1. Bernas v.

Cinco
Doctrine:
Facts:
1. Makati Sports Club (MSC) is a domestic corporation duly organized and existing
under Philippine law s for the primary purpose of establishing, maintaining, and
providing social, cultural, recreational and athletic activities among its members.
2. (Bernas Group) were among the Members of the Board of Directors and Officers of
the corporation whose terms were to expire either in 1998 or 1999.
3. (Cinco Group) are the members and stockholders of the corporation who were
elected Members of the Board of Directors and Officers of the club during the 17
December 1997 Special Stockholders Meeting.
4. Alarmed with the rumored anomalies in handling the corporate funds, the MSC
Oversight Committee (MSCOC), composed of the past presidents of the club,
demanded from the Bernas Group, who were then incumbent officers of the
corporation, to resign from their respective positions to pave the way for the election
of new set of officers. 4 Resonating this clamor were the stockholders of the
corporation representing at least 100 shares who sought the assistance of the
MSCOC to call for a special stockholders meeting for the purpose of removing the
sitting officers and electing new ones. 5 Pursuant to such request, the MSCOC
called a Special Stockholders' Meeting and sent out notices 6 to all stockholders and
members stating therein the time, place and purpose of the meeting. For failure of
the Bernas Group to secure an injunction before the Securities Commission (SEC),
the meeting proceeded wherein Bernas Group was removed from office and in their
place and stead Cinco group was elected
5. BERNAS GROUP:
a. initiated an action before the Securities Investigation and Clearing
Department (SICD) of the SEC seeking for the nullification of the Special
Stockholders Meeting on the ground that it was improperly called.
b. Citing Section 28 of the Corporation Code, the Bernas Group argued that the
authority to call a meeting lies with the Corporate Secretary and not with the
MSCOC which functions merely as an oversight body and is not vested with
the power to call corporate meetings.
c. For being called by the persons not authorized to do so, the Bernas Group
urged the SEC to declare the Special Stockholders' Meeting, including the
removal of the sitting officers and the election of new ones, be nullified. CAIH
6. CINCO GROUP:
a. Insisted that the Special Stockholders' Meeting is sanctioned by the
Corporation Code and the MSC by-laws.
b. In justifying the call effected by the MSCOC, they reasoned that Section 25 8
of the MSC by-laws merely authorized the Corporate Secretary to issue
notices of meetings and nowhere does it state that such authority solely
belongs to him.
c. It was further asseverated by the Cinco Group that it would be useless to
 course the request to call a meeting thru the Corporate Secretary because he
repeatedly refused to call a special stockholders' meeting despite demands
and even filed a suit to restrain the holding of a special meeting.

7. Prior to the resolution of SEC Case No. 5840, an Annual Stockholders' Meeting
was held on 20 April 1998 pursuant to Section 8 of the MSC bylaws. 13 During the
said meeting, which was attended by 1,017 stockholders representing 2/3 of the
outstanding shares, the majority resolved to approve, confirm and ratify, among
others, the calling and holding of 17 December 1997 Special Stockholders' Meeting,
the acts and resolutions adopted therein including the removal of Bernas Group from
the Board and the election of their replacements.
8. SEC EN BANC: Due to the filing of several petitions for and against the removal of
the Bernas Group from the Board pending before the SEC resulting in the piling up of
legal controversies involving MSC, the SEC En Banc resolved to supervise the
holding of the 1999 Annual Stockholders' Meeting. During the said meeting, the
stockholders once again approved, ratified and confirmed the holding of the 17
December 1997 Special Stockholders' Meeting.
9. The conduct of the 17 December 1997 Special Stockholders' Meeting was likewise
ratified by the stockholders during the 2000 Annual Stockholders' Meeting
10. SICD: finding, among others, that the 17 December 1997 Special Stockholders'
Meeting and the Annual Stockholders' Meeting conducted on 20 April 1998 and 19
April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from the
corporation and the sale of his share at the public auction.
11. SEC EN BANC: reversed the findings of the SICD and validated the holding of the
17 December 1997 Special Stockholders' Meeting as well as the Annual
Stockholders' Meeting held on 20 April 1998 and 19 April 1999.
12. CA:
a. rendered a Decision declaring the 17 December 1997 Special Stockholders'
Meeting invalid for being improperly called but
b. affirmed the actions taken during the Annual Stockholders' Meeting held on
20 April 1998, 19 April 1999 and 17 April 2000.

Issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT THE 17 DECEMBER 1997 SPECIAL STOCKHOLDERS' MEETING IS INVALID;
AND

II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN FAILING

TO NULLIFY THE HOLDING OF THE ANNUAL STOCKHOLDERS' MEETING ON 20
APRIL 1998, 19 APRIL 1999 AND 17 APRIL 2000.

Ruling:

1. The Corporation Code laid down the rules on the removal of the Directors of the
corporation by providing, inter alia, the persons authorized to call the meeting and the
number of votes required for the purpose of removal, thus:

Sec. 28. Removal of directors or trustees.

x x x A special meeting of the stockholders or members of a corporation for the

purpose of removal of directors or trustees, or any of them, must be called by the
secretary on order of the president or on the written demand of the stockholders
representing or holding at least a majority of the outstanding capital stock x x x

Corollarily, the pertinent provisions of MSC by-laws which govern the manner of calling
and sending of notices of the annual stockholders' meeting and the special stockholders'
meeting provide:

Xxx
SEC. 10. Special Meetings. — Special meetings of stockholders shall be held at the
Clubhouse when called by the President or by the Board of Directors or upon written
request of the stockholders representing not less than one hundred (100) shares. Only
matters specified in the notice and call will be taken up at special meetings.

Xxx

Textually, only the President and the Board of Directors are authorized by the by-laws to
call a special meeting. In cases where the person authorized to call a meeting refuses,
fails or neglects to call a meeting, then the stockholders representing at least 100
shares, upon written request, may file a petition to call a special stockholder's meeting.

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders'
Meeting was called neither by the President nor by the Board of Directors but by the
MSCOC. While the MSCOC, as its name suggests, is created for the purpose of
overseeing the aff airs of the corporation, nowhere in the by-laws does it state that it is
authorized to exercise corporate powers, such as the power to call a special meeting,
solely vested by law and the MSC by-laws on the President or the Board of Directors.

Relative to the powers of the Board of Directors, nowhere in the Corporation Code or in
the MSC by-laws can it be gathered that the Oversight Committee is authorized to step
in wherever there is breach of fiduciary duty and call a special meeting for the purpose of
removing the existing officers and electing their replacements even if such call was
made upon the request of shareholders. Needless to say, the MSCOC is neither
empowered by law nor the MSC by-laws to call a meeting and the subsequent
ratification made by the stockholders did not cure the substantive infirmity, the defect
having set in at the time the void act was done. The defect goes into the very authority of
the persons who made the call for the meeting. It is apt to recall that illegal acts of a
corporation which contemplate the doing of an act which is contrary to law, morals or
public order, or contravenes some rules of public policy or public duty, are, like similar
transactions between individuals, void. 30 They cannot serve as basis for a court action,
nor acquire validity by performance, ratification or estoppel. 31 The same principle can
apply in the present case. The void election of 17 December 1997 cannot be ratified by
the subsequent Annual Stockholders' Meeting.

A distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which
are contrary to law, morals or public policy or public duty, and are, like similar
transactions between individuals, void. They cannot serve as basis of a court action nor
acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the
other hand, or those which are not illegal or void ab initio, but are not merely within the
scope of the articles of incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders. 32 The 17 December 1997 Meeting
belongs to the category of the latter, that is, it is void ab initio and cannot be validated.

Consequently, such Special Stockholders' Meeting called by the Oversight Committee

cannot have any legal effect. The removal of the Bernas Group, as well as the election
of the Cinco Group, effected by the assembly in that improperly called meeting is void,
and since the Cinco Group has no legal right to sit in the board, their subsequent acts of
expelling Bernas from the club and the selling of his shares at the public auction, are
likewise invalid.

2. Consequently, such Special Stockholders' Meeting called by the Oversight Committee

cannot have any legal effect. The removal of the Bernas Group, as well as the election
of the Cinco Group, effected by the assembly in that improperly called meeting is void,
and since the Cinco Group has no legal right to sit in the board, their subsequent acts of
expelling Bernas from the club and the selling of his shares at the public auction, are
likewise invalid.

a) First, the 20 April 1998 Annual Stockholders Meeting was valid because it
was sanctioned by Section 8 45 of the MSC bylaws. Unlike in Special
Stockholders Meeting46 wherein the bylaws mandated that such meeting
shall be called by specific persons only, no such specific requirement can be
obtained under Section 8.
b) Second, the 19 April 1999 Annual Stockholders Meeting is likewise valid
because in addition to the fact that it was conducted in accordance to Section
8 of the MSC bylaws, such meeting was supervised by the SEC in the
exercise of its regulatory and administrative powers to implement the
Corporation Code.

Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise
to the presumption that the corporate officers who won the election were duly elected to
their positions and therefore can be rightfully considered as de jure officers. As de jure
officials, they can lawfully exercise functions and legally perform such acts that are
within the scope of the business of the corporation except ratification of actions that are
deemed void from the beginning.

Considering that a new set of officers were already duly elected in 1998 and 1999
Annual Stockholders Meetings, the Bernas Group cannot be permitted to use the
holdover principle as a shield to perpetuate in office. Members of the group had no right
to continue as directors of the corporation unless reelected by the stockholders in a
meeting called for that purpose every year. 48 They had no right to hold-over brought
about by the failure to perform the duty incumbent upon them. 49 If they were sure to be
reelected, why did they fail, neglect, or refuse to call the meeting to elect the members of
the board?

In fine, we hold that 17 December 1997 Special Stockholders' Meeting is null and void
and produces no effect; the resolution expelling the Bernas Group from the corporation
and authorizing the sale of Bernas' shares at the public auction is likewise null and void.
The subsequent Annual Stockholders' Meeting held on 20 April 1998, 19 April 1999 and
17 April 2000 are valid and binding except the ratification of the removal of the Bernas
Group and the sale of Bernas' shares at the public auction effected by the body during
the said meetings. The expulsion of the Bernas Group and the subsequent auction of
Bernas' shares are void from the very beginning and therefore the ratifications effected
during the subsequent meetings cannot be sustained. A void act cannot be the subject
of ratification.
2. Y-I LEISURE PHILIPPINES, INC., YATS INTERNATIONAL LTD. and Y-I CLUBS
AND RESORTS, INC., petitioners, vs. JAMES YU, respondent.

