MAY ANGELICA M.

TENEZA
JD - III
COMPILATION OF CASE DIGESTS IN CORPORATION LAW

No CASE TITLE GR/SCRA DATE DOCTRINE Page

No.
6 Tayag v. Benguet 26 SCRA 242 November 29, Guidelines for the issuance 2
Consolidated, Inc 1968 of new stock certificate due
to lost, stolen, or destroyed
certificate
13 Manila Electric Co. 540 SCRA 62 December 13, Entitlement to moral 3
v. TEAM 2007 damages of corporations
20 Sunio v. NLRC 127 SCRA 90 January 31, Separate Juridical 4
1984 Personality Doctrine;
Piercing the veil of
corporate fiction
27 CIR v. CA 301 SCRA January 20, Convertible shares, 5
152 1999 Redeemable shares,
Doctrine of Equality of
Shares, Trust Fund Doctrine
34 Pioneer Insurance 175 SCRA July 28, 1989 De facto partnership 7
& Surety Corp. v. 668
CA
41 Montelibano v. 5 SCRA 36 May 18, 1962 Ultra vires acts 8
Bacolod-Murcia
Milling Co.
48 Atrium Mgmt Corp. 353 SCRA 23 Feb. 28, 2001 Ultra vires acts 10
v. CA
55 Nestle Phils, Inc. v. 203 SCRA Nov. 13, 1991 Issuance of previously 11
CA 504 authorized but unissued
capital stock
62 Loyola Grand Villas 276 SCRA Aug. 7, 1997 Failure to file the by-laws 14
Homeowners 681 does not automatically
Association, Inc. v. dissolve a corporation
CA
69 Rep. v. Estate of 476 SCRA 20 Nov. 23, 2005 Requisites for a valid 16
Hans Menzi transfer of ownership of
stocks certificate
76 Poliand Industrial 467 SCRA Aug. 22, 2005 Acquisition of Ownership of 18
Ltd v. NDC 500 a corporation; Merger
83 Expert Travel & 459 SCRA May 26, 2005 Teleconference; Authority to 21
Tours, Inc. v. CA 147 execute Certificate of Non-
forum shopping of
corporation

Case digest by May Angelica M. Teneza Page 1 of 22

6. G.R. No. L-23145, November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, DECEASED. RENATO TAYAG, ANCILIARY
administrator – appellee
vs.
BENGUET CONSOLIDATED, INC, oppositor - appellant
Case Doctrine: Guidelines for the issuance of new stock certificate due to lost, stolen, or destroyed certificate.

FACTS:
In March 27, 1960, Idonah Slade Perkins died in New York, United States of America leaving shares
of stocks in a Philippine Corporation, Benguet Consolidated, Inc.

County Trust Company of New York, United States of America is the domiciliary administration of
the decedent. Renato Tayag is the appointed ancillary of Perkins in the Philippines.

The dispute arose between County Trust Company and Renato Tayag when the former refused to
surrender to the latter the stock certificates owned by the deceased in Benguet Consolidated, Inc. to satisfy
the claims of the creditors of the deceased in the Philippines. County Trust Company refuses to transfer the
said certificate to Tayag despite the order of the court. Hence, the appellee was compelled to petition the
court for the appellant to declare the subject certificates as lost to which appellant alleged that no new
certificate can be issued and the same cannot be rendered as lost in accordance with their by-laws.

ISSUE: Whether or not the certificate of shares of stock can be declared lost.

RULING:
Yes, the certificate of shares of stock can be declared lost.
Administration whether principal or ancillary certainly extends to the assets of a decedent found
within the state or country where it was granted. It is often necessary to have more than one administration
of an estate. When a person dies intestate owning property located in the country of his domicile as well as
in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of
decedent’s last domicile is termed the principal administration, while any other administration is termed the
ancillary administration. The reason for the latter is because a grant of administration does not ex proprio
vigore have any effect beyond the limits of the country in which it is granted. Hence, an administration
appointed in a foreign state has no authority in the Philippines. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile, property to be administered
in the nature of the deceased’s liable for his individual debts or to be distributed among his heirs. Since there
is refusal, persistently adhered to by the domiciliary administration in New York, to deliver the shares of stocks
of appellant csorporation owned by the decedent to the ancillary administration in the Philippines, there was
nothing unreasonable or arbitrary in considering them lost and requiring the appellant to issue new certificates
in lieu thereof. Thereby the task incumbent under the law on the ancillary administration could be discharged
and his responsibility fulfilled. Assuming that a contrariety exist between the provision of the laws and the
command of a court decree, the latter is to be followed. A corporation as known to Philippine jurisprudence
is a creature without any existence until it has received the imprimatur of state according to law. It is logically
inconceivable therefore it will have rights and privileges of a higher priority than that of its creator, more than
that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.

Case digest by May Angelica M. Teneza Page 2 of 22

13. GR No. 131723, December 13, 2007
MANILA ELECTRIC COMPANY, petitioner
vs.
TEAM ELECTRONIC CORP, et al., respondents
Case doctrine: entitlement to moral damages of corporations

FACTS:

The respondent T.E.A.M. Electronics Corporation (TEC) is wholly owned by respondent Technology
Electronics Assembly and Management Pacific Corporation (TPC). On the other hand, the petitioner Manila
Electric Company (MERALCO) is a utility company supplying electricity in the Metro Manila area.

