philippines represented by the office of the ombudsman and thru the office of the prosecutor filed a petition for certiorari seeking the reversal and setting aside of the Sandiganbayan resolution. ISSUES: (1) whether or not the court acted in accordance with law and jurisprudence when it dismissed the criminal case against dumlao and others? (2) whether or not the signatures of the majority of the GSIS board of trusteea are necessary on the minutes of the meeting to give force and effect to resolution (3) whether or not the validity of the contract is an essential element of violation of section (4) whether or not the court acted in accordance with law and jurisprudence when it resolved to archive the case against respondent La'o? On the other hand, Dumlao's contention were the following: (1) ombudsman's petition will place him in double jeopardy (2) the Sandiganbayan could not be said to have gravely abused its discretion amounting to lack of jurisdiction because it only followed the rule in pre-trial and decided the case on the basis of the facts stipulated in the pre-trial (3) the facts agree by the prosecution and respondents Dumlao in the pre-trial was approved by the Sandiganbayan showed that Dumlao did not commit any crime (4) continuing prosecution of Dumlao, excluding the other GSIS trustees constitutes unfair discrimination and his right to equal protection of the law Petitioner further contended that they were denied due process because Sandiganbayan has dismissed the case after re-trial before they could present witnesses and offer exhibits. HELD: Insufficiency of evidence is not of the grounds of motion to quash. Insufficiency is ground for dismissal only after the prosecution rests its case. In this case, Sandiganbayan deprived the prosecution to present its evidence in doing so violated the rights to due process. Sandiganbayan erred in confusing the resolution and the minutes of the meeting which allegedly approved the lease-purchase agreement. A resolution is distinct and different from the minutes of the meeting. In the issue of double jeopardy, the court did not agree with Dumlao because the first jeopardy has not yet attached due to the premature dismissal. In the issue of jurisdiction, in this case there was no error of judgment but a denial of due process resulting in loss of jurisdiction. In the issue of discrimination, the court is not convinced because Dumlao was the only one left to be prosecuted because his co- conspirators are all dead. The petition was granted. G.R. 91478 Rosita Peña vs Court of Appeals FACTS: In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the Development Bank of the Philippines (DBP). PAMBUSCO used the parcels of land it owns to secure the loan. In October 1974, due to PAMBUSCO’s nonpayment, DBP foreclosed the parcels of land. Rosita Peña was the highest bidder. Meanwhile, in November 1974, the Board of Directors of PAMBUSCO had a meeting. The meeting was attended by only 3 out of the 5 Directors. In the said meeting, the Board, through a resolution, authorized one of the directors, Atty. Joaquin Briones, to assign the properties of PAMBUSCO. Pursuant to the resolution, Briones assigned PAMBUSCO’s assets to Marcelino Enriquez. Enriquez, knowing that the properties were previously mortgaged and foreclosed, exercised PAMBUSCO’s right to redeem. So in August 1975, he redeemed the said properties and thereafter he sold them to Rising Yap. Yap then registered the properties under his name. He then demanded Peña to vacate the properties. Peña refused to do hence Yap filed a complaint. In her defense, Peña averred that Yap acquired no legal title over the property because the board resolution issued by PAMBUSCO in November 1974 is void; that it is void because the resolution was issued without a quorum; that there was no quorum because under the by-laws of PAMBUSCO, a quorum constitutes the presence of 4 out of 5 directors yet the meeting was only attended by three directors. As such, the authority granted to Briones to assign the properties is void; that the subsequent assignment by Briones to Enriquez is void; that Enriquez acquired no title hence, likewise, Yap acquired no title. Yap insists that Peña has no legal standing to question the board resolution because she is not a stockholder. ISSUE: Whether or not the board resolution is valid. HELD: No, it is void. The by-laws are the laws of the corporation. PAMBUSCO’s by-laws provides that a quorum consists of at least four directors. Hence, the meeting attended by only three directors did not comply with the required quorum. As such, the three directors were not able to come up with a valid resolution which could bind the corporation. Anent the issue of Peña being a third person, she can question the board resolution. The resolution here is liken to a contract. Under the law, a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he or she is prejudiced in his or her rights with respect to one of the contracting parties, and can show the detriment which would positively result to him or her from the contract in which he or she had no intervention. Further, the sale of the properties of PAMBUSCO did not comply with the procedure laid down by the Corporation Law. Under the law, the sale or disposition of an and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO. One is that PAMBUSCO has been inactive since 1949 as per the records provided by the Securities and Exchange Commission. Its general information sheet with the SEC has not been updated regularly even. And the three directors present were not even listed as current directors of PAMBUSCO. GSIS v. CA (G.R. No. 183905) April 16, 2009 Facts: GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings and the resulting certification of proxies in favor of the Meralco Management. The proceedings were presided over by Meralco’s assistant corporate secretary and chief legal counsel instead of the person duly designated by Meralco’s Board of Directors. Thus, GSIS moved before the SEC to declare certain proxies, those issued to herein private respondents, as invalid. Private respondents contend that dispute in the validity of proxies is an election contest which falls under the trial court’s jurisdiction. GSIS argues there was no election yet at the time it filed its petition with the SEC, hence no proper election contest over which the regular courts may have jurisdiction. ISSUE: Whether or not the proxy challenge is an election contest cognizable by the regular courts. HELD: YES. Section 2, Rule 6 of the Interim Rules broadly defines the term “election contest” as encompassing all plausible incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election-related controversies is specifically confined to “controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations.” Evidently, the jurisdiction of the regular courts over so- called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential Decree No. 902-A. That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. G.R.157479, NOVEMBER 24, 2010 Turner vs. Lorenzo Shipping Facts: The petitioners (Philip and Elnora Turner) held 1,010,000 shares of stock of the respondent (Lorenzo Shipping Corp.), a domestic corporation engaged primarily in cargo shipping activities. The respondent decided to amend its articles of incorporation to remove the stockholders’ pre-emptive rights to newly issued shares of stock. 