Doctrine:
Facts:
1. Mt. Arayat Development Co., Inc. (MADCI) was a real estate development
corporation, which was registered before the Securities and Exchange
Commission (SEC). On the other hand, respondent James Yu (Yu) was a
businessman, interested in purchasing golf and country club shares.
2. MADCI offered for sale shares of a golf and country club located in the vicinity of
Mt. Arayat in Arayat, Pampanga, for the price of P550.00 per share. Relying on
the representation of MADCI's brokers and sales agents, Yu bought 500 golf and
150 country club shares for a total price of P650,000.00 which he paid by
installment with fourteen (14) Far East Bank and Trust Company (FEBTC)
checks.
3. Upon full payment of the shares to MADCI, Yu visited the supposed site of the
golf and country club and discovered that it was non-existent. In a letter, dated
February 5, 2000, Yu demanded from MADCI that his payment be returned to
him. 6 MADCI recognized that Yu had an investment of P650,000.00, but the
latter had not yet received any refund.
4. YU:
a. filed with the RTC a complaint 8 for collection of sum of money and
damages with prayer for preliminary attachment against MADCI and its
president Rogelio Sangil (Sangil) to recover his payment for the purchase
of golf and country club shares. In his transactions with MADCI, Yu
alleged that he dealt with Sangil, who used MADCI's corporate
personality to defraud him.
5. SANGIL:
a. alleged that Yu dealt with MADCI as a juridical person and that he did not
benefit from the sale of shares. He added that the return of Yu's money
was no longer possible because its approval had been blocked by the
new set of officers of MADCI, which controlled the majority of its board of
directors.
6. MADCI:
a. MADCI claimed that it was Sangil who defrauded Yu. It invoked the
Memorandum of Agreement 11 (MOA), dated May 29, 1999, entered into
by MADCI, Sangil and petitioner Yats International Ltd. (YIL). Under the
MOA, Sangil undertook to redeem MADCI proprietary shares sold to third
persons or settle in full all their claims for refund of payments. 12 Thus, it
was MADCI's position that Sangil should be ultimately liable to refund the
payment for shares purchased.
7. YU:
a. filed an Amended Complaint, 13 wherein he also impleaded YIL, Y-I
 Leisure Phils., Inc. (YILPI) and Y-I Club & Resorts, Inc. (YICRI).
b. According to Yu, he discovered in the Registry of Deeds of Pampanga
that, substantially, all the assets of MADCI, consisting of one hundred
twenty (120) hectares of land located in Magalang, Pampanga, were sold
to YIL, YILPI and YICRI. The transfer was done in fraud of MADCI's
creditors, and without the required approval of its stockholders and board
of directors under Section 40 of the Corporation Code.
c. Yu also alleged that Sangil even filed a case in Pampanga which assailed
the said irregular transfers of lands.
8. YIL, YILPI AND YICRI:
a. alleged that they only had an interest in MADCI in 1999 when YIL bought
some of its corporate shares pursuant to the MOA. This occurred two (2)
years after Yu bought his golf and country club shares from MADCI.
b. As a mere stockholder of MADCI, YIL could not be held responsible for
the liabilities of the corporation. As to the transfer of properties from
MADCI to YILPI 15 and subsequently to YICRI, 16 they averred that it
was not undertaken to defraud MADCI's creditors and it was done in
accordance with the MOA. In fact, it was stipulated in the MOA that Sangil
undertook to settle all claims for refund of third parties.

MEMORANDUM OF AGREEMENT

• Sangil controlled 60% of the capital stock of MADCI, while the latter owned 120
hectares of agricultural land in Magalang, Pampanga, the property intended for
the development of a golf course
• that YIL was to subscribe to the remaining 40% of the capital stock of MADCI for
a consideration of P31,000,000.00;
• that YIL also gave P500,000.00 to acquire the shares of minority stockholders;
• that as a condition for YIL's subscription, MADCI and Sangil were obligated to
obtain several government permits, such as an environmental compliance
certificate and land conversion permit;
• that should MADCI and Sangil fail in their obligations, they must return the
amounts paid by YIL with interests;
• that if they would still fail to return the same, YIL would be authorized to sell the
120 hectare land to satisfy their obligation;
• and that, as an additional security; Sangil undertook to redeem all the MADCI
proprietary shares sold to third parties or to settle in full all their claims for refund.
9. SANGIL:
a. testified that MADCI failed to develop the golf course because its
properties were taken over by YIL after he allegedly violated the MOA. 17
The lands of MADCI were eventually sold to YICRI for a consideration of
P9.3 million, which was definitely lower than their market price. 18
Unfortunately, the case assailing the transfers was dismissed by a trial
court in Pampanga.
 10. WANG:
a. He testified that YIL was an investment company engaged in the
development of real estates, projects, leisure, tourism, and related
businesses. 20
b. He explained that YIL subscribed to the shares of MADCI because it was
interested in its golf course development project in Pampanga. 21 Thus,
he signed the MOA on behalf of YIL and he paid P31.5 million to
subscribe to MADCI's shares, subject to the fulfilment of Sangil's
obligations
c. that the MOA stipulated that MADCI would execute a special power of
attorney in his favor, empowering him to sell the property of MADCI in
case of default in the performance of obligations. 23 Due to Sangil's
subsequent default, a deed of absolute sale over the lands of MADCI was
eventually executed in favor of YICRI, its designated company. 24 Wang
also stated that, aside from its lands, MADCI had other assets in the form
of loan advances of its directors.

Issue:
1. Whether or not the CA erred in ruling that petitioners Yats group should be held jointly
and severally liable to respondent Yu despite the absence of fraud in the sale of assets
and bad faith on the part of petitioners Yats group

2. Whether fraud must exist in the transfer of all the corporate assets in order for the
transferee to assume the liabilities of the transferor

Ruling:
1. No, petitioners must also be held solidarily liable to Yu.

Bearing in mind that fraud is not required to apply the business-enterprise transfer, the
next issue to be resolved is whether the petitioners indeed became a continuation of
MADCI's business. Synthesizing Section 40 and the previous rulings of this Court, it is
apparent that the business-enterprise transfer rule applies when two requisites concur:
(a) the transferor corporation sells all or substantially all of its assets to another entity;
and (b) the transferee corporation continues the business of the transferor corporation.
Both requisites are present in this case.

Respondent Yu testified that he verified the landholdings of MADCI with the Register of
Deeds in Pampanga and discovered that all its lands were transferred to YICRI. 64
Because the properties of MADCI were already conveyed, Yu had no other way of
collecting his refund. 65
Based on these factual findings, the Court is convinced that MADCI indeed had assets
consisting of 120 hectares of landholdings in Magalang, Pampanga, to be developed
into a golf course, pursuant to its primary purpose. Because of its alleged violation of the
MOA, however, MADCI was made to transfer all its assets to the petitioners. No
evidence existed that MADCI subsequently acquired other lands for its development
projects. Thus, MADCI, as a real estate development corporation, was left without any
property to develop eventually rendering it incapable of continuing the business or
accomplishing the purpose for which it was incorporated.

Section 40 must apply.

While the Corporation Code allows the transfer of all or substantially all of the assets of a
corporation, the transfer should not prejudice the creditors of the assignor corporation.69
Under the business-enterprise transfer, the petitioners have consequently inherited the
liabilities of MADCI because they acquired all the assets of the latter corporation. The
continuity of MADCI's land developments is now in the hands of the petitioners, with all
its assets and liabilities. There is absolutely no certainty that Yu can still claim its refund
from MADCI with the latter losing all its assets. To allow an assignor to transfer all its
business, properties and assets without the consent of its creditors will place the
assignor's assets beyond the reach of its creditors. Thus, the only way for Yu to recover
his money would be to assert his claim against the petitioners as transferees of the
assets.

NOTE: The petitioners, however, are not left without recourse as they can invoke the
free and harmless clause under the MOA. In business-enterprise transfer, it is possible
that the transferor and the transferee may enter into a contractual stipulation stating that
the transferee shall not be liable for any or all debts arising from the business which
were contracted prior to the time of transfer. Such stipulations are valid, but only as to
the transferor and the transferee. These stipulations, though, are not binding on the
creditors of the business enterprise who can still go after the transferee for the
enforcement of the liabilities.

In the present case, the MOA stated that Sangil undertook to redeem MADCI proprietary
shares sold to third persons or settle in full all their claims for refund of payments. While
this free and harmless clause cannot affect respondent as a creditor, the petitioners may
resort to this provision to recover damages in a third-party complaint. Whether the
petitioners would act against Sangil under this provision is their own option.

2. No. The exception of the Nell doctrine, which finds its legal basis under Section 40,
provides that the transferee corporation assumes the debts and liabilities of the
transferor corporation because it is merely a continuation of the latter's business. A
cursory reading of the exception shows that it does not require the existence of fraud
against the creditors before it takes full force and effect. Indeed, under the Nell Doctrine,
the transferee corporation may inherit the liabilities of the transferor despite the lack of
fraud due to the continuity of the latter's business.

