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GERARDO GARCIA, plaintiff-appellee, vs.

ANGEL SUAREZ, defendant-


appellant. Ruling: NLRC has no jurisdiction to determine such intra-corporate dispute
between the stockholder and the corporation as in the matter of unpaid
Facts: subscriptions. NLRC cannot validly set it off against the wages and other
Suarez subscribed to sixteen shares of the capital stock of the Compañia benefits due petitioner. Article 113 of the Labor Code allows such a
Hispano-Filipina, Inc., a corporation which is duly formed and organized. Of deduction from the wages of the employees by the employer, only in three
the sixteen subscribed shares, at the par value of P100 each, the appellant instances, to wit:
only paid P400, the value of four shares. Garcia made demand to collect to
Suarez. ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf
of any person, shall make any deduction from the wages of his employees,
Issue: except:
WON a corporation has legal capacity to release a subscriber to its capital
stock from the obligation to pay for his shares? (a) In cases where the worker is insured with his consent by the employer,
and the deduction is to recompense the employer for the amount paid by
Ruling him as premium on the insurance;
A stock subscription is a contract between the corporation and the
subscriber, and courts will enforce it for or against either. A corporation (b) For union dues, in cases where the right of the worker or his union to
has no legal capacity to release a subscriber to its capital stock from the checkoff has been recognized by the employer or authorized in writing by
obligation to pay for his shares, and any agreement to this effect is invalid. the individual worker concerned; and
(Velasco vs. Poizat, 37 Phil., 802.) (Miranda vs. Tarlac Rice Mill Co., 57 Phil.,
619.) (c) In cases where the employer is authorized by law or regulations issued
by the Secretary of Labor.
A corporation has no power to release an original subscriber to its capital
stock from the obligation of paying for his shares, without a valuable
consideration for such release; . . . . (Philippine Trust Co. vs. Rivera, 44 BARRETTO VS. LA PREVISORA FILIPINA
Phil., 469.)
Facts: This is an appeal from a decision rendered by the Court of First
Instance of Manila, ordering the defendant corporation to pay to each of
the three plaintiffs the amount of P507.02, including interest thereon from
ERNESTO M. APODACA, petitioner, vs. NATIONAL LABOR RELATIONS May 2, 1930, to date of payment, with costs.
COMMISSION, JOSE M. MIRASOL and INTRANS PHILS., INC., respondents.
The action which gave rise to this appeal was brought by Alberto Barretto,
Facts: Apocada bought shares to a corporation. However, unable to pay in Jose de Amusategui, and Jose Barretto, who had been directors of the
full, he was obliged to pay it through its wages by filing case in NLRC. defendant corporation from its incorporation up to the month of March,
Issue: 1929, to recover from the defendant, La Previsora Filipina, a mutual
WON NLRC has jurisdiction to determine such intra-corporate dispute building and loan association, 1 per cent to each of the plaintiffs of the net
between the stockholder and the corporation as in the matter of unpaid profits of said corporation for the year 1929, which amount to P50,727.53,
subscriptions? under and in accordance with the following amendment to the by-laws of
the defendant corporation, which was made at a general meeting of the of building and loan associations organized under the different statutes
stockholders thereof on February 23, 1929. throughout the American Union is that all members must participate equally
in the profits and bear the losses, if any, in the same proportion, and any
On the 29th day of August, 1930, the court below entered an order, in diversion of their funds to purposes not authorized by the law of their
which it held that the evidence offered by the plaintiffs showed a cause of creation is violative of the principles of mutuality between the members,
action on the part of the plaintiffs and constituted sufficient legal reason to (See Bertche vs. Equitable Loan etc. Association, 147 Mo., 343; 71 A. S.R.,
require the defendant corporation to present its evidence, if it so desired, 571.) As correctly staled in the case of McCauley vs. Building and Saving
in support of the allegations contained in its answer, and denied the Assn. (97 Tenn., 421; 56 A. S. R., 813, 818), "Strict mutuality and equality of
defendant's motion to dismiss the complaint and set the case for a benefits and obligations must be kept the groundwork and basis of these
continuation of the hearing on September 22, 1930. On September 4,1930, associations, and if they are not so founded they are not truly building and
the defendant filed its exception to the order of the trial court of August loan associations, entitled to the protection given such associations by the
29, 1930, in so far as it declared that the evidence offered by the plaintiffs statute." When we consider the fundamental nature and purposes of
showed a cause of action and denied the dismissal of the complaint. building and loan associations, as above stated, in relation to the subject
matter of this by-law, it is obvious that the provisions thereof are entirely
On October 1, 1930, defendant moved the trial court for a reconsideration foreign to the government of defendant corporation, inconsistent with and
of its decision of September 11, 1930, and that said decision be set aside, subversive of the legislative scheme governing such associations, and
and that the trial of the case be continued for the taking of the evidence of contrary to the spirit of the law, and cannot therefore be the basis of a cause
the defendant, for the reasons stated therein. This motion was denied on of action against the defendant corporation.
