Topic: Stockholders and Members, Derivative Suit

Case no. 385

Ang vs. Ang

G.R. No. 201675, June 19, 2013

FACTS:

Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation

owned by the Ang family. Juanito Ang (Juanito) and Roberto Ang (Roberto) are
siblings. Anecita Limoco-Ang (Anecita) is Juanito’s wife and Jeannevie is their
daughter. Roberto was elected President of SMBI, while Juanito was elected as its
Vice President. Rachel Lu-Ang (Rachel) and Anecita are SMBI’s Corporate Secretary
and Treasurer, respectively.

On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her
husband, Theodore Ang (Theodore), agreed to extend a loan to settle the obligations
of SMBI and other corporations owned by the Ang family, specifically Bayshore Aqua
Culture Corporation, Oceanside Marine Resources and JR Aqua Venture. The spuoses
then issued a check in the amount of $1,000,000.00 payable to "Juanito Ang and/or
Anecita Ang and/or Roberto Ang and/or Rachel Ang."

On 22 December 2005, SMBI increased its authorized capital stock to

₱10,000,000.00. The Certificate of Increase of Capital Stock was signed by Juanito,
Anecita, Roberto, and Rachel as directors of SMBI. Juanito claimed, however, that
the increase of SMBI’s capital stock was done in contravention of the Corporation
Code. According to Juanito, when he and Anecita left for Canada:

Sps. Roberto and Rachel Ang took over the active management of [SMBI].
Through the employment of sugar coated words, they were able to successfully
manipulate the stocks sharings between themselves at 50-50 under the condition
that the procedures mandated by the Corporation Code on increase of capital stock
be strictly observed (valid Board Meeting). No such meeting of the Board to increase
capital stock materialized. It was more of an accommodation to buy peace x x x.

Juanito claimed that payments to Nancy and Theodore ceased sometime after
2006. On 24 November 2008, Nancy and Theodore, through their counsel here in the
Philippines, sent a demand letter to "Spouses Juanito L. Ang/Anecita L. Ang and
Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal amounting to
$1,000,000.00 plus interest at ten percent (10%) per annum, for a total of
$2,585,577.37 within ten days from receipt of the letter. Roberto and Rachel then
sent a letter to Nancy and Theodore’s counsel on 5 January 2009, saying that they are
not complying with the demand letter because they have not personally contracted a
loan from Nancy and Theodore.

Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-
parte Writ of Attachment/Receivership" (Complaint) before the RTC Bacolod on 29
January 2009. He alleged that "the intentional and malicious refusal of defendant
Sps. Roberto and Rachel Ang to settle their 50% share x x x of the total obligation x x
x will definitely affect the financial viability of plaintiff SMBI.” Juanito also claimed
that he has been "illegally excluded from the management and participation in the
business of [SMBI through] force, violence and intimidation" and that Rachel and
Roberto have seized and carted away SMBI’s records from its office.

ISSUE:

Is the nature of the case one of a derivative suit?

RULING:

No. the Complaint is not a 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. 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 ininterest is the corporation, while the
stockholder is a mere nominal party.

The Complaint failed to show how the acts of Rachel and Roberto resulted in
any detriment to SMBI. 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.
Topic: Stockholders and Members, Voting

Case no. 414

RAMON C. LEE and ANTONIO DM. LACDAO

vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO
GONZALES, JR. and THOMAS GONZALES
G.R. No. 93695 February 4, 1992

FACTS:

In 1985, a complaint for 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 Integrated Textile Mills (ALFA) and the petitionersRamon C.
Lee and Antonio Dm. Lacdao who were officers of ALFA. Meanwhile, in 1988, the trial
court issued an order requiring the issuance of an alias summons upon ALFA through
the DBP as a consequence of the petitioners' 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 Development Bank of the
Philippines (DBP).
In a manifestation, 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.

ISSUE:

Should the summons be served upon the petitioners who were officers and
directors of ALFA (the trustor), despite the execution of the Voting Trust Agreement?

RULING:

NO. There is no dispute as to the most immediate effect of a voting trust

agreement on the status of a stockholder who is a party to its execution from legal
titleholder or owner of the shares subject of the voting trust agreement, he becomes
the equitable or beneficial owner.
Note 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
Considering that the voting trust agreement between ALFA and the DBP transferred
legal ownership of the stocks covered by the agreement to the DBP as trustee, the
latter became the stockholder of record with respect to the said shares of stocks. In
the absence of a showing that the DBP had caused to be transferred in their names
one share of stock for the purpose of qualifying as directors of ALFA, the petitioners
can no longer be deemed to have retained their status as officers of ALFA which was
the case before the execution of the subject voting trust agreement. There appears
to be no dispute from the records that DBP has taken over full control and
management of the firm.
Topic: Capital Affairs, Certificate of Stock

Case no. 433

NORA A. BITONG
vs.
COURT OF APPEALS
G.R. No. 123553. July 13, 1998

FACTS:

Bitong alleged that she was the treasurer and member of the BoD of Mr. &
Mrs. Corporation. She filed a complaint with the SEC to hold respondent spouses
Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of the corporation to the
prejudice of the stockholders. She alleges that certain transactions entered into by
the corporation were not supported by any stockholder’s resolution. The complaint
sought to enjoin Apostol from further acting as president-director of the corporation
and from disbursing any money or funds.
Apostol contends that Bitong was merely a holder-in-trust of the JAKA shares
of the corporation, hence, not entitled to the relief she prays for. SEC Hearing Panel
issued a writ enjoining Apostol. After hearing the evidence, SEC Hearing Panel
dissolved the writ and dismissed the complaint filed by Bitong. Bitong appealed to
the SEC en banc which reversed SEC Hearing Panel decision. Apostol filed petition for
review with the CA. CA reversed SEC en banc ruling holding that Bitong was not the
owner of any share of stock in the corporation and therefore, not a real party in
interest to prosecute the complaint.

ISSUE:

Is Bitong the real party in interest?

RULING:

NO.