The purpose of the business-enterprise transfer is to protect the creditors of the

business by allowing them a remedy against the new owner of the assets and business
enterprise. Otherwise, creditors would be left "holding the bag," because they may not
be able to recover from the transferor who has "disappeared with the loot," or against the
transferee who can claim that he is a purchaser in good faith and for value. 53 Based on
the foregoing, as the exception of the Nell doctrine relates to the protection of the
creditors of the transferor corporation, and does not depend on any deceit committed by
the transferee corporation, then fraud is certainly not an element of the business
enterprise doctrine.
3. Tom v. Rodriguez
Doctrine:
Facts:
1. Golden Dragon International Terminals, Inc. (GDITI) is the exclusive Shore
Reception Facility (SRF) Service Provider of the Philippine Ports Authority (PPA)
tasked to collect, treat, and dispose of all ship-generated oil wastes in all bases
and private ports under the PPA's jurisdiction
2. Fidel Cu (Cu) sold via Deed of Conditional Sale his 17,237 shares of stock in
GDITI to Virgilio S. Ramos (Ramos) and Cirilo C. Basalo, Jr. (Basalo). 5 When
the latter failed to pay the purchase price, Cu sold 15,233 of the same shares
through a Deed of Sale in favor of Edgar D. Lim (Lim), Eddie C. Ong (Ong), and
Arnold Gunnacao (Gunnacao), who also did not pay the consideration therefor.
3. On September 11, 2009, the following were elected as o cers of GDITI:
a. Lim as President and Chairman of the Board,
b. Basalo as Vice President for Visayas and Mindanao,
c. Ong as Treasurer and Vice President for Luzon, and
d. Gunnacao as Director, among others.
4. However, a group led by Ramos composed of individuals who were not elected
as officers of GDITI — which included Tom — forcibly took over the GDITI offices
and performed the functions of its officers. This prompted GDITI, through its duly-
elected Chairman and President, Lim, to fi le an action for injunction and
damages against Ramos, et al., before the RTC Manila
5. Pending the injunction case, Cu resold his shares of stock in GDITI to Basalo for
a consideration of P60,000,000.00, as evidenced by an Agreement.
6. As such, Cu intervened in the injunction case claiming that, as an unpaid seller,
he was still the legal owner of the shares of stock subject of the previous
contracts he entered into with Ramos, Lim, Ong, and Gunnacao
7. In view of his successful intervention in the injunction case, Cu executed a
Special Power of Attorney 16 (SPA) dated October 18, 2010 in favor of Cezar O.
Mancao II (Mancao) constituting the latter as his duly authorized representative
to exercise the powers granted to him in the October 11, 2010 Order, and to
perform all acts of management and control over GDITI. Thereafter, Cu and
Basalo entered into an Addendum to Agreement 17 (Addendum) setting forth the
terms of payment of the sale of the shares of stock
8. Cu expressly revoked the authority that he had previously granted to Mancao
and Basalo under the SPA and other related documents, effectively reinstating
the power to control and manage the affairs of GDITI unto himself. 19 Thus,
Mancao and Basalo led the present Complaint for Specific Performance with
Prayer for the Issuance of a Temporary Restraining Order (TRO) and a Writ of
Preliminary Injunction 20 against Cu, Tom, and several John and Jane Does
before the Regional Trial Court
9. respondent Samuel N. Rodriguez (Rodriguez) filed a Complaint- in-Intervention,
23 alleging that in a Memorandum of Agreement 24 (MOA) dated May 2, 2012,
 Basalo authorized him to take over, manage, and control the operations of GDITI
in the Luzon area, and, in such regard, effectively revoked whatever powers
Basalo had previously given to Mancao.
10. Likewise, Rodriguez prayed for the issuance of a writ of preliminary injunction
directing Basalo, his agents, deputies, and successors, and all other persons
acting for and on his behalf, to honor his obligations under the MOA by: (a) giving
the management and control of GDITI in the Luzon area to Rodriguez; (b)
allocating the power to administer and manage the Visayas and Mindanao
regions of GDITI to Rodriguez in the concept of a partner; (c) granting to
Rodriguez the right to provide the manpower services for the operations of
GDITI; and (d) giving to Rodriguez his share in the net proceeds of GDITI.
Finally, he prayed that after trial, such injunction be made permanent.

Issue: whether or not the CA committed grave abuse of discretion in denying Tom's
prayer for the issuance of a TRO and/or writ of preliminary injunction.

Ruling:
Keeping the foregoing in mind, the Court nds that the CA committed grave abuse of
discretion amounting to lack or excess of jurisdiction in denying Tom's prayer for the
issuance of a TRO and/or writ of preliminary injunction. The issuance of an injunctive
writ is warranted to enjoin the RTC-Nabunturan from implementing its November 13,
2013 and December 11, 2013 Orders in the speci c performance case placing the
management and control of GDITI to Rodriguez, among other directives. This
pronouncement follows the well-entrenched rule that a corporation exercises its powers
through its board of directors and/or its duly authorized o cers and agents, except in
instances where the Corporation Code requires stockholders' approval for certain
speci c acts. 46 As statutorily provided for in Section 23

Accordingly, it cannot be doubted that the management and control of GDITI, being a
stock corporation, are vested in its duly elected Board of Directors, the body that: (1)
exercises all powers provided for under the Corporation Code; (2) conducts all business
of the corporation; and (3) controls and holds all property of the corporation. Its members
have been characterized as trustees or directors clothed with a duciary character. 48
Thus, by denying Tom's prayer for the issuance of a TRO and/or writ of preliminary
injunction, the CA effectively a rmed the RTC's Order placing the management and
control of GDITI to Rodriguez, a mere intervenor, on the basis of a MOA between the
latter and Basalo, in violation of the foregoing provision of the Corporation Code. In so
doing, the CA committed grave abuse of discretion amounting to lack or excess of
jurisdiction, which is correctable by certiorari.

As a final point, it is apt to clarify that Tom has legal standing to seek the issuance of an
injunctive writ, considering that he is the original party-defendant in the specific
performance case pending before the RTC-Nabunturan from which this petition arose,
and in which Rodriguez merely intervened. It likewise appears from the records 49 that
pending these proceedings, Tom has been elected as a member of the current Board of
Directors of GDITI, hence, the injunctive writ must issue in line with the above-
disquisition, without prejudice to the resolution on the merits of the speci c performance
case pending before the RTC-Nabunturan of which the instant petition is but a mere
incident.
4. Guillermo v. Uson
Doctrine:
Facts:
1. respondent Crisanto P. Uson (Uson) began his employment with Royal Class
Venture Phils., Inc. (Royal Class Venture) as an accounting clerk. 3 Eventually, he
was promoted to the position of accounting supervisor, with a salary of Php13,000.00
a month, until he was allegedly dismissed from employment on December 20, 2000
a. Uson filed with the Sub-Regional Arbitration Branch No. 1, Dagupan City, of
the NLRC a Complaint for Illegal Dismissal, with prayers for backwages,
reinstatement, salaries and 13th month pay, moral and exemplary damages
and attorney's fees against Royal Class Venture.
2. LA: rendered a Decision 8 in favor of the complainant Uson and ordering therein
respondent Royal Class Venture to reinstate him to his former position and pay his
backwages, 13th month pay as well as moral and exemplary damages and
attorney's fees.
3. Uson filed a Motion for Alias Writ of Execution and to Hold Directors and Officers of
Respondent Liable for Satisfaction of the Decision after 2 alias writ of execution
remained unsatisfied
4. LA:
issued an Order granting the motion led by Uson. The order held that o cers of a
corporation are jointly and severally liable for the obligations of the corporation to the
employees and there is no denial of due process in holding them so even if the said
o cers were not parties to the case when the judgment in favor of the employees was
rendered. 16 Thus, the Labor Arbiter pierced the veil of corporate ction of Royal Class
Venture and held herein petitioner Jose Emmanuel Guillermo (Guillermo), in his
personal capacity, jointly and severally liable with the corporation for the enforcement of
the claims of Uson.

5. Guillermo led, by way of special appearance, a Motion for Reconsideration/To Set

Aside the Order of December 26, 2002. The same, however, was not granted

CA: The appellate court found that summons was in fact served on Guillermo as
President and General Manager of Royal Class Venture, which was how the Labor
Arbiter acquired jurisdiction over the company. 29 But Guillermo subsequently refused to
receive all notices of hearings and conferences as well as the order to le Royal Class
Venture's position paper. Thus, the court held Guillermo liable, citing jurisprudence that
hold the president of the corporation liable for the latter's obligation to illegally dismissed
employees. 34

6. GUILLERMO’S POSITION:
asserts that he was impleaded in the case only more than a year after its Decision
had become nal and executory, an act which he claims to be unsupported in law
and jurisprudence. 38 He contends that the decision had become nal, immutable
 and unalterable and that any amendment thereto is null and void. 39 Guillermo
assails the so-called "piercing the veil" of corporate ction which allegedly
discriminated against him when he alone was belatedly impleaded despite the
existence of other directors and o cers in Royal Class Venture. 40 He also claims
that the Labor Arbiter has no jurisdiction because the case is one of an intra-
corporate controversy, with the complainant Uson also claiming to be a stockholder
and director of Royal Class Venture

Issue: whether an officer of a corporation may be included as judgment obligor in a labor

case for the first time only after the decision of the Labor Arbiter had become final and
executory, and whether the twin doctrines of "piercing the veil of corporate fiction" and
personal liability of company officers in labor cases apply.

Ruling:
The common thread running among the aforementioned cases, however, is that the veil
of corporate ction can be pierced, and responsible corporate directors and o cers or
even a separate but related corporation, may be impleaded and held answerable
solidarily in a labor case, even after nal judgment and on execution, so long as it is
established that such persons have deliberately used the corporate vehicle to unjustly
evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so.
When the shield of a separate corporate identity is used to commit wrongdoing and
opprobriously elude responsibility, the courts and the legal authorities in a labor case
have not hesitated to step in and shatter the said shield and deny the usual protections
to the offending party, even after nal judgment. The key element is the presence of
fraud, malice or bad faith. Bad faith, in this instance, does not connote bad judgment or
negligence but imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive or interest or ill
will; it partakes of the nature of fraud.

As the foregoing implies, there is no hard and fast rule on when corporate ction may be
disregarded; instead, each case must be evaluated according to its peculiar
circumstances. 62 For the case at bar, applying the above criteria, a nding of personal
and solidary liability against a corporate o cer like Guillermo must be rooted on a
satisfactory showing of fraud, bad faith or malice, or the presence of any of the
justi cations for disregarding the corporate ction. As stated in McLeod, 63 bad faith is
a question of fact and is evidentiary, so that the records must rst bear evidence of
malice before a finding of such may be made.

It is our nding that such evidence exists in the record. Like the A.C. Ransom, and
Naguiat cases, the case at bar involves an apparent family corporation. As in those two
cases, the records of the present case bear allegations and evidence that Guillermo, the
o cer being held liable, is the person responsible in the actual running of the company
and for the malicious and illegal dismissal of the complainant; he, likewise, was shown to
have a role in dissolving the original obligor company in an obvious "scheme to avoid
liability" which jurisprudence has always looked upon with a suspicious eye in order to
protect the rights of labor.

Then, it is also clearly re ected in the records that it was Guillermo himself, as President
and General Manager of the company, who received the summons to the case, and who
also subsequently and without justi able cause refused to receive all notices and orders
of the Labor Arbiter that followed.66 This makes Guillermo responsible for his and his
company's failure to participate in the entire proceedings before the said o ce.

