XIII. SHARES OF STOCK
Propertiew ∑å∂s registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. While shares of stock
1. STOCKHOLDERS OF F. GUANSON AND SONS, INC V. REGISTER
OF DEEDS OF MANILA | G.R. No. L -18216 | Oct. 30, 1962
Topic: Shares of Stocks
FACTS:
The 5 stockholders of the petitioner corporation executed a certificate of
liquidation of the corporation assets.
As a result of the said dissolution, they have distributed among themselves
in proportion to their shareholdings, as liquidating dividends, the assets of
the said corporation including the real properties in Manila. However, when
the cert. of liquidation as presented to the Register of Deeds, the latter
denied the registration of the lands to their names, due to the following
grounds:
1. The number of parcels is not certified in the acknowledgment.
2. Fees must be paid and the documentary stamp needs to be
attached to the document.
Petitioners’ contention: the certificate of liquidation is not a conveyance or
transfer but merely a distribution of the assets of the corporation which has
ceased to exist for having been dissolved.
The Commissioner of Land Registration ruled in favor of Reg. of Deeds. The
CLR ruled that there is conveyance or transfer hence, the petitioner must
fulfill the necessary requirements. Hence, this petition.
ISSUE: Whether or not that certificate merely involves distribution of the
corporation assets or should be considered a transfer or conveyance.
RULING: The certificate of liquidation is considered as a transfer or
conveyance of land.
constitute personal property, they do not represent property of the
corporation.
A share of stock only typifies an aliquot part of the corporation's property, or
the right to share in its proceeds to that extent when distributed according
to law and equity, but its holder is not the owner of any part of the capital of
the corporation. Nor is he entitled to the possession of any definite portion
of its property or assets. The stockholder is not a co-owner or tenant in
common of the corporate property.
Based on the foregoing authorities, the act of liquidation made by the
stockholders of the petitioner of the latter's assets is not and cannot be
considered a partition of community property, but rather a transfer or
conveyance of the title of its assets to the individual stockholders. The
purpose of the liquidation, as well as the distribution of the assets of the
corporation, is to transfer their title from the corporation to the stockholders
in proportion to their shareholdings, — and this is in effect the purpose which
they seek to obtain from the Register of Deeds of Manila, — that transfer
cannot be effected without the corresponding deed of conveyance from the
corporation to the stockholders. It is, therefore, fair, and logical to consider
the certificate of liquidation as one in a transfer or conveyance.
2. Majority Stockholders of Ruby Industrial Corp. v. Lim G.R. No.
165887
●
It was first approved but later ruled that the revised plan
circumvented its earlier decision nullifying the deeds of assignment.
Facts:
●
There was a capital infusion taken up by RUBY’s BOD in a special
meeting following the issuance by the SEC of its order approving
the R-BENHAR/RUBY Plan and created a new management
committee to oversee its implementation.
●
RUBY is a domestic corporation suffering liquidity problems.
●
It filed a petition for suspension of payments in the SEC, which was
approved.
●
SEC created a management committee to undertake the
management of RUBY.
The new management committee issued out the unissued portion
of the stocks so that the majority can buy it.
●
Then since the proportion was around 75-25, 75% voted to extend
the corporate life of RUBY.
●
The new BoD declared that the resolution was approved by ⅔ of
RUBY’s outstanding capital stock, so it is binding.
●
Lim argued that the implementation of the new percentage
stockholdings of the majority stockholders, the calling of the
stockholders meeting, and the subsequent resolution approving the
extension of corporate life of RUBY for another 25 yrs were all done
in violation of the decisions of the CA and SC without compliance
with the requirements under the Corporation Code.
●
There being no valid extension of life of RUBY, its life had legally
ceased.
●
●
With this, 2 rehabilitation plans were submitted to the SEC:
o (i) BENHAR / RUBY rehabilitation plan of the majority
stockholders and
o (ii) the Alternative Plan of the Minority Stockholders.
●
BENHAR Plan was initially approved, but was subsequently
enjoined.
●
Meanwhile, BENHAR paid off FEBTC, one of RUBY’s secured
creditors.
●
FEBTC had already executed a deed of assignment of credit and
mortgage rights to BENHAR.
●
BENHAR also paid the other creditors, and these creditors also
assigned their rights to BENHAR.
●
These acts were done by BENHAR despite the TRO and injunction
and even before the SEC approved the BENHAR/RUBY plan.
●
The deed of assignment was declared null and void by the SC.
●
After the implementation of BENHAR/RUBY was enjoined, RUBY
filed with the SEC an ex parte motion to create a new management
committee and to approve its revised rehab plan (RBENHAR/RUBY).
Issue:
WON Pre-emptive right of a stockholder of a stock corporation to subscribe
to all issues or disposition of shares of any class, in proportion to their
respective shareholdings be validly withdrawn at any instance.
Ruling:
●
No. The right may be restricted or denied under the AOI and certain
limitations.
●
The stockholder must be given a reasonable time within which to
exercise their preemptive rights.
●
Even if the right does not exist, an issue of shares may still be
objectionable if the directors acted in breach of trust and their
primary purpose is to perpetuate or shift control of the corporation,
or to “freeze out” the minority interest.
●
Stockholders are given a right to intervene during critical periods in
the life of the corporation, more so when the majority seek to impose
their will and through fraudulent means, attempt to siphon off
RUBY’s valuable assets to the great prejudice of RUBY itself, as
well as the minority stockholders and the unsecured creditors.
●
Although it can validly be withdrawn, it cannot be done in breach of
fiduciary duties such as to perpetuate control over the corporation.
WHEREFORE, the petitions for review on certiorari are DENIED. The
Decision dated May 26, 2004 and Resolution dated November 4, 2004 of
the Court of Appeals in CA-G.R. SP No. 73195 are
hereby AFFIRMED with MODIFICATION in that the Securities and
Exchange Commission is hereby ordered to TRANSFER SEC Case No.
2556 to the appropriate Regional Trial Court which is hereby DIRECTED to
supervise the liquidation of Ruby Industrial Corporation under the provisions
of R.A. No. 10142.
holdings of stock in said John R. Edgar & Co. Inc., till after one year
from the date hereof.
ISSUE: WON stipulation in the contract suspending the power to sell the
stock referred to therein is an illegal stipulation, is in restraint of trade and,
therefore, offends public policy.
RULING: The suspension of the power to sell has a beneficial purpose,
results in the protection of the corporation as well as of the individual parties
to the contract, and is reasonable as to the length of time of the suspension.
We do not here undertake to discuss the limitations to the power to suspend
the right of alienation of stock, limiting ourselves to the statement that the
suspension in this particular case is legal and valid.
3. LEON J. LAMBERT, plaintiff-appellant, vs. T. J. FOX, defendantappellee. | G.R. No. L-7991 | January 29, 1914
FACTS:
1. Early in 1911 the firm known as John R. Edgar & Co., engaged in the
retail book and stationery business, found itself in such condition financially
that its creditors, including the plaintiff and the defendant, together with
many others, agreed to take over the business, incorporate it and accept
stock therein in payment of their respective credits. This was done, the
plaintiff and the defendant becoming the two largest stockholders in the new
corporation called John R. Edgar & Co., Incorporated.
2. A few days after the incorporation was completed plaintiff and defendant
entered into the following agreement:
Whereas it is recognized that the success of said corporation depends, now
and for at least one year next following, in the larger stockholders retaining
their respective interests in the business of said corporation:
Therefore, the undersigned mutually and reciprocally agree not to
sell, transfer, or otherwise dispose of any part of their present
Botica Nolasco, Inc., requesting that the five shares of stock sold by him to
Henry Fleischer be noted transferred to Fleischer's name. He also
acknowledged in said written statement the preferential right of the
corporation to buy said five shares.
On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco,
withdrawing and cancelling his written statement of March 13, 1923, to
which letter the Botica Nolasco on June 15, 1923, replied, declaring that his
written statement was in conformity with the by-laws of the corporation; that
his letter of June 14th was of no effect, and that the shares in question had
been registered in the name of the Botica Nolasco, Inc.
4. HENRY FLEISCHER, plaintiff-appellee, vs. BOTICA NOLASCO CO.,
INC., defendant-appellant. | G.R. No. L-23241 | March 14, 1925
FACTS: Manuel Gonzalez was the original owner of the five shares of stock
in question. On March 11, 1923, he assigned and delivered said five shares
to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement
provided on the back thereof, together with other credits, in consideration of
a large sum of money owed by Gonzalez to Fleischer.
Upon the issue presented by the pleadings above stated, the cause was
brought on for trial, at the conclusion of which, and on August 21, 1924, the
Honorable N. Capistrano, judge, held that, in his opinion, article 12 of the
by-laws of the corporation which gives it preferential right to buy its shares
from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law),
especially with section 35 thereof; and rendered a judgment ordering the
defendant corporation, through its board of directors, to register in the books
of said corporation the said five shares of stock in the name of the plaintiff,
Henry Fleischer, as the shareholder or owner thereof, instead of the original
owner, Manuel Gonzalez, with costs against the defendant.
On March 13, 1923, Dr. Eduardo Miciano, who was the secretary-treasurer
of Botica Nolasco. Inc., offered to buy from Henry Fleischer, on behalf of the
corporation said shares of stock, at their par value of P100 a share, for
P500; and that by virtue of article 12 of the by-laws of Botica Nolasco, Inc.,
said corporation had the preferential right to buy from Manuel Gonzalez said
shares.
ISSUE: WON article 12 of the by-laws of the corporation is in conflict with
the provisions of the Corporation Law (Act No. 1459) specifically Section
13, paragraph 7, and Section 35 thereof.
The plaintiff refused to sell them to the defendant and the plaintiff requested
Doctor Miciano to register said shares in his name. However, Doctor
Miciano refused to do so, saying that it would be in contravention of the bylaws of the corporation.
Section 13, paragraph 7 of the Corporation Law (Act No. 1459), empowers
a corporation to make by-laws, not inconsistent with any existing law, for the
transferring of its stock. It follows from said provision, that a by-law adopted
by a corporation relating to transfer of stock should be in harmony with the
law on the subject of transfer of stock.
It also appears on the record that two days after the assignment of the
shares to the plaintiff, Manuel Gonzales made a written statement to the
RULING: Article 12 of the by-laws of the corporation is in conflict with the
provisions of Act No. 1459.
The law on this subject is found in section 35 of the same Code. Said section
specifically provides that the shares of stock "are personal property and may
be transferred by delivery of the certificate indorsed by the owner, etc." Said
section 35 defines the nature, character and transferability of shares of
stock. The holder of shares, as owner of personal property, is at liberty,
under said section, to dispose of them in favor of whomsoever he pleases,
without any other limitation in this respect, than the general provisions of
law. Therefore, a stock corporation in adopting a by-law governing transfer
of shares of stock should take into consideration the specific provisions of
section 35 of Act No. 1459, and said by-law should be made to harmonize
with said provisions. It should not be inconsistent therewith.