TEC had two accounts with MERALCO, one for its DCIM Building rented to Ultra Electronics
Industries, Inc. under account number 09341-1322-16 (Ultra) and another for its NS Building occupied by
TEC and TPC under account number 09341-1812-13.

On September 28, 1987, inspectors of MERALCO conducted surprised inspection of electric meters
in the DCIM Building and they found allegedly that the electric meters in its buildings were tampered resulting
to differential billings amounting to ₱7,040,401.01. For failure of TEC to pay such differential billing, petitioner
disconnected the electricity supply to said buildings. TEC filed a complaint before the Energy Regulatory
Board (ERB) praying for the immediate reconnection which was granted upon partial payment of the said
differential billings under protest. However, this complaint was later on withdrawn as the parties deemed it
better to be filed in the regular courts.

Meanwhile, another surprised inspection was conducted by MERALCO in the NS Building of TEC
where again, they found allegedly that the meters are tampered resulting to differential billings amounting to
₱280,813.72. MERALCO sent demand letter to TEC with a warning that non-payment will result to
disconnection. TEC paid the amount under protest.

TEC and TPC filed a complaint for damages against MERALCO before the RTC Pasig on the ground
that the company were humiliated because of the disconnection warnings. The RTC ruled in favor of TEC
and TPC and ordered MERALCO to pay the former actual damages, moral damages, exemplary damages
and attorney’s fees. The court found the evidence of the petitioner is insufficient to prove that TEC was guilty
of tampering the meter installations. The CA affirmed the RTC decision with modifications, hence this petition
for review on certiorari under Rule 45.

ISSUE: W/N the award of moral damages is proper.

RULING:
No, the award of moral damages is not proper. TEC’s claim was premised allegedly on the damage
to its goodwill and reputation. As a general rule, a corporation is not entitled to moral damages because as
a juridical person, it cannot experience physical suffering or sentiments like wounded feelings, serious
anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in the business realm. But in such a case, it is imperative
for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis
of the damage and its causal relation to petitioner’s acts. In the present case, the records are insufficient of
evidence that the name or reputation of TEC and TPC has been debased as a result of petitioner’s acts.
Case digest by May Angelica M. Teneza Page 3 of 22
20. GR No. L-57767, January 31, 1984
ALBERTO SUNIO, and ILOCOS COMMERCIAL CORP., petitioners
vs.
NLRC, et al., respondents
Case Doctrine: Separate Juridical Personality Doctrine, Piercing the veil of corporate fiction

FACTS:

On July 30, 1973, EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant, Inc. (CIPI), sister
corporations, sold an ice plant to Rizal Development and Finance, Corp. (RDFC). To secure RDFC’s payment
of the purchase price, the ice plant was mortgaged to EMRACO-CIPI. By virtue of that sale, EMRACO-CIPI
terminated all of their employees, including the herein private respondents.

On November 28, 1973, RDFC sold the ice plant, subject to the same mortgage in favor of EMRACO-
CIPI, to petitioner Ilocos Commercial Corp. (ICC) headed by its President and General Manager, Alberto
Sunio, the herein petitioner.

When RDFC and ICC defaulted on the payment of the balance of the purchase price, EMRACO-
CIPI extrajudicially foreclosed the ice plant. On August 30, 1974, it was then sold at a public auction where
Nilo Villanueva is the highest bidder, subject to RDFC’s right of redemption. Nilo Villanueva rehired private
respondents.

On August 27, 1975, within the redemption period, RDFC redeemed the ice plant. The private
respondents were then again dismissed. They filed a complaint against the petitioner corporation and its
President and General Manager, Alberto Sunio, for illegal dismissal.

The Assistance Regional Director of the Ministry of Labor and Employment ordered petitioners to
reinstate private respondents. NLRC affirmed. Petitioner Sunio was made jointly and severally liable with ICC
and CIPI for the payment of backwages on the ground that he owned ½ of ICC. Hence, he can be held
personally liable under the doctrine of piercing the veil of corporate fiction.

ISSUE: W/N petitioner Sunio can be held personally liable under the doctrine of piercing the veil of corporate
fiction on the ground that he owned ½ of ICC.

RULING:
No, Sunio cannot be held personally liable.

A corporation is invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a
single stockholder or by another coporation of all or nearly all of the capital stock of a corporation is not itself
sufficient ground for disregarding the separate corporate personality. Therefore, Sunio should not have been
made personally liable for the payment of backwages to private respondents.

Case digest by May Angelica M. Teneza Page 4 of 22

27. GR No. 119761
CIR, petitioner
vs.
CA and A. Soriano Corp. (ANSCOR)., respondents
Case doctrine: Convertible shares, Redeemable shares, Doctrine of Equality of Shares, Trust Fund Doctrine

FACTS:

In 1930, Don Andres Soriano, an American citizen, formed a corporation “A. Soriano y Sia” which
later on became “ANSCOR” with a total capital of ₱1,000,000.00, divided into 1,000 shares, at
₱100.00/share. It is wholly owned by the Andres Soriano family.