Guillermo's knowledge of the case's ling and existence and his unexplained refusal to
participate in it as the responsible o cial of his company, again is an indicia of his bad
faith and malicious intent to evade the judgment of the labor tribunals.

Finally, the records likewise bear that Guillermo dissolved Royal Class Venture and
helped incorporate a new rm, located in the same address as the former, wherein he is
again a stockholder. This is borne by the Sheriff's Return which reported: that at Royal
Class Venture's business address at Minien East, Sta. Barbara, Pangasinan, there is a
new establishment named "Joel and Sons Corporation," a family corporation owned by
the Guillermos in which Jose Emmanuel F. Guillermo is again one of the stockholders;
that Guillermo received the writ of execution but used the nickname "Joey" and denied
being Jose Emmanuel F. Guillermo and, instead, pretended to be Jose's brother; that
the guard on duty con rmed that Jose and Joey are one and the same person; and that
the respondent corporation Royal Class Venture had been dissolved. 70 Again, the facts
contained in the Sheriff's Return were not disputed nor controverted by Guillermo, either
in the hearings of Uson's Motions for Issuance of Alias Writs of Execution, in subsequent
motions or pleadings, or even in the petition before this Court. Essentially, then, the facts
form part of the records and now stand as further proof of Guillermo's bad faith and
malicious intent to evade the judgment obligation.

The foregoing clearly indicate a pattern or scheme to avoid the obligations to Uson and
frustrate the execution of the judgment award, which this Court, in the interest of justice,
will not countenance.
5. Pioneer Insurance Surety Corp v. Morning Star Travel & Tours
Doctrine:
Facts:
1. Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio
Chua, Sonny Chua, and Wong Yan Tak as shareholders and members of the board
of directors.
2. International Air Transport Association is a Canadian corporation licensed to do
business in the Philippines "to promote safe, regular and economical air transport for
all people, among others."
3. International Air Transport Association appointed Morning Star as an accredited
travel agent. 11 Morning Star "avail[ed] of the privilege of getting on credit . . . air
transport tickets from various airline companies [to be sold] to passengers at prices
fixed by the airline companies[.]"
4. Morning Star and International Air Transport Association entered a Passenger Sales
Agency Agreement such that Morning Star must report all air transport ticket sales to
International Air Transport Association and account all payments received through
the centralized system called Billing and Settlement Plan. 13 Morning Star only holds
in trust all monies collected as these belong to the airline companies.
5. International Air Transport Association obtained a Credit Insurance Policy from
Pioneer to assure itself of payments by accredited travel agents for ticket sales and
monies due to the airline companies under the Billing and Settlement Plan.
6. The policy was made known to the accredited travel agents. Morning Star, through
its President, Benny Wong, was among those that declared itself liable to indemnify
Pioneer for any and all claims under the policy. He executed a registration form
under the Credit Insurance Program for BSP-Philippines Agents.
7. Morning Star failed to remit amounts (billing for period of Dec 16 2002-Jan 20 2003)
through the Billing and Settlement Plan, prompting the International Air Transport
Association to send a letter for its overdue account
8. Pursuant to the credit insurance policies, International Air Transport Association
demanded from Pioneer the amount of money representing Morning Star's overdue
account. Pioneer investigated, ascertained, and validated the claims, then paid
International Air Transport Association.
9. Consequently, Pioneer demanded these amounts from Morning Star through a letter
10. Pioneer filed a complaint for collection of sum of money and damages against
Morning Star for the amounts Pioneer paid the International Air Transport
Association under its credit insurance policy. The amounts represent Morning Star's
overdue remittances to the International Air Transport Association.
11. RTC: in favor of Pioneer
12. CA: affirmed the trial court with modification in that only Morning Star was liable to
pay petitioner
13. Pioneer argues that "the individual respondents were, at the very least, grossly
negligent in running the affairs of respondent Morning Star by knowingly allowing it to
amass huge debts to [International Air Transport Association] despite its nancial
distress, thus, giving su cient ground for the court to pierce the corporate veil and
 hold said individual respondents personally liable." 37 It cites Section 31 of the
Corporation Code on the liability of directors "guilty of gross negligence or bad faith
in directing the affairs of the corporation[.]"
14. Pioneer contends that the abnormally large indebtedness to International Air
Transport Association was incurred in fraud and bad faith, with Morning Star having
no intention to pay its debt. 44

Issue: Whether the doctrine of piercing the corporate veil applies to hold the individual
respondents solidarily liable with respondent Morning Star Travel and Tours, Inc. to pay
the award in favor of petitioner Pioneer Insurance & Surety Corporation.

Ruling:
This court finds that petitioner was not able to clearly and convincingly establish bad
faith by the individual respondents, nor substantiate the alleged badges of fraud.

1. petitioner failed to substantiate the fourth badge of fraud on "[e]vidence of large

indebtedness or complete insolvency."
a. In 1993, International Air Transport Association appointed respondent
Morning Star as an accredited travel agent with the privilege of getting air
tickets on credit, and they entered a Passenger Sales Agency Agreement.77
None of the parties made allegations on the nancial status or business
standing of respondent Morning Star during the first five years from its
accreditation in 1993. cSEDTC
b. Petitioner relies on Atty. Taggueg's testimony regarding respondent Morning
Star's financial statements with the Securities and Exchange Commission.
c. Petitioner did not present Securities and Exchange Commission documents
on respondent Morning Star's total assets as of December 2002. It did not
present respondent Morning Star's nancial statements for December 2002,
the year it incurred obligations from International Air Transport Association
d. Atty. Taggueg's association with respondent Morning Star, or this case, is
also unclear. Respondents submit in their memorandum that "[i]n his
testimony[,] Mr. Taggueg admitted that his knowledge about . . . Morning Star
was merely based on his assumptions and his examination of the [Securities
and Exchange Commission] documents.
2. petitioner failed to substantiate the fifth badge of fraud on the "transfer of all or nearly
all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially
a. Mere allegations that Morning Star Management Ventures Corporation and
Pic 'N Pac Mart, Inc. "were doing relatively well during the time that
respondent Morning Star was incurring huge losses" 86 do not establish bad
faith or fraud by the individual respondents. Such allegations alone do not
prove that the individual respondents were transferring respondent Morning
Star's properties in fraud of its creditors.
 b. Neither does the allegation that Morning Star Management Ventures
Corporation has title over the land and building where the o ces can be
found establish bad faith or fraud. Petitioner did not show that this title was
originally in respondent Morning Star's name and was later transferred to
respondent Morning Star.
c. This court has held that the "existence of interlocking directors, corporate
o cers and shareholders is not enough justi cation to pierce the veil of
corporate fiction in the absence of fraud or other public policy
considerations."
3. petitioner also failed to substantiate the sixth badge of fraud that "the transfer is
made between father and son, when there are present other of the above
circumstances."
4. The records do not show that the individual respondents controlled Morning Star
Tour Planners, Inc. and that such control was used to commit fraud against
petitioner. Neither does this suspicion support petitioner's position that the individual
respondents were in bad faith or gross negligence in directing the affairs of
respondent Morning Star.
6. Guy v. Guy
Doctrine:
Facts:
1. Goodland Company, Inc. is a family-owned corporation of the Guy family duly
organized and existing under Philippine laws. 4 Petitioner Simny G. Guy (Simny)
is a stockholder of record and member of the board of directors of the
corporation. Respondents are also GCI stockholders of record who were
allegedly elected as new directors by virtue of the assailed stockholders' meeting
held on 7 September 2004.
2. On 10 September 2004, Paulino Del n Pe and Benjamin Lim (stockholders of
record of GCI) informed petitioner that they had received a notice dated 31
August 2004 calling for the holding of a special stockholders' meeting on 7
September 2004 at the Manila Diamond Hotel.
3. 15 days after the stockholders' meeting, petitioner received the aforementioned
notice. 8
4. Petitioner (Simny Guy) assailed the election held on 7 September 2004 on the
following grounds:
(1) there was no previous notice to petitioner and Cheu; (2) the meeting was not
called by the proper person; and (3) the notices were not issued by the person
who had the legal authority to do so.
5. respondent Gilbert G. Guy (Gilbert) argued
(1) that the stockholders' meeting on 7 September 2004 was legally called and
held;
(2) that the notice of meeting was signed by the authorized of cer of GCI and
sent in accordance with the by-laws of the corporation; and
(3) that Cheu was not a stockholder of record of the corporation, a status that
would have entitled her to receive a notice of the meeting.
6. RTC:
issued a Temporary Restraining Order (TRO) enjoining respondents and their
of cers, agents, assigns, and all other persons deriving authority from them from
acting or holding themselves out as new directors/of cers of the corporation.
7. respondents disclosed that an annual stockholders' meeting of GCI for the year
2005 had been held. They prayed for the dismissal of the Complaint, claiming
that the issues raised therein had already become moot and academic by virtue
of the 2005 annual stockholders' meeting.

Issue: Whether or not the special stockholders' meeting held on 7 September 2004 was
void for lack of due notice.

Ruling:
Notice of the stockholders' meeting was properly sent in compliance with law and the by-
laws of the corporation.
For a stockholders' special meeting to be valid, certain requirements must be met with
respect to notice, quorum and place. In relation to the above provision of B.P. 68, one of
the requirements is a previous written notice sent to all stockholders at least one (1)
week prior to the scheduled meeting, unless otherwise provided in the by- laws.

Under the by-laws of GCI, the notice of meeting shall be mailed not less than five (5)
days prior to the date set for the special meeting. The pertinent provision reads:
Section 3. Notice of meeting written or printed for every regular or special
meeting of the stockholders shall be prepared and mailed to the registered post
office address of each stockholder not less than five (5) days prior to the date set
for such meeting, and if for a special meeting, such notice shall state the object
or objects of the same. No failure or irregularity of notice of any meeting shall
invalidate such meeting at which all the stockholders are present and voting
without protest.

The Corporation Code itself permits the shortening (or lengthening) of the period within
which to send the notice to call a special (or regular) meeting. Thus, no irregularity exists
in the mailing of the notice sent by respondent Gilbert G. Guy on 2 September 2004
calling for the special stockholders' meeting to be held on 7 September 2004, since it
abides by what is stated in GCI's by-laws as quoted above.

PETITIONER: that although the notice was sent by registered mail on 2 September
2004, the registry return card shows that he received it only on 22 September 2004 or
fifteen (15) days after the stockholders' meeting was held. He insists that actual receipt
of the notice of the stockholders' meeting prior to the date of the meeting is mandatory.