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 to be 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 (P414,100.00) 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 Sec. 82 of the Corporation Code. The committee reported its valuation of P2.54/share, for an aggregate value of P2,565,400.00. Subsequently, the petitioners demanded payment based on the valuation 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. 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 P72,973,114.00 as of December 31, 1999. Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages in the RTC on January 22, 2001. The petitioners filed their motion for partial summary judgment, claiming that the respondent has an accumulated unrestricted retained earnings of P11,975,490.00, evidenced by its Financial Statement as of the Quarter Ending March 31, 2002; 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. RTC granted the petitioners’ motion fixing the fair value of the shares of stocks at P2.54 per share. The evidence submitted shows that the respondent 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 earnings at the time the demand for payment is made. RTC further stated that the law does not say that the unrestricted retained earnings must exist at the time of the demand. Even if there are no retained earnings at the time the demand is made if there are retained earnings later, the fair value of such stocks must be paid. The only restriction is that there must be sufficient funds to cover the creditors after the dissenting stockholder is paid. Subsequently, on November 28, 2002, the RTC issued a writ of execution. The respondent commenced a special civil action for certiorari in the CA. CA issued a TRO, enjoining the petitioners, and their agents and representatives from enforcing the writ of execution. By then, however, the writ of execution had been partially enforced. The TRO then lapsed without the CA issuing a writ of preliminary injunction to prevent the execution. Thereupon, the sheriff resumed the enforcement of the writ of execution. CA granted respondent's petition. The Orders and the corresponding Writs of Garnishment are NULLIFIED and the Civil Case is ordered DISMISSED. Issue: WON the petitioners have a valid cause of action against the respondent. Held: No. SC upheld the decision of the CA. RTC acted in excess of its jurisdiction. No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment (apply the Trust fund doctrine). In case the corporation has no available unrestricted retained earnings in its books, Sec. 83 provides that if the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored. The respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners commenced the Civil Case on January 22, 2001. It proved that the respondent’s legal obligation to pay the value of the petitioners’ shares did not yet arise. The Turners’ right of action arose only when petitioner had already retained earnings in the amount of P11,975,490.00 on March 21, 2002; such right of action was inexistent on January 22, 2001 when they filed the Complaint. The RTC concluded that the respondent’s obligation to pay had accrued by its having the unrestricted retained earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation Code did not provide that the unrestricted retained earnings must already exist at the time of the demand. The RTC’s construal of the Corporation Code was unsustainable, because it did not take into account the petitioners’ lack of a cause of action against the respondent. In order to give rise to any obligation to pay on the part of the respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission that could sustain their action to collect. Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure the lack of cause of action. The petitioners’ right of action could only spring from an existing cause of action. Thus, a complaint whose cause of action has not yet accrued cannot be cured by an amended or supplemental pleading alleging the existence or accrual of a cause of action during the pendency of the action. For, only when there is an invasion of primary rights, not before, does the adjective or remedial law become operative. Verily, a premature invocation of the court’s intervention renders the complaint without a cause of action and dismissible on such ground. In short, the Civil Case, being a groundless suit, should be dismissed. Even the fact that the respondent already had unrestricted retained earnings more than sufficient to cover the petitioners’ claims on June 26, 2002 (when they filed their motion for partial summary judgment) did not rectify the absence of the cause of action at the time of the commencement of the Civil Case. The motion for partial summary judgment, being a mere application for relief other than by a pleading, was not the same as the complaint in the Civil Case. Thereby, the petitioners did not meet the requirement of the Rules of Court that a cause of action must exist at the commencement of an action, which is "commenced by the filing of the original complaint in court." Additional info: Cause of Action: A cause of action is the act or omission by which a party violates a right of another. The essential elements of a cause of action are: (a) the existence of a legal right in favor of the plaintiff; (b) a correlative legal duty of the defendant to respect such right; and (c) an act or omission by such defendant in violation of the right of the plaintiff with a resulting injury or damage to the plaintiff for which the latter may maintain an action for the recovery of relief from the defendant. Although the first two elements may exist, a cause of action arises only upon the occurrence of the last element, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief. Stockholder's Appraisal Right: Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares. The right of appraisal may be exercised when there is a fundamental change in the charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable corporate action is taken. It serves the purpose of enabling the dissenting stockholder to have his interests purchased and to retire from the corporation. The Corporation Code defines how the right of appraisal is exercised, as well as the implications of the right of appraisal, as follows: 1. The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by making a written demand on the corporation within 30 days after the date on which the vote was taken for the payment of the fair value of his shares. The failure to make the demand within the period is deemed a waiver of the appraisal right. (Sec. 82) 2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period of 60 days from the date the stockholders approved the corporate action, the fair value shall be determined and appraised by three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings and award of the majority of the appraisers shall be final, and the corporation shall pay their award within 30 days after the award is made. Upon payment by the corporation of the agreed or awarded price, the stockholder shall forthwith transfer his or her shares to the corporation. (Sec. 82) 3. All rights accruing to the withdrawing stockholder’s shares, including voting and dividend rights, shall be suspended from the time of demand for the payment of the fair value of the shares until either the abandonment of the corporate action involved or the purchase of the shares by the corporation, except the right of such stockholder to receive payment of the fair value of the shares. (Sec. 83) 4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder shall submit to the corporation the certificates of stock representing his shares for notation thereon that such shares are dissenting shares. A failure to do so shall, at the option of the corporation, terminate his rights under this Title X of the Corporation Code. If shares represented by the certificates bearing such notation are transferred, and the certificates are consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder; and all dividend distributions that would have accrued on such shares shall be paid to the transferee. (Sec. 86) 5. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon the surrender of the certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. (Sec. 82) Gokongwei v. SEC GR NO. L- 45911 April 11, 1979 Antonio, J.: Facts: John Gokongwei Jr., as stockholder of San MiguelCorporation, 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 theBoard of Directors and San Miguel Corporation as an unwilling petitioner. Gokongwei alleged that the Board amended the bylaws ofthe corporation, prescribing additional qualifications for itsdirectors, “that no person shall qualify or be eligible for nomination if he is engaged in any business which competeswith that of the Corporation. The board based their authority to do so on a resolution of the stockholders. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 ofthe subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. Gokongwei claimed that prior to the questioned amendment, he had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as astockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void. Issue: Whether the corporation has the power to provide for the (additional) qualifications of its directors Held: YES. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees."This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director."Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. It cannot therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority." Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then thedissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by- laws. It cannot be said, therefore, that Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. Note: A corporation is authorized to prescribe qualifications of its directors; such is not invalid, provided, however that before such nominee is disqualified, he should be given due process to show that he is not covered by such disqualification. A director stands in fiduciary relation to the corporation and its stockholders. The disqualification of a competition from being elected to the board of directors is a reasonable exercise of corporate authority. Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty to loyalty may require that he discloses this information to a competitive rival. AFRICA v PCGG FACTS: These cases were consolidated since they are related to the sequestration of the eastern Telecommunications Philippines, Inc. (ETPI) in 1986 by the Presidential Commission on Good Government (PCGG) and the consequent filing by the PCGG in 1987 of an action for reconveyance. Reversion, accounting and restitution of the alleged ill - gotten ETPI shares an d damages in the Sandiganbayan. Subsequently, durin g the annual stockholders meeting in 1988, Eduardo Villanueva as PCGG nominee, Roman Mabanta, Jr and Eduardo de los Angeles as nominees of the foreign investors, Cable and Wireless Ltd, and Jose Africa (who was absent) were elected as members of the board of directors (BOD). Villanueva, in an organizational meeting was elected as president and general manager while Desuasido, Velasco and Payos were elected as acting corporate officers. The nomination and election of PCGG nominees/ designees to the ETPI Bo ard of Directors, as well as the election of its new officers, triggered a chain of contentious proceedings before the Sandiganbayan and the Supreme Court between the members of the ETPI Board and its stockholders, on the one hand, and the PCGG's nominees/ designees elected ETPI Board, on the other hand. Victor Africa, who claims to be an employee of ETPi as VP, general counsel, corporate secretary and special assistant to the chairman and president filed a petition for injunction seeking to en join the PCGG and its nominees to the board of directors and the newly - installed officers of ETPI from implementing their alleged illegal, invalid and immoral act of ousting him from his offices and positions at the ETPi pending determination of whether th ey have validly, legally and morally assumed their supposed positions and offices as “directors and/or officers” of ETPI. He claims he was forcibly taken out of his office. GR No s. 85597 and 85621 Jose Africa, Nieto, and Valdez, allegedly the registered stockholders of the ETPI instituted before the Sandiganbayan a complaint for injunction and damages with prayer for a TRO seeking to enjoin Villanueva from acting as Director, President and/or Genera l Manager of ETPI as well as to stop the PCGG from directly or indirectly interfering with the management of ETPI. GR No. 85594 The same plaintiffs above as erstwhile members of the BOD of ETPI instituted before the Sandiganbayan another action for injunction and damages where they questioned the acts and orders of the PCGG leading to the election of therein defendants Gutierrez, Javier, Payos, Roxas, Velasco, and Cable and Wireless representatives Mabanta and de los Angeles to th e ETPI BOD. Claiming to tbe the duly elected members of the ETPI BOD, plaintiffs prayed that defendants be removed from their ETPI positions, and that an inunction be issued perpetually restraining the PCGG from electing and supporting the defendants in th eir ETPI roles While motions to dismiss were pending and prior to the hearing set for the issuance of a TRO, the Clerk of Court of the Sandiganbayan issued upon the request of the counsel of Jose L. Africa date October 18, 1988, a subpoena duces tecum an d ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan during the hearing on November 3, 1988 at 2pm and to produce the stock and transfer book and all stubs of the outstanding stock certificates of ETPI. Three days later, another subpoena duces tecum was issued upon an amended request for subpoena by the same counsel ordering Asst. SolGen Desuasido or his representative to appear before the Sandiganbayan and to produce the “minutes of all meetings of the Board of Directors and Stockholders of ETPI held from January 29, 1988 to date.” The motion to quash by both the subpoenae was denied. The PCGG and its nominees and designees filed a petition for certiorari alleging that the SB had no jurisdiction over the main action for damages since it was a suit against the State without its consent. TOPICAL ISSUE: WON the issuance by the Sandiganbayan of the subpoena duces tecum and ad testificandum ordering the PCGG or its representative to tesify and produce th e stock and transger book, all stubs