FINALS CASES-CORPO

DEE VS SEC GR NO. 60502 July 16, 1991

FACTS: In 1954, Naga Telephone Company (Natelco), Inc. was organized with P100,000 authorized
capital stocks. In 1974, Natelco decided to increase its authorized capital stocks to P3,000,000.
Natelco filed an application for the approval of the increase with the Board of Communications (now,
National Telecommunications Commission).

In 1975, it was approved with conditions. Natelco filed its Amended AOI with the SEC. The SEC
approved the amended AOI of Natelco. The capital stock of Natelco was divided into 213K common
stocks and 87K preferred stocks, both at a par value of P10/shares.

In 1977, without no prior authorization from the BOC, Natelco entered into a contract with
Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of
telephone equipment. Natelco issued 24K shares of common stocks to CSI as downpayment.

In 1979, another 12K shares of common shares were issued to CSI. In the stockholders' meeting for
the election of BOD for the year 1979-1980, Pedro Lopez Dee was unseated as Chairman of the
Board and President but was elected as one of the directors, together with his wife. CSI was able to
gain control when their legal counsel, Atty. Luciano Maggay (Maggay) won a seat in the Board. Atty.
Maggay became president upon reorganization. During the tenure of the Maggay Board, it and
entered into another contract with CSI for the supply and installation of additional equipment but also
issued to CSI 113,800 shares of common stocks.

In 1982, Antonio Villasenor filed w/ the CFI claiming that he was an assignee of an option to
repurchase 36K shares of common stocks of Natelco under a Deed of Assignment executed in his
favor. He alleged that the Maggay group, refused to allow the repurchase of said stocks when
petitioner Villasenor offered to defendant CSI the repurchase of said stocks by tendering payment of
its price.

ISSUE: W/N Natelco stockholders have a right of preemption to the 113,800 shares issued to CSI.

HELD: No The questioned issuance of the 113,800 stocks is not invalid even assuming that it was
made without notice to the stockholders as claimed by the petitioner. The power to issue shares of
stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to
consider it because additional issuance of shares of stocks does not need approval of the
stockholders.

Consequently, no pre-emptive right of Natelco stockholders was violated by the issuance of the
113,800 shares to CSI. The general rule is that pre-emptive right is recognized only with respect to
new issues of shares, and not with respect to additional issues of originally authorized shares (Benito
vs SEC).

BENITO VS SEC GR NO. L-56655 JULY 25, 1983

FACTS: The AOI of Jamiatul Philippine-Al Islamia, Inc. were filed with the SEC and were approved.
The corporation had an authorized capital stock of P200,000.00. Of the authorized capital stock,
8,058 shares were subscribed and fully paid for. Petitioner Datu Tagoranao Benito subscribed to 460
shares.

Later on, the corporation filed a certificate of increase of its capital stock from P200,000.00 to
P1,000,000.00, which was approved. P110,980.00 worth of shares were subsequently issued by the
corporation from the unissued portion of the authorized capital stock of P200,000.00.
Petitioner Datu Tagoranao filed with SEC a petition alleging that the additional issue of previously
subscribed shares of the corporation was made in violation of his pre-emptive right to said additional
issue; and that the increase in the authorized capital stock of the corporation was illegal considering
that the stockholders of record were not notified of the meeting wherein the proposed increase was in
the agenda.

ISSUE:
1. W/N the preemptive right of petitioner was violated.
2. W/N the increase in authorized capital stock was illegal.

HELD:
1. No. The general rule is that pre-emptive right is recognized only with respect to new issue of
shares, and not with respect to additional issues of originally authorized shares. This is on the theory
that when a corporation at its inception offers its first shares, it is presumed to have offered all of
those which it is authorized to issue. An original subscriber is deemed to have taken his shares
knowing that they form a definite proportionate part of the whole number of authorized shares. When
the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest.

2. No. The questioned issuance of the unsubscribed portion of the capital stock worth P110,980.00 is
not invalid even if assuming that it was made without notice to the stockholders as claimed by
petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and
no stockholders' meeting is necessary to consider it because additional issuance of shares of stocks
does not need approval of the stockholders.