October 7, 1930, whereupon the defendant excepted to the decision and
the order of the court below denying its motion for a reconsideration, and The judgment of the court below is reversed, and the complaint is dismissed
moved for a new trial on the ground that the decision was contrary to law with the costs of this instance against the appellees. So ordered.
and the weight of the evidence. This motion was denied by the trial court
on October 18, 1930, and on October 25, 1930, the defendant filed its
exception to said order and gave notice of its intention to appeal from said
decision and orders, and the case has been brought to this court by way of
bill of exceptions. BITONG V. CA (G.R. NO. 123553)
Facts:
Issue: WON defendant is liable to the plaintiff in accordance with the Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a
amendment of the by laws. derivative suit before the SEC against respondent spouses Apostol, who
were officers in said corporation, to hold them liable for fraud and
Ruling: Building and loan associations are peculiar and special corporations. mismanagement in directing its affairs. Respondent spouses moved to
They are founded upon principles of strict mutuality and equality of benefits dismiss on the ground that petitioner had no legal standing to bring the suit
and obligations, and the trend of the more recent decisions is that any as she was merely a holder-in-trust of shares of JAKA Investments which
contract made or by-law provision adopted by such an association in continued to be the true stockholder of Mr. & Ms. Petitioner contends that
contravention of the statute is ultra vires and void. It stands in a trust relation she was a holder of proper stock certificates and that the transfer was
to the contributors in respect to the funds contributed, and there is an recorded. She further contends that even in the absence of the actual
implied contract with its members that it shall not divert its funds or powers certificate, mere recording will suffice for her to exercise all stockholder
to purposes other than those for which it was created. The fundamental law rights, including the right to file a derivative suit in the name of the
corporation. The SEC Hearing Panel dismissed the suit. On appeal, the SEC endorsed by the owner or his attorney-in-fact or other persons legally
En Banc found for petitioner. CA reversed the SEC En Banc decision. authorized to make the transfer; and, (c) to be valid against third parties,
Issue: the transfer must be recorded in the books of the corporation. At most, in
Whether or not petitioner is the true holder of stock certificates to be able the instant case, petitioner has satisfied only the third requirement.
institute a derivative suit. Compliance with the first two requisites has not been clearly and sufficiently
Ruling: NO. shown.
Sec 63 of the Corporation Code envisions a formal certificate of stock which
can be issued only upon compliance with certain requisites. First, the Cebu Mactan Members Center, Inc. vs. Masahiro Tsukahara,
certificates must be signed by the president or vice-president, G.R. No. 159624, July 17, 2009
countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation. A mere typewritten statement advising a FACTS:
stockholder of the extent of his ownership in a corporation without Cebu Mactan Members Center, Inc. (CMMCI) denied the borrowing obtain
qualification and/or authentication cannot be considered as a formal by its President and Chairman of the Board (Mitsumasa Sugimoto) from
certificate of stock. Second, delivery of the certificate is an essential element Masahiro Tsukahara. CMMCI claimed that the loans obtained by the
of its issuance. Hence, there is no issuance of a stock certificate where it is CMMCI President were his personal loans. CMMCI also contended that if
never detached from the stock books although blanks therein are properly the loans were those of CMMCI, the same should have been supported by
filled up if the person whose name is inserted therein has no control over resolutions issued by CMMCI’s board of directors.
the books of the company. Third, the par value, as to par value shares, or It appears that on February 1994, the CMMCI President, purportedly on
the full subscription as to no par value shares, must first be fully behalf of CMMCI, obtained a loan amounting to P6,500,000
paid. Fourth, the original certificate must be surrendered where the person from Tsukahara. As payment for the loan, CMMCI issued seven postdated
requesting the issuance of a certificate is a transferee from a stockholder. checks of CMMCI payable to Tsukahara. On 13 April 1994, Sugimoto, again
The certificate of stock itself once issued is a continuing affirmation or purportedly on behalf of CMCI, obtained another loan amounting to
representation that the stock described therein is valid and genuine and is P10,000,000 from Tsukahara. Sugimoto executed and signed a promissory
at least prima facie evidence that it was legally issued in the absence of note in his capacity as CMMCI President and Chairman, as well as in his
evidence to the contrary. However, this presumption may be rebutted. personal capacity.