of the outstanding stock certificates of ETPi and the minutes of all meetings of the BOD and the stockholders of ETPI held from January 29, 1988 to date was valid. HELD. YES. In upholding therein the right of a stock holder of a sequestered company to inspect and/or examine the records of a corporation pursuant to Section 74 of the Corporation Code, the Court found nothing in Executive Orders Nos. 1, 2 and 14, as well as in BASECO , to indicate an implied amendment of t he Corporation Code, much less an implied modification of a stockholder's right of inspection as guaranteed by Section 74 thereof. The only express limitation on the right of inspection, according to the Court, is that (1) the right of inspection should be exercised at reasonable hours on business days; (2) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of the records of such corporation; and (3) the demand is made in good faith or for a legitimate purpose. Side Issues: 1. WON the deferment of the resolution of the motions to dismiss was tainted with grave abuse of discretion. YES. While the court has the discretion to defer the hearing and determination of a motion to dismiss if the ground therefor is not indubitable, such deferment is in excess of jurisdiction if the ground for the motion to dismiss is lack of jurisdiction or lack of cause of action, since the allegations of th e complaint are deemed admitted and the motion do dismiss can be resolved without waiting for trial on the merits. Villanueva is correct in asserting that his MTD must first be resolved before trial on the merits may be had but the SC noted that this is a mere technical victory as it will be rendered moot and academic by the following ruling on the merits of the grounds raised in his MTD. 2. WON the Sandiganbayan has jurisdiction. YES The Sandiganbayan has exclusive and original jurisdiction in civil or cri minal cases involving ill - gotten wealth under Executive Order No. 14, as well as incidents arising from, incidental or related to such cases, subject to review on certiorari exclusively by the Supreme Court. Since the injunctive suits filed by Jose L. Afri ca, et al. before the Sandiganbayan stemmed from incidents arising from, incidental and related to the partial sequestration of ETPI, the directive enunciated in the Peña case that "those who wish to question or challenge the Commission's acts or orders in such cases must seek recourse in the same court, the Sandiganbayan, which is vested with exclusive and original jurisdiction," applies to the instant case. Neither would the principle of immunity of the State from suit invoked by the PCGG divest the Sand iganbayan of its jurisdiction as while there were claims for damages alleged in the complaints in both cases, the same are, however, directed against the individual defendants in their personal capacities for having allegedly acted without legal authority and in a manner adverse to the interests of ETPI. The doctrine of state immunity from suit applies only in actions resulting in adverse consequences on the public treasury, whether in the disbursement of funds or loss of property. 3. WON the actions are barr ed by res judicata because of the prior judgment in PCGG v. SEC and PCGG v. Sandiganbayan. NO. Res judicata does not apply because what was obviously raised and resolved by the Court was the scope and extent of the authority of the Sandiganbayan to issue injunctive writs on matters involving the exercise and performance of the powers and functions of the PCGG as conservator in accordance with the ruling in BAS ECO vs . PCGG, et al . to prevent the disposal and dissipation of the assets of sequestere d companies or businesses. On PCGG's insistence on the rule of bar by prior judgment, it is readily apparent that one fundamental requisite for the application of that doctrine of res judicata is absent in the instant case, that is, the prior judgment or order must be a judgment on the merits of the case. For a prior judgment to constitute a bar to a subsequent case, (1) it must be a final judgment or order, (2) the court rendering the same must have jurisdiction over the subject matter and over the partie s, (3) it must be a judgment or order on the merits, and (4) there must be between the two cases identity of parties, subject matter, and causes of action. There is no dispute that, substantially, the acts or orders of the PCGG which led to the election of the members of the board of directors and officers of ETPI, as well as all acts done thereafter by the said board, are the incidents which gave rise to the causes of action involved in the injunction suit in SEC Case No. 3297 and the motion for injunct ion in Civil Case No. 0009, both of which gave rise to G.R. No. 82188. There is, accordingly, identity of the incidents upon which the causes of action in Civil Cases Nos. 0048 and 0050 are based and those of the two cases which gave rise to G.R. No. 82188 . However, there is nothing, in the pronouncements of the Court in G.R. No. 82188 which finally resolved the merits of the factual issues raised therein by the opposing parties which included, among others, the alleged illegal manner by which the meeting t o elect the new board of directors was called and held on January 29, 1988; the qualification, experience and probity of those elected to the board contrary to the caveat in BASECO vs . PCGG, et al . , supra , on the substitution of directors of the board of sequestered corporations; and the alleged mismanagement of the operations of ETPI by those elected to the board and the corporate offices by the PCGG. G.R. No. 165887: June 7, 2011 MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioner, v. MIGUEL LIM et al., Respondents. FACTS: Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing.Reeling from severe liquidity problems beginning in 1980, RUBY filed onDecember 13, 1983a petition for suspension of payments with the Securities and Exchange Commission (SEC) docketed as SEC Case No. 2556.On December 20, 1983, the SEC issued an order declaring RUBY under suspension of payments and enjoining the disposition of its properties pending hearing of the petition, except insofar as necessary in its ordinary operations, and making payments outside of the necessary or legitimate expenses of its business. OnAugust 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for RUBY, composed of representatives from Allied Leasing and Finance Corporation (ALFC), Philippine Bank of Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang.The MANCOM was tasked to perform the following functions: (1) undertake the management of RUBY; (2) take custody and control over all existing assets and liabilities of RUBY; (3) evaluate RUBYs existing assets and liabilities, earnings and operations; (4) determine the best way to salvage and protect the interest of its investors and creditors; and (5) 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 Miguel Lim (Lim). Both plans were endorsed by the SEC to the MANCOM for evaluation. OnApril 26, 1991, over ninety percent (90%) of RUBYs creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new management committee.Instead, they endorsed the minority stockholders Alternative Plan.At the hearing of the petition for the creation of a new management committee, three (3) members of