Y-I LEISURE PHILS INC. ET. AL VS YU GR NO. 207161 SEPT 8, 2015

FACTS: Mt. Arayat Development Co. Inc. (MADCI) was a real estate development corporation,
registered before the SEC. On the other hand, respondent James Yu was a businessman, interested
in purchasing golf and country club shares. Yu bought 500 golf and 150 country club shares for a total
price of P650,000.00 which he paid by installment.

Upon full payment of the shares to MADCI, Yu discovered that the site of the golf and country was
inexistent. Yu demanded from MADCI that his payment be returned to him, but MACDI could not
return it anymore because all its assets had been transferred. Consequently Yu filed a collection suit
against MACDI and Sangil, its President. Later on an Amended Complaint was filed by Yu, wherein
he also impleaded YIL, Y-I Leisure Phils., Inc. (YILPI) and Y-I Club & Resorts, Inc. (YICRI).

According to Yu, he discovered in the Registry of Deeds of Pampanga that, substantially, all the
assets of MADCI, consisting of 120 hectares of land were sold to YIL, and through the acts of YIL,
MADCI sold all its lands to YILPI and, subsequently to YICRI. The transfer was done in fraud of
MADCI's creditors, and without the required approval of its stockholders and board of directors under
Section 40 of the Corporation Code.

The RTC hold Sangil solidarily liable with MACDI for using the latter as a mere alter ego and
exonerated YIL, YILPI and YICRI from any liability for not being a party to the agreement between
MACDI and Yu.

The CA modified the decision of RTC by holding YIL, YILPI, and YICRI solidarily liable with MACDI
and Sangli and ruled that the sale by MADCI of all its corporate assets to YIL and its
companies necessarily includes the assumption of the its liabilities.
ISSUE: W/N the sale of corporate assets of MACDI to YIL and its companies includes the assumption
of liabilities.

HELD: Yes, under Section 40 of the Corporation Code as an exception to the general rule under the
Nell Doctrine.

Generally, where one corporation sells or otherwise transfers all of its assets to another corporation,
the latter is not liable for the debts and liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts.

The legal basis of the last in the 4 exceptions to the Nell Doctrine would be Section 40 of the
Corporation Code. Section 40 refers to the sale, lease, exchange or disposition of all or substantially
all of the corporation's assets, including its goodwill. The sale under this provision does not
contemplate an ordinary sale of all corporate assets; the transfer must be of such degree that the
transferor corporation is rendered incapable of continuing its business or its corporate purpose.

Section 40 reflects the business-enterprise transfer under the exception of the Nell Doctrine because
the purchasing or transferee corporation necessarily continued the business of the selling or
transferor corporation. Given that the transferee corporation acquired not only the assets but also the
business of the transferor corporation, then the liabilities of the latter are inevitably assigned to the
former.

It must be clarified, however, that not every transfer of the entire corporate assets would qualify under
Section 40. It does not apply (1) if the sale of the entire property and assets is necessary in the usual
and regular course of business of corporation, or (2) if the proceeds of the sale or other disposition of
such property and assets will be appropriated for the conduct of its remaining business. Thus, the
litmus test to determine the applicability of Section 40 would be the capacity of the corporation to
continue its business after the sale of all or substantially all its assets.

A cursory reading of the exception shows that it does not require the existence of fraud against the
creditors before it takes full force and effect. Indeed, under the Nell Doctrine, the transferee
corporation may inherit the liabilities of the transferor despite the lack of fraud due to the continuity of
the latter's business.

It is apparent that the business-enterprise transfer rule applies when two requisites concur: (a) the
transferor corporation sells all or substantially all of its assets to another entity; and (b) the transferee
corporation continue the business of the transferor corporation. Both requisites are present in this
case.