It could be gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the true party in interest
was JAKA. Although her buying of the shares were recorded in the Stock and
Transfer Book of the corporation, and as provided by Sec. 63 of the Corp Code that
no transfer shall be valid except as between the parties until the transfer is recorded
in the books of the corporation, and upon its recording the corporation is bound by it
and is estopped to deny the fact of transfer of said shares, this provision is not
conclusive even against the corporation but are prima facie evidence only.
 Parol evidence may be admitted to supply the omissions in the records,
explain ambiguities, or show what transpired where no records were kept, or in
some cases where such records were contradicted.
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. However, the books and
records of a corporation are not conclusive even against the corporation but are
prima facie evidence only. The effect of entries in the books of the corporation which
purport to be regular records of the proceedings of its board of directors or
stockholders can be destroyed by testimony of a more conclusive character than
mere suspicion that there was an irregularity in the manner in which the books were
kept.
Topic: Capital Affairs, Transfer of Shares of Stock and Registration

Case no. 452

JOSELITO MUSNI PUNO (as heir of the late Carlos Puno)

vs.
PUNO ENTERPRISES, INC., represented by JESUSA PUNO
G.R. No. 177066, September 11, 2009

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 latter’s
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.
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.

ISSUE:

Was there an automatic transfer of shares of stock?

RULING:

NO.

Upon the death of a shareholder, the heirs do not automatically become

stockholders of the corporation and acquire the rights and privileges of the deceased
as shareholder of the corporation. The stocks must be distributed first to the heirs in
estate proceedings, and the transfer of the stocks must be recorded in the books of
the corporation. Section 63 of the Corporation Code provides that no transfer shall
be valid, except as between the parties, until the transfer is recorded in the books of
the corporation.16 During such interim period, the heirs stand as the equitable owners
of the stocks, the executor or administrator duly appointed by the court being vested
with the legal title to the stock.17 Until a settlement and division of the estate is
effected, the stocks of the decedent are held by the administrator or executor.
Consequently, during such time, it is the administrator or executor who is entitled to
exercise the rights of the deceased as stockholder.
Thus, even if petitioner presents sufficient evidence in this case to establish
that he is the son of Carlos L. Puno, he would still not be allowed to inspect
respondent’s books and be entitled to receive dividends from respondent, absent
any showing in its transfer book that some of the shares owned by Carlos L. Puno
were transferred to him. This would only be possible if petitioner has been
recognized as an heir and has participated in the settlement of the estate of the
deceased.
Corollary to this is the doctrine that a determination of whether a person,
claiming proprietary rights over the estate of a deceased person, is an heir of the
deceased must be ventilated in a special proceeding instituted precisely for the
purpose of settling the estate of the latter. The status of an illegitimate child who
claims to be an heir to a decedent’s estate cannot be adjudicated in an ordinary civil
action, as in a case for the recovery of property. The doctrine applies to the instant
case, which is one for specific performance — to direct Respondent Corporation to
allow petitioner to exercise rights that pertain only to the deceased and his
representatives.
Topic: Capital Affairs, Transfer of Shares of Stock and Registration

Case no. 471

LEE E. WON alias RAMON LEE

vs.
WACK WACK GOLF and COUNTRY CLUB, INC.
G.R. No. L-10122, August 30, 1958

Facts:

The defendant (a non-stock corporation) issued to Iwao Teruyama

Membership Certificate No. 201 which was assigned to M. T. Reyes on April 22, 1944.
Subsequently in the same year 1944, M. T. Reyes transferred and assigned said
certificate to the plaintiff. On April 26, 1955, the plaintiff filed an action in the Court of
First Instance of Manila against the defendant, alleging that shortly after the
rehabilitation of the defendant after the war, the plaintiff asked the defendant to
register in its books the assignment in favor of the plaintiff and to issue to the latter a
new certificate, but that the defendant had refused and still refuses to do so
unlawfully; and praying that the plaintiff be declared the owner of one share of stock
of the defendant and that the latter be ordered to issue a correspondent new
certificate. On June 6, 1955, the defendant filed a motion to dismiss, alleging that
from 1944, when the plaintiff's right of action had accrued, to April 26, 1955, when
the complaint was filed, eleven years have elapsed, and that therefore the complaint
was filed beyond the 5-year period fixed in Article 1149 of the Civil Code. On July 30,
1955, the Court of First Instance of Manila issued an order dismissing the complaint.
As plaintiff's motion for reconsideration filed on August 27, 1955 and second motion
for reconsideration filed on September 13, 1955, were both denied, the plaintiff has
taken the present appeal.

Issue:

Is plaintiff is entitled to the registration of the transferred share of stock?

RULING:

NO.

The certificate in question contains a condition to the effect that no

assignment thereof "shall be effective with respect to the club until such assignment
is registered in the books of the club, as provided in the By-Laws." The decisive
question that arises is whether the plaintiff was bound, under said condition and By-
Laws of the defendant or any statutory rule for that matter, to present and register
the certificate assigned to him in 1944 within any definite or fixed period. The
defendant has not made herein any pretense to that effect; but it contends that from
the moment the certificate was assigned to the plaintiff, the latter's right to have the
assignment registered commenced to exist. This contention is correct, but it would
not follow that said right should be exercised immediately or within a definite period.
The existence of a right is one thing, and the duration of said right is another.
On the other hand, it is stated in the appealed order of dismissal that the
plaintiff sought to register the assignment on April 13, 1955; whereas in plaintiff's
brief it is alleged that it was only in February, 1955, when the defendant refused to
recognize the plaintiff. If, as already observed, there is no fixed period for registering
an assignment, how can the complaint be considered as already barred by the
Statute of Limitations when it was filed on April 26, 1955, or barely a few days
(according to the lower court) and two months (according to the plaintiff), after the
demand for registration and its denial by the defendant. Plaintiff's right was violated
only sometime in 1955, and it could not accordingly have asserted any cause of action
against the defendant before that.
Topic: Alienation of Shares

Case no. 490

RICARDO NAVA
vs.
PEERS MARKETING CORP., RENATO CUSI and AMPARO CUSI
GR L-28120, 25 November 1976

FACTS:

Teofilo Po as an incorporator subscribed to eighty shares of Peers Marketing

Corporation at one hundred pesos a share or a total par value of eight thousand
pesos. Po paid two thousand pesos or twenty-five percent of the amount of his
subscription. No certificate of stock was issued to him or, for that matter, to any
incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of
his eighty shares. In the deed of sale Po represented that he was "the absolute and
registered owner of twenty shares" of Peers Marketing Corporation.
Nava requested the officers of the corporation to register the sale in the
books of the corporation. The request was denied because Po has not paid fully the
amount of his subscription. Nava was informed that Po was delinquent in the
payment of the balance due on his subscription and that the corporation had a claim
on his entire subscription of eighty shares which included the twenty shares that had
been sold to Nava.