the original management committee (Lim, ALFC and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on grounds that:(1) it would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor of RUBY;(2) it would put RUBYs assets beyond the reach of the unsecured creditors and the minority stockholders; and (3) it was not approved by RUBYs stockholders in a meeting called for the purpose. Notwithstanding the objections of 90% of RUBYs creditors and three members of the MANCOM, the SEC Hearing Panel approved on September 18, 1991the Revised BENHAR/RUBY Plan and dissolved the existing management committee.It also created a new management committee and appointed BENHAR as one of its members. In addition to the powers originally conferred to the management committee under Presidential Decree (P.D.) No. 902-A, the new management committee was tasked to oversee the implementation by the Board of Directors of the revised rehabilitation plan for RUBY. ISSUE: Whether the minoritys pre-emptive rights were violated HELD: Yes. COMMERCIAL LAW: Corporation Law, Pre-emptive right 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 class, 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 Rubys valuable assets to the great prejudice of Ruby 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 thegive- 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.x x x" (Additional emphasis supplied.) 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 RUBYs 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.Oblivious to these pending incidents so crucial to the protection of the interest of the majority of creditors and minority shareholders, the SEC simply stated that in the interim, RUBYs corporate term was validly extended, as if such extension would provide the solution to RUBYs myriad problems. Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders meeting called for the purpose.The actual percentage of shareholdings in RUBY as of September 3, 1996 -- when the majority stockholders allegedly ratified the board resolution approving the extension of RUBY's corporate life to another 25 years was seriously disputed by the minority stockholders,and we find the evidence of compliance with the notice and quorum requirements submitted by the majority stockholders insufficient and doubtful.Consequently, the SEC had no basis for its ruling denying the motion of the minority stockholders to declare as without force and effect the extension of RUBY's corporate existence. DENIED. Bitong v. CA (G.R. No. 123553) July 13, 1998 Facts: Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit before the SEC against respondent spouses Apostol, who were officers in said corporation, to hold them liable for fraud and mismanagement in directing its affairs. Respondent spouses moved to dismiss on the ground that petitioner had no legal standing to bring the suit as she was merely a holder-in-trust of shares of JAKA Investments which continued to be the true stockholder of Mr. & Ms. Petitioner contends that she was a holder of proper stock certificates and that the transfer was recorded. She further contends that even in the absence of the actual certificate, mere recording will suffice for her to exercise all stockholder rights, including the right to file a derivative suit in the name of the corporation. The SEC Hearing Panel dismissed the suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc decision. Issue: Whether or not petitioner is the true holder of stock certificates to be able institute a derivative suit. Ruling: NO. Sec 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice- president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Aside from petitioner’s own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. It should be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by a Certificate of Stock. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. *The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. JG Summit Holdings Inc. vs. CA G.R. No. 124293, November 20, 2000 FACTS: The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have the right of first refusal in case of a sale. Through a series of transfers, NIDC’s rights, title and interest in PHILSECO eventually went to the National Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasaki’s right of first refusal under the JVA be “exchanged” for the right to top by five percent the highest bid for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its stead. During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5% percent the highest bid, it was able to top JG Summit’s bid. JG Summit protested, contending that PHILSECO, as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock. ISSUE: * Whether or not PHILSECO is a public utility * Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECO’s stocks HELD: In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard” was not a “public utility.” But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states that a shipyard is a public utility still stands. A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization. Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on account of both constitutional and contractual proscriptions. Lim v. Lim-Yu (G.R. No. 138343) February 19, 2001 Facts: The Board of Directors of Limpan Corporation issued a resolution authorizing the partial payment for the legal services rendered by petitioner Lim to be in form of shares of stock there being no available funds to pay the same. As a result, the unsubscribed shares of LIMPAN were issued and all of its authorized capital stock became fully subscribed with petitioner Lim ending up controlling 62.5% of the shares. Respondent Yu filed a complaint against the members who approved the resolution. Petitioners moved to dismiss alleging Yu had no legal capacity to sue on the basis of a TRO issued by the SC on her guardianship case and thus incapacitated from filing a derivative suit. The SEC Hearing Officer held in abeyance the motion but the SEC En Banc ordered the case to proceed. CA affirmed the SEC En Banc. Issue: Whether or not the suit brought by the respondent is a derivative suit that the TRO restricts her from doing. Ruling: NO. There appears to be a confusion on the nature of the suit initiated before the SEC. Petitioners describe it as a derivative suit, which has been defined as “an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority.” In a derivative action, the real party in interest is the corporation itself, not the shareholder(s) who actually instituted it. “If the suit filed by respondent was indeed derivative in character, then respondent may not have the capacity to sue. The reason is that she would be acting in representation of the corporation, an act which the TRO enjoins her from doing. We hold, however, that the suit of respondent cannot be characterized as derivative, because she was complaining only of the violation of her preemptive right under Section 39 of the Corporation Code. She was merely praying that she be allowed to subscribe to the additional issuances of stocks in proportion to her shareholdings to enable her to preserve her percentage of ownership in the corporation. She was therefore not acting for the benefit of the corporation. Quite the contrary, she was suing on her own behalf, out of a