In 1937, Don Andres subscribed to 4,963 shares of ANSCOR. In 1945, the authorized capital stock
of the corporation was increased to 25,000 shares with same par value, of which 10,000 shares was
subscribed by Don Andres. He transferred 1,250 shares each to his two sons. The corporation declared stock
dividends in the years 1947, 1949 and 1963. In 1964, Don Andres died. As of this date, he has a total
shareholdings of 185,154 shares. By virtue of succession, ½ of it was given to his wife, Carmen, and the
other half formed part of his estate. One day after his death, the corporation increased its authorized capital
stocks to ₱20,000,000.00 with same par value. It was again increased to ₱30,000,000.00 in 1966. Stock
dividends was also declared on the same year. In 1968, the corporation reclassified its 300,000 shares into
150,000 common shares and 150,000 preferred shares. Carmen exchanged all its shares to preferred shares
while the estate of Don Andres exchanged its 11,140 shares from the remaining preferred shares of the
corporation. On the same year, a Board Resolution was passed redeeming the 28,000 common shares of
the estate of Don Andres. After one year, the corporation again redeem the remaining 80,000 common shares
of the estate of Don Andres. According to the Board of Directors, the purpose of the redemption is for
Filipinization and to reduce the company’s foreign exchange remittances.

In 1973, when the BIR examined the books and records of the corporation, it was assessed of
deficiency withholding tax at source for non-withholding of taxes for the exchange of common shares to
preferred shares and the redemption of stocks. According to the BIR, these transactions are equivalent to
distribution of taxable dividends.

The corporation on the other hand claimed that these transactions are considered as capital
transactions. There is no gain, thus, not subject to tax. The corporation filed a protest but was denied. It filed
a petition for review with the CTA which reversed the decision of the CIR. The case was then elevated to the
SC.

ISSUES:
1. W/N the exchange of common shares to preferred shares is taxable.
2. W/N the redemption of common shares is taxable.

RULING:
1. No, the exchange of common shares to preferred shares is not taxable.

Exchange is the act of taking or giving one thing for another. The exchange of common shares to
preferred shares does not per se results to income which is subject to tax. It will only result to income if there
is flow of wealth from such exchange. Under the Doctrine of Equality of Shares, all stocks are presumed
Case digest by May Angelica M. Teneza Page 5 of 22
equal unless when provided for in the by-laws. In this case, the common shares and the preferred shares
has the same par value. Hence, the exchange does not produced any income. There is only modification of
the subscriber’s rights and privileges. Such rights and privileges are not subject to tax.

2. Yes, the redemption of common shares is taxable.

The mere issuance of stock dividends is not subject to tax as there is no income yet. It postpones
the realization of profit because generally, stock dividends represents the transfer of surplus to capital
account and do not constitute income. Hence, not subject to tax. However, there is an exception to this rule.
When a corporation redeems stocks previously issued as stock dividends, in such a manner and time to
make the distribution and redemption substantially equivalent to distribution of taxable dividends, then it shall
be subject to tax. In the case, the circumstances of the case showed that the manner and time to which the
distribution of stock dividends and redemption of the same was made in essentially equivalent to distribution
of taxable dividends. Redemption is the act of reacquiring the stocks issued by a corporation in exchange for
money or property. Under the Trust Fund Doctrine, the properties of a corporation are regarded as equity in
trust for the payment of creditors. Hence, redemption cannot be used to cloak the distribution of corporate
earnings and to evade taxes. The true test of taxability is whether income was realized thru the redemption
of stock dividends.

Case digest by May Angelica M. Teneza Page 6 of 22

34. GR No. 84157
JACOB LIM, petitioner
vs.
CA, et al., respondents
Case doctrine: De facto corporation

FACTS:
Jacob Lim is an owner-operator of Southern Airlines (SAL). In 1965, he entered into a contract of
sale with Japan Domestic Airlines (JDA) to purchase aircrafts and spare parts to be paid in installments.
Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its
principal Lim. Border Machinery and Heavy Equipment Co, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses), and Constancio Maglana contributed funds to purchase the said aircrafts and
spare parts based on the misrepresentation of Lim that they will form a new corporation to expand his
business. They executed two separate indemnity agreements in favor of Pioneer Insurance and Surety
Corporation, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify Pioneer from all damages and losses of whatever kind and
nature may incur in consequence of having become surety. A deed of chattel mortgage was executed in favor
of Pioneer as security. When Lim defaulted on its payments to JDA, Pioneer paid for him being the surety
and filed a petition for extrajudicial foreclosure of the chattel mortgage. Maglana, Bormaheco and the
Cervantes’s filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim
and by way of counter-claim, sought for damages and for recovery of the sum of money they advanced to
Lim for the purchase of the aircrafts.

Lim as a defense allege that they are partners and as such, they must all share in the losses/gains
of the venture in proportion to their contribution. He claim that failure of the parties to incorporate automatically
creates a de facto partnership among them. Thus, he is not liable to reimburse them of the money they gave
to him.

ISSUE: Whether or not the failure to incorporate automatically resulted to de facto partnership.

RULING:
No, the failure to incorporate will not automatically result to a de facto partnership. Partnership inter
se does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners as
between themselves, when their purpose is that no partnership shall exist and it should be implied only when
necessary to do justice between the parties. Thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become a partner with other subscribers who
engage in business under the name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution.