ISSUE:

Can Peers may be compelled by mandamus to register the stocks in Nava’s

name?

RULING:

NO.

There’s no certificate of stock issued in favor of Po. Shares of stock may be

transferred by delivery to the transferee of the certificate properly indorsed. "Title
may be vested in the transferee by delivery of the certificate with a written
assignment or indorsement thereof" There should be compliance with the mode of
transfer prescribed by law.
 The usual practice is for the stockholder to sign the form on the back of the
stock certificate. The certificate may thereafter be transferred from one person to
another. If the holder of the certificate desires to assume the legal rights of a
shareholder to enable him to vote at corporate elections and to receive dividends, he
fills up the blanks in the form by inserting his own name as transferee. Then he
delivers the certificate to the secretary of the corporation so that the transfer may be
entered in the corporation's books. The certificate is then surrendered and a new one
issued to the transferee.
That procedure cannot be followed in the instant case because, as already
noted, the twenty shares in question are not covered by any certificate of stock in
Po's name. Moreover, the corporation has a claim on the said shares for the unpaid
balance of Po's subscription. A stock subscription is a subsisting liability from the
time the subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the corporation to
demand payment is no less incontestable.
In this case no stock certificate was issued to Po. Without the stock certificate,
which is the evidence of ownership of corporate stock, the assignment of corporate
shares is effective only between the parties to the transaction.
Topic: Merger and Consolidation

Case no. 509

POLIAND INDUSTRIAL LIMITED

vs.
NATIONAL DEVELOPMENT COMPANY

G.R. No. 143866. August 22, 2005

FACTS:

Between October 1979 and March 1981, Asian Hardwood Limited (Asian
Hardwood), a Hong Kong corporation, extended credit accommodations in favor of
GALLEON totaling US$3,317,747.32.2 At that time, GALLEON, a domestic corporation
organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the
maritime transport of goods. The advances were utilized to augment GALLEON’s
working capital depleted as a result of the purchase of five new vessels and two
second-hand vessels in 1979 and competitiveness of the shipping industry. GALLEON
had incurred an obligation in the total amount of US$3,391,084.91 in favor of Asian
Hardwood.

To finance the acquisition of the vessels, GALLEON obtained loans from

Japanese lenders, namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni
Benelux. On October 10, 1979, GALLEON, through Cuenca, and DBP executed a Deed
of Undertaking3 whereby DBP guaranteed the prompt and punctual payment of
GALLEON’s borrowings from the Japanese lenders. To secure DBP’s guarantee under
the Deed of Undertaking, GALLEON promised, among others, to secure a first
mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON
executed on January 25, 1982 a mortgage contract over five of its vessels namely,
M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon Dignity," M/V "Galleon
Pride," and M/V "Galleon Trust" in favor of DBP.4

Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of

Instruction (LOI) No. 1155, directing NDC to acquire the entire shareholdings of
GALLEON for the amount originally contributed by its shareholders payable in five (5)
years without interest cost to the government. In the same LOI, DBP was to advance
to GALLEON within three years from its effectivity the principal amount and the
interest thereon of GALLEON’s maturing obligations.

On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC,
represented by Minister of Trade Roberto Ongpin, forged a Memorandum of
Agreement,5 whereby NDC and GALLEON agreed to execute a share purchase
agreement within sixty days for the transfer of GALLEON’s shareholdings. Thereafter,
NDC assumed the management and operations of GALLEON although Cuenca
remained president until May 9, 1982.6 Using its own funds, NDC paid Asian
Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement
of GALLEON’s obligations.7

On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the
mortgage on the five vessels. For failure of GALLEON to pay its debt despite repeated
demands from DBP, the vessels were extrajudicially foreclosed on various dates and
acquired by DBP for the total amount of ₱539,000,000.00. DBP subsequently sold
the vessels to NDC for the same amount. The Board of Directors of GALLEON
amended the Articles of Incorporation changing the corporate name from Galleon
Shipping Corporation to National Galleon Shipping Corporation and increasing the
number of directors from seven to nine.

Asian Hardwood assigned its rights over the outstanding obligation of

GALLEON of US$2,315,747.32 to World Universal Trading and Investment Company,
S.A. (World Universal), embodied in a Deed of Assignment executed on April 29,
1989.10 World Universal, in turn, assigned the credit to petitioner POLIAND sometime
in July 1989.11

On March 24, 1988, then President Aquino issued Administrative Order No. 64,
directing NDC and Philippine Export and Foreign Loan Guarantee Corporation (now
Trade and Investment Development Corporation of the Philippines) to transfer some
of their assets to the National Government, through the Asset Privatization Trust
(APT) for disposition. Among those transferred to the APT were the five GALLEON
vessels sold at the foreclosure proceedings.

On September 24, 1991, POLIAND made written demands on GALLEON, NDC,

and DBP for the satisfaction of the outstanding balance in the amount of
US$2,315,747.32.12 For failure to heed the demand, POLIAND instituted a collection
suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial
Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and
the Memorandum of Agreement between GALLEON and NDC, defendants GALLEON,
NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit
advances/loan accommodations to GALLEON. POLIAND also claimed that it had a
preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of
GALLEON’s vessels mortgaged by NDC to DBP. The complaint prayed for judgment
ordering NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance
of the credit advances/loan accommodations in the amount of US$2,315,747.32 and
attorney’s fees of ₱100,000.00 plus 20% of the amount recovered. By way of an
alternative cause of action, POLIAND sought reimbursement from NDC and DBP for
the preferred maritime lien of US$1,193,298.56.13
 In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being
a party to any of the alleged loan transactions. Accordingly, DBP argued that
POLIAND’s complaint stated no cause of action against DBP or was barred by the
Statute of Frauds because DBP did not sign any memorandum to act as guarantor for
the alleged credit advances/loan accommodations in favor of POLIAND. DBP also
denied any liability under LOI No. 1155, which it described as immoral and
unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative
Allegations and Defenses, DBP countered that it was unaware of the maritime lien on
the five vessels mortgaged in its favor and that as far as GALLEON’s foreign
borrowings are concerned, DBP agreed to act as guarantor thereof only under the
conditions laid down under the Deed of Undertaking. DBP prayed for the award of
actual, moral and exemplary damages and attorney’s fees against POLIAND as
compulsory counterclaim. In the event that it be adjudged liable for the payment of
the loan accommodations and the maritime liens, DBP prayed that its co-defendant
GALLEON be ordered to indemnify DBP for the full amount.14

For its part, NDC denied any participation in the execution of the loan
accommodations/credit advances and acquisition of ownership of GALLEON,
asserting that it acted only as manager of GALLEON. NDC specifically denied having
agreed to the assumption of GALLEON’s liabilities because no purchase and sale
agreement was executed and the delivery of the required shares of stock of
GALLEON did not take place.15

ISSUE:

Is the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in
GALLEON without disregarding applicable statutory requirements governing the
acquisition of a corporation.