We are not persuaded.

The first and fundamental duty of the Court is to apply the law. Where the law speaks in
clear and categorical language, there is no room for interpretation; there is only room for
application. Only when the law is ambiguous or of doubtful meaning may the court
interpret or construe its true intent.

We find that the provisions under Section 50 of the Corporation Code and the by-laws of
GCI are clear and unambiguous. They do not admit of two or more meanings, nor do
they make reference to two or more things at the same time. The provisions only require
the sending/mailing of the notice of a stockholders' meeting to the stockholders of the
corporation. Sending/mailing is different from ling or service under the Rules of Court.
Had the lawmakers intended to include the stockholder's receipt of the notice, they
would have clearly re ected such requirement in the law. Absent that requirement, the
word "send" should be understood in its plain meaning: 47
"Send" means to deposit in the mail or deliver for transmission by any other usual means
of communication with postage or cost of transmission provided for and properly
addressed and in the case of an instrument to an address speci ed thereon or
otherwise agreed, or if there be none, to any address reasonable under the
circumstances. The receipt of any writing or notice within the time at which it would have
arrived if properly sent has the effect of a proper sending.

PETITIONER:
Petitioner further claims that
(1) the notice suffered some fatal defects when it was not issued by the corporate
secretary of GCI pursuant to its by-laws; and
(2) the stockholders' meeting was not "called" by the proper person under the
Corporation Code and the by-laws of GCI.

SC:
As correctly pointed out by defendants [respondents], the applicable provisions of the
by-laws of Goodland are Article II, Sec. 2 which provides that the "special meeting of the
stockholders may be called . . . by order of the President and must be called upon the
written request of stockholders registered as the owners of one-third (1/3) of the total
outstanding stock and Article IV, Section 3 which provides that "the Vice President, if
quali ed, shall exercise all of the functions and perform all the duties of the President, in
the absence or disability, for any cause, of the latter."
Based on the evidence on record and considering the above quoted provisions of
Goodland's By-laws, we rule in favor of defendants [respondents]. The evidence
conclusively show that defendant Gilbert [respondent Guy] is the owner of more than
one-third (1/3) of the outstanding stock of Goodland. In fact, it is around 79.99%. Thus,
pursuant to Art. II, Sec. 2 of the By-laws of Goodland, defendant Gilbert [respondent
Guy] may validly call such special stockholders' meeting.

Therefore, under Section 3, Article IV of the By-laws of Goodland, respondent Gilbert G.

Guy as Vice-President of the corporation is qualified to act as president.
xxx xxx xxx
From the above exposition, it is undisputed that . . . the special stockholders' meeting
was . . . prepared and called by the proper person. The notice of meeting and the calling
thereof by the Vice-President acting as President complied with the provisions in the by-
laws of the corporation and the Corporation Code.

All told, the validity of the special stockholders' meeting held on 7 September 2004 has
been sufficiently established.
7. Malixi v. Mexicali
Doctrine:
Facts:
1. Emerita Malixi alleged that she was hired by respondents as a team leader
assigned at the delivery service, receiving a daily wage of P382.00 sans
employment contract and identification card (ID).
2. Mexicali's training officer, Jay Teves (Teves), informed her of the management's
intention to transfer and appoint her as store manager at a newly opened branch
in Alabang Town Center, which is a joint venture between Mexicali and Calexico
Food Corporation (Calexico), due to her satisfactory performance. She was
apprised that her monthly salary as the new store manager would be Fifteen
Thousand Pesos (P15,000.00) with service charge, free meal and side tip. She
then subsequently submitted a resignation letter as advised by Teves.
3. she started working as the store manager of Mexicali in Alabang Town Center
although, again, no employment contract and ID were issued to her. However, in
December 2008, she was compelled by Teves to sign an end-of-contract letter by
reason of a criminal complaint for sexual harassment she against Mexicali's
operations manager, John Pontero (Pontero), for the sexual advances made
against her during Pontero's visits at Alabang branch. 8
4. When she refused to sign the end-of-contract letter, Mexicali's administrative
officer, Ding Luna (Luna), on December 15, 2008, personally went to the branch
and caused the signing of the same. Upon her vehement refusal to sign, she was
informed by Luna that it was her last day of work.
5. Respondents, however, denied responsibility over petitioner's alleged dismissal.
They averred that petitioner has resigned from Mexicali in October 2008 and
hence, was no longer Mexicali's employee at the time of her dismissal but rather
an employee of Calexico, a franchisee of Mexicali located in Alabang Town
Center which is a separate and distinct corporation.
6. petitioner admitted having resigned from Mexicali but averred that her resignation
was a condition for her promotion as store manager at Mexicali's Alabang Town
Center branch. She asserted that despite her resignation, she remained to be an
employee of Mexicali because Mexicali was the one who engaged her, dismissed
her and controlled the performance of her work as store manager in the newly
opened branch.

Issue: WHETHER THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

IN HOLDING THAT THERE WAS NO ILLEGAL DISMISSAL.

Ruling: No.
Ruling on the substantive matters, the Court finds that there exists no employer-
employee relationship between petitioner and respondents as to hold the latter liable for
illegal dismissal.

The CA, affirming the NLRC, found that petitioner voluntarily resigned from Mexicali.
Petitioner, however, claims that she was induced into resigning considering the higher
position and attractive salary package; moreover, she avers that her resignation cannot
effectively sever her employment ties with Mexicali. We disagree.

Upon petitioner's resignation, petitioner ceased to be an employee of Mexicali and chose

to be employed at Calexico. Petitioner, however, claims that Mexicali and Calexico are
one and the same and that Mexicali was still her employer upon her transfer to Calexico
since she was hired and dismissed by Mexicali's officers and that Mexicali exercised the
power of control over her work performance.

We rule otherwise. The Labor Arbiter's finding that the two corporations are one and the
same with interlocking board of directors has no factual basis. It is basic that "a
corporation is an artificial being invested with a personality separate and distinct from
those of the stockholders and from other corporations to which it may be connected or
related." 32 Clear and convincing evidence is needed to warrant the application of the
doctrine of piercing the veil of corporate fiction. 33 In our view, the Labor Arbiter failed to
provide a clear justification for the application of the doctrine. The Articles of
Incorporation and By-Laws of both corporations show that they have distinct business
locations and distinct business purposes. It can also be gleaned therein that they have a
different set of incorporators or directors since only two out of the five directors of
Mexicali are also directors of Calexico. At any rate, the Court has ruled that the
existence of interlocking directors, corporate officers and shareholders is not enough
justification to disregard the separate corporate personalities. 34 To pierce the veil of
corporate fiction, there should be clear and convincing proof that fraud, illegality or
inequity has been committed against third persons. 35 For while respondents' act of not
issuing employment contract and ID may be an indication of the proof required, however,
this, by itself, is not sufficient evidence to pierce the corporate veil between Mexicali and
Calexico.
8. Forest Hills Golf and Country Club Inc. v. Fil-estate Properties Inc.
Doctrine:
Facts:
1. Kingsville Construction and Development Corporation (Kingsville) and Kings
Properties Corporation (KPC) entered into a project agreement with respondent
Fil-Estate Properties, Inc. (FEPI), whereby the latter agreed to finance and cause
the development of several parcels of land owned by Kingsville in Antipolo, Rizal,
into Forest Hills Residential Estates and Golf and Country Club, a first-class
residential area/golf-course/commercial center. 6 Under the agreement,
respondent FEPI was tasked to incorporate petitioner Forest Hills Golf and
Country Club, Inc. (FHGCCI) with an authorized stock of 3,600 shares; and to
perform the development and construction work and other undertakings as full
payment of its subscription to the authorized capital stock of the club. 7 As to the
remaining shares of the club, they agreed that these should be retained by
Kingsville in exchange for the parcels of land used for the golf course
development.
2. FEPI assigned its rights and obligations over the project to a related corporation,
respondent Fil-Estate Golf Development, Inc. (FEGDI).
3. Rainier L. Madrid (Madrid) purchased two Class "A" shares and applied for a
membership to the club
4. Due to the delayed construction of the second 18-Hole Golf Course, Madrid
wrote two demand letters to the Board of Directors of petitioner FHGCCI asking
them to initiate the appropriate legal action against respondents FEPI and
FEGDI. 11 The Board of Directors, however, failed and/or refused to act on the
demand letters
5. Madrid, in a derivative capacity on behalf of petitioner FHGCCI, filed with the
RTC of Antipolo City a Complaint for Specific Performance with Damages
against respondents FEPI and FEGDI.

Issue: WON RTC of Antipolo has jurisdiction?

Ruling:
Petitioner FHGCCI's contention that the instant case does not involve an intra- corporate
controversy as it was filed against respondents FEPI and FEGDI as developers, and not
as shareholders of the corporation holds no water. Apparent in the Complaint are
allegations of the interlocking directorships of the Board of Directors of petitioner
FHGCCI and respondents FEPI and FEGDI, the conflict of interest of the Board of
Directors of petitioner FHGCCI, and their bad faith in carrying out their duties. Likewise
alleged is that respondent FEPI and, later, respondent FEGDI are shareholders of
petitioner FHGCCI which under the project agreement, respondent FEPI was tasked to
perform the development and construction work and other obligations and undertakings
of the project as full payment of its subscription to the authorized capital stock of
petitioner FHGCCI, which it later assigned to respondent FEGDI. Considering these
allegations, we find that, contrary to the claim of petitioner FHGCCI, there are
unavoidably intra-corporate controversies intertwined in the specific performance case.

Moreover, a derivative suit is a remedy designed by equity as a principal defense of the

minority shareholders against the abuses of the majority.40 Under the Corporation
Code, the corporation's power to sue is lodged with its board of directors or trustees. 41
However, when its officials refuse to sue, or are the ones to be sued, or hold control of
the corporation, an individual stockholder may be permitted to institute a derivative suit
to enforce a corporate cause of action on behalf of a corporation in order to protect or
vindicate its rights. 42 In such actions, the corporation is the real party in interest, while
the stockholder suing on behalf of the corporation is only a nominal party. 43
Considering its purpose, a derivative suit, therefore, would necessarily touch upon the
internal affairs of a corporation.

In view of the foregoing, we agree with the RTC that the instant derivative suit for
specific performance against respondents FEPI and FEGDI falls under the jurisdiction of
special commercial courts.