Case digest by May Angelica M. Teneza Page 7 of 22

41. GR. No. L-15092
ALFREDO MONTELIBANO, et al., plaintiffs-appellants
vs
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee
Case doctrine: Ultra vires act

FACTS:
Alfredo Montelibano, Alejandro Montelibano and the Limited co-partnership Gonzaga and company
are sugar planters adhered to Bacolod-Murcia's sugar central mill under identical milling contract. Initially,
said contract were stipulated to be in force for 30 years and provided that the resulting product should be
divided in the ratio of 45% for the mill and 55% for the planters.

In 1936, it was proposed to execute amended milling contracts, increasing the planters' share to 60%
of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation
of the milling contract from the original 30 years to 45 years. To this effect, a printed Amended Milling Contract
form was drawn up. The Board of Directors of Bacolod-Murcia Milling adopted a resolution granting further
concessions to the planters over and above those contained in the printed Amended Milling Contract.
Montelibanos signed and executed the printed Contract but a copy of the resolution signed by the Central's
General Manager, was not attached to the printed contract until April 17, 1937. The Montelibanos initiated
the present action, contending that three Negros sugar centrals (La Carlota, Binalbagan-Isabela and San
Carlos), with a total annual production exceeding one-third of the production of all the sugar central mills in
the province, had already granted increased participation (of 62.5%) to their planters, and that under the
resolution of August 20, 1936, heretofore quoted, the Bacolod-Murcia had become obligated to grant similar
concessions to the Montelibanos. Bacolod-Murcia resisted the claim and defended by alleging that the
stipulations contained in the resolution were made without consideration. The resolution was, therefore, an
ultra vires act, being in effect a donation which is beyond the powers of the corporate directors to adopt
Hence, the resolution is null and void.

ISSUE: Whether or not the resolution is an ultra vires act.

RULING:
No, the said resolution is not an ultra vires act.

It must be remembered that the controverted resolution was adopted by Bacolod-Murcia as a

supplement to, or further amendment of, the proposed milling contract, and that it was approved on August
20, 1936, twenty-one days prior to the signing by appellants on September 10, of the Amended Milling
Contract itself. When the Milling Contract was executed, the concessions granted by the disputed resolution
had been already incorporated into its terms. The resolution formed an integral part of the amended milling
contract, signed on September 10, and not a separate bargain, is further shown by the fact that a copy of the
resolution was simply attached to the printed contract without special negotiations or agreement between the
parties. Furthermore, the resolution of August 20, 1936 were supported by the same causa or consideration
underlying the main amended milling contract (the promises and obligations undertaken thereunder by the
planters, and, particularly, the extension of its operative period for an additional 15 years over and beyond
the 30 years stipulated in the original contract).

All disquisition concerning donations and the lack of power of the directors of the respondent sugar
milling company to make a gift to the planters would be relevant if the resolution in question had embodied a
Case digest by May Angelica M. Teneza Page 8 of 22
separate agreement after the appellants had already bound themselves to the terms of the printed milling
contract. But this was not the case. When the resolution was adopted and the additional concessions were
made by the company, the appellants were not yet obligated by the terms of the printed contract, since they
admittedly did not sign it until twenty-one days later, on September 10, 1936. It is a question, therefore, in
each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one
which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends,
and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful
sense, it may fairly be considered as within the charter powers. The test to be applied is whether the act in
question is in direct and immediate furtherance of the corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has the power to do it. As the
resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether
or not it will cause losses or decrease the profits of the central, the court has no authority to review them. It
is a well-known rule of law that questions of policy or of management are left solely to the honest decision of
officers and directors of a corporation. The court has no authority to substitute the judgment of the board of
directors. The board is the business manager of the corporation, and so long as it acts in good faith its orders
are not reviewable by the courts.

Case digest by May Angelica M. Teneza Page 9 of 22

48. GR No. 109491
ATRIUM MANAGEMENT CORP., petitioner
vs
CA, et al., respondents
Case doctrine: Ultra vires act

FACTS:

Hi-Cement Corporation through its corporate signatories, Lourdes M. de Leon, treasurer, and the
late Antonio de las Alas, Chairman, issued four crossed checks in favor of E.T. Henry and Co. Inc., as payee.
E.T. Henry and Co., Inc., in turn, endorsed the checks to Atrium Management Corporation, offering to
discount the checks in the total amount of ₱2 million. Atrium agreed to discount the checks, provided it be
allowed to confirm with Hi-Cement the fact that the checks represent payment for petroleum products which
E.T. Henry delivered to Hi-Cement. Lourdes M. de Leon confirmed the issuance of the four checks in favor
of E.T. in payment of the petroleum products.

Upon presentment for payment, the drawee bank dishonored all the four checks for the common
reason “payment stopped”. As a result thereof, Atrium filed an action for collection of sum of money in the
total amount of ₱2 million with RTC Manila. Judgment was rendered in favor of Atrium ordering Lourdes and
Rafael de Leon, E.T. Henry and Co., and Hi-Cement to pay Atrium the said amount plus interest and
attorney’s fees. the decision was appealed with the CA which absolved Hi-cement Corporation from liability.
It ruled that since Lourdes was not authorized to issue the said checks in favor of E.T. Henry Inc., the said
act was considered an ultra vires.

ISSUE: Whether the issuance of the questioned checks was an ultra vires act.