In this case, the by-laws of the corporation giving preferential right to buy its
shares from retiring stockholders is clearly in conflict with the provisions of
the Corporation Law since it provided a restriction as to whom the shares of
stock may be transferred. Manuel Gonzales, being the owner of the shares
of stocks, has the liberty to dispose of his shares of stock in favor of
whomever he pleases.
Whenever a corporation refuses to transfer and register stock in cases like
the present, mandamus will lie to compel the officers of the corporation to
transfer said stock upon the books of the corporation.
Moreover, the by-laws now in question cannot have any effect on the
plaintiff. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc.
Said by-law cannot operate to defeat his rights as a purchaser.
In view of all the foregoing, the Supreme Court rendered in this case that
the decision of the lower court is in accordance with law and should be and
is hereby affirmed, with costs.
NOTES:
·
SEC. 13. Every corporation has the power:
xxx
xxx
xxx
(7) To make by-laws, not inconsistent with any existing law, for the
fixing or changing of the number of its officers and directors within
the limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc.
xxx
xxx
xxx
·
SEC. 35. The capital stock of stock corporations shall de
divided into shares for which certificates signed by the president or
the vice-president, countersigned by the secretary or clerk 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 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 entered and noted upon the books of the corporation so
as to show the names of the parties to the transaction, that date of
the transfer, the number of the certificate, and the number of shares
transferred.
No share of stock against which the corporation holds any unpaid
claim shall be transferable on the books of the corporation.
·
As a general rule, the by-laws of a corporation are valid if they
are reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the
laws of the land.
On the other hand, it is equally well settled that by-laws of a corporation
must be reasonable and for a corporate purpose, and always within the
charter limits. They must always be strictly subordinate to the constitution
and the general laws of the land. They must not infringe the policy of the
state, nor be hostile to public welfare. They must not disturb vested rights
or impair the obligation of a contract, take away or abridge the substantial
rights of stockholder or member, affect rights of property or create
obligations unknown to the law.
ISSUES
●
●
Whether the corporation may be compelled to buy the shares in
question at par value.
Whether the restriction consisting in the word "nontransferable” as
appearing in the certificates is valid.
RULING
Corporations cannot be compelled to buy the shares.
5.
PADGETT
VS
BABCOCK
G.R. No. 38684. December 21, 1933
&
TEMPLETON
INC.
FACTS
1.
Padgett was an employee of the Babcock & Templeton Inc
corporation. During his tenure with said corporation, he bought 35
shares thereof at P100 a share. He was also given 9 shares as a
Christmas Bonus.
2.
Hence, Padgett became the owner of 44 shares for which 12
certificates were issued in his favor. The word ’nontransferable’ appears
on each and every one of these certificates.
3. Before severing his connections with said corporation, Padgett
proposed to the president that the said corporation buy his 44 shares at
par value plus the interest thereon, or that he be authorized to sell them
to other persons.
4. However, the corporation vigorously contend that there is no existing
law nor authority in support of the proposition that they are bound to
redeem or buy said shares at par value.
The SC held that there is no existing law nor authority in support of the
Padgett’s claim to the effect that the corporation is obliged to buy his shares
of stock value at par value, plus the interest demanded thereon. In this
respect, the Court held that there has been no such contract, either express
or implied, between Padgett and the Corporation. In the absence of a similar
contractual obligation and of a legal provision applicable thereto, it is logical
to conclude that it would be unjust and unreasonable to compel the said
corporation to comply with a non-existent or imaginary obligation.
The restrictions imposed on the Certificates are null and void.
The SC held that a restriction imposed upon a certificate of shares, similar
to the ones under consideration, is null and void on the ground that it
constitutes and unreasonable limitation of the right of ownership and is in
restraint of trade.
6. Andaya vs Rural Bank of Cabadbaran | G.R. No. 188769 | August 3,
2016
FACTS: Andaya bought from Chute 2,200 shares of stock in the Rural Bank
of Cabadbaran for P220,000
Chute duly endorsed and delivered the certificates of stock to Andaya and,
subsequently, requested the bank to register the transfer and issue new
stock certificates in favor of the latter.
of attorney, to cause the disposition of stocks registered in the stockholder's
name. It ruled that "[w]ithout the sale first registered or an authority from the
transferor, it [was] therefore unmistakably clear that [Andaya had] no cause
of action for mandamus against [the] bank."
Respondents primarily challenge the mandamus suit on the grounds that
the transfer violated the bank stockholders' right of first refusal and that
petitioner was a buyer in bad faith. Both parties refer to Section 98 of the
Corporation Code to support their arguments,
A few days later, the bank's corporate secretary wrote[6] Chute to inform
her that he could not register the transfer. He explained that under a
previous stockholders' Resolution, existing stockholders were given priority
to buy the shares of others in the event that the latter offered those shares
for sale (i.e., a right of first refusal).
ISSUE: Whether Andaya, as a transferee of shares of stock, may initiate an
action for mandamus compelling the Rural Bank of Cabadbaran to
record the transfer of shares in its stock and transfer book, as well as issue
new stock certificates in his name.
Citing Section 98 of the Corporation Code, he claimed that the purported
restriction on the transfer of shares of stock agreed upon during the 2001
stockholders' meeting could not deprive him of his right as a transferee. He
pointed out that the restriction did not appear in the bank's articles of
incorporation, bylaws, or certificates of stock.
It is already settled jurisprudence[16] that the registration of a transfer of
shares of stock is a ministerial duty on the part of the corporation.
The bank eventually denied the request of Andaya
Consequently, Andaya instituted an action for mandamus and damages[12]
against the Rural Bank of Cabadbaran; its corporate secretary, Oraiz; and
its legal counsel, Gonzalez. Petitioner sought to compel them to record the
transfer in the bank's stock and transfer book and to issue new certificates
of stock in his name.
The RTC issued a Decision dismissing the complaint. Citing Porice v.
Alsons Cement Corporation[13] the trial court ruled that Andaya had no
standing to compel the bank to register the transfer and issue stock
certificates in his name.[14] It explained that he had failed "[to show] that
the transfer of subject shares of stock [was] recorded in the stock and
transfer book of [the] bank or that [he was] authorized by [Chute] to make
the transfer."[15] According to the trial court, Ponce requires that a person
seeking to transfer shares must appear to have an express instruction and
a specific authority from the registered stockholder, such as a special power
RULING: The petition is partly meritorious.
This remedy is available even upon the instance of a bona fide
transferee[17] who is able to establish a clear legal right to the registration
of the transfer.[18] This legal right inherently flows from the transferee's
established ownership of the stocks, a right that has been recognized by
this Court as early as in Price v. Martin:
Thus, in Pacific Basin Securities Co., Inc., v. Oriental Petroleum and
Minerals Corp.,[21]this Court stressed that the registration of a transfer of
shares is ministerial on the part of the corporation:
We also rule that Andaya has been able to establish that he is a bona fide
transferee of the shares of stock of Chute. In proving this fact, he presented
to the RTC the following documents evidencing the sale: (1) a notarized
Sale of Shares of Stocks[23] showing Chute's sale of 2,200 shares of stock
to petitioner; (2) a Documentary Stamp Tax Declaration/Return[24] (3)
Capital Gains Tax Return;[25] and (4) stock certificates[26] covering the
subject shares duly endorsed by Chute.
This Court further finds that the reliance of the RTC on Ponce in finding that
petitioner had no cause of action for mandamus against the defendant bank
was misplaced. In Ponce, the issue resolved by this Court was whether the
petitioner therein had a cause of action for mandamus to compel the
issuance of stock certificates, not the registration of the transfer.
In contrast, at the crux of this petition are the registration of the transfer and
the issuance of the corresponding stock certificates.
Accordingly, a writ of mandamus to enforce a ministerial act may issue only
when petitioner is able to establish the presence of the following: (1) right
clearly founded in law and is not doubtful;
Respondents primarily challenge the mandamus suit on the grounds that
the transfer violated the bank stockholders' right of first refusal and that
petitioner was a buyer in bad faith. Both parties refer to Section 98 of the
Corporation Code to support their arguments,... which reads as
follows:SECTION 98. Validity of restrictions on transfer of shares. —
Restrictions on the right to transfer shares must appear in the articles of
incorporation and in the by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any purchaser thereof in good
faith.
It must be noted that Section 98 applies only to close corporations. Hence,
before the Court can allow the operation of this section in the case at bar,
there must first be a factual determination that respondent Rural Bank of
Cabadbaran is indeed a close corporation. There needs to be a presentation
of evidence on the relevant restrictions in the articles of incorporation j and
bylaws of the said bank.
From the records or the RTC Decision, there is apparently no such
determination or even allegation that would assist this Court in ruling on
these two major factual matters. With the foregoing, the validity of the
transfer cannot yet be tested using that provision. These are the factual
matters that the parties must first thresh out before the RTC.
After finding that petitioner has legal standing to initiate an action for
mandamus, the Court now reinstates the action he filed and remands the
case to the RTC to resolve the propriety of issuing a writ of mandamus.
WHEREFORE, premises considered, the instant petition I is GRANTED.
The action is hereby REINSTATED and the case REMANDED to the court
of origin for further proceedings.
7. Republic Planters Bank vs. Agana [GR 51765, 3 March 1997]
FACTS: On 18 September 1961, the Robes-Francisco Realty &
Development Corporation (RFRDC) secured a loan from the Republic
Planters Bank in the amount of P120,000.00. As part of the proceeds of the
loan, preferred shares of stocks were issued to RFRDC through its officers
then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of
giving the legal tender totaling to the full amount of the loan, which is
P120,000.00, the Bank lent such amount partially in the form of money and
partially in the form of stock certificates numbered 3204 and 3205, each for
400 shares with a par value of P10.00 per share, or for P4,000.00 each, for
a total of P8,000.00. Said stock certificates were in the name of Adalia F.
Robes and Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.
Said certificates of stock bear the following terms and conditions: "The
Preferred Stock shall have the following rights, preferences, qualifications
and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%,
cumulative and participating. xxx 2. That such preferred shares may be
redeemed, by the system of drawing lots, at any time after 2 years from the
date of issue at the option of the Corporation." On 31 January 1979, RFRDC
and Robes proceeded against the Bank and filed a complaint anchored on
their alleged rights to collect dividends under the preferred shares in
question and to have the bank redeem the same under the terms and
conditions of the stock certificates. The bank filed a Motion to Dismiss 3
private respondents' Complaint on the following grounds: (1) that the trial
court had no jurisdiction over the subject-matter of the action; (2) that the
action was unenforceable under substantive law; and (3) that the action was
barred by the statute of limitations and/or laches. The bank's Motion to
Dismiss was denied by the trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave
the parties 10 days from 30 July 1979 to submit their respective memoranda
after the submission of which the case would be deemed submitted for
resolution. On 7 September 1979, the trial court rendered the decision in
favor of RFRDC and Robes; ordering the bank to pay RFRDC and Robes
the face value of the stock certificates as redemption price, plus 1%
quarterly interest thereon until full payment. The bank filed the petition for
certiorari with the Supreme Court, essentially on pure questions of law.
ISSUES:
1. Whether the bank can be compelled to redeem the preferred shares
issued to RFRDC and Robes.