In this case, however, to refer the case to a special commercial court would be a waste
of time since it is apparent on the face of the Complaint, as pointed out by respondents
FEPI and FEGDI in their Answer, that petitioner FHGCCI failed to comply with the
requisites for a valid derivative suit.

In this case, Madrid, as a shareholder of petitioner FHGCCI, failed to allege with

particularity in the Complaint, and even in the Amended Complaint, that he exerted all
reasonable efforts to exhaust all remedies available under the articles of incorporation,
by-laws, or rules governing the corporation; that no appraisal rights are available for the
acts or acts complained of; and that the suit is not a nuisance or a harassment suit.
Although the Complaint alleged that demand letters were sent to the Board of Directors
of petitioner FHGCCI and that these were unheeded, these allegations will not suffice.
Thus, for failing to meet the requirements set forth in Section 1, Rule 8 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies, the Complaint,
denominated as a derivative suit for specific performance, must be dismissed. CScaD
9. Kukan International Corporation v. Reyes
Doctrine:
Facts:
1. Kukan, Inc. conducted a bidding for the supply and installation of signages in a
building being constructed in Makati City. Morales tendered the winning bid and
was awarded the PhP5 million contract. Some of the items in the project award
were later excluded resulting in the corresponding reduction of the contract price
to PhP3,388,502. Despite his compliance with his contractual undertakings,
Morales was only paid the amount of PhP1,976,371.07, leaving a balance of
PhP1,412,130.93, which Kukan, Inc. refused to pay despite demands.
Shortchanged, Morales filed a Complaint 6 with the RTC against Kukan, Inc. for
a sum of money
2. RTC:
Declared Kukan in default. Decision in favor of Morales.
3. After the above decision became nal and executory, Morales moved for and
secured a writ of execution 8 against Kukan, Inc. The sheriff then levied upon
various personal properties found at what was supposed to be Kukan, Inc.'s
office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging
that it owned the properties thus levied and that it was a different corporation
from Kukan, Inc., Kukan International Corporation (KIC) led an A davit of
Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after
Kukan, Inc. had stopped participating in the case.
4. In reaction to the third party claim, Morales interposed an Omnibus Motion dated
April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of
corporate fiction, that an order be issued for the satisfaction of the judgment debt
of Kukan, Inc. with the properties under the name or in the possession of KIC, it
being alleged that both corporations are but one and the same entity.
5. In a bid to establish the link between KIC and Kukan, Inc., and thus determine
the true relationship between the two, Morales filed a Motion for Examination of
Judgment Debtors dated May 4, 2005. In this motion Morales sought that
subpoena be issued against the primary stockholders of Kukan, Inc., among
them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court
6. After the case has been re-raffled, Morales filed a Motion to Pierce the Veil of
Corporate Fiction to declare KIC as having no existence separate from Kukan,
Inc. This motion was granted.
7. CA affirmed the RTC.

Issues:
1. whether the trial court can, after the judgment against Kukan, Inc. has attained
finality, execute it against the property of KIC
2. whether or not the trial and appellate courts correctly applied the principle of
piercing the veil of corporate entity — called also as disregarding the ction of a
separate juridical personality of a corporation — to support a conclusion that
Kukan, Inc. and KIC are but one and the same corporation with respect to the
 contract award referred to at the outset

Ruling:
1. As may be noted, the above decision (RTC decision ordering Kukan Inc. to pay
morales), in unequivocal terms, directed Kukan, Inc. to pay the aforementioned
awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision,
an instance of granting relief not contemplated in the decision sought to be
executed. And the change does not fall under any of the recognized exceptions
to the doctrine of nality and immutability of judgment. It is a settled rule that a
writ of execution must conform to the fallo of the judgment; as an inevitable
corollary, a writ beyond the terms of the judgment is a nullity.
2.
a. CONTENTIONS: Now, as before the appellate court, petitioner KIC
maintains that the RTC violated its right to due process when, in the
execution of its November 28, 2002 Decision, the court authorized the
issuance of the writ against KIC for Kukan, Inc.'s judgment debt, albeit
KIC has never been a party to the underlying suit. As a counterpoint,
Morales argues that KIC's speci c concern on due process and on the
validity of the writ to execute the RTC's November 28, 2002 Decision
would be mooted if it were established that KIC and Kukan, Inc. are
indeed one and the same corporation.
b. SC:
Morales' contention is untenable.

The principle of piercing the veil of corporate ction, and the resulting
treatment of two related corporations as one and the same juridical
person with respect to a given transaction, is basically applied only to
determine established liability; it is not available to confer on the court a
jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case. Elsewise put, a corporation not impleaded in a suit
cannot be subject to the court's process of piercing the veil of its
corporate ction. In that situation, the court has not acquired jurisdiction
over the corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due process.

Piercing the veil of corporate entity applies to determination of liability not

of jurisdiction.This is so because the doctrine of piercing the veil of
corporate ction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the corporation. Hence,
before this doctrine can be applied, based on the evidence presented, it is
imperative that the court must first have jurisdiction over the corporation.
(Agbayani, Commercial Law)

Verily, Morales espouses the application of the principle of piercing the

corporate veil to hold KIC liable on theory that Kukan, Inc. was out to
defraud him through the use of the separate and distinct personality of
another corporation, KIC. In net effect, Morales' adverted motion to pierce
the veil of corporate ction dated January 3, 2007 stated a new cause of
action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by
KIC on the alleged identity of the two corporations. This new cause of
action should be properly ventilated in another complaint and subsequent
trial where the doctrine of piercing the corporate veil can, if appropriate,
be applied, based on the evidence adduced. Establishing the claim of
Morales and the corresponding liability of KIC for Kukan, Inc.'s
indebtedness could hardly be the subject, under the premises, of a mere
motion interposed after the principal action against Kukan, Inc. alone had
peremptorily been terminated. After all, a complaint is one where the
plaintiff alleges causes of action. TaEIcS

In any event, the principle of piercing the veil of corporate ction nds no
application to the instant case.

In those instances when the Court pierced the veil of corporate ction of
two corporations, there was a confluence of the following factors:

1. A first corporation is dissolved;

2.The assets of the rst corporation is transferred to a second

corporation to avoid a financial liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such
that the second corporation should be considered as a continuation and
successor of the first corporation.

In the instant case, however, the second and third factors are
conspicuously absent. There is, therefore, no compelling justi cation for
disregarding the ction of corporate entity separating Kukan, Inc. from
KIC. In applying the principle, both the RTC and the CA miserably failed
to identify the presence of the abovementioned factors

The RTC disregarded the separate corporate personalities of Kukan, Inc.

and KIC based on the following premises and arguments:

While it is true that a corporation has a separate and distinct personality

from its stockholder, director and o cers, the law expressly provides for
an exception. When Michael Chan, the Managing Director of defendant
Kukan, Inc. (majority stockholder of the newly formed corporation [KIC])
con rmed the award to plaintiff to supply and install interior signages in
the Enterprise Center he (Michael Chan, Managing Director of defendant
Kukan, Inc.) knew that there was no su cient corporate funds to pay its
obligation/account, thus implying bad faith on his part and fraud in
contracting the obligation. Michael Chan neither returned the interior
signages nor tendered payment to the plaintiff. This circumstance may
warrant the piercing of the veil of corporation ction. Having been guilty
of bad faith in the management of corporate matters the corporate
trustee, director or officer may be held personally liable.

As is apparent from its disquisition, the RTC brushed aside the

separate corporate existence of Kukan, Inc. and KIC on the main
argument that Michael Chan owns 40% of the common shares of
both corporations, obviously oblivious that overlapping stock
ownership is a common business phenomenon. It must be
remembered, however, that KIC's properties were the ones seized
upon levy on execution and not that of Kukan, Inc. or of Michael
Chan for that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a corporation
does not, standing alone, provide su cient justi cation for
disregarding the separate corporate personality. 40 For this ground
to hold sway in this case, there must be proof that Chan had control
or complete dominion of Kukan and KIC's nances, policies, and
business practices; he used such control to commit fraud; and the
control was the proximate cause of the nancial loss complained of
by Morales. The absence of any of the elements prevents the
piercing of the corporate veil. 41 And indeed, the records do not
show the presence of these elements.
10. Aguirre II v. FQB+7 Inc.
Doctrine:
Facts:
1. Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc. (FQB+7), a
Complaint 4 for intra-corporate dispute, injunction, inspection of corporate books and
records, and damages, against respondents Nathaniel D. Bocobo (Nathaniel),
Priscila D. Bocobo (Priscila), and Antonio De Villa (Antonio).
2. Complaint further alleged that, sometime in April 2004, Vitaliano discovered a
General Information Sheet (GIS) of FQB+7, dated September 6, 2002, in the
Securities and Exchange Commission (SEC) records. This GIS was filed by
Francisco Q. Bocobo's heirs, Nathaniel and Priscila, as FQB+7's president and
secretary/treasurer, respectively.
3. The substantive changes found in the GIS, respecting the composition of directors
and subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of
Directors (the directors reflected in the Articles of Incorporation), represented by
Fidel N. Aguirre (Fidel). In this letter 11 dated April 29, 2004, Vitaliano questioned the
validity and truthfulness of the alleged stockholders meeting held on September 3,
2002. He asked the "real" Board to rectify what he perceived as erroneous entries in
the GIS, and to allow him to inspect the corporate books and records. The "real"
Board allegedly ignored Vitaliano's request.
4. Characterizing Nathaniel's, Priscila's, and Antonio's continuous representation of the
corporation as a usurpation of the management powers and prerogatives of the
"real" Board of Directors, the Complaint asked for an injunction against them and for
the nullification of all their previous actions as purported directors, including the GIS
they had filed with the SEC. The Complaint also sought damages for the plaintiffs
and a declaration of Vitaliano's right to inspect the corporate records.
5. The respondents sought, in their certiorari petition, the annulment of all the
proceedings and issuances in SEC Case No. 04-111077 22 on the ground that
Branch 24 of the Manila RTC has no jurisdiction over the subject matter, which they
defined as being an agrarian dispute.
6. The respondents further informed the CA that the SEC had already revoked FQB+7's
Certificate of Registration on September 29, 2003 for its failure to comply with the
SEC
reportorial requirements.