desire to protect and preserve her preemptive rights. Unquestionably, the TRO did not prevent her from pursuing that action. The TRO allows Respondent Patricia Lim-Yu to act for herself and to enter into any contract on her own behalf. However, she cannot transact in representation of or for the benefit of her parents, brothers or sisters, or the Limpan Investment Corporation. Contrary to what petitioners suggest, all that is prohibited is any action that will bind them. In short, she can act only on and in her own behalf, not that of petitioners or the Corporation. Tam Wing Tak vs Ramon Makasiar G.R. 122452 , January 29, 2001 Business Organization – Corporation Law – Ultra Vires Acts of Corporate Officers – Derivative Suit Sometime before November 1992, Vic Ang Siong issued a check to Concord-World Properties, Inc. The check amounted to P83.5 million. The check however bounced. In November 1992, Tam Wing Tak filed an affidavit-complaint for violation of the Anti-Bouncing Checks Law against Ang Siong. The fiscal did not file a criminal information against Ang Siong because apparently Concord-World and Ang Siong are settling out of court (in fact Ang Siong already paid P19 million); and that Tam Wing Tak was not authorized by the Board of Directors of Concord-World to sue Ang Siong. Tam Wing Tak then filed a petition for mandamus to compel the fiscal to file the information. Judge Ramon Makasiar dismissed the petition. ISSUE: Whether or not the petition should be granted. HELD: No. The petition for mandamus shall not lie. There was no grave abuse of discretion when the fiscal refused to file the information. Concord-World is the named payee in the check that bounced. As payee, Concord-World is the injured party hence only Concord-World can file the criminal case against Ang Siong but it did not do so because it chose to amicably settle the issue with Ang Siong. Where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. This can be delegated but Tam Wing Tak never proved that he was authorized by the Board of Concord- World. But may the suit be considered a derivative suit where the Board’s authorization may not be had? No. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. In this case, this was not complied with. Hence, Tam Wing Tak cannot sue Ang Siong. Reyes v. RTC of Makati [G.R. No. 165744. August 11, 2008] FACTS: Petitioner and private respondent were siblings together with two others, namely Pedro and Anastacia, in a family business established as Zenith Insurance Corporation (Zenith), from which they owned shares of stocks. The Pedro and Anastacia subsequently died. The former had his estate judicially partitioned among his heirs, but the latter had not made the same in her shareholding in Zenith. Zenith and Rodrigo filed a complaint with the Securities and Exchange Commission (SEC) against petitioner (1) a derivative suit to obtain accounting of funds and assets of Zenith, and (2) to determine the shares of stock of deceased Pedro and Anastacia that were arbitrarily and fraudulently appropriated [by Oscar, and were unaccounted for]. In his answer with counterclaim, petitioner denied the illegality of the acquisition of shares of Anastacia and questioned the jurisdiction of SEC to entertain the complaint because it pertains to settlement of [Anastacia’s] estate. The case was transferred to. Petitioner filed Motion to Declare Complaint as Nuisance or Harassment Suit and must be dismissed. RTC denied the motion. The motion was elevated to the Court of Appeals by way of petition for certiorari, prohibition and mandamus, but was again denied. ISSUES: Mercantile Law (1) Whether or not Rodrigo may be considered a stockholder of Zenith with respect to the shareholdings originally belonging to Anastacia. (2) Whether or not there is an intra-corporate relationship between the parties that would characterize the case as an intra-corporate dispute? RULINGS: Mercantile Law (1) No. Rodrigo must, hurdle two obstacles before he can be considered a stockholder of Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must prove that there are shareholdings that will be left to him and his co-heirs, and this can be determined only in a settlement of the decedent’s estate. No such proceeding has been commenced to date. Second, he must register the transfer of the shares allotted to him to make it binding against the corporation. He cannot demand that this be done unless and until he has established his specific allotment (and prima facie ownership) of the shares. Without the settlement of Anastacia’s estate, there can be no definite partition and distribution of the estate to the heirs. Without the partition and distribution, there can be no registration of the transfer. And without the registration, we cannot consider the transferee-heir a stockholder who may invoke the existence of an intra-corporate relationship as premise for an intra-corporate controversy within the jurisdiction of a special commercial court. The subject shares of stock (i.e., Anastacia’s shares) are concerned – Rodrigo cannot be considered a stockholder of Zenith. (2) No. Court cannot declare that an intra-corporate relationship exists that would serve as basis to bring this case within the special commercial court’s jurisdiction under Section 5(b) of PD 902-A, as amended because Rodrigo’s complaint failed the relationship test above. Juanito Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang, G.R. No. 201675, June 19, 2013. ISSUE: Whether based on the allegations of the complaint, the nature of the case is one of a derivative suit or not. HELD: The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits: (1) The person filing the suit must be a stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed; (2) He must have exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang brothers and their spouses. The check was issued to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan were used for payment of the obligations of the other corporations owned by the Angs as well as the purchase of real properties for the Ang brothers. SMBI was never a party to the Settlement Agreement or the Mortgage. It was never named as a co-debtor or guarantor of the loan. Both instruments were executed by Juanito and Anecita in their personal capacity, and not in their capacity as directors or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation. Corporation; derivative suit. A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce corporate rights against the corporation’s directors, officers or other insiders. Under Sections 23 and 36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the right to decide whether or not a corporation should sue. Since these directors or officers will never be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law to bring an action in the name of the corporation to hold these directors and officers accountable. In derivative suits, the real party in interest is the corporation, while the stockholder is a mere nominal party. Lanuza vs. CA GR No. 131394 | March 28, 2005 Facts: Petitioners seek to nullify the Court of Appeals’ Decision in CA–G.R. SP No. 414731 promulgated on 18 August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals dated 31 October 1997 which denied petitioners’ motion for reconsideration. 