RULING:

Ordinarily, in the merger of two or more existing corporations, one of the

combining corporations survives and continues the combined business, while the rest
are dissolved and all their rights, properties and liabilities are acquired by the
surviving corporation. The merger shall only be effective upon the issuance of a
certificate of merger by the Securities and Exchange Commission (SEC), subject to its
prior determination that the merger is not inconsistent with Corporation Code. The
Court cannot accept POLIAND’s theory that with the effectivity of LOI No. 1155, NDC
ipso facto acquired the interests in GALLEON without disregarding applicable
statutory requirements governing the acquisition of a corporation. Ordinarily, in the
merger of two or more existing corporations, one of the combining corporations
survives and continues the combined business, while the rest are dissolved and all
their rights, properties and liabilities are acquired by the surviving corporation. The
merger, however, does not become effective upon the mere agreement of the
constituent corporations. As specifically provided under Section 79 of said Code, the
merger shall only be effective upon the issuance of a certificate of merger by the
Securities and Exchange Commission (SEC), subject to its prior determination that
the merger is not inconsistent with the Code or existing laws. Where a party to the
merger is a special corporation governed by its own charter, the Code particularly
mandates that a favorable recommendation of the appropriate government agency
should first be obtained. The issuance of the certificate of merger is crucial because
not only does it bear out SEC’s approval but also marks the moment whereupon the
consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed 4 corporation ceases to exist but its rights, and properties as
well as liabilities shall be taken and deemed transferred to and vested in the surviving
corporation.
Topic: Liquidation

Case no. 528

RENE KNECHT AND KNECHT INC.

vs.
UNITED CIGARETTE INC.
GR NO. 139370, JULY 4, 2002

FACTS:

Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns

parcels of land one of which is covered by TCT No. 73620 which was mortgaged with
the Philippine Commercial and Industrial Bank (PCIB). Said parcels of land were later
sold to United Cigarette Corporation (UCC), through its President Rene Knecht,
where Rose Packing made a warranty that the lots are free from all liens and
encumbrances, except the real estate mortgage constituted over the area covered
by TCT No. 73620.
Before the deed of sale could be executed, the parties found that Rose
Packing’s actual obligation with the PCIB far exceeded the P250,000.00 which UCC
assumed to pay under their agreement. So the PCIB demanded additional collateral
from UCC as a condition precedent for the approval of the sale of the mortgaged
property. However, UCC did not comply.
Meanwhile, Rose Packing again offered to sell the same lots to other
prospective buyers without the knowledge of UCC and without returning to the
latter the earnest money it earlier paid.

ISSUE:

Would the execution of the judgment still lie against a dissolved corporation?

RULING:

YES.

In Reburiano vs. Court of Appeals, a case with similar facts, this Court held that
“the trustee (of a dissolved corporation) may commence a suit which can proceed to
final judgment even beyond the three-year period (of liquidation), no reason can be
conceived why a suit already commenced by the corporation itself during its
existence, not by a mere trustee who, by fiction, merely continues the legal
personality of the dissolved corporation, should not be accorded similar treatment –
to proceed to final judgment and execution thereof.”
 The dissolution of UCC itself, or the expiration of its three-year liquidation
period, should not be a bar to the enforcement of its rights as a corporation. One of
these rights, to be sure, includes the UCC’s right to seek from the court the execution
of a valid and final judgment in Civil Case No. 9165 – through its trustee/liquidator
Encarnacion Gonzales Wong – for the benefit of its stockholders, creditors and any
other person who may have legal claims against it. To hold otherwise would be to
allow petitioners to unjustly enrich themselves at the expense of UCC. This, in effect,
renders nugatory all the efforts and expenses of UCC in its quest to secure justice,
not to mention the undue delay in disposing of this case prejudicial to the
administration of justice.
Topic: Close Corporations

Case no. 547

MANUEL R. DULAY ENTERPRISES, INC

vs.
THE HONORABLE COURT OF APPEALS
G.R. No. 91889, August 27, 1993

FACTS:

Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as

members of its Board of Directors: Manuel R. Dulay with 19,960 shares and
designated as president, treasurer and general manager, Atty. Virgilio E. Dulay with 10
shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-
Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as
secretary, owned a property covered by TCT No. 17880 and known as Dulay
Apartment consisting of sixteen (16) apartment units on a six hundred eighty-nine
(689) square meters lot, more or less, located at Seventh Street (now Buendia
Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various
loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick
Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to
continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied
one of the unit apartments of the subject property since property since 1973 while at
the same time managing the Dulay Apartment at his shareholdings in the corporation
was subsequently increased by his father.
Manuel Dulay by virtue of Board Resolution petitioner corporation sold the
subject property to private respondents spouses Maria Theresa and Castrense Veloso
in the amount of P300,000.00 as evidenced by the Deed of Absolute
Sale.Subsequently, private respondent Maria Veloso, without the knowledge of
Manuel Dulay, mortgaged the subject property to private respondent Manuel A.
Torres for a loan of P250,000.00 which was duly annotated.Upon the failure of
private respondent Maria Veloso to pay private respondent Torres, the subject
property was sold on April 5, 1978 to private respondent Torres as the highest bidder
in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale
issued on April 20, 1978.

ISSUE:

Is the doctrine of piercing the veil of corporate entity applicable?

RULING:
 NO.