Aside from petitioner’s own admissions, several corporate documents Upon maturity, the seven checks were presented for payment
disclose that the true party-in-interest is not petitioner but JAKA. It should by Tsukahara, but the same were dishonored by PNB, the drawee bank.
be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms. After several failed attempts to collect the loan amount totaling
shares in favor of respondent Eugenio D. Apostol. On the same day, P16,500,000, Tsukahara filed a case for collection of sum of money
respondent Apostol signed a declaration of trust stating that she was the against CMMCI and Sugimoto with the Regional Trial Court.
registered owner of 1,000 Mr. & Ms. shares covered by a Certificate of Stock. Tsukahara alleged that the amount of P16,500,000 was used by CMMCI for
And, there is nothing in the records which shows that JAKA had revoked the the improvement of its beach resort, which included the construction of a
trust it reposed on respondent Eugenia D. Apostol. Neither was there any wave fence, the purchase of airconditioners and curtains, and the
evidence that the principal had requested her to assign and transfer the provision of salaries of resort employees. He also asserted that Sugimoto,
shares of stock to petitioner. In fine, the records are unclear on how as the President of CMMCI, “has the power to borrow money for said
petitioner allegedly acquired the shares of stock of JAKA. corporation by any legal means whatsoever and to sign, endorse and
Thus, for a valid transfer of stocks, the requirements are as follows: (a) There deliver all checks and promissory notes on behalf of the corporation.”
must be delivery of the stock certificate; (b) The certificate must be
The Regional Trial Court ruled in favor of Tsukahara. The Court of Appeals Puno vs. Puno Enterprises
affirmed. G.R. No. 177066 (September 11, 2009)

ISSUE: Whether the CMMCI President is given the power FACTS:


under CMMCI’s by-laws to borrow money, execute contracts, and sign Carlos L. Puno, who died on June 25, 1963, was an incorporator of
and indorse checks and promissory notes, in the name and on behalf respondent Puno Enterprises, Inc.
of CMMCI. On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir
RULING: of Carlos L. Puno, initiated
A corporation, being a juridical entity, may act through its board of a complaint for specific performance against respondent. Petitioner
directors, which exercises almost all corporate powers, lays down all averred that he is the son of the deceased with the latterâ s common-law
corporate business policies and is responsible for the efficiency of wife, Amelia Puno. As surviving heir, he claimed entitlement to the rights
management. The general rule is that, in the absence of authority from the and privileges of his late father as stockholder of respondent. The
board of directors, no person, not even its officers, can validly bind a complaint thus prayed that respondent allow petitioner to inspect its
corporation. corporate book, render an accounting of all the transactions it
In this case, the corporate by-laws of CMMCI provide: entered into from 1962, and give petitioner all the profits, earnings,
ARTICLE III dividends, or income pertaining to the shares of Carlos L. Puno.
Officers
2. President. The President shall be elected by the Board of Directors from
their own number. He shall have the following powers and duties: x x x ISSUE:
c. Borrow money for the company by any legal means whatsoever, Whether or not Joselito Musni Puno as an heir is automatically entitled for
including the arrangement of letters of credit and overdrafts with any and the stocks upon the death of
all banking institutions; a shareholder.
d. Execute on behalf of the company all contracts and agreements which
the said company may enter into; RULING:
e. Sign, indorse, and deliver all checks, drafts, bill of exchange, promissory Upon the death of a shareholder, the heirs do not automatically become
notes and orders of payment of sum of money in the name and on behalf stockholders of the corporation
of the corporation; and acquire the rights and privileges of the deceased as shareholder of the
It is clear from the foregoing that the president of CMMCI is given the corporation. The stocks must
power to borrow money, execute contracts, and sign and indorse checks be distributed first to the heirs in estate proceedings, and the transfer of
and promissory notes, in the name and on behalf of CMMCI. With such the stocks must be recorded in
powers expressly conferred under the corporate by-laws, the CMMCI the books of the corporation. Section 63 of the Corporation Code
president, in exercising such powers, need not secure a resolution from provides that no transfer shall be valid, except as between the
the company’s board of directors. parties, until the transfer is recorded in the books of the
corporation. During such interim period, the heirs stand as the
equitable owners of the stocks, the executor or administrator duly
appointed by the court being vested with the legal title to the stock.Until a
settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. Consequently,
during such time, it is the administrator or executor who is entitled dissent of respondent Dulay. Subsequently, the Annual Stockholders’
to exercise the rights of the deceased as stockholder. Meeting of PRCI was scheduled. It included the property-for-shares
exchange between PRCI and JTH, which was supposed to be presented for
approval by stocjholders under their agenda during the special meeting.
However, respondents Miguel, et al., as minority stockholders of PRCI filed
CUA V. TAN before the RTC a Complaint, denominated as a Derivative Suit with prayer
for Issuance of TRO/Preliminary Injunction, against the directors of PRCI
FACTS: Philippine Racing Club Inc. (PRCI) was organized to carry on the and/or JTH based on their alleged devices or schemes amounting to fraud or
business of a racecourse in all its branches and promote the breeding of misrepresentation.
better horses in the Philippines. PRCI owns two real properties: (1) the Sta.