While the Corporation Code allows the transfer of all or substantially all of the assets of a corporation,
the transfer should not prejudice the creditors of the assignor corporation. Under the business-
enterprise transfer, the petitioners have consequently inherited the liabilities of MADCI because they
acquired all the assets of the latter corporation. The continuity of MADCI's land developments is now
in the hands of the petitioners, with all its assets and liabilities. There is absolutely no certainty that Yu
can still claim its refund from MADCI with the latter losing all its assets. To allow an assignor to
transfer all its business, properties and assets without the consent of its creditors will place the
assignor's assets beyond the reach of its creditors. Thus, the only way for Yu to recover his money
would be to assert his claim against the petitioners as transferees of the assets.
RUBY INDUSTRIAL CORPORATION VS LIMGR NO. 165887 JUNE 6, 2011

MINDANAO SAVINGS AND LOAN ASSOCIATION VS WILLKOM GR NO. 178618 OCT. 11, 2010

FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the SEC. FISLAI and DSLAI entered into a
merger, with DSLAI as the surviving corporation. The articles of merger were not registered with the
SEC due to incomplete documentation. DSLAI changed its corporate name to MSLAI by way of an
amendment in its AOI, which was approved by SEC.

Meanwhile, Remedios Uy filed a collection suit against FISLAI in the RTC, which issued a summary
decision in favor of Uy. Sheriff Bantuas levied on 6 parcels of land owned by FISLAI. During the public
auction Willkom was the highest bidder and a certificate of sale was issued and eventually registered
with the Register of Deeds of Cagayan de Oro City. Later on, Willkom sold one of the subject parcels
of land to Go.

MSLAI filed a complaint for Annulment of Sheriff’s Sale in the RTC against respondents (Willkom, Go,
Uy, Bantuas, Register of Deeds of Cagayan De Oro).

Respondents averred that MSLAI had no cause of action against them or the right to recover the
subject properties because MSLAI is a separate and distinct entity from FISLAI mainly because of the
"unofficial merger" between FISLAI and DSLAI considering that the merging companies did not
comply with the formalities and procedure for merger or consolidation as prescribed by the
Corporation Code of the Philippines. Hence, FISLAI is still a SEC registered corporation and could
not have been absorbed by petitioner.

ISSUE: W/N there is a valid merger between FISLAI and DSLAI.

HELD: No, there is no valid merger between FISLAI and DSLAI because of the failure to register the
merger with SEC.

Merger does not become effective upon the mere agreement of the constituent corporations. Since a
merger or consolidation involves fundamental changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express provision of law authorizing them.

The merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to
its prior determination that the merger is not inconsistent with the Corporation 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 it also marks the moment when the consequences of a merger take place. By operation of law,
upon the effectivity of the merger, the absorbed 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. The same rule applies to consolidation which becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation by the SEC.

In this case, here being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate corporations.
Being separate entities, the property of one cannot be considered the property of the other. Thus, as
far as third parties are concerned, the assets of FISLAI remain as its assets and cannot be
considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein
FISLAI assigned its assets and properties to DSLAI, and the latter assumed all the liabilities of the
former.

REPUBLIC VS COCOFED GR NO. 147062-64 December 14, 2001

FACTS: The Presidential Commission on Good Government (PCGG) was created by Executive
Order No. 1 to assist the President in the recovery of the ill-gotten wealth accumulated whether
located in the Philippines or abroad. Among the properties sequestered by the Commission were
shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged
"one million coconut farmers, the Coconut Industry Investment Fund companies (CIIF) and Eduardo
Cojuangco Jr.
In July 1987, the PCGG instituted an action for reconveyance, reversion, accounting, restitution and
damages in the Sandiganbayan in connection with the sequestration of the said UCPB shares.
In November 1990, upon Motion of COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the UCPB shares on the ground that COCOFED and the CIIF companies had not
been impleaded by the PCGG as parties. The Resolution was challenged by the PCGG in a Petition
for Certiorari filed in the SC.

Meanwhile, upon motion of Cojuangco, the Anti-graft Court ordered the holding of elections for the
BOD of UCPB. However, the PCGG applied for and was granted by this Court a Restraining Order
enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order and ordered
the UCPB to proceed with the election of its board of directors. Furthermore, it allowed the
sequestered shares to be voted by their registered owners.