Petitioner Corporation is classified as a close corporation and consequently a

board resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president. At any rate,
corporate action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter promptly files
his written objection with the secretary of the corporation after having knowledge of
the meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a
personality distinct and separate from its individual stockholders or members,the veil
of corporate fiction may be pierced when it is used to defeat public convenience
justify wrong, protect fraud or defend crime. The privilege of being treated as an
entity distinct and separate from its stockholder or members is therefore confined to
its legitimate uses and is subject to certain limitations to prevent the commission of
fraud or other illegal or unfair act. When the corporation is used merely as an alter
ego or business conduit of a person, the law will regard the corporation as the act of
that person.
Topic: Religious Coroporations

Case no. 566

IEMELIF, INC.,
vs.
NATANAEL B. JUANE
G.R. No. 172447, September 18, 2009

FACTS:

IEMELIF is a religious corporation existing and duly organized under Philippine

laws. [Juane] is a former minister or pastor of IEMELIF. He was elected as one of the
members of the Highest Consistory of Elders (or Board of Trustees) of IEMELIF in the
February 2000 IEMELIF General Conference. During the concluding Anniversary
Service of said General Conference, IEMELIF Bishop Nathanael P. Lazaro, the General
Superintendent of the whole IEMELIF Church and the General Administrator of the
IEMELIF Cathedral in Tondo, Manila, during the reading of the "IEMELIF Workers’
Assignment", announced the appointment and assignment of Juane as Resident
Pastor of the Cathedral Congregation in Tondo, Manila. By virtue and as a
consequence of such appointment, Defendant Rev. Juane was authorized to stay at
and occupy the Resident Pastor’s residence inside the Cathedral complex. By the
same reason, he also took charge of the Cathedral facilities and other property of the
church in said premises.

ISSUE:

Is the transformation of IEMELF from corporation sole to an aggregate one

valid?

RULING:

YES.

Juane maintains that the "IEMELIF" that filed the Complaint before the MeTC
had no personality to eject him from the subject property. The Church has remained a
corporation sole, since its transformation to a corporation aggregate was legally
defective. Juane, thus, claims that he is now the corporation sole, who is entitled to
the physical possession of the subject property as owner thereof. In fact, on the basis
of these same arguments.
 Even if the transformation of IEMELIF from a corporation sole to a
corporation aggregate was legally defective, its head or governing body, i.e., Bishop
Lazaro, whose acts were approved by the Highest Consistory of Elders, still did not
change. A corporation sole is one formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of a religious denomination, sect, or church,
for the purpose of administering or managing, as trustee, the affairs, properties and
temporalities of such religious denomination, sect or church. As opposed to a
corporation aggregate, a corporation sole consists of a single member, while a
corporation aggregate consists of two or more persons. If the transformation did not
materialize, the corporation sole would still be Bishop Lazaro, who himself
performed the questioned acts of removing Juane as Resident Pastor of the Tondo
Congregation. If the transformation did materialize, the corporation aggregate
would be composed of the Highest Consistory of Elders, which nevertheless
approved the very same acts. As either Bishop Lazaro or the Highest Consistory of
Elders had the authority to appoint Juane as Resident Pastor of the IEMELIF Tondo
Congregation, it also had the power to remove him as such or transfer him to
another congregation.
Topic: Foreign Corporations, Contract Test

Case no. 585

N.V. REEDERIJ "AMSTERDAM” vs. CIR

G.R. No. L-46029, June 23, 1988

FACTS:

From March 27 to April 30, 1963, M.V. Amstelmeer and from September 24 to
October 28, 1964, MV "Amstelkroon, " both of which are vessels of petitioner N.B.
Reederij "AMSTERDAM," called on Philippine ports to load cargoes for foreign
destination. The freight fees for these transactions were paid abroad in the amount
of US $98,175.00 in 1963 and US $137,193.00 in 1964. In these two instances,
petitioner Royal Interocean Lines acted as husbanding agent for a fee or commission
on said vessels. No income tax appears to have been paid by petitioner N.V. Reederij
"AMSTERDAM" on the freight receipts.

CIR, through his examiners, filed the corresponding income tax returns for
and in behalf of the former. Applying the then prevailing market conversion rate of
P3.90 to the US $1.00, the gross receipts of petitioner N.V. Reederij "Amsterdam" for
1963 and 1964 amounted to P382,882.50 and P535,052.00, respectively. On June 30,
1967, respondent Commissioner assessed said petitioner in the amounts of
P193,973.20 and P262,904.94 as deficiency income tax for 1963 and 1964,
respectively, as "a non-resident foreign corporation not engaged in trade or business
in the Philippines under Section 24 (b) (1) of the Tax Code.

On the assumption that the said petitioner is a foreign corporation engaged in

trade or business in the Philippines, on August 28, 1967, petitioner Royal Interocean
Lines filed an income tax return of the aforementioned vessels computed at the
exchange rate of P2.00 to USs1.00 1 and paid the tax thereon in the amount of
P1,835.52 and P9,448.94, respectively, pursuant to Section 24 (b) (2) in relation to
Section 37 (B) (e) of the National Internal Revenue Code and Section 163 of Revenue
Regulations No. 2. On the same two dates, petitioner Royal Interocean Lines as the
husbanding agent of petitioner N.V. Reederij "AMSTERDAM" filed a written protest
against the abovementioned assessment made by the respondent Commissioner
which protest was denied by said respondent in a letter dated March 3, 1969: On
March 31, 1969, petitioners filed a petition for review with the respondent Court of
Tax Appeals praying for the cancellation of the subject assessment. After due
hearing, the respondent court, on December 1, 1976, rendered a decision modifying
said assessments by eliminating the 50% fraud compromise penalties imposed upon
petitioners. Petitioners filed a motion for reconsideration of said decision but this
was denied by the respondent court.
 Petitioners contend that respondent court erred in holding that petitioner
N.V. Reederij "AMSTERDAM" is a non-resident foreign corporation because it
allegedly disregarded Section 163 of Revenue Regulations No. 2 (providing for the
determination of the net income of foreign corporations doing business in the
Philippines) and in holding that the foreign exchange and e receipts of said petitioner
for purposes of computing its income tax should be converted into Philippine pesos
at the rate of P3.90 to US $1.00 instead of P2.00 to US $1.00.

ISSUE:

Whether N.V. Reederij “Amsterdam” not having any office or place of

business in the Philippines, whose vessels called on the Philippine ports for the
purpose of loading cargoes only twice (1963 and in 1964) should be taxed as a foreign
corporation not engaged in trade or business in the Philippines under Sec 24 (b) (1) or
as a foreign corporation engaged in trade or business in the Philippines under Sec 24
(b) (2) in relation to Sec 37 (e) of the Tax Code.