2. Whether RFRDC and Robes are entitled to the payment of certain rate of
interest on the stocks as a matter of right without necessity of a prior
declaration of dividend.
RULING:
1. While the stock certificate does allow redemption, the option to do so
was clearly vested in the bank. The redemption therefore is clearly the type
known as "optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its
stock. Furthermore, the terms and conditions set forth therein use the word
"may". It is a settled doctrine in statutory construction that the word "may"
denotes discretion, and cannot be construed as having a mandatory effect.
The redemption of said shares cannot be allowed. The Central Bank made
a finding that the Bank has been suffering from chronic reserve deficiency,
and that such finding resulted in a directive, issued on 31 January 1973 by
then Gov. G. S. Licaros of the Central Bank, to the President and Acting
Chairman of the Board of the bank prohibiting the latter from redeeming any
preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid reason.
The directive issued by the Central Bank Governor was obviously meant to
preserve the status quo, and to prevent the financial ruin of a banking
institution that would have resulted in adverse repercussions, not only to its
depositors and creditors, but also to the banking industry as a whole. The
directive, in limiting the exercise of a right granted by law to a corporate
entity, may thus be considered as an exercise of police power.
2. Both Section 16 of the Corporation Law and Section 43 of the present
Corporation Code prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the
purpose. These provisions underscore the fact that payment of dividends to
a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees
absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of interest
as dividends from net earnings or surplus only. In compelling the bank to
redeem the shares and to pay the corresponding dividends, the Trial
committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the stock
certificate, as well as the clear mandate of the law.
8. ONGKINGCO v. SUGIYAMA | GR 217787 | September 18, 2019
FACTS:
Petitioners Socorro Ongkingco, President and Chairperson and Maria
Ongkingco of New Rhia Car Services, Inc., entered into a Contract
Agreement with respondent Sugiyama. Sugiyama will receive dividends for
five (5) years for his investment of P2.2M in New Rhia.
To cover the monthly dividends, petitioners issued six (6) postdated checks.
However, 3 out of 6 of the checks bounced due to insufficient funds.
In a Memorandum of Agreement, Socorro obtained a loan from Sugiyama
amounting to P500,000 with 5% interest. As guarantee and payment,
Socorro issued a postdated check, which was eventually dishonored due to
insufficient funds.
After several demands, petitioners failed to pay. Sugiyama filed complaints
against petitioners for 4 counts of BP 22.
Both petitioners pleaded not guilty. Eventually, Socorro and Sugiyama
executed an Addendum to the Contract Agreement agreeing new schedule
of payment. However, the petitioners still failed to pay.
MeTC found petitioners guilty of four counts of violation of BP 22. Petitioners
appealed to the RTC. However, RTC denied the same. Petitioners filed a
petition for review before the CA. CA ruled in favor of Sugiyama, hence the
petition before the SC.
ISSUE: WON petitioners are personally liable for the obligations of the
corporation.
RULING:
Generally, the stockholders and officers are not personally liable for the
obligations of the corporation except only when the veil of corporate fiction
is being used as a cloak or cover for fraud or illegality, or to work injustice.
Here, petitioner Socorro bound herself personally liable for the monthly
director's dividends in the fixed amount of P90,675.00 for a period of five (5)
years and for the P500,000.00 loan, for which she issued the subject four
(4) dishonored checks. She then admitted having incurred serious delay in
the payment of the said fixed monthly dividends and loan, and further
agreed to adopt a new payment schedule of payment therefor, but to no
avail.
Granted that Socorro is authorized to sign checks as corporate officer and
authorized signatory of New Rhia Car Services, Inc., there is still no
evidence on record that she was duly authorized, through a Board
Resolution or Secretary's Certificate, to guarantee a corporate director
thereof [Sugiyama] fixed monthly dividends for 5 years, to enter into a loan,
and to adopt a new schedule of payment with the same director, all in behalf
of the corporation. It would be the height of injustice for the Court to allow
Socorro to hide behind the separate and distinct corporate personality of
New Rhia Car Services, Inc., just to evade the corporate obligation which
she herself bound to personally undertake.
It is not amiss to stress that the power to declare dividends under Section
43 of the Corporation Code of the Philippines lies in the hands of the board
of directors of a stock corporation, and can be declared only out of its
unrestricted retained earnings. Assuming arguendo that Socorro was
authorized by the Board to fix the monthly dividends of Sugiyama as a
corporate director, it appears that she committed an ultra vires act because
dividends can be declared only out of unrestricted retained earnings of a
corporation, which earnings cannot obviously be fixed and pre-determined
5 years in advance.
NOTE: *Atty might ask this one
Socorro was convicted of four charges of violation of BP 22; she is
personally liable.
9. PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO,
JAMES TAN, JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO,
VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES AND
GRACE CHRISTIAN HIGH SCHOOL, Petitioners, VS. PAUL SYCIP AND
MERRITTO LIM, Respondents. | [ G.R. NO. 153468 | August 17, 2006
DOCTRINE: For stock corporations, the quorum referred to in Section 52 of
the Corporation Code is based on the number of outstanding voting stocks.
For nonstock corporations, only those who are actual, living members with
voting rights shall be counted in determining the existence of a quorum
during members meetings. Dead members shall not be counted.
FACTS: Petitioner Grace Christian High School (GCHS) is a nonstock, nonprofit educational corporation with fifteen (15) regular members, who also
constitute the board of trustees. During the annual members meeting held
on April 6, 1998, there were only eleven (11) living members trustees, as
four (4) had already died. Out of the eleven, seven (7) attended the meeting
through their respective proxies. The meeting was convened and chaired
by Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who
argued that there was no quorum. In the meeting, Petitioners Ernesto
Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the
four deceased member-trustees.
When the controversy reached the Securities and Exchange Commission
(SEC), petitioners maintained that the deceased member-trustees should
not be counted in the computation of the quorum because, upon their death,
members automatically lost all their rights (including the right to vote) and
interests in the corporation.
RULING:
The Right to Vote in Nonstock Corporations
In nonstock corporations, the voting rights attach to membership. Members
vote as persons, in accordance with the law and the bylaws of the
corporation. Each member shall be entitled to one vote unless so limited,
broadened, or denied in the articles of incorporation or bylaws. We hold that
when the principle for determining the quorum for stock corporations is
applied by analogy to nonstock corporations, only those who are actual
members with voting rights should be counted.
Under Section 52 of the Corporation Code, the majority of the members
representing the actual number of voting rights, not the number or numerical
constant that may originally be specified in the articles of incorporation,
constitutes the quorum.
Section 25 of the Code specifically provides that a majority of the directors
or trustees, as fixed in the articles of incorporation, shall constitute a quorum
for the transaction of corporate business (unless the articles of incorporation
or the bylaws provide for a greater majority). If the intention of the lawmakers
was to base the quorum in the meetings of stockholders or members on
their absolute number as fixed in the articles of incorporation, it would have
expressly specified so. Otherwise, the only logical conclusion is that the
legislature did not have that intention.
Effect of the Death of a Member or Shareholder
SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting
null and void for lack of quorum. She held that the basis for determining the
quorum in a meeting of members should be their number as specified in the
articles of incorporation, not simply the number of living members.
In stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and entitled
to vote it. Until a settlement and division of the estate is effected, the stocks
of the decedent are held by the administrator or executor.
ISSUE: Whether or not in NON-STOCK corporations, dead members
should still be counted in determination of quorum for the purpose of
conducting the Annual Members Meeting.
On the other hand, membership in and all rights arising from a nonstock
corporation are personal and non-transferable, unless the articles of
incorporation or the bylaws of the corporation provide otherwise. In other
words, the determination of whether or not dead members are entitled to
exercise their voting rights (through their executor or administrator),
depends on those articles of incorporation or bylaws. Under the By-Laws of
GCHS, membership in the corporation shall, among others, be terminated
by the death of the member. Section 91 of the Corporation Code further
provides that termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the
bylaws. Applying Section 91 to the present case, we hold that dead
members who are dropped from the membership roster in the manner and
for the cause provided for in the By-Laws of GCHS are not to be counted in
determining the requisite vote in corporate matters or the requisite quorum
for the annual members meeting. With 11 remaining members, the quorum
in the present case should be 6. Therefore, there being a quorum, the
annual members meeting, conducted with six members present, was valid.
10. 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
RULING: There was no proper service of summons on ALFA through the
petitioners as president and vice-president, allegedly, of the subject
corporation after the execution of a voting trust agreement between ALFA
and DBP.
FACTS:
On November 15, 1985, a complaint for a sum of money was filed by the
International Corporate Bank, Inc. against the private respondents who, in
turn, filed a third party complaint against ALFA and the petitioners on March
17, 1986.
Under Section 59 of the new Corporation Code which expressly recognizes
voting trust agreements, a more definitive meaning may be gathered. The
said provision partly reads:
Meanwhile, on July 12, 1988, the trial court issued an order requiring the
issuance of an alias summons upon ALFA through the DBP as a
consequence of the petitioner’s letter informing the court that the summons
for ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, 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.
On January 19, 1989, a second motion for reconsideration was filed by the
petitioners reiterating their stand that by virtue of the voting trust agreement
they ceased to be officers and directors of ALFA, hence, they could no
longer receive summons or any court processes for or on behalf of ALFA.
In support of their second motion for reconsideration, the petitioners
attached thereto a copy of the voting trust agreement between all the
stockholders of ALFA (the petitioners included), on the one hand, and the
DBP, on the other hand, whereby the management and control of ALFA
became vested upon the DBP.
ISSUE: Whether or not there was proper service of summons on ALFA
through the petitioners as president and vice-president, allegedly, of the
subject corporation after the execution of a voting trust agreement between
ALFA and DBP. (NO)
Sec. 59. Voting Trusts — One or more stockholders of a stock
corporation may create a voting trust for the purpose of conferring
upon a trustee or trustees the right to vote and other rights
pertaining to the share for a period rights pertaining to the shares
for a period not exceeding five (5) years at any one time: Provided,
that in the case of a voting trust specifically required as a condition
in a loan agreement, said voting trust may be for a period exceeding
(5) years but shall automatically expire upon full payment of the
loan. A voting trust agreement must be in writing and notarized, and
shall specify the terms and conditions thereof. A certified copy of
such agreement shall be filed with the corporation and with the
Securities and Exchange Commission; otherwise, said agreement
is ineffective and unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall be cancelled and
new ones shall be issued in the name of the trustee or trustees
stating that they are issued pursuant to said agreement. In the
books of the corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to said voting trust
agreement.
By its very nature, a voting trust agreement results in the separation of the
voting rights of a stockholder from his other rights such as the right to
receive dividends, the right to inspect the books of the corporation, the right
to sell certain interests in the assets of the corporation and other rights to
which a stockholder may be entitled until the liquidation of the corporation.