RULING:
No, the issuance of the questioned checks was an ultra vires act. However, Ms. De Leon was
negligent when it confirmed the issuance of the said checks. Records shows that said checks were crossed
checks which means those are for deposit only and not to be endorsed. An ultra vires act is one committed
outside the object for which a corporation is created as defined by the law of its organization and therefore
beyond the power conferred upon it by law. The term “ultra vires” is “distinguished from an illegal act for the
former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is
void and cannot be validated. Generally, the issuance of the check by the corporate signatories is not an ultra
vires act. In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-
Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she signed the
confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the
crossed checks issued in favor of E.T. Henry. She was aware that the checks were strictly endorsed for
deposit only (crossed check) to the payee’s account and not to be further negotiated. The confirmation letter
also contained a clause that was false. It stated that “the checks issued to E.T. Henry were in payment of
Hydro oil bought by Hi-Cement from E.T. Henry”. Her negligence resulted in damage to the corporation which
makes her personally liable therefor.

Case digest by May Angelica M. Teneza Page 10 of 22

55. GR No. 86738, November 13,1991
NESTLE PHILS., INC, petitioner
vs
CA and SEC, respondents
Case doctrine: Issuance of previously authorized but unissued capital stock

FACTS:

On February 21, 1983, the authorized capital stock (ACS) of Nestle Phils Inc was increased from
₱300 million divided into 3 million shares with a par value of P100 per share, to ₱600 million divided into 6
million shares with the same par value per share. The said increase in the ACS go through the necessary
procedures such as Board and stockholders approvals as well as approval by the SEC.

On December 14, 1983, Nestle, through a Board Resolution, authorized the issuance of 344,500
shares out of its previously authorized but unissued capital stock exclusively to two of its principal
stockholders - San Miguel Corporation and to Nestle S.A.

Sometime in 1985, Nestle filed a letter to SEC seeking exemption of its proposed issuance of
additional shares to its existing principal shareholders, from the registration requirement of Section 4 of the
Revised Securities Act and from payment of the fee referred to in Section 6(c) of the same Act to wit:

“Sec. 6. Exempt transactions. — a) The requirement of registration under subsection (a) of Section
four of this Act shall not apply to the sale of any security in any of the following transactions: xxx
xxx xxx

(4) The distribution by a corporation, actively engaged in the business authorized by its articles of
incorporation, of securities to its stockholders or other security holders as a stock dividend or other
distribution out of surplus; or the issuance of securities to the security holder or other creditors of a
corporation in the process of a bona fide reorganization of such corporation made in good faith and
not for the purpose of avoiding the provisions of this Act, either in exchange for the securities of such
security holders or claims of such creditors or partly for cash and partly in exchange for the securities
or claims of such security holders or creditors; or the issuance of additional capital stock of a
corporation sold or distributed by it among its own stockholders exclusively, where no commission
or other remuneration is paid or given directly or indirectly in connection with the sale or distribution
of such increased capital stock.”

Nestle argued that Section 6(a) (4) of the Revised Securities Act embraces “not only an increase in
the authorized capital stock but also the issuance of additional shares to existing stockholders of the unissued
portion of the unissued capital stock“.

SEC denied petitioner’s requests and ruled that the proposed issuance of shares did not fall under
Section 6 (a) (4) of the Revised Securities Act, since Section 6 (a) (4) is applicable only where there is an
increase in the authorized capital stock of a corporation.

ISSUE: Whether or not Nestle’s application for exemptions should be granted.

Case digest by May Angelica M. Teneza Page 11 of 22

RULING:

No, the petition for exemption should not be granted.

Under Sec 38 of the Corporation Code, a corporation engaged in increasing its authorized capital
stock, with the required vote of its Board of Directors and of its stockholders, must file a sworn statement of
the treasurer of the corporation showing that at least 25% of “such increased capital stock” has been
subscribed and that at least 25% of the amount subscribed has been paid either in actual cash or in property
transferred to the corporation. The corporation must issue at least 25% of the newly or contemporaneously
authorized capital stock in the course of complying with the requirements of the Corporation Code for
increasing its authorized capital stock. After approval by the SEC of the increase of its authorized capital
stock, and from time to time thereafter, the corporation, by a vote of its Board of Directors, and without need
of either stockholder or SEC approval, may issue and sell shares of its already authorized but still unissued
capital stock to existing shareholders or to members of the general public. In the case at bar, since the
344,500 shares of Nestle capital stock are proposed to be issued from already authorized but still unissued
capital stock, Nestle’s petition must be rejected.

When capital stock is issued in the course of and in compliance with the requirements of increasing
its authorized capital stock under Section 38 of the Corporation Code, the SEC examines the financial
condition of the corporation, and hence there is no real need for exercise of SEC authority under the Revised
Securities Act. Thus, one of the requirements under the current regulations of the SEC in respect of filing a
certificate of increase of authorized capital stock, is submission of “a financial statement duly certified by an
independent CPA as of the latest date possible or as of the date of the meeting when stockholders approved
the increase/decrease in capital stock or thereabouts.

Since approval of an increase in authorized capital stock by the stockholders holding 2/3 of the
outstanding capital stock is required by Section 38 of the Corporation Code, at a stockholders meeting held
for that purpose, the directors and officers of the corporation may be expected to inform the shareholders of
the financial condition and prospects of the corporation and of the proposed utilization of the fresh capital
sought to be raised.