Ana Ractrack or the “Makati property” and (2) the “Cavite property”. PRCI ISSUE: Whether or not respondents’ complaint constituted a valid derivative
management decided that it was best to spin off the management and suit? NO
development of the Makati property to a wholly owned subsidiary. It then
opted to acquire another domestic corporation, JTH Davies Holdings, Inc. RULING: It is well settled in this jurisdiction that where corporate directors
(JTH). are guilty of a breach of trust — not of mere error of judgment or abuse of
discretion — and intracorporate remedy is futile or useless, a stockholder
PRCI management determined that it could initially acquire 41,928,290 may institute a suit in behalf of himself and other stockholders and for the
shares, or 95.55% of the outstanding capital stock of JTH. The PRCI Board of benefit of the corporation, to bring about a redress of the wrong inflicted
Directors held a meeting on 26 Sep 2006. Among the directors present were directly upon the corporation and indirectly upon the stockholders. A
petitioners Santiago Sr., Santiago Jr., and Solomon, as well as respondent derivative suit, however, must be differentiated from individual and
Dulay. After deliberating on the matter of the acquisition of JTH by PRCI, all representative or class suits. Suits by stockholders or members of a
the directors present, except respondent Dulay, voted affirmatively to pass corporation based on wrongful or fraudulent acts of directors or other
and approve the following resolutions: (1) Declaration of Intention to persons may be classified into individual suits, class suits, and derivative
Acquire and Purchase Shares of Stock of Another Company; (2) a Special suits.
Stockholders’ meeting; (3) Authorized Attorney-in-Fact and Proxy. The next
day, PRCI entered into a Sale and Purchase Agreement for the acquisition According to the SC, a shareholder's derivative suit seeks to recover for the
from JME of 99.5% of the outstanding capital stock of JTH. In the Special benefit of the corporation and its whole body of shareholders when injury is
Stockholders’ Meeting held on 7 November 2006, attended by stockholders caused to the corporation that may not otherwise be redressed because of
with 481,045,887 shares or 84.42% of the outstanding capital stock of PRCI, failure of the corporation to act. Thus, ‘the action is derivative, i.e., in the
the acquisition by PRCI of JTH was presented for approval. Several corporate right, if the gravamen of the complaint is injury to the corporation,
stockholders expressed their satisfaction with PRCI’s decision to purchase or to the whole body of its stock and property without any severance or
JTH shares due to the latter’s goodwill. distribution among individual holders, or it seeks to recover assets for the
corporation or to prevent the dissipation of its assets.’ In contrast,
Thereafter, PRCI again engaged the assistance of SGV. It was then "a direct action is one filed by the shareholder individually (or on behalf of
determined that the Makati property could be transferred to JTH in a class of shareholders to which he or she belongs) for injury to his or her
exchange for the unissued portion of the latter’s recently increase interest as a shareholder. The two actions are mutually exclusive: i.e., the
authorized capital stock. The matter of the proposed exchange was right of action and recovery belongs to either the shareholders (direct
approved by the PRCI Board of Directors in its meeting, again with the lone action) or the corporation (derivative action)."
resolution providing for inspection of the books and the taking of
copies “by authority of the President of the corporation
EUGENIO VERAGUTH vs ISABELA SUGAR COMPANY, INC. previously obtained in each case.” “We do not think that anything
FACTS: Veraguth, director and stockholder of Isabela Sugar Company, Inc. improper occurred when the secretary declined to furnish certified
required the respondent to show cause why they refuse to notify the copies of minutes which had not been approved by the BOD, and
petitioner, as director, of the regular and special meetings of the BOD and that while so m u c h o f t h e l a s t r e s o l u t i o n o f t h e B O D a s
to place at his disposal at reasonable hours t he minutes, p ro vi d e s fo r p r io r ap pro va l o f th e p re sid e nt o f th e
documents, and books of said corporation for his inspection as corporation before the books of the corporation can be inspected puts an
director and stockholder, and to issue immediately, upon payment illegal obstacle in the way of a stockholder or director, that
of the fees, certified copies of any documentation in connection with said resolution, so far as we are aware, has not been enforced to the
minutes,documents, and the books of the aforesaid corporation. detriment of anyone.

ISSUE: WON a director has the unqualified right to inspect the books and
records of the corporation.)