However, in order to distinguish a voting trust agreement from proxies and
other voting pools and agreements, it must pass three criteria or tests,
namely: (1) that the voting rights of the stock are separated from the other
attributes of ownership; (2) that the voting rights granted are intended to be
irrevocable for a definite period of time; and (3) that the principal purpose of
the grant of voting rights is to acquire voting control of the corporation.
qualify as a director under section 23 of the present Corporation Code which
deletes the phrase "in his own right." Section 30 of the old Code states that:
Under section 59 of the Corporation Code, supra, a voting trust agreement
may confer upon a trustee not only the stockholder's voting rights but also
other rights pertaining to his shares as long as the voting trust agreement is
not entered "for the purpose of circumventing the law against monopolies
and illegal combinations in restraint of trade or used for purposes of fraud."
(section 59, 5th paragraph of the Corporation Code) Thus, the traditional
concept of a voting trust agreement primarily intended to single out a
stockholder's right to vote from his other rights as such and made
irrevocable for a limited duration may in practice become a legal device
whereby a transfer of the stockholder's shares is effected subject to the
specific provision of the voting trust agreement.
Every director must own in his own right at least one share of the
capital stock of the stock corporation of which he is a director, which
stock shall stand in his name on the books of the corporation. A
director who ceases to be the owner of at least one share of the
capital stock of a stock corporation of which is a director shall
thereby cease to be a director. (Emphasis supplied)
The execution of a voting trust agreement, therefore, may create a
dichotomy between the equitable or beneficial ownership of the corporate
shares of a stockholders, on the one hand, and the legal title thereto on the
other hand.
The law simply provides that a voting trust agreement is an agreement in
writing whereby one or more stockholders of a corporation consent to
transfer his or their shares to a trustee in order to vest in the latter voting or
other rights pertaining to said shares for a period not exceeding five years
upon the fulfillment of statutory conditions and such other terms and
conditions specified in the agreement. The five year-period may be
extended in cases where the voting trust is executed pursuant to a loan
agreement whereby the period is made contingent upon full payment of the
loan.
Both under the old and the new Corporation Codes 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. The penultimate question, therefore, is
whether the change in his status deprives the stockholder of the right to
___________________________________________________________
________________
In the instant case, the point of controversy arises from the effects of the
creation of the voting trust agreement. The petitioners maintain that with
the execution of the voting trust agreement between them and the other
stockholders of ALFA, as one party, and the DBP, as the other party, the
former assigned and transferred all their shares in ALFA to DBP, as trustee.
They argue that by virtue to of the voting trust agreement the petitioners can
no longer be considered directors of ALFA. In support of their contention,
the petitioners invoke section 23 of the Corporation Code which provides, in
part, that:
Every director must own at least one (1) share of the capital stock of the
corporation of which he is a director which share shall stand in his name on
the books of the corporation. Any director who ceases to be the owner of at
least one (1) share of the capital stock of the corporation of which he is a
director shall thereby cease to be director . . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust
agreement between ALFA and the DBP had all the more safeguarded the
petitioners' continuance as officers and directors of ALFA inasmuch as the
general object of voting trust is to insure permanency of the tenure of the
directors of a corporation. They cited the commentaries by Prof. Aguedo
Agbayani on the right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing stockholder", is
equitable owner for the stocks represented by the voting trust certificates
and the stock reversible on termination of the trust by surrender. It is said
that the voting trust agreement does not destroy the status of the
transferring stockholders as such, and thus render them ineligible as
directors. But a more accurate statement seems to be that for some
purposes the depositing stockholder holding voting trust certificates in lieu
of his stock and being the beneficial owner thereof, remains and is treated
as a stockholder. It seems to be deducible from the case that he may sue
as a stockholder if the suit is in equity or is of an equitable nature, such as,
a technical stockholders' suit in right of the corporation. [Commercial Laws
of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326,
327] (Rollo, p. 291)
We find the petitioners' position meritorious.
11. JOHN GOKONGWEI, JR. v. SECURITIES AND EXCHANGE
COMMISSION | G. R. No. L-45911 | April 11, 1979
FACTS: San Miguel Corp. stockholder Gokongwei petitioned the Securities
and Exchange Commission (SEC) to declare the majority of the board of
directors (BOD) and San Miguel Corp. to be in violation of the by-laws.
According to the bylaws, the BOD could only be authorized to amend or
modify the bylaws with the affirmative vote of stockholders who represented
at least 2/3 of the corporation's subscribed capital stock. Gokongwei
asserted that the 1976 bylaw modification was made in violation of
stockholder authority and without authorisation because it was based on the
1961 authorization.
Gokongwei further asserted that the modification violated his right to vote
and to be voted upon as a stockholder because the revised bylaws barred
rivals from being nominated for or elected to the San Miguel Corp. board of
directors.
In addition, Gokongwei claimed that the corporation had been breaking the
Corporation Code by investing cash from other corporations and businesses
that were not included in the corporation's principal purpose clause.
The corporation convened a stockholder's meeting to ratify the by-law
revisions while the petition was still being processed, which prompted
Gokongwei to ask for summary judgment. The SEC, however, rejected the
summary decision.
ISSUE: Whether the amendments made to the by-laws were valid.
RULING: By-laws' legality and propriety were declared to be only a legal
issue by the Supreme Court. It is a legal issue if the bylaws are in violation
of local, state, or federal law, the corporation's charter, or if they are legally
illogical and hence illegal.
This is restricted, nevertheless, where a by-law's reasonableness is merely
a matter of opinion. A court would not be justified in substituting its judgment
for that of those who are entitled to draft bylaws and who have exercised
authority if reasonable minds must necessarily differ. The Court ruled that a
corporation is legally permitted to specify the requirements for directors
within the bounds of the power granted to it by its by-laws.
A corporation has the inherent right to enact bylaws for its internal
governance, to control how its members behave toward one another and
with regard to the management of its business, and to prescribe the rights
and obligations of those members. The Corporation Law also permits a
corporation to specify in its bylaws the requirements, obligations, and
salaries of its directors, executives, and staff.
Anyone purchasing shares in a business does so with the understanding
that the majority of stockholders control the company's operations. He
implicitly agrees that, within the parameters of the articles of incorporation,
any legitimately approved by-laws, and any subjects not prohibited by law,
the will of the majority shall control. As a result, the owners of the majority
of the subscribed stock have the authority to alter the bylaws of any
corporation.
The Court ruled that the petitioners lacked the vested right to be chosen as
directors in their capacity as stockholders. This is due to the legal
requirement that the corporate charter and the bylaws be open to change,
alteration, and modification at the moment the stockholder's right was
acquired.
A Board of Directors (BOD) maintains a fiduciary relationship—also known
as a trust relationship—with the corporation and its shareholders. An
change to the corporate bylaws that prohibits a stockholder from serving as
a director if he also serves on the board of another corporation whose
operations compete with the other corporation has been upheld as legal.
This is predicated on the idea that when a director works for a competing
business, he cannot serve both and must betray one of them. In this
instance, the adjustment is beneficial to the corporation and serves a useful
purpose
Corporate executives are likewise prohibited from using their positions of
trust and confidence to further their personal interests, and any action taken
to do so is judged to be for the corporation's benefit. The doctrine of
corporate opportunity is what is meant by this.
12. RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL
BANK, respondent. | G.R. No. L-33320 | May 30, 1983
FACTS: The petitioner instituted several cases in this Court questioning
different transactions entered into by the Bark with other parties.
First among them is petitioner as a taxpayer versus Sec. Antonio Raquiza
of Public Works and Communications, the Commissioner of Public
Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber
Corporation, Allis Chalmers and General Motors Corporation In the course
of the hearing of said case on August 3, 1967, the personality of herein
petitioner to sue the bank and question the letters of credit it has extended
for the importation by the Republic of the Philippines of public works
equipment intended for the massive development program of the President
was raised. In view thereof, he expressed and made known his intention to
acquire one share of stock from Congressman Justiniano Montano which,
on the following day, August 30, 1967, was transferred in his name in the
books of the Bank.
ACQUISITION OF ONE SHARE OF STOCK OF THE BANK
Petitioner, in his dual capacity as a taxpayer and stockholder, filed more
cases. Petitioner addressed a letter to the President of the Bank, requesting
submission to look into the records of its transactions covering the purchase
of a sugar central by the Southern Negros Development Corp. to be
financed by Japanese suppliers and financiers; its financing of the CebuMactan Bridge to be constructed by V.C. Ponce, Inc. and the construction
of the Passi Sugar Mills in Iloilo. On January 23, 1969, the Asst. VicePresident and Legal Counsel of the Bank answered petitioner's letter
denying his request for being not germane to his interest as a one-share
stockholder and for the cloud of doubt as to his real intention and purpose
in acquiring said share.
PETITION DENIED
The court a quo denied the prayer of the petitioner that he be allowed to
examine and inspect the books and records of the respondent bank
regarding the transactions mentioned on the grounds that the right of a
stockholder to inspect the record of the business transactions of a
corporation granted under Section 51 of the former Corporation Law (Act
No. 1459, as amended) is not absolute, but is limited to purposes
reasonably related to the interest of the stockholder, must be asked for in
good faith for a specific and honest purpose and not gratify curiosity or for
speculative or vicious purposes; that such examination would violate the
confidentiality of the records of the respondent bank as provided in Section
16 of its charter, Republic Act No. 1300, as amended; and that the petitioner
has not exhausted his administrative remedies.
ISSUE: Whether or not the petitioner could examine the records of the
respondent.
RULING: No. Although the petitioner has claimed that he has justifiable
motives in seeking the inspection of the books of the respondent bank, he
has not set forth the reasons and the purposes for which he desires such
inspection, except to satisfy himself as to the truth of published reports
regarding certain transactions entered into by the respondent bank and to
inquire into their validity. The circumstances under which he acquired one
share of stock in the respondent bank purposely to exercise the right of
inspection do not argue in favor of his good faith and proper motivation.
Admittedly he sought to be a stockholder in order to pry into transactions
entered into by the respondent bank even before he became a stockholder.
His obvious purpose was to arm himself with materials which he can use
against the respondent bank for acts done by the latter when the petitioner
was a total stranger to the same. He could have been impelled by a laudable
sense of civic consciousness, but it could not be said that his purpose is
germane to his interest as a stockholder.
Section 73 of the RCC provides that a director, trustee or officer held liable
in a suit for denying the shareholder his or her right to inspect may raise the
defense that the person demanding to examine corporate records has
improperly used any information secured from the prior examination of
these records was not acting in good faith or the demand is not for a
legitimate purpose, or that the stockholder is a competitor or otherwise
represents the interest of a competitor. Furthermore, a stockholder who
shall abuse his or her right of inspection shall be subject to administrative
sanctions.
Thus, it is evident that law and jurisprudence highly regard the right of a
shareholder to inspect corporate records in order to protect his or her
interests in the corporation. However, he or she must always exercise this
right in good faith and for a legitimate purpose.
13. Philippine Associated Smelting and Refining Corporation vs.
Pablito Lim | G.R. No. 172948 | October 05, 2016
FACTS: PASAR is a corporation duly organized and existing under the laws
of the Philippines and is engaged in copper smelting and refining. On the
other hand, Pablito Lim, Manuel Agcaoili and Consuelo Padilla (collectively
referred to as petitioners) were former senior officers and presently
shareholders of PASAR holding 500 shares each.