However in February 1993, the court issued a Resolution declaring that "the right of private
respondents to vote stock in their names at the meetings of the UCPB cannot be conceded at this
time. That right still has to be established by them before the Sandiganbayan. Until that is done, they
cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote them."
In January 1995, the Court rendered its final Decision, nullifying and setting aside the Sandiganbayan
Resolution which lifted the sequestration of the subject UCPB shares.

In February 2001, the Board of Directors of UCPB received a letter written on behalf of the
COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a
stockholders' meeting for the purpose of electing the board of directors. In response, the board
approved a Resolution calling for a stockholders' meeting.

COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus Motion" in Sandiganbayan
asking to enjoin the PCGG from voting the UCPB shares of stock registered in the name of million
coconut farmers and from voting the SMC shares registered in the names of the 14 CIIF holding
companies, including those registered in the name of the PCGG.

The Sandiganbayan issued a resolution that COCOFED, Ballares, and Eduardo Cojuangco as
registered owners of UCPB shares may exercise their right to vote in the shares of stocks, and to be
voted upon in the UCPB at the SH meeting. Hence, the PCGG filed a Petition for certiorari.

ISSUE: Who may vote the sequestered shares of stock?

HELD: The registered owner of the shares of a corporation exercises the right and the privilege of
voting. This principle applies even to shares that are sequestered by the government, over which the
PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On the other
hand, PCGG is authorized to vote these sequestered shares registered in the names of private
persons and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test as
follows:
(1) show prima facie evidence that the wealth and/or the shares are indeed ill-gotten; and
(2) demonstrate imminent danger of dissipation of the assets, thus necessitating their continued
sequestration and voting by the government until a decision, ruling with finality on their ownership, is
promulgated by the proper court.

However, the foregoing "two-tiered" test does not apply when the sequestered stocks are acquired
with funds that are prima facie public in character or, at least, are affected with public interest. Rather
the public character exceptions prevail. There are two "public character" exceptions under which the
government is granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered
them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds somehow landed in private
hands.

In this case, the inasmuch as the subject UCPB shares undisputably acquired with coco levy funds
which are public in character, then the right to vote them shall be exercised by the PCGG. In sum, the
"public character" test, not the "two-tiered", applies in the instant controversy.

LIM TAY VS CA GR NO. 126891 AUG 5, 1998

FACTS:
Sy Guiok secured a loan from the petitioner in the amount of P40,000 payable within 6 months, which
was secured by a Contract of Pledge executed by Guiok in favor of the petitioner whereby he pledged
his 300 shares of stock in the Go Fay & Company Inc. Alfonso Sy Lim also secured a loan from the
petitioner in the amount of P40,000 payable in 6 months. To secure the payment of his loan, Sy Lim
also executed a "Contract of Pledge" covering his 300 shares of stock in the corporation.

Guiok and Sy Lim failed to pay their respective loans. Consequently, the petitioner filed a "Petition for
Mandamus" with the SEC directing the corporate secretary of respondent corporation to have the
shares transferred to his name in the corporate books, to issue new certificates of stock and to deliver
the corresponding dividends to him.

The SEC dismissed the complaint on the ground that it has no jurisdiction and for having no cause of
action for mandamus against the corporation, the right of ownership of the petitioner over the 300
shares of stock pledged by Guiok and Sy Lim not having been as yet, established, preparatory to the
institution of said Petition for Mandamus with the SEC. On appeal, the CA affirmed the decision of
SEC.

ISSUE: W/N the petitioner is entitled to the relief of mandamus as against the corporation.

HELD: No.
In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has
a clear legal right to the thing demanded and that it is the imperative duty of the respondent to
perform the act required. It neither confers powers nor imposes duties and is never issued in doubtful
cases. It is simply a command to exercise a power already possessed and to perform a duty already
imposed.

In the present case, petitioner has failed to establish a clear legal right. Petitioner's contention that he
is the owner of the said shares is completely without merit. Quite the contrary and as already shown,
he does not have any ownership rights at all. At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie to stand on. At best, his contention was disputable and uncertain.
Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly
established.

Moreover, there is no showing that petitioner made any attempt to foreclose or sell the shares through
public or private auction, as stipulated in the contracts of pledge and as required by Article 2112 of the
Civil Code. Hence, ownership of the shares could not have passed to him.