Gonzales vs. PNB
RULING: Yes. Section 51 of the Corporation law, provides that: “All business FACTS:
corporations shall keep and carefully preserve a record of all business The petitioner requested from the respondent that he be allowed
transactions, and a minute of all meetings of directors,members, or to examine the records of the latter. Petitioner claimed that he wanted to
stockholders, in which shall be set forth in detail the time and determine the veracity of reports that the respondent has guaranteed the
place of holding the meeting was regular or special, if special its ob1ect, obligation of another corporation in the purchase of a sugar mill and
those present and absent, and every act done or ordered done at the that the respondent financed the construction of a bridge and a sugar mill.
meeting. . . . The record of all business transactions of the When the respondent denied his request, the petitioner sought mandamus
corporation and the minutes of any meeting shall be open to the from the CFI of Manila, adding that he acquired one (1) share of stock in PNB
inspection of any director, member, or stockholder of the corporation at and was thus entitled to examine the respondent’s records.
reasonable hours.” Thus, Directors of a corporation have the The CFI dismissed the petition on the ground that the petitioner
unqualified right to inspect the books and records of the had improper motives and his purpose was not germane to his interest as a
corporation at all reasonable times. However, a director stockholder. The petitioner argued that his right was unconditional.
or stockholder has no absolute right to secure certified copies of
the minutes of the corporation until these minutes have been written ISSUE: Whether or not the petitioner could examine the records of the
up and approved by the directors. respondent.
In this case, when Veraguth telegraphed the secretary, asking the
latter to forward a certified copy of the resolution of the BOD concerning the RULING:
payment of attorney's fees in a certain case against Isabela Sugar Company NO. The former Corporation Law was already replaced by the
and others, the secretary answered stating that, since the minutes of the Corporation Code which requires that the person requesting the
meeting in question had not been signed by the directors present, examination of a corporation’s records must be acting in good faith and for a
a certified copy could not be furnished and that as to other legitimate purpose. Examination could not be granted on the ground of
proceedings of the stockholders, a request should be made to the president mere curiosity. The petitioner acquired only one share of stock and did so
of Isabela Sugar Company. It appears that the board of directors adopted a only after making a request to examine acts done by the respondent when
the former was still a stranger to the same. The circumstances showed that of the Philippines on the other, the first by virtue of garnishment
the petitioner’s purpose was not germane to his interest as a proceedings and the second by virtue of the sale made to it by Jose P.
stockholder. Lastly, the right to examine the records of a corporation under Bengzon as aforesaid.
the Corporation Code was violative of the PNB’s charter. The petition was
dismissed. Issue: Whether or not the issuance by the Filipinas Mining Corporation of
the said 18,580 shares of its stock to the Standard Investment of the
Philippines was valid as against the attaching judgment creditor of the
original owner.
ANTONIO ESCAÑO,. FILIPINAS MINING CORPORATION, ET Al.,
STANDARD INVESTMENT OF THE PHILIPPINES, Ruling: It is Admitted that under this legal provision and the decision of this
Facts: the plaintiff-appellee obtained judgment against Silverio Salvosa Court in Uson vs. Diosomito, 61 Phil. 535, the transfer of duly issued shares
whereby the latter was ordered to transfer and deliver to the former 116 of stock is not valid as against third parties and the corporation until it is
active shares and an undetermined number of shares in escrow of the noted upon the books of the corporation; but it is contended that the
Filipinas Mining Corporation and to pay the sum of P500 as damages, with transfer of unissued shares of stock held in escrow is valid against the whole
the proviso that the escrow shares shall be transferred and delivered to the world although not notified to the corporation and not noted upon its
plaintiff only after they shall have been released by the company. A writ of books. Since the sale, transfer, or assignment of unissued shares of stock
garnishment was served by the sheriff of Manila upon the Filipinas Mining held in escrow is not specifically provided for by law, the question has to be
Corporation to satisfy the said judgment; and Filipinas Mining Corporation resolved by resorting to analogy. What is the reason of the law for requiring
advised the sheriff of Manila that according to its books the judgment the recording upon the books of the corporation of transfers of shares of
debtor Silverio Salvosa was the registered owner of 1,000 active shares and stock as a condition precedent to their validity against the corporation, and
about 21,339 unissued shares held in escrow by the said corporation. The third parties? We imagine that it is (1) to enable the corporation to know at
sheriff sold the 1,000 active shares at public auction. all times who its actual stockholders are, because mutual rights and
obligations exist between the corporation and its stockholders; (2) to afford
It appears that Silverio Salvosa sold to Jose P. Bengzon all his right, title, and to the corporation an opportunity to object or refuse its consent to the
interest in and to 18,580 shares of stock of the Filipinas Mining Corporation transfer in case it has any claim against the stock sought to be transferred,
held in escrow which the said Salvosa was entitled to receive, and which or for any other valid reason; and (3) to avoid fictitious or fraudulent
Bengzon in turn subsequently sold and transferred to Standard Investment transfers.
of the Philippines. Neither Salvosa's sale to Bengzon nor Bengzon's sale to
the Standard Investment of the Philippines was notified to and recorded in Moreover, it seems illogical and unreasonable to hold that inactive or
the books of the Filipinas Mining Corporation more than three years after unissued shares still held by the corporation in escrow pending receipt of
the escrow shares in question were attached by garnishment served on the authorization from the Government to issue them, may be negotiated or
Filipinas Mining Corporation as hereinbefore set forth. transferred unrestrictedly and more freely than active or issued shares
evidenced by certificates of stock.