On the other hand, issuance of previously authorized but theretofore unissued capital stock by the
corporation requires only Board of Directors approval and not the pproval by the shareholders or the SEC.
There would be no opportunity for the SEC to see to it that shareholders (especially the small stockholders)
have a reasonable opportunity to inform themselves about the very fact of such issuance and about the
condition of the corporation and the potential value of the shares of stock being offered.

An issuance of previously authorized but still unissued capital stock may be held to be an exempt
transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration
under the Revised Securities Act are “not necessary in the public interest and for the protection of the
investors” by reason, inter alia, of the small amount of stock that is proposed to be issued or because the
potential buyers are very limited in number and are in a position to protect themselves.

The petitioner also claims that to require it now to pay one-tenth of one percent (1%) of the issued
value of the 344,500 shares of stock proposed to be issued, is to require it to pay a second time for the same
service on the part of the SEC. The SC ruled that the fee collected by the SEC was assessed in connection
with the examination and approval of the certificate of increase of authorized capital stock then submitted by
Case digest by May Angelica M. Teneza Page 12 of 22
petitioner. The fee, on the other hand, provided for in Section 6 (c) which petitioner will be required to pay if
it does file an application for exemption under Section 6 (b), is quite different; this is a fee specifically
authorized by the Revised Securities Act, (not the Corporation Code) in connection with the grant of an
exemption from normal registration requirements imposed by that Act. Thus, such fee is neither unreasonable
nor exorbitant.

Case digest by May Angelica M. Teneza Page 13 of 22

62. GR No. 117188, August 7, 1977
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOC INC, petitioner
Vs.
CA, et al., respondents
Case doctrine: Failure to file the by-laws does not automatically dissolve a corporation

FACTS:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on February 8, 1983 as
the homeowners' association for Loyola Grand Villas. It was also registered as the sole homeowners'
association in the said village with the Home Financing Corporation, predecessor of Home Insurance
Guarantee Corporation (HIGC). However, the association was not able file its corporate by-laws.

Sometime in 1988, the officers of LGVHAI tried to register its by-laws, but they failed to do so. They
discovered that there were two other homeowners' organizations within the subdivision - the North
Association and the South Association.

Sometime in 1989, LGVHAI inquired with the legal department of HIGC regarding its status and
informed him that LGVHAI was automatically dissolved for its failure to submit its by-laws within the period
required by the Corporation Code and that there was non-user of corporate charter because HIGC had not
received any report on the association's activities. These paved the way for the formation of the North and
South Associations.

LGVHAI filed a complaint with HIGC Hearing Officer, Danilo Javier, and questioned the revocation
of its registration. Hearing Officer Javier ruled in favor of LGVHAI, revoking the registration of the North and
South Associations. The petitioner South Association appealed the decision to the Appeals Board of the
HIGC contending that LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code automatically dissolved the corporation. The Appeals Board of the HIGC dismissed the
appeal for lack of merit. The petitioner then elevated the case to the Court of Appeals (CA). However, the CA
affirmed the decision of the Appeals Board of the HIGC. Undaunted, the petitioner filed a petition for review
on certiorari to the Supreme Court (SC).

ISSUE: Whether or not the LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of
the Corporation Code will automatically dissolve the said corporation.

RULING:
No, LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code
will not automatically dissolve the corporation.

By-laws are indispensable to corporations since they are required by law for an orderly management of
corporations. However, failure to file them within the period prescribed does not equate to the automatic
dissolution of a corporation.

Section 46 of the Corporation Code that is the focal point of controversy in this case states that:

“Every corporation formed under this Code, must within one (1) month after receipt of official notice
of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt
a code of by-laws for its government not inconsistent with this Code.”
Case digest by May Angelica M. Teneza Page 14 of 22
 The word "must" generally connotes an imposition of duty which must be enforced. However, the
word "must" in a statute, like "shall," is not always imperative. It may be consistent with an exercise of
discretion. If the language of a statute, considered as a whole with due regard to its nature and object, reveals
that the legislature intended to use the words "shall" and "must" to be directory, they should be given that
meaning. It was not the intention of framers of the law to automatically dissolve a corporation for failure to file
the by-laws on time. By-laws may be necessary to govern the corporation, but it is still subordinate to the
Articles of Incorporation and the Corporation Code.

The Corporation Code is silent as to the effects of non-filing of by-laws. However, these have been
rectified by Section 6 of PD 902-A which provides that SEC shall possess the power to suspend or revoke,
after proper notice and hearing, the franchise or certificate of registration of corporations upon failure to file
by-laws within the required period. This means that there must be notice and hearing before a corporation is
dissolved for failure to file its by-laws.

Case digest by May Angelica M. Teneza Page 15 of 22

69. G.R. No. 152578 November 23, 2005
REPUBLIC OF THE PHILIPPINES, Represented by the Presidential Commission on Good
Government, Petitioner,
vs.
ESTATE OF HANS MENZI (Through its Executor, MANUEL G. MONTECILLO), EMILIO T. YAP,
EDUARDO M. COJUANGCO, JR., ESTATE OF FERDINAND MARCOS, SR., and IMELDA R. MARCOS,
Respondents.
Case Doctrine: Requisites for a valid transfer of ownership of stocks certificate

FACTS:
The Republic filed a case in the Sandiganbayan for the recovery of shares in Bulletin Publishing
Corporation which were allegedly held by Marcos cronies Menzi, Yap, Campos, Cojuangco, and Zalamea.
The shares in question were divided into three blocks – 154, 198, and 214.