Issues:
1. Whether the Complaint seeks to continue the dissolved corporation's business.
2. Whether the RTC has jurisdiction over an intra-corporate dispute involving a dissolved
corporation.

Ruling:
1. No.
Upon learning of the corporation's dissolution by revocation of its corporate franchise,
the CA held that the intra-corporate Complaint, which aims to continue the corporation's
business, must now be dismissed under Section 122.

Petitioners concede that a dissolved corporation can no longer continue its business.
They argue, however, that Section 122 allows a dissolved corporation to wind up its
affairs within 3 years from its dissolution. Petitioners then maintain that the Complaint,
which seeks only a declaration that respondents are strangers to the corporation and
have no right to sit in the board or act as officers thereof, and a return of Vitaliano's
stockholdings, intends only to resolve remaining corporate issues. The resolution of
these issues is allegedly part of corporate winding up.

The Court fails to find in the prayers above any intention to continue the corporate
business of FQB+7. The Complaint does not seek to enter into contracts, issue new
stocks, acquire properties, execute business transactions, etc. Its aim is not to continue
the corporate business, but to determine and vindicate an alleged stockholder's right to
the return of his stockholdings and to participate in the election of directors, and a
corporation's right to remove usurpers and strangers from its affairs. The Court fails to
see how the resolution of these issues can be said to continue the business of FQB+7.

Neither are these issues mooted by the dissolution of the corporation. A corporation's
board of directors is not rendered functus officio by its dissolution. Since Section 122
allows a corporation to continue its existence for a limited purpose, necessarily there
must be a board that will continue acting for and on behalf of the dissolved corporation
for that purpose. In fact, Section 122 authorizes the dissolved corporation's board of
directors to conduct its liquidation within three years from its dissolution. Jurisprudence
has even recognized the board's authority to act as trustee for persons in interest
beyond the said three-year period. 43 Thus, the determination of which group is the
bona fide or rightful board of the dissolved corporation will still provide practical relief to
the parties involved.

The same is true with regard to Vitaliano's shareholdings in the dissolved corporation. A
party's stockholdings in a corporation, whether existing or dissolved, is a property right
44 which he may vindicate against another party who has deprived him thereof. The
corporation's dissolution does not extinguish such property right.

2. Yes. Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out
of intra-corporate or partnership relations, and (b) the nature of the question subject of
the controversy must be such that it is intrinsically connected with the regulation of the
corporation or the enforcement of the parties' rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation. So long as these
two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a special
commercial court, has jurisdiction over it.
Examining the case before us in relation to these two criteria, the Court finds and so
holds that the case is essentially an intra-corporate dispute. It obviously arose from the
intra-corporate relations between the parties, and the questions involved pertain to their
rights and obligations under the Corporation Code and matters relating to the regulation
of the corporation. We further hold that the nature of the case as an intra-corporate
dispute was not affected by the subsequent dissolution of the corporation.
11. Marc II Marketing Inc. and Lucila Joson v. Alfredo Joson

12. Mindanao Savings v. Willkom

Doctrine:
Facts:
1. The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao
Savings and Loan Association, Inc. (DSLAI) are entities duly registered with the
Securities and Exchange Commission (SEC) primarily engaged in the business
of granting loans and receiving deposits from the general public, and treated as
banks
2. DSLAI (surviving) + FISLAI
3. The articles of merger were not registered with the SEC due to incomplete
documentation
4. DSLAI à changed name to à MSLAI
August 12, 1985, DSLAI changed its corporate name to MSLAI by way of an
amendment to Article 1 of its Articles of Incorporation, but the amendment was
approved by the SEC only on April 3, 1987.
5. Board of Directors of FISLAI passed and approved Board Resolution No. 86-002,
assigning its assets in favor of DSLAI which in turn assumed the former's
liabilities
6. The business of MSLAI, however, failed. Hence, the Monetary Board of the
Central Bank of the Philippines ordered its closure and placed it under
receivership per Monetary Board Resolution
7. BEFORE THE MERGER, Uy à action for collection of sum of money against à
FISLAI
A writ of execution was thereafter issued.
Sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in
Cagayan de Oro City, and the notice of sale was subsequently published. During
the public auction, Willkom was the highest bidder. New certi cates of title
covering the subject properties were issued in favor of Willkom
8. MSLAI à filed before the RTC, Branch 41 of Cagayan de Oro City, a complaint
for Annulment of Sheriff's Sale, Cancellation of Title and Reconveyance of
Properties against respondents

Issue: WON the merger between FISLAI and DSLAI (now MSLAI) valid and effective?

Ruling: No
The steps necessary to accomplish a merger or consolidation, as provided for in
Sections 76, 24 77, 25 78, 26 and 79 27 of the Corporation Code, are: (PSE-SC)
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan
must include any amendment, if necessary, to the articles of incorporation of the
surviving corporation, or in case of consolidation, all the statements required in the
articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A
meeting must be called and at least two (2) weeks' notice must be sent to all
stockholders or members, personally or by registered mail. A summary of the plan must
be attached to the notice. Vote of two-thirds of the members or of stockholders
representing two-thirds of the outstanding capital stock will be needed. Appraisal rights,
when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r]
consolidation, by the corporate o cers of each constituent corporation. These take the
place of the articles of incorporation of the consolidated corporation, or amend the
articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at
least two weeks before.
(6) Issuance of certificate of merger or consolidation.

Clearly, the merger shall only be effective upon the issuance of a certificate of merger by
the SEC, subject to its prior determination that the merger is not inconsistent with the
Corporation Code or existing laws. Where a party to the merger is a special corporation
governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained.

In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were
not registered with the SEC due to incomplete documentation. Consequently, the SEC
did not issue the required certificate of merger. Even if it is true that the Monetary Board
of the Central Bank of the Philippines recognized such merger, the fact remains that no
certificate was issued by the SEC. Such merger is still incomplete without the
certification.

The issuance of the certificate of merger is crucial because not only does it bear out
SEC's approval but it also marks the moment when the consequences of a merger take
place. By operation of law, upon the effectivity of the merger, the absorbed corporation
ceases to exist but its rights and properties, as well as liabilities, shall be taken and
deemed transferred to and vested in the surviving corporation.

There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such
as respondents, the two corporations shall not be considered as one but two separate
corporations. A corporation is an artificial being created by operation of law. It possesses
the right of succession and such powers, attributes, and properties expressly authorized
by law or incident to its existence. It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which it may be related.
Being separate entities, the property of one cannot be considered the property of the
other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI
remain as its assets and cannot be considered as belonging to DSLAI and MSLAI,
notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and
properties to DSLAI, and the latter assumed all the liabilities of the former. As provided
in Article 1625 of the Civil Code, "an assignment of credit, right or action shall produce
no effect as against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment involves real
property." The certificates of title of the subject properties were clean and contained no
annotation of the fact of assignment. Respondents cannot, therefore, be faulted for
enforcing their claim against FISLAI on the properties registered under its name.
Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to
annul the execution sale over the properties of FISLAI. With more reason can it not
cause the cancellation of the title to the subject properties of Willkom and Go.
13. Roy III v. Herbosa, Nov. 22, 2016
Doctrine:
Facts:
1. The Gamboa Decision attained nality on October 18, 2012, and Entry of Judgment
was thereafter issued on December 11, 2012.
a. WHEREFORE, we PARTLY GRANT the petition and rule that the term
"capital" in Section 11, Article XII of the 1987 Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares).
2. On November 6, 2012, the SEC posted a Notice in its website inviting the public to
attend a public dialogue and to submit comments on the draft memorandum circular
(attached thereto) on the guidelines to be followed in determining compliance with
the Filipino ownership requirement in public utilities under Section 11, Article XII of
the Constitution pursuant to the Court's directive in the Gamboa Decision. 7
3. On March 25, 2013, the SEC posted another Notice in its website soliciting from the
public comments and suggestions on the draft guidelines. 11
4. On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his written
comments on the draft guidelines.
5. On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa,
issued SEC-MC No. 8 entitled "Guidelines on Compliance with the Filipino-Foreign
Ownership Requirements Prescribed in the Constitution and/or Existing Laws by
Corporations Engaged in Nationalized and Partly Nationalized Activities."
a. Section 2. All covered corporations shall, at all times, observe the
constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote in the
election of directors.
Corporations covered by special laws which provide speci c citizenship
requirements shall comply with the provisions of said law.
6. petitioner Roy, as a lawyer and taxpayer, led the Petition,
a. assailing the validity of SEC-MC No. 8 for not conforming to the letter and
spirit of the Gamboa Decision and Resolution and for having been issued by
the SEC with grave abuse of discretion.
b. Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement
separately to each class of shares of a public utility corporation, whether
common, preferred non-voting, preferred voting or any other class of shares.
c. Petitioner Roy also questions the ruling of the SEC that respondent Philippine
Long Distance Telephone Company ("PLDT") is compliant with the
constitutional rule on foreign ownership. He prays that the Court declare
SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines
regarding the determination of compliance with Section 11, Article XII of the
 Constitution in accordance with Gamboa.
7. Respondent PLDT posited that
a. the Petition should be dismissed because it violates the doctrine of hierarchy
of courts as there are no compelling reasons to invoke the Court's original
jurisdiction
b. The SEC merely implemented the dispositive portion of the Gamboa
Decision.
8. respondents Chairperson Teresita Herbosa and SEC led their Consolidated
Comment. 20 They sought the dismissal of the petitions
a. on PLDT's compliance with the capital requirement as stated in the Gamboa
ruling, the petitioners' challenge is premature considering that the SEC has
not yet issued a definitive ruling thereon.

Issues:
(1) whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the
Gamboa Decision and Gamboa Resolution, and

(2) whether the SEC gravely abused its discretion in ruling that PLDT is compliant with
the constitutional limitation on foreign ownership.

Ruling:
1. The Court holds that, even if the resolution of the procedural issues were conceded in
favor of petitioners, the petitions, being anchored on Rule 65, must nonetheless fail
because the SEC did not commit grave abuse of discretion amounting to lack or excess
of jurisdiction when it issued SEC-MC No. 8.To the contrary, the Court nds SEC-MC
No. 8 to have been issued in fealty to the Gamboa Decision and Resolution.

Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the
controlling interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in
favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage
ownership in the total number of outstanding shares of stock, whether voting or not. The
SEC formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement
that "[f]ull bene cial ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights is required." 79 Clearly, SEC-MC No. 8 cannot be
said to have been issued with grave abuse of discretion.