On January 24, 1941, the defendant Filipinas Mining Corporation issued in
favor of the defendant Standard We are, therefore, of the opinion and so hold that section 35 of the
Investment of the Philippines certificate of stock for the 18,580 shares Corporation Law, which requires the registration of transfers of shares stock
formerly held in escrow by Silverio Salvosa and which had been adversely by upon the books of the corporation as a condition precedent to their validity
the present plaintiff-appellee on the one hand and the Standard Investment
against the corporation and third parties, is also applicable to unissued Held: stockholder should be made liable up to the extent of her unpaid
shares held by the corporation in escrow. subscription. It was found that at the time the obligation was incurred, BMPI
was under the control of its stockholders who know fully well that the
Donnina Halley vs. Printwell, Inc. corporation was not in a position to pay its account (thinly capitalized). And,
that the stockholders personally benefited from the operations of the
Facts: petitioner was an incorporator and original director of Business Media corporation even though they never paid their subscriptions in full.
Philippines, Inc. (BMPI), which, at its incorporation had an authorized capital
stock of P3,000,000.00 divided into 300,000 shares each with a par value of The stockholders cannot now claim the doctrine of corporate fiction
P10.00,of which 75,000 were initially subscribed, while printwell on the otherwise (to deny creditors to collect from SH) it would create an injustice
otherhand, engaged in commercial and industrial printing. BMPI (Business because creditors would be at a loss (limbo) against whom it would assert
Media Philippines Inc.) is a corporation under the control of its stockholders, the right to collect.
including Donnina Halley.In the course of its business, BMPI commissioned
PRINTWELL to print Philippines, Inc. (a magazine published and distributed On piercing the veil:
by BMPI) PRINTWELL extended 30-day credit accommodation in favor of
BMPI and in a period of 9 mos. BMPI placed several orders amounting to Although the corporation has a personality separate and distinct from its SH,
316,000. However, only 25,000 was paid hence a balance of 291,000 such personality is merely a legal fiction (for the convenience and to
promote the ends of justice) which may be disregarded by the courts if it is
PRINTWELL sued BMPI for collection of the unpaid balance and later on used as a cloak or cover for fraud, justification of a wrong, or an alter ego
impleaded BMPI’s original stockholders and incorporatorsto recover on for the sole benefit of the SH.
their unpaid subscriptions. It appears that BMPI has an authorized capital
stock of 3M divided into 300,000 shares with P10 par value. Only 75,000 As to the Trust Fund Doctrine:
shares worth P750,000 were originally subscribed of which P187,500 were
paid up capital. Halley subscribed to 35,000 shares worth P350,000 but only The RTC and CA correctly applied the Trust Fund Doctrine Under which
paid P87,500. corporate debtors might look to the unpaid subscriptions for the satisfaction
of unpaid corporate debts. Subscriptions to the capital of a corporation
Halley contends that: They all had already paid their subscriptions in full constitutes a trust fund for the payment of the creditors (by mere analogy)
BMPI had a separate and distinct personality BOD and SH had resolved to In reality, corporation is a simple debtor.
dissolve BMPI, Thereafter the RTC and CA Defendant merely used the
corporate fiction as a cloak/cover to create an injustice (against PRINTWELL) Moreover, the corporation has no legal capacity to release an original
Rejected allegations of full payment in view of irregularity in the issuance of subscriber to its capital stock from the obligation of paying for his shares, in
ORs (Payment made on a later date was covered by an OR with a lower serial whole or in part, without valuable consideration, or fraudulently, to the
number than payment made on an earlier date. prejudice of the creditors.

Issue:WON a stockholder who was in active management of the business The creditor is allowed to maintain an action upon any unpaid subscriptions
of the corporation and still has unpaid subscriptions should be made liable and thereby steps into the shoes of the corporation for the satisfaction of
for the debts of the corporation by piercing the veil of corporate fiction its debt.