An Amended Petition for injunction and damages with Prayer for Preliminary
Injunction and/or Temporary Restraining Order, dated February 4, 2004 was
filed by PASAR seeking to restrain petitioners from demanding inspection
of its confidential and inexistent records.
On February 23, 2004, petitioners moved for the dismissal of the petition on
the following grounds:
1) The petition states no cause of action;
2) The petition should be dismissed on account of litis pendentia;
3) The petition is a nuisance or harassment suit; and
4) The petition should be dismissed on account of improper venue.
ISSUE: Whether or not the injunction was proper to prevent the respondents
the right to inspect corporate records.
RULING: No. For an action for injunction to prosper, the applicant must
show the existence of a right, as well as the actual or threatened violation
of this right provided under Rule 58, Section 3. An injunctive remedy may
only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard
compensation. The possibility of irreparable damage without proof of an
actual existing right would not justify injunctive relief in his favor. Thus, an
injunction must fail where there is no clear showing of both an actual right
to be protected and its threatened violation, which calls for the issuance of
an injunction.
The Corporation Code provides that a stockholder has the right to inspect
the records of all business transactions of the corporation and the minutes
of any meeting at reasonable hours on business days. The stockholder may
demand in writing for a copy of excerpts from these records or minutes, at
his or her expense as provided under Section 74 of the Corporation Code.
In this case, petitioner invokes its right to raise the limitations provided under
Section 74 of the Corporation Code.
However, petitioner provides scant legal basis to claim this right because it
does not raise the limitations as a matter of defense. The petition is a
preemptive action unjustly intended to impede and restrain the stockholders’
rights. If a stockholder demands the inspection of corporate books, the
corporation could refuse to heed to such demand. When the corporation,
through its officers, denies the stockholders of such right, the latter could
then go to court and enforce their rights. It is then that the corporation could
set up its defenses and the reasons for the denial of such right. Thus, the
proper remedy available for the enforcement of the right of inspection is
undoubtedly the writ of mandamus to be filed by the stockholders and not a
petition for injunction filed by the corporation.
14. MA. BELEN FLORDELIZA C. ANG-ABAYA, FRANCIS JASON A.
ANG, HANNAH ZORAYDA A. ANG, and VICENTE G. GENATO,
petitioners, vs. EDUARDO G. ANG, respondent. | G.R. No. 178511
| December 4, 2008
FACTS: Vibelle Manufacturing Corporation (VMC) and Genato
Investments, Inc. (Genato) are family-owned corporations, where
petitioners and private respondent Eduardo G. Ang are shareholders,
officers and members of the board of directors.
VMC and Genato filed an action for damages with prayer for issuance of a
writ of preliminary injunction against Eduardo for allegedly conniving to
fraudulently wrest control and management of the corporations. Eduardo
allegedly borrowed substantial amounts of money from the said
corporations without any intention to repay; that he harassed petitioner
Flordeliza to transfer and/or sell certain corporate and personal properties
in order to pay off his personal obligations; that he attempted to forcibly evict
petitioner Jason from his office and claim it as his own, and; that he
interfered with and disrupted the daily business operations of the
corporations.
During the pendency of the case Eduardo sought permission to inspect the
corporate books of VMC and Genato. Petitioners denied the request
claiming that Eduardo would use the information obtained from said
inspection for purposes inimical to the corporations’ interests.
The case was eventually decided in Eduardo's favor. Thereafter, he filed a
complaint against petitioners for violation of Section 74, in relation to Section
144, of the Corporation Code of the Philippines.
Petitioners denied violating Section 74 of the Corporation Code. Petitioners
blamed Eduardo’s lavish lifestyle, which is funded by personal loans and
cash advances from the family corporations. They alleged that Eduardo
consistently pressured petitioner Flordeliza, his daughter, to improperly
transfer ownership of the corporations’ V.A.G. Building to him. The City
Prosecutor found probable cause and recommended that petitioners be
charged with two counts of violation of Section 74 of the Corporation Code.
ISSUE/S:
1. WON there is probable cause.
2. WON Eduardo is guilty of bad faith.
3. WON Eduardo can demand inspection of books
RULING
1. NO. Probable cause, for purposes of filing a criminal information, has
been defined as such facts as are sufficient to engender a well-founded
belief that a crime has been committed and that respondent is probably
guilty thereof.
In order therefore for the penal provision under Section 144 of the
Corporation Code to apply, the following elements must be present:
First. A director, trustee, stockholder or member has made a prior demand
in writing for a copy of excerpts from the corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to
allow the said director, trustee, stockholder or member of the corporation to
examine and copy said excerpts;
Third. If such refusal is made pursuant to a resolution or order of the board
of directors or trustees, the liability under this section for such action shall
be imposed upon the directors or trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the corporation sets up the defense
that the person demanding to examine and copy excerpts from the
corporation’s records and minutes has improperly used any information
secured through any prior examination of the records or minutes of such
corporation or of any other corporation or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must be shown or
proved.
Eduardo failed to comply with the fourth requisite.
2. YES. Petitioner’s serious allegations are supported by official and other
documents, such as board resolutions, treasurer’s affidavits and written
communication from the respondent Eduardo himself, who appears to have
withheld his objections to these charges. His silence virtually amounts to an
acquiescence. Taken together, all these serve to justify petitioners’
allegation that Eduardo was not acting in good faith and for a legitimate
purpose in making his demand for inspection of the corporate books.
3. Contrary to Eduardo’s insistence, the stockholder’s right to inspect
corporate books is not without limitations. In the instant case, the Court finds
that the Court of Appeals erred in declaring that the Secretary of Justice
exceeded his authority when he conducted an inquiry on the petitioners’
defense of improper use and motive on Eduardo’s part. In the instant case,
requires that an inquiry into the motive behind Eduardo’s attempt at
inspection should have been made even during the preliminary investigation
stage, just as soon as petitioners set up the defense of improper use and
motive. Specifically, petitioners accuse Eduardo of the following:
1. He is a spendthrift, using the family corporations’ resources to sustain his
extravagant lifestyle.
2. He is exercising undue pressure upon petitioners in order to acquire
ownership, through the forced execution of a deed of donation,
4. At one time, he coerced Flordeliza for the latter to sell her Wack-Wack
Golf Proprietary Share; (Out of many accusations) Taken together, all these
serve to justify petitioners’ allegation that Eduardo was not acting in good
faith and for a legitimate purpose in making his demand for inspection of the
corporate books. Otherwise stated, there is lack of probable cause to
support the allegation that petitioners violated Section 74 of the
Corporation Code in refusing respondent’s request for examination of the
corporation books.
WHEREFORE, the Petition for Review on Certiorari is GRANTED.
15. ALFREDO CHUA v. PEOPLE OF THE PHILIPPINES | 801 SCRA 451
(2016)
FACTS:
● Joselyn Chua was a stockholder of Chua Tee Corporation of Manila
(CTCM). Alfredo Chua was the president and chairman of the board, while
Tomas Chua was the corporate secretary and also a member of the board
of the same corporation. Mercedes Diaz was the accountant/bookkeeper
tasked with the physical custody of the corporate records.
● Joselyn invoked her right as a stockholder pursuant to Section 74 of the
Corporation Code to inspect the records of the books of the business
transactions of the corporation, the minutes of the meetings of the board of
directors and stockholders, as well as the financial statements of the
corporation. She hired a lawyer to send demand letters to each of the
petitioners for her right to inspect to be heeded. However, she was denied
of such right to inspect.
● Joselyn likewise hired the services of Mr. Velayo from an accounting firm
to assist her in examining the books of the corporation. Armed with a letter
request, together with the list of schedules of audit materials, Mr. Velayo
and his group visited the corporation's premises for the supposed
examination of the accounts. However, the books of accounts were not
formally presented to them and there was no list of schedules, which would
allow them to pursue their inspection. Mr. Velayo testified that they failed to
complete their objective of inspecting the books of accounts and examine
the recorded documents.
● Joselyn alleged that despite written demands, the petitioners conspired in
refusing without valid cause the exercise of her right to inspect CTCM’s
business transactions records, financial statements and minutes of the
meetings of both the board of directors and stockholders.
● The petitioners denied liability. They argued that the custody of the
records sought to be inspected by Joselyn did not pertain to them. Besides,
the physical records were merely kept inside the cabinets in the corporate
office. Further, they did not prevent Joselyn from inspecting the records.
What happened was that Mercedes was severely occupied with winding up
the affairs of CTCM after it ceased operations. Joselyn and her lawyers then
failed to set up an appointment with Mercedes.
ISSUE:
Whether petitioners are guilty of violating of Section 74, in relation to Section
144, of the Corporation Code for denying Joselyn’s right as a stockholder to
inspect the records of the books of the business transactions, the minutes
of the meetings so, as well as the financial statements of the corporation –
YES
RULING:
In this case, the Court takes exception and notes the following
circumstances:
(a) during cross-examination, Joselyn admitted that permission was granted
for her to see the documents, but she was unable to actually view them as
she was represented by her accountant;
(b) Joselyn lacked personal knowledge as to whether or not the petitioners
in fact allowed or denied the checking of the records she had requested;
(c) Velayo stated that the letter requesting for the examination of CTCM's
records was addressed to the Accounting Department, and he and his
colleagues did not have personal dealings with the petitioners.
From the foregoing, it is apparent that a complete examination of CTCM's
records did not occur resulting to an effective deprivation of Joselyn's right
as a stockholder. However, from Joselyn and Velayo's testimonies, it can
be inferred that permission to view the records was granted, albeit not fully
effected. The petitioners, on their part, explained that they never prevented
Joselyn from exercising her right of inspection, but when the latter made her
request, Mercedes was too occupied in winding up the affairs of CTCM.
While a cloud of doubt is cast upon the existence of criminal intent on the
part of the petitioners, it is jurisprudentially settled that proof of malice or
deliberate intent (mens rea) is not essential in offenses punishable by
special laws, which are mala prohibita.
In the case at bar, the petitioners were charged with violations of Section
74, in relation to Section 144, of the Corporation Code, a special law.
Accordingly, since Joselyn was deprived of the exercise of an effective right
of inspection, offenses had in fact been committed, regardless of the
petitioners' intent. The Corporation Code provides for penalties relative to
the commission of offenses, which cannot be trivialized, lest the public
purpose for which they are crafted be defeated and put to naught.
16. BENITO T. KEH AND GAUDENCIO S. QUIBALLO, PETITIONERS,
VS. PEOPLE OF THE PHILIPPINES, RESPONDENT. | [ G.R. Nos.
217592-93 | July 13, 2020
FACTS: Petitioners Keh and Quiballo, respectively the chairman/president
and the corporate secretary of Ferrotech Steel Corporation, were charged
before the Office of the City Prosecutor (OCP) of Valenzuela City with
violation of Section 74, in relation to Section 144, of the Corporation Code,
allegedly for their unjustified refusal to open the corporate books and
records to one of their stockholders, Ireneo C. Qudon.The OCP found
probable cause, and resolved to file the Information before the RTC of
Valenzuela City.