The onus rests on petitioners to clearly and su ciently establish that the SEC, in issuing
SEC-MC No. 8, acted in a capricious, whimsical, arbitrary or despotic manner in the
exercise of its jurisdiction as to be equivalent to lack of jurisdiction or that the SEC's
abuse of discretion is so patent and gross as to amount to an evasion of a positive duty
or to a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation
of law and the Gamboa Decision and Resolution. Petitioners miserably failed in this
respect. ISH
The restrictive re-interpretation of "capital" as insisted by the petitioners is
unwarranted.

Petitioners' insistence that the 60% Filipino equity requirement must be applied to each
class of shares is simply beyond the literal text and contemplation of Section 11, Article
XII of the 1987 Constitution.

As worded, effective control by Filipino citizens of a public utility is already assured in the
provision. With respect to a stock corporation engaged in the business of a public utility,
the constitutional provision mandates three safeguards: (1) 60% of its capital must be
owned by Filipino citizens; (2) participation of foreign investors in its board of directors is
limited to their proportionate share in its capital; and (3) all its executive and managing
officers must be citizens of the Philippines.

In the exhaustive review made by the Court in the Gamboa Resolution of the
deliberations of the Constitutional Commission, the opinions of the framers of the 1987
Constitution, the opinions of the SEC and the DOJ as well as the provisions of the FIA,
its implementing rules and its predecessor statutes, the intention to apply the voting
control test and the bene cial ownership test was not mentioned in reference to "each
class of shares." Even the Gamboa Decision was silent on this point.

To be sure, the application of the 60-40 Filipino-foreign ownership requirement

separately to each class of shares, whether common, preferred non-voting, preferred
voting or any other class of shares fails to understand and appreciate the nature and
features of stocks as financial instruments.

In view of the foregoing, the pronouncement of the Court in the Gamboa Resolution —
the constitutional requirement to "apply uniformly and across the board to all classes of
shares, regardless of nomenclature and category, comprising the capital of a
corporation107 — is clearly an obiter dictum that cannot override the Court's
unequivocal definition of the term "capital" in both the Gamboa Decision and Resolution.

Nowhere in the discussion of the de nition of the term "capital" in Section 11, Article XII
of the 1987 Constitution in the Gamboa Decision did the Court mention the 60% Filipino
equity requirement to be applied to each class of shares. The de nition of "Philippine
national" in the FIA and expounded in its IRR, which the Court adopted in its
interpretation of the term "capital," does not support such application. In fact, even the
Final Word of the Gamboa Resolution does not even intimate or suggest the need for a
clarification or re-interpretation.

To revisit or even clarify the unequivocal de nition of the term "capital" as referring "only
to shares of stock entitled to vote in the election of directors" and apply the 60% Filipino
ownership requirement to each class of share is effectively and unwarrantedly amending
or changing the Gamboa Decision and Resolution. The Gamboa Decision and
Resolution Doctrine did NOT make any de nitive ruling that the 60% Filipino ownership
requirement was intended to apply to each class of share.

The clear and unequivocal definition of "capital" in Gamboa has attained finality.

It is an elementary principle in procedure that the resolution of the court in a given issue
as embodied in the dispositive portion or fallo of a decision controls the settlement of
rights of the parties and the questions, notwithstanding statement in the body of the
decision which may be somewhat confusing, inasmuch as the dispositive part of a nal
decision is de nite, clear and unequivocal and can be wholly given effect without need
of interpretation or construction.

As explained above, the fallo or decretal/dispositive portions of both the Gamboa

Decision and Resolution are de nite, clear and unequivocal. While there is a passage in
the body of the Gamboa Resolution that might have appeared contrary to the fallo of the
Gamboa Decision — capitalized upon by petitioners to espouse a restrictive re-
interpretation of "capital" — the de niteness and clarity of the fallo of the Gamboa
Decision must control over the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to "each class of shares,
regardless of differences in voting rights, privileges and restrictions."

Petitioners cannot, after Gamboa has attained nality, seek a belated correction or
reconsideration of the Court's unequivocal de nition of the term "capital." At the core of
the doctrine of nality of judgments is that public policy and sound practice demand that,
at the risk of occasional errors, judgments of courts should become nal at some
de nite date xed by law and the very objects for which courts were instituted was to
put an end to controversies. 111 Indeed, the de nition of the term "capital" in the fallo of
the Gamboa Decision has acquired finality.

Furthermore, as opined by Justice Bersamin during the deliberations, the doctrine of

immutability of judgment precludes the Court from re-examining the de nition of
"capital" under Section 11, Article XII of the Constitution. Under the doctrine of nality
and immutability of judgment, a decision that has acquired nality becomes immutable
and unalterable, and may no longer be modi ed in any respect, even if the modi cation
is meant to correct erroneous conclusions of fact and law, and even if the modi cation is
made by the court that rendered it or by the Highest Court of the land. Any act that
violates the principle must be immediately stricken down. 113 The petitions have not
succeeded in pointing to any exceptions to the doctrine of nality of judgments, under
which the present case falls, to wit: (1) the correction of clerical errors; (2) the so-called
nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4)
whenever circumstances transpire after the nality of the decision rendering its
execution unjust and inequitable.
With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary to the
Court's de nition and interpretation of the term "capital." Accordingly, the petitions must
be denied for failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.

2. At the outset, the Court disposes of the second issue for being without merit. In its
Consolidated Comment dated September 13, 2013, 34 the SEC already clari ed that it
"has not yet issued a de nitive ruling anent PLDT's compliance with the limitation on
foreign ownership imposed under the Constitution and relevant laws [and i]n fact, a
careful perusal of . . . SEC-MC No. 8 readily reveals that all existing covered
corporations which are non-compliant with Section 2 thereof were given a period of one
(1) year from the effectivity of the same within which to comply with said ownership
requirement. . . . ." 35 Thus, in the absence of a de nitive ruling by the SEC on PLDT's
compliance with the capital requirement pursuant to the Gamboa Decision and
Resolution, any question relative to the inexistent ruling is premature.

Also, considering that the Court is not a trier of facts and is in no position to make a
factual determination of PLDT's compliance with the constitutional provision under
review, the Court can only resolve the rst issue, which is a pure question of law.
14. Roy III v. Herbosa, April 18, 2017 (RESOLUTION)
Doctrine:
Facts:
1. Before the Court is the Motion for Reconsideration filed by petitioner Jose M. Roy III
(movant) seeking the reversal and setting aside of the Decision which denied the
movant's petition, and declared that the Securities and Exchange Commission (SEC)
did not commit grave abuse of discretion in issuing Memorandum Circular No. 8,
Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to,
the Gamboa Decision and Resolution.
2. GROUNDS BY ATTY. ROY:
a. grounds raised by movant are:
(1) He has the requisite standing because this case is one of transcendental
importance;
(2) The Court has the constitutional duty to exercise judicial review over any
grave abuse of discretion by any instrumentality of government;
(3) He did not rely on an obiter dictum; and
(4) The Court should have treated the petition as the appropriate device to
explain the Gamboa Decision.
3. Regarding the procedural grounds, the Court ruled that petitioners (movant and
petitioners-in-intervention) failed to su ciently allege and establish the existence of a
case or controversy and locus standi on their part to warrant the Court's exercise of
judicial review; the rule on the hierarchy of courts was violated; and petitioners failed
to implead indispensable parties such as the Philippine Stock Exchange, Inc. and
Shareholders' Association of the Philippines, Inc.
4.
Issue: WON MR by Roy shall be allowed
Ruling:

No.

In conclusion, the basic issues raised in the Motion having been duly considered and
passed upon by the Court in the Decision and no substantial argument having been
adduced to warrant the reconsideration sought, the Court resolves to DENY the Motion
with FINALITY.
WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH
FINALITY. No further pleadings or motions shall be entertained in this case. Let entry of
final judgment be issued immediately.

As to first ground of Roy, the Court answered:

As regards movant's repeated invocation of the transcendental importance of the
Gamboa case, this does not ipso facto accord locus standi to movant. Being a new
petition, movant had the burden to justify his locus standi in his own petition. The Court,
however, was not persuaded by his justification.
As to second ground of Roy, the Court answered:

Pursuant to the Court's constitutional duty to exercise judicial review, the Court has
conclusively found no grave abuse of discretion on the part of SEC in issuing SEC-MC
No. 8.

As to third ground of Roy, the Court answered:

The Decision has painstakingly explained why it considered as obiter dictum that
pronouncement in the Gamboa Resolution that the constitutional requirement on Filipino
ownership should "apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a corporation."

Others:
T h e Gamboa Decision already held, in no uncertain terms, that what the Constitution
requires is "[f]ull [and legal] bene cial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights x x x must rest in the hands of Filipino
nationals x x x." 11 And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For
purposes of determining compliance [with the constitutional or statutory ownership], the
required percentage of Filipino ownership shall be applied to BOTH (a) the total number
of outstanding shares of stock entitled to vote in the election of directors; AND (b) the
total number of outstanding shares of stock, whether or not entitled to vote x x x."

Once more, this is emphasized anew to disabuse any notion that the dividends accruing
to any particular stock are determinative of that stock's "bene cial ownership."

So long as Filipinos have controlling interest of a public utility corporation, their decision
to declare more dividends for a particular stock over other kinds of stock is their sole
prerogative — an act of ownership that would presumably be for the bene t of the public
utility corporation itself.

Note:
Definition of beneficial or beneficial ownership in SRC-IRR

[A]ny person who, directly or indirectly, through any contract, arrangement,

understanding, relationship or otherwise, has or shares voting power (which includes the
power to vote or direct the voting of such security) and/or investment returns or power
(which includes the power to dispose of, or direct the disposition of such security)

If the Filipino has the voting power of the "speci c stock", i.e., he can vote the stock or
direct another to vote for him, or the Filipino has the investment power over the "speci c
stock", i.e., he can dispose of the stock or direct another to dispose of it for him, or both,
i.e., he can vote and dispose of that "speci c stock" or direct another to vote or dispose
it for him, then such Filipino is the "bene cial owner" of that "speci c stock." Being
considered Filipino, that "speci c stock" is then to be counted as part of the 60% Filipino
ownership requirement under the Constitution. The right to the dividends, jus fruendi —
a right emanating from ownership of that "speci c stock" necessarily accrues to its
Filipino "beneficial owner."