The trust fund doctrine is not limited to reaching the SH’s unpaid the sole basis for determining the quorum as it does not reflect the totality of shares which
subscriptions. The scope of the doctrine when the corporation is insolvent have been subscribed, more so when the articles of incorporation show
encompasses not only the capital stock but also other property and assets a significantly larger amount of shares issued and outstanding.
generally regarded in equity as a trust fund for the payment of corporate
debts
Loyola Grand Villas Homeowners (South) Association, Inc. vs. Court of
Appeals, 276 SCRA 681, August 7, 1997
Lanuza vs. CA FACTS
(LGVHAI) was organized as the association of homeowners and
FACTS: residents of the Loyola Grand Villas. It was registered with the Home
The Philippine Merchant Marine School (PMMI) was incorporated Financing Corporation homeowners' association for Loyola Grand Villas
in 1952 with 700 founders’ shares and 76 common shares as its initial stock (which eventually became Home Insurance Guarantee Corporation.
subscription reflected in the articles of incorporation. It was only in 1978 However, the association was not able file its corporate by-laws. officers of
when the company’s stock and transfer book was registered, recording 33 common LGVHAI then tried to registered its By-Laws in 1988, but they failed to do so.
shares as the only issued and outstanding shares of PMMI. They also discovered that there were two other organizations within the
In a dispute over the basis of a quorum in a stockholders’ meeting, subdivision - the Loyola Grand Villas Homeowners (North) Association, Inc.
private respondents contend that the same should be based on the initial [North Association] and herein Petitioner Loyola Grand Villas Homeowners
subscribed capital stock as reflected in the 1952 articles of incorporation, and not on the (South) Association, Inc. ["South Association].
number of issued and outstanding shares as recorded in 1978 in the Upon inquiry, it was discovered that LGVHAI was dissolved for its
company’s stock and transfer book. failure to submit its by-laws within the period required by the Corporation
Petitioners contend otherwise. Code and for its non-user of corporate charter because HIGC had not
Both the SEC en banc and the Court of Appeals ruled in favor received any report on the association's activities. These paved the way for
of private respondents. Hence, this petition seeking to nullify the assailed the formation of the North and South Associations. Petitioner then lodged
decision. a complaint and questioned the revocation of its registration. Hearing
Officer Javier ruled in favor of LGVHAI, revoking the registration of the North
ISSUE: What should be the basis in determining the quorum in the and South Associations. Petitioner South Association appealed the ruling,
stockholders’ meeting? contending that LGVHAI's failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code effectively automatically
HELD: dissolved the corporation. CA affirmed the Resolution of the HIGC Appeals
The initial subscribed capital stock as reflected in the articles of Board. The South Association filed the petition for review on certiorari.
incorporation should be made the basis in the determination of a quorum. ISSUE
The articles of incorporation defines the charter of the corporation and its WON the LGVHAI's failure to file its by-laws within the period
contractual relations with the state and the stockholders. The contents thereof are binding prescribed by Section 46 of the Corporation Code had the effect of
not only on the corporation but also on its shareholders. In the instant case, automatically dissolving the said corporation.
the articles of incorporation indicate that the company had 776 issued and RULING
outstanding shares. On the other hand, the stock and transfer book is not in No. Automatic corporate dissolution for failure to file the by-laws
any sense a public record and only constitutes prima facie evidence. Hence, it on time was never the intention of the legislature. Section 46 reveals the
may be impeached by other competent evidence. Therefore, the same cannot be used as legislative intent to attach a directory, and not mandatory, meaning for the
word ''must" in the first sentence thereof. The second paragraph of the law the same upon the days which the board of directors shall annually fix." It is
which allows the filing of the by-laws even prior to incorporation. This further averred that at the directors' meeting of the respondent
provision in the same section of the Code rules out mandatory compliance corporation, the board passed a resolution to the following effect:
with the requirement of filing the by-laws "within 1 month after receipt of "The board also resolved to call the usual general (meeting of shareholders)
official notice of the issuance of its certificate of incorporation by the for March 30 of the present year, with notice to the shareholders that the
Securities and Exchange Commission." books of the company are at their disposition from the 15th to 25th of the
Even under the foregoing express grant of power and authority, same month for examination, in appropriate hours."
there can be no automatic corporate dissolution simply because the The contention for the respondent is that this resolution of the
incorporators failed to abide by the required filing of by-laws embodied in board constitutes a lawful restriction on the right conferred by statute; and
Section 46 of the Corporation Code. There is no outright “demise” of it is insisted that as the petitioner has not availed himself of the permission
corporate existence. Proper notice and hearing are cardinal components of to inspect the books and transactions of the company within the ten days
due process in any democratic institution, agency or society. In other words, thus defined, his right to inspection and examination is lost, at least for this
the incorporators must be given the chance to explain their neglect or year.
omission and remedy the same. As the “rules and regulations or private laws ISSUE: Whether or not the by-law restricting the right of inspection is valid.