Petitioners filed a motion for reconsideration of the OCP Resolution and, on
that ground, filed a motion before the trial court for deferment of
arraignment, suspension of proceedings, and quashal of the information;
they likewise pleaded the trial court to make its own determination of
probable cause. The trial court denied this motion and set petitioners for
arraignment instead.
As the trial court declined to suspend the proceedings, to postpone the
arraignment, and to quash the information and/or determine probable cause
on its own, petitioners filed a Petition for Certiorari and Mandamus before
the Court of Appeals against the June 15, 2010 and November 9, 2010
Orders.1âшphi1
Petitioners then filed Omnibus Motions Ex Abundante Ad Cautelam and
Demmurer to Evidence,still insisting on the quashal of the supposed
defective Information, as well as on the dismissal of the case on improper
venue and insufficiency of evidence. Agreeing with petitioners this time, the
trial court, in its Order, directed the quashal of the information for being
defective. Accordingly, it dismissed the criminal case without prejudice.
Still feeling aggrieved, petitioners appealed to the Court of Appeals and bid
for a dismissal with prejudice on the ground that the eventual re­filing of the
case would amount to double jeopardy. Here, they reiterated the supposed
defective and insufficient allegations contained in the information, and
insisted on its quashal, as well as on the dismissal of the criminal case with
prejudice.
Court of Appeals denied relief from petitioners in the assailed consolidated
Decision.
ISSUE: WON allegations against petitioners are sufficient to propel a
prosecution for the crime defined and punished under Section 74, in relation
to Section 144, of the Corporation Code.
RULING: YES. The underlying prosecution is for the alleged violation of
Section 7425 of the Corporation Code, in relation to Section 14426 thereof.
Collectively, these provisions create the duty on the part of the corporation
to keep and preserve a record of all business transactions and minutes of
all meetings of stockholders, members, or the board of directors or trustees,
along with the duty to make such record available to its stockholders or
members upon written request therefor; a violation of these duties invites
criminal prosecution against the erring officers to allow the eventual
application of the prescribed penalties.
Jurisprudence cites the elements of the subject offense as follows:
First. A director, trustee, stockholder or member has made a prior demand
in writing for a copy of excerpts from the corporation's records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to
allow the said director, trustee, stockholder or member of the corporation to
examine and copy said excerpts;
Third. If such refusal is made pursuant to a resolution or order of the board
of directors or trustees, the liability under this section for such action shall
be imposed upon the directors or trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the corporation sets up the defense
that the person demanding to examine and copy excerpts from the
corporation's records and minutes has improperly used any information
seemed through any prior examination of the records or minutes of such
corporation or of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must be shown or
proved.27
Meanwhile, the criminal information filed by the OCP with the trial court
alleged that petitioners –
being the Chairman/President and Corporate Secretary of Ferrotech Steel
Corporation xxx, conspiring together and mutually helping one another, did
then and there wil[l]fully, unlawfully and feloniously refuse, without showing
any justifiable cause[,] to open to inspection to IRENEO C. QUIZON, a
stockholder of said corporation[,] the [corporate] books and records of said
corporation.28
In its August 25, 2011 Order, the trial court perceived the above allegations
to be insufficient to support the charge for which petitioners have thus far
been prosecuted. It note the absence in the subject indictment of the first
and fourth elements of the offense, and held the same to be a fatal defect
that inevitably should void the criminal information. This pronouncement
was validated in the assailed April 28, 2014 Decision of the Court of
Appeals, where the appellate court went on to say that the information was
not merely defective, but rather, it did not charge any offense at all.30 We
differ.
It is, indeed, fundamental that for purposes of a valid indictment, every
element of which the offense is composed must be alleged in the
information. Be that as it may the criminal information is not meant to contain
a detailed resumé of the elements of the charge in verbatim. Section 6, Rule
110 of the Revised Rule of Court only requires, among others, that it must
state the acts or omissions so complained of as constitutive of the offense.
Thus, the fundamental test in determining the sufficiency of the material
averments in an information is whether or not the facts alleged therein,
which are hypothetically admitted, would establish the essential element of
the crime defined by law. Evidence aliunde or matters extrinsic of the
information are not be considered.
Scrutinizing the subject information, the Court finds the allegations
therein to be sufficient to propel a prosecution for the crime defined
and punished under Section 74, in relation to Section 144, of the
Corporation Code. First, that the first element of the offense is missing on
its face is belied by the specific employment of the phrase "refuse, without
showing any justifiable cause[,] to open to inspection x x x the corporate
books and records," which reasonably implies that a prior request for access
to information has been made upon petitioners. To be sure, refusal is
understood quite simply as the act of refusing or denying; a rejection of
something demanded, solicited, or offered for acceptance. In some case,
refusal is meant as a neglect to perform a duty which the party is required
by law or his agreement to do.
Second, that the information, in order to validly charge petitioners, should
have alleged as well the fourth element of the offense is, to our mind, an
undue exaction on the prosecutor to include extraneous matters that must
be properly addressed during the trial proper. The fourth element of the
offense unmistakably pertains to a matter of defense – specifically, a
justifying circumstance – that must be pleaded by petitioners at the trial in
open court rather than at the indictment stage. Thus, as a justifying
circumstance which could potentially exonerate the accused from liability,
its function is to merely take the burden of proof from the shareholder and
place it on the corporation. It suffices to say that these matters have already
been put forth before and addressed by the OCP in the resolution from
which the subject information took off.
Indeed, the sufficiency of the allegations in the information serves the
fundamental right of the accused to be informed of the nature of the charge
and to enable him to suitably and adequately prepare his defense, as he is
presumed to have no independent knowledge of the facts that constitute the
offense.
In the instant petition, we find that petitioners, by the subject information,
have been fully informed of the offense with which they have been charged
and to which they have pleaded and have thus far been tried. Given the
undue termination of petitioners' prosecution before the trial court, however,
a remand for further proceedings is in order.
WHEREFORE, the petition for review on certiorari is DENIED. The April 28,
2014 Decision of the Court of Appeals in CA-G.R. CR No. 34411 and CAG.R. SP No. 116798 is SET ASIDE. Let this case be REMANDED to the
Regional Trial Court of Valenzuela City, Branch 269, for further proceedings
with deliberate dispatch.
17. Ching v. Subic Bay Golf and Country Club Inc. | 734 SCRA 569
(2014)
2. Does being minor stockholders of SBGSI give them personality to file a
complaint against SBGSI?
FACTS:
RULING:
1. Nestor Ching and Andrew Wellington (Ching and Wellington) filed
a Complaint with the Regional Trial Court on behalf of the members of
Subic Bay Golf and Country Club, Inc. (SBGCCI) against it and its Board
of Directors and officers.
2. Ching and Wellington claimed that the Subic Bay Golfers and
Shareholders Inc. (SBGSI) did not disclose to them the amendment
which allegedly made the shares non-proprietary, as it takes away the
right of the shareholders to participate in the pro-rata distribution of the
assets of the corporation after its dissolution.
3. According to Ching and Wellington, this is in fraud of the
stockholders who only discovered the amendment when they filed a
case for injunction to restrain the corporation from suspending their
rights to use all the facilities of the club.
4. The RTC dismissed the complaint saying that the action is a
derivative suit. Ching and Wellington argued that the complaint was not
a derivative suit.
5. They claim that they filed the suit in their own right as stockholders
against the officers and Board of Directors of the SBGCCI. However,
the SBGCCI claimed by way of defense that Ching and Wellington failed
to show that it was authorized by SBGSI to file the Complaint on its
behalf as well as the requisites for filing a derivative suit.
ISSUES:
1. Is the petition filed by Nestor Ching and Andrew Wellington a derivative
suit?
1. No. Derivative suit must be differentiated from individual and
representative or class suits and it is based on wrongful or fraudulent acts
of directors or other persons. Where a stockholder or member is denied the
right of inspection, his suit would be individual because the wrong is done
to him personally and not to the other stockholders or the corporation.
Where the wrong is done to a group of stockholders, as where preferred
stockholders’ rights are violated, a class or representative suit will be proper
for the protection of all stockholders belonging to the same group. But where
the acts complained of constitute a wrong to the corporation itself, the cause
of action belongs to the corporation and not to the individual stockholder or
member.
Ching and Welington’s only possible cause of action as minority
stockholders against the actions of the Board of Directors is the common
law right to file a derivative suit. The legal standing of minority stockholders
to bring derivative suits is not a statutory right, there being no provision in
the Corporation Code or related statutes authorizing the same, but is instead
a product of jurisprudence based on equity.
2. No. At the outset, it should be noted that the Complaint in question
appears to have been filed only by the two petitioners, namely Nestor Ching
and Andrew Wellington, who each own one stock in SBGCCI. While the
caption of the Complaint also names the “Subic Bay Golfers and
Shareholders Inc. for and on behalf of all its members,” Ching and Welington
did not attach any authorization from said SBGCCI or its members to file the
Complaint. Thus, the Complaint is deemed filed only by Ching and
Welington and not by SBGSI.
18. AGO REALTY & DEVELOPMENT CORPORATION (ARDC) vs. DR.
ANGELITA F. AGO | G.R. No. 210906 | October 16, 2019
FACTS: Ago Realty & Development Corporation (ARDC) is a close
corporation. Its stockholders are petitioner Emmanuel F. Ago; his wife
Corazon; their children, Emmanuel, et al; and Emmanuel's sister,
Angelita.
This controversy arose when Angelita introduced improvements on Lot No.
H-3, titled in the name of ARDC, without the proper resolution from the
corporation's Board of Directors. The improvements also encroached on
Lot No. H-1 and Lot No. H-2, which also belonged to ARDC. ARDC and
Emmanuel, et al., filed a complaint before the Legazpi City Regional Trial
Court (RTC). They essentially alleged that Angelita, in connivance with
Teresita P. Apin (Teresita), Maribel Amaro (Maribel), and certain local
officials of Legazpi City, introduced unauthorized improvements on
corporate property. For her part, Teresita was accused of operating a
restaurant named "Kicks Resto Bar" in the improvements, while Maribel
was impleaded as Angelita's employee. On the other hand, the local
officials were impleaded as defendants since they were responsible for
issuing the permits relative to the improvements introduced by Angelita and
the business concerns thereon. Teresita denied all the material allegations
and averred that her restaurant was operating not on Lot No. H-3, as stated
in the complaint, but on Lot No. 1-B, which is not ARDC's property.
The RTC gave consideration to the undisputed fact that the properties in
litigation belonged to ARDC, concluding that Emmanuel, et al., in their
individual capacities, were not the real parties in interest. The appellate
court held that the case partook of the nature of a derivative suit. As such,
Emmanuel, et al., needed the imprimatur of ARDC's Board of Directors to
institute the action.
ISSUE: Whether Emmanuel, et al., may sue on behalf of ARDC absent
a resolution or any other grant of authority from its Board of Directors
sanctioning the institution of the case.