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 Onrubia et. al, 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. 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, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their property rights was filed before the SEC over 120 founders’ shares and 12 common shares owned by their father SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set of officers. SEC en banc: affirmed the decision As a result, the shares of Acayan were recorded in the stock and transfer book. On May 6, 1992, a special stockholders’ meeting was held to elect a new set of directors Onrubia et al filed a petition with SEC questioning the validity of said 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 Petition was dismissed SC en banc: shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. Called for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the following issues: 1. whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders’ meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation (They contended that the basis is the stock and transfer book, not articles of incorporation in computing the quorum) 2. whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al CA decision: 1. For purposes of transacting business, the quorum should be based on the outstanding capital stock as found in the articles of incorporation 2.To require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides. the incorporators have already proved their stockholdings through the provisions of the articles of incorporation. Appeal was made by Lanuza et al before the SC Lanuza et al’ contention: a. 1992 stockholders’ meeting was valid and legal b. Reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book Onrubia et al prepared c. Onrubia et al must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding in order to avail of the benefits secured by the heirs of Acayan Onrubia et al’s contention, based on the Memorandum: petition should be dismissed on the ground of res judicata Another appeal was made Lanuza et al’s contention: instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation Onrubia et al’s manifestation and motion: moved for the dismissal of the case Issue: What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book? Ruling: Articles of Incorporation 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. Contents are binding, not only on the corporation, but also on its shareholders. Stock and transfer book 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 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 Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of 700 founders’ shares and 76 common shares. Hence, at that time, the corporation had 776 issued and outstanding shares. According to Sec. 52 of the Corp Code, “a quorum shall consist of the stockholders representing a majority of the outstanding capital stock.” As such, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares 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. 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. A corporation’s records are not the only evidence of the ownership of stock in a corporation. It is no less than the articles of incorporation that 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 WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners Ong Yong v. Tiu, G.R.144476, April 8, 2003 FACTS: • 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when  its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius,  became heavily indebted to the Philippine National Bank (PNB) for P190M • To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong,  Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the  Ongs), to invest in FLADC.  • Pre­Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in  FLADC • Ongs: subscribe to 1,000,000 shares  • Tius: subscribe to an additional 549,800 shares in addition to their already existing  subscription of 450,200 shares • Tius: nominate the Vice­President and the Treasurer plus 5 directors  • Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the  board of directors of FLADC and right to manage and operate the mall. • Tius: contribute to FLADC a 4­storey building P20M (for 200K shares)and 2 parcels of land  P30M (for 300K shares) and P49.8M (for 49,800 shares)  • Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for  their subscription to 1M shares) • February 23, 1996: Tius rescinded the Pre­Subscription Agreement • February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking  confirmation of their rescission of the Pre­Subscription Agreement  • SEC: confirmed recission of Tius • Ongs filed reconsideration that their P70M was not a premium on capital stock but  an advance loan • SEC en banc: affirmed it was a premium on capital stock • CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to  rescission) but, "for practical considerations," that is, their inability to work together, it was best to separate the two groups by rescinding the Pre­Subscription Agreement, returning the original  investment of the Ongs and awarding practically everything else to the Tius. ISSUE: W/N Specific performance and NOT recission is the remedy HELD: YES.  Ongs granted. • did not justify the rescission of the contract • providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice­President and Treasurer, respectively, had no bearing on their obligations under the Pre­Subscription Agreement since  the obligation pertained to FLADC itself  • failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions  also pertained to the corporation and not to the Ongs • the principal objective of both parties in entering into the Pre­Subscription Agreement in 1994  was to raise the P190 million  • law requires that the breach of contract should be so "substantial or fundamental" as to defeat  the primary objective of the parties in making the agreement • since the cash and other contributions now sought to be returned already belong to FLADC, an   innocent third party, said remedy may no longer be availed of under the law. • Any contract for the acquisition of unissued stock in an existing corporation or a corporation  still to be formed shall be deemed a subscription within the meaning of this Title,  notwithstanding the fact that the parties refer to it as a purchase or some other contract • allows the distribution of corporate capital only in three instances: (1) amendment of the  Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable  shares by the corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and eventual liquidation of the corporation. • They want this Court to make a corporate decision for FLADC.  • The Ongs' shortcomings were far from serious and certainly less than substantial; they were in  fact remediable and correctable under the law. It would be totally against all rules of justice,  fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds. JOSELITO MUSNI PUNO VS PUNO ENTERPRISES, INC. G.R. 177066, SEPTEMBER 11, 2013 Facts: Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a complaint for specific performance against respondent. Petitioner averred that he is the son of the deceased with the latters common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his late father as stockholder of respondent. The complaint thus prayed that respondent allow petitioner to inspect its corporate book, render an accounting of all the transactions it entered into from 1962, and give petitioner all the profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno.[2] Respondent filed a motion to dismiss on the ground that petitioner did not have the legal personality to sue because his birth certificate names him as Joselito Musni Muno. Apropos, there was yet a need for a judicial declaration that Joselito Musni Puno and Joselito Musni Muno were one and the same. The court ordered that the proceedings be held in abeyance, ratiocinating that petitioners certificate of live birth was no proof of his paternity and relation to Carlos L. Puno. Petitioner submitted the corrected birth certificate with the name Joselito M. Puno, certified by the Civil Registrar of the City of , and the Certificate of Finality thereof. To hasten the disposition of the case, the court conditionally admitted the corrected birth certificate as genuine and authentic and ordered respondent to file its answer within fifteen days from the order and set the case for pretrial. ISSUES: WON THE PETITIONER IS ENTITLED TO INSPECT THE CORPORATE BOOKS OF DEFENDANT CORPORATION. HELD: The petition is without merit. Petitioner failed to establish the right to inspect respondent corporations books and receive dividends on the stocks owned by Carlos L. Puno. Petitioner anchors his claim on his being an heir of the deceased stockholder. However, we agree with the appellate court that petitioner was not able to prove satisfactorily his filiation to the deceased stockholder; thus, the former cannot claim to be an heir of the latter. In any case, Sections 74 and 75 of the Corporation Code enumerate the persons who are entitled to the inspection of corporate books, thus Sec. 74. Books to be kept; stock transfer agent. x x x. The records of all business transactions of the corporation and the minutes of any meeting 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. xxxx Sec. 75. Right to financial statements. Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss of statement for said taxable year, showing in reasonable detail its assets and liabilities and the result of its operations. G.R. No. 172222, November 11, 2013 VICTOR AFRICA vs. SANDIGANBAYAN and BARBARA ANNE C. MIGALLOS FACTS: In 1972, Eastern Extension Australasia and China Telegraph Company, Ltd. (Eastern Extension), a subsidiary of foreign-owned Cable & Wireless, Ltd., got instructions from the Marcos government to reorganize its telecommunications business in the Philippines into a 60/40 corporation in favor of Filipinos. This prompted Eastern Extension to negotiate with Philippine Overseas Telecoms Corporation, a company controlled by Manuel Nieto, Jr. and represented by Atty. Jose Africa, for the formation of Eastern Telecommunications Philippines, Inc. (ETPI), 60% of the capital stock of which went to the group consisting of Roberto Benedicto, Atty. Africa, and Nieto (at times referred to as the BAN group) while 40% remained with Cable & Wireless. The latter company took charge of operations pursuant to a management contract with ETPI. In the aftermath, ETPI generated substantial dividends for the BAN group. Eventually, the latter spread its shares to three corporations: a) Aerocom Investors, b) Universal Molasses, and c) Polygon Investors and Managers. With their combined holdings, the BAN group managed to fill up key management positions and issue shares to relatives and associates. On March 14, 1986, following the fall of the Marcos government, the Presidential Commission on Good Government (PCGG) sequestered the ETPI shares of the BAN group and their corporations, relatives, and associates upon a prima facie finding that these belonged to favored Marcos cronies. On July 22, 1987, PCGG filed with the Sandiganbayan Civil Case 009 to recover these shares. The suit gave rise to various incidents. In one, petitioner Victor Africa (Africa), who took the cudgels for his fellow registered stockholders, filed a motion with the Sandiganbayan for the holding of ETPI’s 1992 annual stockholders’ meeting to settle the conflict between two sets of ETPI Board of Directors: one elected on August 7, 1991 in which the PCGG voted the sequestered shares and the other on a subsequent date where the registered stockholders elected a second board. Apparently, however, the PCGG Board acquired control of ETPI’s operations. On November 13, 1992 the Sandiganbayan granted Africa’s motion and ordered the holding of a stockholders’ meeting to elect a new Board of Directors, at which meeting the PCGG was to vote only (a) the Benedicto shares (12.8% of total) that were voluntarily ceded to the Government; (b) the shares seized from Malacañang (3.1%), and (c) the shares that Nieto admitted as belonging to President Marcos (8.0%). On November 26, 1992, however, upon the PCGG’s petition in G.R. 107789 this Court temporarily enjoined that stockholders’ meeting. Meantime, because of the need to comply with Executive Order 1091 and Republic Act (R.A.) 7925,2 on December 13, 1996 the PCGG, acting on referral from this Court, granted its petition to hold a special stockholders’ meeting to increase ETPI’s authorized capital stock. PCGG voted the sequestered shares of stock3 in the meeting held on March 17, 1997 to approve the increase in ETPI’s authorized capital stock. Africa contested the validity of PCGG’s vote in that stockholders’ meeting before this Court in G.R. 147214. ISSUE: Whether or not the Sandiganbayan acted with grave abuse of discretion in allowing the transfer of Aerocom’s shares to AGNP in its book and in issuing new stock certificates to the latter; HELD: Africa also assails the Sandiganbayan’s action in allowing the registration in the book of ETPI of Aerocom’s sale of its shares to AGNP, given that he had challenged before this Court the validity of the ETPI Board of Directors’ waiver of its option of first refusal in relation to that sale. Africa claims that the Sandiganbayan should have first resolved the question of the legitimacy of the ETPI Board of Directors that the PCGG put into office in 1991 by voting the sequestered shares. But, as this Court found above, the PCGG voted the sequestered shares during the 1991 stockholders’ meeting, having assumed that this could be implied from the order of this Court which allowed it to hold that meeting in order to elect a new Board of Directors. And, since neither the Sandiganbayan nor this Court enjoined that Board from performing its functions, no legal impediment prevented it in 2001 from waiving ETPI’s right of first refusal when Aerocom gave notice of its intent to sell its shares to AGNP. For the same reason, the Sandiganbayan committed no error in allowing the subsequent registration of the sale in the book of the corporation in 2006 following some delays. The fact that the corporate secretary asked for leave to register the transfer five years after the sale did not make the transfer irregular. This Court held in Lee E. Won v. Wack Wack Golf & Country Club, Inc., that since the law does not prescribe a period for such kind of registration, the action to enforce the right to have it done does not begin to toll until a demand for it had been made and was refused. This did not happen in this case.