RULING:

Petitioner N.V. Reederij "AMSTERDAM" is a foreign corporation not

authorized or licensed to do business in the Philippines. It does not have a branch
office in the Philippines and it made only two calls in Philippine ports, one in 1963 and
the other in 1964. In order that a foreign corporation may be considered engaged in
trade or business, its business transactions must be continuous. A casual business
activity in the Philippines by a foreign corporation, as in the present case, does not
amount to engaging in trade or business in the Philippines for income tax purposes.

A foreign corporation engaged in trade or business within the Philippines, or

which has an office or place of business therein, is taxed on its total net income
received from all sources within the Philippines at the rate of 25% upon the amount
but which taxable net income does not exceed P100,000.00, and 35% upon the
amount but which taxable net income exceeds P100,000.00. 2 On the other hand, a
foreign corporation not engaged in trade or business within the Philippines and
which does not have any office or place of business therein is taxed on income
received from all sources within the Philippines at the rate of 35% of the gross
income.

Petitioner relies on Section 24 (b) (2) and Section 37 (B) (e) of the Tax Code
and implementing Section 163 of the Income Tax Regulations but these provisions
refer to a foreign corporation engaged in trade or business in the Philippines and not
to a foreign corporation not engaged in trade or business in the Philippines like
petitioner-ship-owner herein.
Topic: Foreign Corporations

Case no. 603

STEELCASE, INC.
vs.
DESIGN INTERNATIONAL SELECTIONS, INC.
G.R. No. 171995, April 18, 2012

FACTS:

Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of

Michigan, United States of America (U.S.A.), and engaged in the manufacture of
office furniture with dealers worldwide. Respondent Design International Selections,
Inc. ("DISI") is a corporation existing under Philippine Laws and engaged in the
furniture business, including the distribution of furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership
agreement whereby Steelcase granted DISI the right to market, sell, distribute,
install, and service its products to end-user customers within the Philippines. The
business relationship continued smoothly until it was terminated sometime in
January 1999 after the agreement was breached with neither party admitting any
fault. Steelcase filed a complaint for sum of money against DISI alleging, among
others, that DISI had an unpaid account of US$600,000.00.

ISSUE:

Whether or not Steelcase is not doing business in the Philippines without

license.

RULING:

YES.

Based on this list, the Supreme Court said that the appointment of a
distributor in the Philippines is not sufficient to constitute "doing business" unless it
is under the full control of the foreign corporation. If the distributor is an
independent entity which buys and distributes products, other than those of the
foreign corporation, for its own name and its own account, the latter cannot be
considered to be doing business in the Philippines.
Applying these rules, the Supreme Court said that DISI was founded in 1979
and is independently owned and managed. In addition to Steelcase products, DISI
also distributed products of other companies including carpet tiles, relocatable walls
and theater settings. The dealership agreement between Steelcase and DISI had
been described by the owner himself as a buy and sell arrangement. This clearly
belies DISI’s assertion that it was a mere conduit through which Steelcase conducted
its business in the country. From the preceding facts, the only reasonable conclusion
that can be reached is that DISI was an independent contractor, distributing various
products of Steelcase and of other companies, acting in its own name and for its own
account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under one of the exceptions
under R.A. No. 7042.
A foreign corporation doing business in the Philippines without a license may
maintain suit in the Philippines against a domestic corporation or person who is party
to a contract as the domestic corporation or person is deemed estopped from
challenging the personality of the foreign corporation.
Topic: Foreign Corporations

Case no. 622

TIME, INC.
vs.
REYES
G.R. No.L-28882, May 31, 1971

FACTS:

This is a petition by Time, Inc. for certiorari and prohibition, with preliminary
injunctions, to annul certain orders of the respondent CFI of Rizal, issued in its Civil
Case No. 10403, entitled “ Antonio J. Villegas and Juan Ponce Enrile vs. Time, Inc.,”
and to prohibit the said Rizal court from further proceeding with the said civil case
contending that it is the Manila CFI which has the jurisdiction.
The petition alleges that the petitioner time, Inc., is an American Corporation
with principal offices at Rockefeller Center, New York City, N.Y., and is the publisher
of “Time”, a weekly magazine; the petition, however, does not alleged the
petitioner’s legal capacity to sue in the courts of the Philippines.
In said civil case, therein plaintiffs Antonio J. Villegas and Juan Ponce Enrile
seek to recover from the therein petitioner damages upon an alleged of libel arising
from a publication of time(Asia Edition) magazine, in its issue of 18 August 1967, of an
essay, entitled “Corruption in Asia”.

ISSUE:

Will the petition prosper?

RULING:

YES.

The dismissal of the present petition is asked on the ground that the
petitioner foreign corporation failed to allege its capacity to sue in the courts of the
Philippines.
The Court failed to see how these doctrines can be a propos in the case at bar,
since the petitioner is not maintaining any suit” but is merely defending one against
itself; it did not file any complaint but only a corollary defensive petition to prohibit
the lower court from further proceeding with a suit that it had no jurisdiction to
entertain.
Petitioner’s failure to aver its legal capacity to institute the present petition is
not fatal, for a foreign corporation may by writ of prohibition, seek relief against the
wrongful assumption of jurisdiction. And a foreign corporation seeking a writ of
prohibition against further maintenance a suit, on the ground of want jurisdiction, is
not bound by the ruling of the court in which the suit was brought, on the motion to
quash service of summons, that it has jurisdiction”.
The writs applied for are granted: the respondent Court of First Instance of
Rizal is declared without jurisdiction to take cognizance of its Civil Case No. 10403;
and its orders issued in connection therewith are hereby annulled and set aside.
Respondent court is further commanded to desist from further proceedings in Civil
case No. 10403 aforesaid.
Topic: Devices or Schemes Amounting to Fraud or Misrepresentation

Case no. 640

RAUL SESBREÑO
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK
G.R. No. 89252, May 24, 1993

FACTS:

Hermilo Rodis, Sr. et.al. was charged with estafa before the Regional Trial
Court of Cebu. Respondents moved to quash the information on the ground that the
Securities and Exchange Commission (SEC), not the regular courts, had jurisdiction
over the offense charged and that the facts stated herein did not constitute an
offense The trial court denied the motion and private respondent elevated the case
to the then Intermediate Appellate Court . On August 16, 1983, the appellate court
dismissed the petition. Hence, trial ensued in the criminal case. However, after the
prosecution had rested its case, private respondent filed a motion to dismiss on
demurrer to evidence based on the core proposition that there was no criminal
offense of estafa from the non-payment of a money market placement.