The 154 block was bought by Menzi from the Bulletin’s original owner, and subsequently transferred
to US Automotive Co., which was owned by Yap. The sale was initially paid through a promissory note.
However, although the sale was completed before Menzi died in 1984, the payment of the purchase price
was only made in 1985 when the promissory note was paid, after Menzi died.

The 198 and the 214 blocks were held by Campos, Cojuangco, and Zalamea and were later
transferred to HMHMI, in exchange for shares in said corporation. However, Bulletin bought back the shares
from HMHMI because Bulletin’s AOI restricted the transferability of its shares to non-stockholders.

After the EDSA revolt, the PCGG sequestered all 3 blocks. Sandiganbayan ruled that the 154 block
was validly acquired by US Automotive, while the 198 and 214 blocks were ill-gotten wealth of Marcos
acquired through his dummies Campos, Cojuangco, and Zalamea.

The Republic appealed the decision as to the validity of the sale of the 154 block. Cojuangco, Menzi’s
estate, and HMHMI appealed the decision as to the declaration of blocks 198 and 214 as ill-gotten.

The Republic asserted that the sale between Menzi and U.S. Automotive was a sham because the
parties failed to comply with the basic requirement of a deed of sale in the transfer of the subject shares. The
Republic also questioned the authority of Atty. Montecillo, the executor of Menzi’s estate, to indorse the said
stocks certificates.

ISSUE: Whether or not there is a valid transfer of stocks certificate between Menzi and U.S. Automotive.

RULING:
Yes, there is a valid transfer of shares between Menzi and U.S. Automotive.

Sec. 63 of the Corporation Code provides the requisites for a valid transfer of shares as follows:

“The capital stock of stock corporations shall be divided into shares for which certificates signed by
the president or vice-president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or certificates
Case digest by May Angelica M. Teneza Page 16 of 22
 indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred.

The absence of a deed of sale evidencing the sale is allegedly not irregular because the corporation
law itself does not require any deed for the validity of the transfer of shares of stock, it being sufficient that
such transfer be effected by delivery of the stock certificates duly indorsed. The delivery of a duly indorsed
stock certificate is sufficient to transfer ownership of shares of stock in stock corporations. Such is a valid
mode of transfer, subject to the requirement of recording in the corporate books to bind 3rd persons.

Moreover, the BIR certified that the Estate of Menzi paid the final tax on capital gains derived from
the sale of the 154 block and authorized the Corporate Secretary to register the transfer of the said shares
in the name of US Automotive. Further, a stock certificate covering the 154 block was issued to US
Automotive by Quimson himself as Corporate Secretary.

As to the issue on the authority of the executor to indorsed the stocks certificate, evidence showed
that indeed the executor possessed such authority by virtue of a General Power of Attorney and order of the
probate court in the testate proceeding of the vendor Menzi’s estate. The indorsement of the stocks
certificated was pursuant to the duly executed General Power of Attorney filed with the SEC and,
subsequently, on the basis of his authority as Special Administrator and Executor of Menzi’s estate.

Case digest by May Angelica M. Teneza Page 17 of 22

76. G.R. No. 143866 dated August 22, 2005
POLIAND INDUSTRIAL LIMITED, Petitioners,
vs.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE PHILIPPINES, and THE
HONORABLE COURT OF APPEALS (Fourteenth Division) respondents.
Case doctrine: Acquisition of ownership of a corporation; Merger

FACTS:
Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong
corporation, extended credit accommodations in favor of Galleon Shipping Corporation, a domestic company
engaged in maritime transport of goods, totaling US$3,317,747.32. The said amount was used to augment
Galleon’s working capital to purchase 5 new vessels and 2 second-hand shipping vessels.

To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely,
Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux, to which a Deed of Undertaking was executed
by GALLEON, thru its president Roberto Cuenca, and DBP, whereby the latter 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.

On January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155,
directing NDC to acquire the entire shareholdings of GALLEON. 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, 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.

On January 15, 1982, NDC paid Asian Hardwood amount of US$1,000,000.00 as partial settlement
of GALLEON’s obligations.

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 to DBP, the vessels were extrajudicially foreclose and
acquired by DBP.

Asian Hardwood assigned its rights over the outstanding obligations of GALLEON to World Universal
Trading and Investment Company, S.A. (World Universal), which in turn, assigned the credit to the petitioner
POLIAND.

On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and
Philippine Export and Foreign Loan Guarantee Corporation to transfer some of their assets to the National
Government for disposition. Among those transferred were the five vessels of GALLEON which are sold at
the foreclosure proceedings.

Case digest by May Angelica M. Teneza Page 18 of 22

 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, but the demands were unheeded.
Hence, on October 10, 1991, POLIAND filed a collection suit against NDC, DBP and GALLEON 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.

DBP denied being a party to any of the alleged loan transactions. DBP did not sign any memorandum
to act as guarantor for the alleged credit advances/loan accommodations in favor of POLIAND.