RULING: One of the powers expressly granted by law to corporations is
the power to sue. As with other corporate powers, the power to sue is
lodged in the board of directors, acting as a collegial body. As an exception,
jurisprudence has recognized certain instances when minority stockholders
may bring suits on behalf of corporations. Where the board of directors itself
is a party to the wrong, either because it is the author thereof or because it
refuses to take remedial action, equity permits individual stockholders to
seek redress. A board resolution is not needed for the institution of a
derivative suit . Since the board is guilty of breaching the trust reposed in it
by the stockholders, it is but logical to dispense with the requirement of
obtaining from its authority to institute the case and to sign the certification
against forum shopping. Thus, the institution of a derivative suit need not be
preceded by a board resolution.(Ago Realty & Development Corp. v. Ago,
G.R. Nos. 210906 & 211203, [October 16, 2019]
19. ANTHONY S. YU, ROSITA G. YU and JASON G. YU, Petitioners, vs.
JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN
L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on their own
behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC.,
Respondents. | G.R. No. 177549 | June 18, 2009
FACTS: The petitioners as well as the respondents were stockholders of
Winchester Industrial Supply, Inc. The latter filed against the former a
verified Complaint for Accounting, Inspection of Corporate Books and
Damages through Embezzlement and Falsification of Corporate Records
and Accounts before the RTC. Such complaint was filed by the respondents,
in their own behalf and as a derivative suit on behalf of Winchester, Inc.
The respondents alleged that petitioner Anthony Yu was one of the
incorporators of Winchester, holding 1,000 shares of stock worth
P100,000.00 which was paid through respondent Joseph Yukayguan’s
money, thus, making the former a mere trustee of the shares for the latter.
Anthony then ceded 800 out of the 1,000 shares of stock to Joseph.
Moreover, it was claimed that Winchester bought from its incorporators,
excluding Anthony, their accumulated 8,500 shares in the corporation which
was subsequently sold to other persons, including petitioners Rosita and
Jason Yu.
The respondents also averred that although Joseph appeared as the
Secretary and Treasurer in the corporate records, it was actually the
petitioners who controlled and ran Winchester as if it were their own family
business. Petitioners were also misappropriating the funds and properties
of the corporation by charging their personal and family expenses to it and
by withdrawing stocks for their personal use without paying for the same.
The RTC declared that the respondents failed to show that they had
complied with the essential requisites for filing a derivative suit as set forth
in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies. The CA at first affirmed in toto the RTC decision. However,
upon a Motion for Reconsideration, it urged the parties to strive to reach an
amicable settlement. Thereafter, in accordance with respondents’ allegation
that the parties filed with the SEC a petition for dissolution of Winchester
which was subsequently approved, the CA remanded the case to the RTC
so that all the corporate concerns between the parties regarding the
corporation could be resolved towards final settlement.
ISSUE: Whether the respondents exerted all reasonable efforts to exhaust
all remedies available under the articles of incorporation, by-laws, laws or
rules governing Winchester, Inc. to obtain the relief they desire. (NO)
RULING: A derivative suit is an action for specific performance of an
obligation owed by the corporation to the stockholders to assist its rights of
action when the corporation has been put in default by the wrongful refusal
of the directors or management to make suitable measures for its protection.
The basis of a stockholders suit is always one in equity. It cannot prosper
without first complying with the legal requisites for its institution.
Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies lays down the following requirements which a
stockholder must comply with in filing a derivative suit:
Sec 1. Derivative action. A stockholder or member may bring an
action in the name of a corporation or association, as the case may
be, provided that:
1. He was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time the
action was filed;
2. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he
desires;
3.
No appraisal rights are available for the act or acts
complained of; and
4. The suit is not a nuisance or harassment suit.
A perusal of respondents’ complaint before the RTC would reveal that the
same did not allege with particularity the remedies exhausted that are
available under the articles of incorporation, by-laws, laws or rules
governing Winchester to obtain the relief they desire. It must be noted that
the obvious intent behind the rule is to make the derivative suit the final
recourse of the stockholder after all other remedies to obtain the relief
sought had failed.
The allegation of Joseph in his Affidavit of his repeated attempts to talk to
Anthony regarding their dispute hardly constitutes “all reasonable efforts to
exhaust all remedies available”. Respondents did not refer to or mention at
all any other remedy under the articles of incorporation or by-laws of
Winchester available for dispute resolution among stockholders which
respondents unsuccessfully availed themselves of. The Court is not
prepared to conclude that the said articles of incorporation and by-laws
absolutely failed to provide for such remedies. The fact that Winchester is a
family corporation should not in anyway exempt respondents from
complying with the clear requirements and formalities of the rules for filing
a derivative suit.
20. PASCUAL v. OROZCO | G.R. No. L-5174 | March 17, 1911
DOCTRINE: A stockholder has a right to maintain a suit for and on behalf
of the corporation, but the extent of such right depends upon when and for
what purpose he acquired the shares of stock of which he is the owner
SUMMARY: A stockholder, Pascual, was suing on behalf of all the
stockholders and in the name of the corporation for the alleged violations of
the bank’s present and former directors for the period 1899 to 1907 in taking
their salaries from the gross income instead of from the net profits of the
company as provided for in the bank’s charter. His legal capacity to sue was
questioned by the defendant directors since Pascual was not yet a
stockholder of the bank prior to 1903. The Court held that in general, a
stockholder has a right to maintain a suit for and on behalf of the bank, but
the extent of such a right must depend upon when, how and for what
purpose he acquired the share for which he now owns. As to the first cause
of action which pertains to the alleged violations committed by the directors
from 1903 to 1907, Pascual had a legal capacity to sue on behalf of the
corporation because he became a stockholder of the bank in November
1903. As to the second cause of action, since Pascual was not yet a
stockholder from 1899 to 1902, he could not maintain the suit since he was
not injured or affected in any manner by such transactions.
FACTS:
This action was brought by the plaintiff Pascual, in his own right as a
stockholder of the bank, for the benefit of the bank, and all the other
stockholders thereof. The Banco Español- Filipino is a banking corporation,
constituted as such by royal decree of the Crown of Spain in the year 1854,
the original grant having been subsequently extended and modified by royal
decree of July 14, 1897, and by Act No. 1790 of the Philippine Commission.
It is alleged in the amended complaint that the only compensation
contemplated or provided for the managing officers of the bank was a
certain per cent of the net profits resulting from the bank's operations, as set
forth in article 30 of its reformed charter or statutes.
The gist of the first and second causes of action is as follows: The
defendants constitute a majority of the present board of directors of the
bank, who alone can authorize an action against them in the name of the
corporation. It appears that during the years 1903, 1904, 1905, and 1907
the defendants and appellees, without the knowledge, consent, or
acquiescence of the stockholders, deducted their respective compensation
from the gross income instead of from the net profits of the bank, thereby
defrauding the bank and its stockholders of approximately P20,000 per
annum.
The second cause of action sets forth that defendants' and appellees'
immediate predecessors in office in the bank during the years 1899, 1900,
1901, and 1902, committed the same illegality as to their compensation as
is charged against the defendants themselves. In the four years immediately
following the year 1902, the defendants and appellees were the only officials
or representatives of the bank who could and should investigate and take
action in regard to the sums of money thus fraudulently appropriated by their
predecessors. They were the only persons interested in the bank who knew
of the fraudulent appropriation by their predecessors.
The court below sustained the demurrer as to the first and second causes
of action on the ground that in actions of this character the plaintiff must aver
in his complaint that he was the owner of stock in the corporation at the time
of the occurrences complained of, or else that the stock has since devolved
upon him by operation of law.
ISSUE: W/N plaintiff Pascual, as a stockholder of the bank, has a legal
standing to sue the defendant directors
RULING: YES
As to the first cause of action: In suits of this character the corporation itself
and not the plaintiff stockholder is the real party in interest. The rights of the
individual stockholder are merged into that of the corporation. It is a
universally recognized doctrine that a stockholder in a corporation has no
title legal or equitable to the corporate property; that both of these are in the
corporation itself for the benefit of all the stockholders. So it is clear that the
plaintiff, by reason of the fact that he is a stockholder in the bank
(corporation) has a right to maintain a suit for and on behalf of the bank, but
the extent of such a right must depend upon when, how, and for what
purpose he acquired the shares which he now owns.
As to the Second cause of action: It affirmatively appears from the complaint
that the plaintiff was not a stockholder during any of the time in question in
this second cause of action. Upon the question whether or not a stockholder
can maintain a suit of this character upon a cause of action
pertaining to the corporation when it appears that he was not a stockholder
at the time of the occurrence of the acts complained of and upon which the
action is based, the authorities do not agree.
21. FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS and
LYDIA C. HAO, respondents | G.R. No. 150793 | November 19, 2004
TOPIC: Who May Bring a Derivative Suit
The corporation is a necessary party to the suit, and the relief which is
granted is a judgment against a third person in favor of the corporation.
Similarly, if a corporation has a defense to an action against it and is not
asserting it, a shareholder may intervene and defend on behalf of the
corporation
.
FACTS: Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint
charging Francis Chua and his wife, Elsa Chua, of four counts of falsification
of public documents for causing it to appear in Minutes of the Annual
Stockholders Meeting of the Board of Directors of the Siena Realty
Corporation that Lydia was present and has participated in said proceedings
when in reality petitioner fully well knew that Lydia was never present during
the meeting and neither has participated in the proceedings thereof. The
accusation against Elsa Chua was dismissed.
During the trial in the MeTC, private prosecutors appeared and presented
Hao as their first witness. After Hao's testimony, Chua moved to exclude
complainant's counsels on the ground that Hao failed to allege and prove
any civil liability in the case.
MeTC granted Chua's motion and ordered the complainant's counsels to be
excluded from actively prosecuting Criminal Case. Hao moved for
reconsideration but it was denied. Hence, Hao filed a petition for certiorari
(SCA No. 99-94846) entitled Lydia C. Hao, in her own behalf and for the
benefit of Siena Realty Corporation v. Francis Chua, and the Honorable
Hipolito dela Vega, xxx, before the RTC .
The RTC in an order reversed the MeTC Order.
Petitioner had argued before the Court of Appeals that respondent had no
authority whatsoever to bring a suit in behalf of the Corporation since there
was no Board Resolution authorizing her to file the suit.
For her part, respondent Hao claimed that the suit was brought under the
concept of a derivative suit holding that when the directors or trustees
refused to file a suit even when there was a demand from stockholders, a
derivative suit was allowed.
The Court of Appeals dismissed the case and held that the action was
indeed a derivative suit, for it alleged that petitioner falsified documents
pertaining to projects of the corporation and made it appear that the
petitioner was a stockholder and a director of the corporation. Hence, the
corporation was a necessary party to the petition filed with the RTC and
even if private respondent filed the criminal case, her act should not divest
the Corporation of its right to be a party and present its own claim for
damages.
ISSUE: Is the criminal complaint in the nature of a derivative suit? NO.
RULING: Under Section 36 of the Corporation Code, read in relation to
Section 23, where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. An individual stockholder is permitted
to institute a derivative suit on behalf of the corporation wherein he holds
stocks in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued, or hold control
of the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest.
A derivative action is a suit by a shareholder to enforce a corporate cause
of action. The corporation is a necessary party to the suit. And the relief
which is granted is a judgment against a third person in favor of the
corporation. Similarly, if a corporation has a defense to an action against it
and is not asserting it, a stockholder may intervene and defend on behalf of
the corporation.