ISSUE:

Should the private respondent be held liable for estafa?

RULING:

YES.

In money market placement, the investor is a lender who loans his money to a
borrower through a middleman or dealer. Petitioner here loaned his money to a
borrower through Philfinance. When the latter failed to deliver back petitioner's
placement with the corresponding interest earned at the maturity date, the liability
incurred by Philfinance was a civil one. As such, petitioner could have instituted
against Philfinance before the ordinary courts a simple action for recovery of the
amount he had invested and he could have prayed therein for damages. It appears,
however, that petitioner did not even implead Philfinance in the complaint for
damages arising from the no return of investment with respect to the same money
market placement involved herein, which he eventually filed against Delta Motors
Corporation and Pilipinas Bank before the Regional Trial Court of Cebu City .What is
involved here in a money market transaction. As defined by Lawrence Smith, 'the
money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with
each other but through a middle man or dealer in the open market. It involves
'commercial papers' which are instruments 'evidencing indebtedness of any person
or entity . . . which are issued, endorsed, sold or transferred or in any manner
conveyed to another person or entity, with or without recourse.' The fundamental
function of the money market device in its operation is to match and bring together
in a most impersonal manner both the 'fund users and the 'fund suppliers.' The
money market is an 'impersonal market', free from personal considerations. The
market mechanism is intended 'to provide quick mobility of money and securities.
The Court of Appeals, therefore, correctly ruled that a money market transaction
partakes of the nature of a loan and therefore nonpayment thereof would not give
rise to criminal liability for estafa through misappropriation or conversion.
Topic: Controversies in the Election or Appointment / Dismissal of Corporate Officers

Case no. 658

GARCIA
vs.
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.
G.R. No. 173115, April 16, 2009

FACTS:

Atty. Virgilio R. Garcia was the Vice President and Head of Business Support
Services and Human Resource Departments of the Eastern Telecommunications
Philippines, Inc. (ETPI) while Atty. Salvador C. Hizon is the President/Chief Executive
Officer. On 16 January 2000, Atty. Garcia was placed under preventive suspension
based on three complaints for sexual harassment and was eventually dismissed
though a letter by the Atty. Hizon. A complaint-affidavit for illegal dismissal with
prayer for full backwages and recovery of moral and exemplary damages was filed by
Atty. Virgilio R. Garcia against ETPI and Atty. Salvador C. Hizon. Atty. Garcia filed a
Motions to Inhibit, praying that Labor Arbiter Libo-on inhibit himself from further
proceeding with the case, on the ground that he was a fraternity brother of Atty.
Hizon but said motions were denied. Upon appeal to the NLRC, the motion to inhibit
was granted and the case was re raffled to another Labor Arbiter who found the
preventive suspension and subsequent dismissal of Atty. Garcia illegal. An Alias writ
of execution was issued for the garnishment of the amount representing his monthly
salaries for two months and thirteenth month pay which was satisfied. Upon appeal,
The Commission ruled that the dismissal of Atty. Garcia, being ETPI’s Vice President,
partook of the nature of an intra-corporate dispute cognizable by Regional Trial
Courts and not by Labor Arbiters.

ISSUE:

Whether or not the question of legality or illegality of the removal or

termination of employment of an officer of a corporation is an intra corporate
controversy that falls under the original exclusive jurisdiction of the Regional Trial
Courts.

RULING:

YES.

A corporate officer’s dismissal or removal is always a corporate act and/or an

intra-corporate controversy, over which the Regional Trial Court has original and
exclusive jurisdiction. Before a dismissal or removal could properly fall within the
jurisdiction of the SEC, it has to be first established that the person removed or
dismissed was a corporate officer. In the case the by-laws of ETPI.
Atty. Garcia tries to deny he is an officer of ETPI. Not being a corporate officer,
he argues that the Labor Arbiter has jurisdiction over the case. One of the corporate
officers provided for in the by-laws of ETPI is the Vice-President. It is therefore clear
from the by-laws and from Atty. Garcia himself that he is a corporate officer. One
who is included in the by-laws of a corporation in its roster of corporate officers is an
officer of said corporation and not a mere employee. Being a corporate officer, his
removal is deemed to be an intra-corporate dispute cognizable by the SEC and not by
the Labor Arbiter.

Atty. Garcia’s ouster as Vice-President, who is a corporate officer of ETPI,

partakes of the nature of an intra-corporate controversy, jurisdiction over which is
vested in the SEC now the RTC. The Labor Arbiter thus erred in assuming jurisdiction
over the case filed by Atty. Garcia, because he had no jurisdiction over the subject
matter of the controversy.
Topic: Petitions for Declaration in the State of Suspension of Payments

Case no. 677

PRYCE CORPORATION
vs.
COURT OF APPEALS
G.R. No. 172302, February 04, 2008

FACTS:

Pryce Corporation has its primary purpose to develop real estate in Mindanao.
It engaged in the development of memorial parks, operated a major hotel in Cagayan
de Oro City, and produced industrial gases. Asian financial crisis, however, badly
affected petitioner’s operations, resulting in heavy losses. It could not meet its
obligations as they became due. It incurred losses of P943.09 million in 2001, P479.05
million in 2002, and P125.86 million in 2003. Thus petitioner filed a petition for
rehabilitation where it prayed for the appointment of a Rehabilitation Receiver from
among the nominees named therein and the staying of the enforcement of all claims,
monetary or otherwise against it. Petitioner also prayed that after due hearing, its
proposed Rehabilitation Plan be approved. Some of the proposed rehabilitation plans
were that the bank creditors will be paid through dacion en pago of assets already
mortgaged to them, in case of insufficiency, the deficiency shall be settled by way of
dacion of memorial park lots owned by the petitioner, and that all penalties shall be
waived by the creditors. The creditors opposed the petition.

ISSUE:

Whether or not the petition for rehabilitation of petitioner Pryce Corporation

be granted.

RULING:

YES.

Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation

provides among others that if the court finds the petition to be sufficient in form and
substance, it shall, not later than five days from the filing of the petition, issue an
Order fixing the initial hearing on the petition not earlier than forty five days but not
later than sixty days from the filing thereof; directing all creditors and all interested
parties to file and serve on the debtor a verified comment on or opposition to the
petition, with supporting affidavits and documents, not later than ten days before
the date of the initial hearing and putting them on notice that their failure to do so
will bar them from participating in the proceedings; and directing the creditors and
interested parties to secure from the court copies of the petition and its annexes
within such time as to enable themselves to file their comment on or opposition to
the petition and to prepare for the initial hearing of the petition.
In the case at bench, when the commercial court appointed a rehabilitation
receiver, the very next day after the filing of the Petition for Rehabilitation, it is highly
doubtful and well-nigh impossible, that, without any hearing yet held, the commercial
court could have already gathered enough evidence before it to determine whether
there was any imminent danger of dissipation of assets or of paralization of business
operations to warrant the appointment of a rehabilitation receiver.In determining
whether petitioner’s financial situation is serious and whether there is a clear and
imminent danger that it will lose its corporate assets, the RTC, acting as commercial
court, should conduct a hearing wherein both parties can present their respective
evidence. Hence, a remand of the records of this case to the RTC is imperative.
Topic: Registration of Secutities

Case no. 696

Securities and Exchange Commission v. W. J. Howey Co.

328 US 293, 1946

FACTS:

Howey owned a large citrus grove and solicited investors to participate in his
business venture. Howey would implement a land sale contract for a small portion of
the grove to the investor while also having them enter into a service contract for
cultivation of that land. The service contract granted Howey the complete right to
possession due to the investor not taking part in cultivation of any sort. Once
harvested, the investor would get an account for the produce yielded by the strip
they invested in, however the fruit was marketed exclusively by Howey. Howey
utilized various agencies of interstate commerce when endorsing this arrangement
but failed to register the contracts and “securities”
with the SEC. This led to the SEC bringing an action seeking an injunction against the
use of interstate commerce on the grounds that Howey established sales of
unregistered securities, violating § 5(a) of Securities Act of 1933. Trial court denied
the injunction, saying that the contract arrangement did not provide sales of
securities. The court of appeals affirmed. The SEC sought certiorari.

ISSUE:

Is the term security referencing any document(s) that provide evidence of a

monetary investment in a common enterprise whose profits come only through the
labors of others?

RULING:

Yes. As defined by § 2(a)(1) of the Act, a “security” includes the documents

traded for investment or conjecture, having substance over form, regulating the type
of a specific document or agreement. Howey is offering an arrangement to invest
money in and obtain a portion of the profits of a large citrus fruit operation.
Therefore, the documents in this case are representative of shares in the company.
The court rejects the court of appeals’ idea that due to the business being
unpredictable and promotional in nature, that this deal did not represent the sale of
securities. Transference of something with tangible value is not enough to exclude
the agreement from the 1933 Act. Reversed.
Topic: Protection of Shareholder’s Interest

Case no. 714

CEMCO vs. National Life

G.R. No. 171815, August 7, 2007

FACTS:

Union Cement Corporation (UCC), a publicly-listed company, has two principal

stockholders – UCHC, a non-listed company, with shares amounting to 60.51%, and
petitioner Cemco with 17.03%. Majority of UCHC’s stocks were owned by BCI with
21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks.

In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock
Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco
BCI’s stocks in UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to
29.69%.

In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated
that as a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC,
petitioner’s total beneficial ownership, direct and indirect, in UCC has increased by
36% and amounted to at least 53% of the shares of UCC. As a consequence of this
disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to whether
the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities
Regulation Code is not applicable to the purchase by petitioner of the majority of
shares of UCC.

Director Justina Callangan of the SEC’s Corporate Finance Department

responded to the query of the PSE that while it was the stance of the department
that the tender offer rule was not applicable, the matter must still have to be
confirmed by the SEC en banc.

Feeling aggrieved by the transaction, respondent National Life Insurance

Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to
Cemco demanding the latter to comply with the rule on mandatory tender offer.
Cemco, however, refused.

Later, a Share Purchase Agreement was executed by ACC and BCI, as sellers,
and Cemco, as buyer. Respondent National Life Insurance Company of the
Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004
Resolution and to declare the purchase agreement of Cemco void and praying that
the mandatory tender offer rule be applied to its UCC shares. Impleaded in the
complaint were Cemco, UCC, UCHC, BCI and ACC, which were then required by the
SEC to file their respective comment on the complaint. In their comments, they were
uniform in arguing that the tender offer rule applied only to a direct acquisition of the
shares of the listed company and did not extend to an indirect acquisition arising
from the purchase of the shares of a holding company of the listed firm.

ISSUE:

Is the rule on mandatory tender offer applicable to the indirect acquisition of

shares in a listed company?

RULING:

Yes. The SEC and the CA accurately pointed out that the coverage of the
mandatory tender offer rule covers not only direct acquisition but also indirect
acquisition or “any type of acquisition.” This is clear from the discussions of the
Bicameral Conference on the Securities Act of 2000.

Section 19 of Republic Act No. 8799 states that:

Tender Offers. 191. (a) Any person or group of persons acting in concert who
intends to acquire at least fifteen percent (15%) of any class of any equity security of a
listed corporation or of any class of any equity security of a corporation with assets
of at least Fifty million pesos (₱50,000,000.00) and having two hundred (200) or
more stockholders with at least one hundred (100) shares each or who intends to
acquire at least thirty percent (30%) of such equity over a period of twelve (12)
months shall make a tender offer to stockholders by filing with the Commission a
declaration to that effect; and furnish the issuer, a statement containing such of the
information required in Section 17 of this Code as the Commission may prescribe.
Such person or group of persons shall publish all requests or invitations for tender, or
materials making a tender offer or requesting or inviting letters of such a security.
Copies of any additional material soliciting or requesting such tender offers
subsequent to the initial solicitation or request shall contain such information as the
Commission may prescribe, and shall be filed with the Commission and sent to the
issuer not later than the time copies of such materials are first published or sent or
given to security holders.

The legiskative intent of Section 19 of the Code is to regulate activities relating

to acquisition of control of the listed company and for the purpose of protecting the
minority stockholders of a listed corporation. Whatever may be the method by which
control of a public company is obtained, either through the direct purcahse of its
stocks or through an indirect means, mandatory tender offer applies.