On the part of NDC, it also 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. There was no 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.

On August 9, 1996, the trial court rendered a decision in favor of POLIAND. It ruled that NDC and
DBP’s obligation under LOI No. 1155 subsisted because vested rights of the parties have arisen therefrom.
The trial court dismissed NDC’s argument that the Memorandum of Agreement was merely a preliminary
agreement. The trial court did not regard the non-execution of the stock purchase agreement as fatal to
POLIAND’s cause since its non-happening was solely attributable to NDC. Hence, NDC and DBP were
ordered to pay POLIAND.

Both NDC and DBP appealed the trial court’s decision to the Court of Appeals (CA), which
modified the decision absolving DBP for POLIAND’s failure to clearly prove its action against DBP. The
appellate court also discharged NDC of any liability arising from the credit advances/loan obligations
obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely
assumed control over its management and operations. However, NDC was held liable to POLIAND for the
payment of the preferred maritime lien based on LOI No. 1195.

Both POLIAND and NDC elevated the case to the Supreme Court (SC) through two separate
petitions for review on certiorari.

ISSUE: Whether or not NDC assumed ownership of GALLEON and thus assumed also all the liabilities of
the latter including the subject advances/credit accommodation in this case.

RULING:

No, NDC did not assumed ownership of GALLEON. Hence, no liability was also assumed.

The MOA executed by GALLEON and NDC following the issuance of LOI 1155 called for the
execution of a formal share purchase agreement and the transfer of all the shareholdings of seller to Buyer.
Since no such execution and consequent transfer of shareholdings took place, NDC did not acquire
ownership of GALLEON. It merely assumed actual control over the management and operations of
GALLEON. Further, with the effectivity of LOI No. 1155, NDC does not ipso facto acquired the interests in
GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation.

Case digest by May Angelica M. Teneza Page 19 of 22

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. However, the merger does not become effective upon the mere
agreement of the constituent corporations. It shall only be effective upon the issuance of a certificate of
merger by the Securities and Exchange Commission (SEC). 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
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. No evidence was presented to prove that there was
approval by the SEC of the said merger.

Case digest by May Angelica M. Teneza Page 20 of 22

EXPERTRAVEL & TOURS, INC., petitioner,
vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.
Case doctrine: Certificate of non-forum shopping of a corporation

FACTS:

Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. On September 6,1999, KAL, through its appointed counsel Atty.
Aguinaldo filed a complaint against Expertravel and Tours, Inc. (ETI) with RTC of Manila for a collection of
sum of money amounting to ₱260,150.00 plus attorney’s fees and exemplary damages. A verification and
certification against non-forum shopping was signed by Atty. Aguinaldo, who was also the resident agent and
legal counsel of KAL.

ETI filed a motion to dismiss the complaint alleging that Atty. Aguinaldo was not authorized to execute
the verification and certification against non-forum shopping.

During the hearing on January 28, 2000, Atty. Aguinaldo claimed that a special teleconference was
held on June 25, 1999, wherein he was given the authority to file a complaint through a resolution. Upon
motion, KAL was given 10 days to submit such resolution. Atty. Aguinaldo failed to do so after the said period.
He again filed other similar motions which the court granted. However, instead of submitting a copy of the
resolution, the General Manager of KAL, Suk Kyoo Kim, submitted an Affidavit alleging that a special
teleconference was held authorizing Atty. Aguinaldo to execute the verification and certification against non-
forum shopping but there is no written copy of the said resolution.

The RTC gave credence to the claims of Atty. Aguinaldo and denied the motion to dismiss filed by
ETI. It filed a motion for reconsideration but was denied. ETI then filed a petition for certiorari and mandamus
with the CA, which dismissed the petition. It filed a motion for reconsideration but was again denied. Hence,
ETI now comes to the Supreme Court by way of petition for review on certiorari.

ISSUE: Whether or not authorization to Atty. Aguinaldo to execute a certification against non-forum shopping
can be made through a special teleconference.

RULING:
No, authority to execute a certification against non-forum shopping cannot be made through a special
teleconference.

Corporation, being a juridical person, may perform physical actions, like signing of a document,
through properly delegated individuals, namely its officers and/or agents. These persons must be duly-
authorized for the purpose by its by-laws or by a resolution made by its board of directors.

In this age of modern technology, the courts may take judicial notice that business transactions may
be made by individuals through teleconferencing. In general terms, teleconferencing can bring people
together under one roof even though they are separated by hundreds of miles. Indeed, teleconferencing can
only facilitate the linking of people; it does not alter the complexity of group communication. Although it may
be easier to communicate via teleconferencing, it may also be easier to miscommunicate. Teleconferencing
cannot satisfy the individual needs of every type of meeting.
Case digest by May Angelica M. Teneza Page 21 of 22
 In the case at bar, authority to execute a certification against non-forum shopping cannot be made
through a special teleconference. Atty. Aguinaldo must show proof of such authority or representation, which
he failed to do so despite the ample time given to him by the court. Even given the possibility that Atty.
Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the respondent’s Board of Directors,
the Court is not convinced that one was conducted. Even if there had been one, the Court is not inclined to
believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the complaint
and execute the required certification against forum shopping.

Case digest by May Angelica M. Teneza Page 22 of 22