ISSUE: Is Siena Realty Corporation a proper petitioner in SCA No. 9994846 (certiorari)? YES
In Criminal Case No. 285721, the complaint was instituted by respondent
against petitioner for falsifying corporate documents whose subject
concerns corporate projects of Siena Realty Corporation. Clearly, Siena
Realty Corporation is an offended party. Hence, Siena Realty Corporation
has a cause of action. And the civil case for the corporate cause of action is
deemed instituted in the criminal action.
In a string of cases, it is consistently ruled that only a party-in-interest or
those aggrieved may file certiorari cases. Note, however, that in one case,
we held that if aggrieved, even a non-party may institute a petition for
certiorari.
However, the board of directors of the corporation in this case did not
institute the action against petitioner. Private respondent was the one who
instituted the action. Private respondent asserts that she filed a derivative
suit in behalf of the corporation. This assertion is inaccurate. Not every suit
filed in behalf of the corporation is a derivative suit. For a derivative suit
to prosper, it is required that the minority stockholder suing for and on behalf
of the corporation must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit. It is a
condition sine qua non that the corporation be impleaded as a party because
not only is the corporation an indispensable party, but it is also the present
rule that it must be served with process. The judgment must be made
binding upon the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit against the same
defendants for the same cause of action. In other words, the corporation
must be joined as party because it is its cause of action that is being litigated
and because judgment must be a res judicata against it.
In the criminal complaint filed by herein respondent, nowhere is it stated that
she is filing the same in behalf and for the benefit of the corporation. Thus,
the criminal complaint including the civil aspect thereof could not be deemed
in the nature of a derivative suit.
In the instant case, we find that the recourse of the complainant to the
respondent Court of Appeals was proper. The petition was brought in her
own name and in behalf of the Corporation. Although, the corporation was
not a complainant in the criminal action, the subject of the falsification was
the corporation's project and the falsified documents were corporate
documents. Therefore, the corporation is a proper party in the petition for
certiorari because the proceedings in the criminal case directly and
adversely affected the corporation.
22. ALFREDO L. VILLAMOR, JR., Petitioner, vs JOHN S. UMALE, IN
SUBSTITUTION OF HERNANDO F. BALMORES, Respondent. | G.R.
No. 172843 | September 24, 2014
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M.
PANGILINAN, Petitioners, vs HERNANDO F. BALMORES, Respondent.
| G.R. NO. 172881
TOPIC: Shares of stocks; Who may bring a derivative suit?
FACTS:
1. MC Home Depot occupied a prime property owned by Mid-Pasig
Development Corporation.
2. Pasig Printing Corporation (PPC) obtained an option to lease
portions of Mid-Pasig's property, including the Rockland area
occupied by MC Home Depot. Said option to lease was waived by
board of directors of PPC in favor of the law firm of Atty. Villamor,
herein petitioner.
3. Subsequently, PPC, represented by Atty. Villamor entered into a
memorandum of agreement with MC Home Depot which provides
that the latter would continue to occupy the area as PPC's sublessee for 4 years, renewable for another 4 years, at a monthly
rental of P4,500,000.00 plus goodwill of P18,000,000.00
4. Pursuant to the MOA MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money
to Atty. Villamor who did not turn over the same to PPC.
5. Hernando Balmores, stockholder and director of PPC, wrote a letter
PPC directors informing them that Villamor should be made to
deliver to PPC and account for MC Home Depot's checks or their
equivalent value.
6. Due to the alleged inaction of the directors, respondent Balmores
filed with the RTC an intra-corporate controversy complaint against
petitioners for their alleged devices or schemes amounting to fraud
or misrepresentation along with the following prayers:
a. A receiver be appointed from his list of nominees as well
as a prohibition from
b. Prohibition from selling, encumbering, transferring, or
disposing in any manner any of PPC's properties,
including the MC Home Depot checks and/or their
proceeds.
c. For the accounting and remittance to PPC of the MC
Home Depot checks or their proceeds
d. For the annulment of the board's resolution waiving
PPC's rights in favor of Villamor's law firm.
7. The RTC denied respondent Balmores' prayer for the appointment
of a receiver or the creation of a management committee. According
to it, PPC's entitlement to the checks was doubtful. The resolution
issued by PPC's board of directors must be accorded prima facie
validity.
8. CA acknowledging the derivative suit of Balmores, reversed and
issued a new order placing PPC under receivership and creating an
interim management committee stating that the board's waiver of
PPC's rights in favor of Villamor's law firm without any consideration
and its inaction on Villamor's failure to turn over the proceeds of
rental payments to PPC warrant the creation of a management
committee.
ISSUE: Whether Balmores’ petition is one considered a derivative suit.
(NO)
RULING The requisites of a derivative suit are as follows:
a. He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
b. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
c. No appraisal rights are available for the act or acts complained of;
and
d. The suit is not a nuisance or harassment suit.
In the case at bar, Balmores failed to exhaust all available remedies to
obtain the reliefs he prayed for. Though he tried to communicate with PPC's
directors about the checks in Villamor's possession before he filed an action
with the trial court, Balmores was not able to show that this comprised all
the remedies available under the articles of incorporation, bylaws, laws, or
rules governing PPC. Neither did respondent Balmores implead PPC as
party in the case nor did he allege that he was filing on behalf of the
corporation.
The non-derivative character of Balmores' action may also be gleaned from
the nature of his complaint which was filed as an individual suit and not
specifically for the benefit of the corporation. His complaint was rather
pointed towards the acts of PPC’s directors, specifically the waiver of rights
in favor of Villamor’s law firm and their failure to take back the MC Home
Depot checks from Villamor, were detrimental to his individual interest as a
stockholder.
23. JUANITO ANG, for and in behalf of SUNRISE MARKETING
(BACOLOD), INC. vs. SPOUSES ROBERTO and RACHEL ANG | G.R.
No. 201675 | June 19, 2013
FACTS: Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered
corporation owned by the Ang family. Its current stockholders and their
respective stockholdings are Juanito, Anecita, Jeannevieve, Roberto, and
Rachel. Roberto, Juanito and Nancy are siblings.
Roberto was elected President of SMBI, while Juanito was elected as its
Vice President. Rachel Lu-Ang and Anecita are SMBl's Corporate Secretary
and Treasurer, respectively. Nancy and her husband, Theodore Ang,
agreed to extend a loan to settle the obligations of SMBI and other
corporations owned by their family and issued a check payable to "Juanito
Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang."
Nancy was a former stockholder of SMBI, but she no longer appears in
SMBI's General Information Sheets as early as 1996. There was no written
loan agreement, in view of the close relationship between the parties. Part
of the loan was also used to purchase real properties for SMBI, for Juanito,
and for Roberto.
When Nancy and Theodore, through their counsel, sent a demand letter to
"Spouses Juanito L. Ang/Anecita L. Ang and Spouses Roberto L.
Ang/Rache Ang" for payment of the principal plus interest at ten percent
(10%) per annum within ten days from receipt of the letter, Roberto and
Rachel sent a letter saying that they are not complying with the demand
letter because they have not personally contracted a loan from Nancy and
Theodore.
On the other hand, Juanito and Anecita executed a Settlement Agreement
and an Extra-Judicial Real Estate Mortgage and admitted that they, together
with Roberto and Rachel, obtained a loan from Nancy and Theodore.
Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an exparte Writ of Attachment/Receivership" before the lower court and alleged
that the intentional and malicious refusal of defendant Sps. Roberto and
Rachel Ang to settle their 50% share of the total obligation will definitely
affect the financial viability of plaintiff SMBI.
Rachel then argued that the Complaint failed to allege that Juanito exerted
all reasonable efforts to exhaust all intra-corporate remedies available under
the articles of incorporation, by-laws, laws or rules governing the corporation
to obtain the relief he desires," as required by the Interim Rules. During
cross-examination, Juanito admitted that there was no prior demand for
accounting or liquidation nor any written objection to SMBI's increase of
capital stock.
ISSUE: WON based on the allegations of the complaint, the nature of the
case is one of a derivative suit.
RULING: No. A derivative suit is an action brought by a stockholder on
behalf of the corporation to enforce corporate rights against the
corporation's directors, officers or other insiders. Under Sections 23 and 36
of the Corporation Code, the directors or officers, as provided under the
bylaws, have the right to decide whether or not a corporation should sue.
Since these directors or officers will never be willing to sue themselves, or
impugn their wrongful or fraudulent decisions, stockholders are permitted
by law to bring an action in the name of the corporation to hold these
directors and officers accountable.
In derivative suits, the real party in interest is the corporation, while the
stockholder is a mere nominal party. However, it cannot prosper without first
complying with the legal requisites for its institution.
Section 1, Rule 8 of the Interim Rules imposes the following requirements
for derivative suits:
1. The person filing the suit must be a stockholder or member at the
time the acts or transactions subiect of the action occurred and
the time the action was filed;
2. He must have exerted all reasonable efforts, and alleges the
same with particularity in the complaint, to exhaust all remedies
available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the
relief he desires;
3. No appraisal rights are available for the act or acts complained
of; and
4. The suit is not a nuisance or harassment suit.
b) Prohibition against nuisance and harassment suits. - Nuisance and
harassment suits are prohibited. In determining whether a suit is a nuisance
or harassment suit, the court shall consider, among others, the following:
Applying the foregoing, the Complaint is not a derivative suit as it failed to
show how the acts of Rachel and Roberto resulted in any detriment to SMBI
and that the loan was not a corporate obligation, but a personal debt of the
Ang brothers and their spouses. The check was issued to "Juanito Ang
and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang" and not SMBI.
The proceeds of the loan were used for payment of the obligations of the
other corporations owned by the Angs as well as the purchase of real
properties for the Ang brothers.
(1) The extent of the shareholding or interest of the initiating stockholder or
member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts complained of; and
(5) Prejudice or damage to the corporation, partnership, or association in
relation to the relief sought.
Further, 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. Since damage to
the corporation was not sufficiently proven by Juanito, the Complaint cannot
be considered a bona fide derivative suit. A derivative suit is one that seeks
redress for injury to the corporation, and not the stockholder. No such injury
was proven in this case. Furthermore, The Complaint also failed to allege
that all available corporate remedies under the articles of incorporation, bylaws, laws or rules governing the corporation were exhausted, as required
under the Interim Rules.
The fact that SMBI is a family corporation does not exempt private
respondent Juanito Ang from complying with the Interim Rules. In the x x ×
Yu case, the Supreme Court held that a family corporation is not exempt
from complying with the clear requirements and formalities of the rules for
filing a derivative suit. There is nothing in the pertinent laws or rules which
state that there is a distinction between xxx family corporations × x × and
other types of corporations in the institution by a stockholder of a derivative
suit.
The Complaint should be dismissed since it is a nuisance or harassment
suit under Section 1(b) of the Interim Rules. Section 1 (b) thereof provides:
In case of nuisance or harassment suits, the court may, motu proprio or
upon motion, forthwith dismiss the case.