enacted by the corporation to regulate, govern and control its own actions, HELD: No. The general right given by the statute may not be lawfully
affairs and concerns and its stockholders or members and directors and abridged to the extent attempted in this resolution. It may be admitted that
officers with relation thereto and among themselves in their relation to it,” the officials in charge of a corporation may deny inspection when sought at
by-laws are indispensable to corporations in this jurisdiction. These may not unusual hours or under other improper conditions; but neither the
be essential to corporate birth but certainly, these are required by law for executive officers nor the board of directors have the power to deprive a
an orderly governance and management of corporations. Nonetheless, stockholder of the right altogether. A by-law unduly restricting the right of
failure to file them within the period required by law by no means tolls the inspection is undoubtedly invalid.
automatic dissolution of a corporatio It will be noted that our statute declares that the right of inspection can be
exercised "at reasonable hours." This means at reasonable hours on
business days throughout the year, and not merely during some arbitrary
period of a few days chosen by the directors.
Pardo vs. Hercules Lumber Co. and Ferrer
FACTS: Respondent, Ignacio Ferrer, as acting secretary of the said company,
has refused to permit the petitioner or his agent to inspect the records and RAZON VS. IAC
business transactions of the said Hercules Lumber Company, Inc., at times
desired by the petitioner. The petitioner, Antonio Pardo, a stockholder in FACTS: Enrique Razon organized the E. Razon, Inc. for the purpose of bidding
the Hercules Lumber Company, Inc., one of the respondents herein, seeks for the arrastre services in South Harbor, Manila. Stock certificate No. 003
by original proceeding in the Supreme Court to obtain a writ of mandamus for 1,500 shares of stock of the corporation was issued in the name of late
to compel the respondents to permit the plaintiff and his duly authorized Juan T. Chuidian. Vicente B. Chuidian, as an administrator, filed a complaint
agent and representative to examine the records and business transactions against Enrique Razon for the delivery of certificate of stocks representing
of said company. the shareholdings of the deceased Juan T. Chuidian in the E. Razon, Inc. with
In this connection the answer asserts that in article 10 of the By- a prayer for an order to restrain the petitioner from disposing of the said
laws of the respondent corporation it is declared that "Every shareholder shares of stock. Petitioner alleged that after organizing the E. Razon, Inc.,
may examine the books of the company and other documents pertaining to Enrique Razon distributed shares of stock previously placed in the names of
the withdrawing nominal incorporators to some friends including Juan T. transfer of a certificate of stock. Therefore, in the instant case, there is no
Chuidian. dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the
name of the late Juan Chuidian in the books of the corporation.
Petitioner, in its answer, alleged that all the shares of stock in the
name of stockholders of record of the corporation were fully paid for by
Razon; that said shares are subject to the agreement between Razon, Inc.
and incorporators; that the shares of stock were actually owned and Tan vs. SEC
remained in the possession of Razon. Neither the late Juan T. Chuidian nor FACTS: Alfonso Tan was the president of Visayan Educational Supply
the Vicente Chuidan had paid any amount whatsoever for the 1,500 shares Corporation when it was incorporated. Initially, 400 shares of stock was in
of stock in question. his name, represented by Stock Certificate Number 2. But when two other
incorporators, Young and Ong assigned to the corporation their shares,
Court of First Instance of Manila declared that Enrique Razon, the Alfonso sold 50 shares to his brother Angelo, and another incorporator,
petitioner in is the owner of the said shares of stock. The Intermediate Alfredo Uy, sold 50 shares to Teodora S. Tan. The above sale was necessary
Appellate Court, now Court however, reversed the trial court's decision and in order to complete the membership requirement of the Board of
ruled that Juan T. Chuidian, the deceased father of petitioner Vicente B. Directors.
Chuidian in is the owner of the shares of stock. Both parties filed separate
motions for reconsideration. Enrique Razon wanted the appellate court's Because of the mentioned transactions, Stock Certificate Number
decision reversed and the trial court's decision affirmed while Vicente 2 was cancelled, and the corresponding stock certificates 6 and 8 were
Chuidian asked that all cash and stock dividends and all the pre-emptive issued, with certificate 6 representing 50 shares sold to Angelo, and
rights accruing to the 1,500 shares of stock be ordered delivered to him. The certificate 8 representing the 350 shares for the petitioner Alfonso Tan. A
appellate court denied both motions. Hence, these petitions. certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask that Alfonso
Tan endorse the cancelled Stock Certificate Number 2. However, Alfonso
did not sign Stock Certificate Number 2 and only returned Stock Certificate
ISSUE: Whether or not Juan T. Chuidian is the rightful owner of the stocks.
Number 8.
HELD: Yes. Chuidian is the rightful owner of the stocks. The law is clear that Later on, Alfonso Tan withdrew from the corporation because he
in order for a transfer of stock certificate to be effective, the certificate must
was dislodged by respondent Tan Su Ching as president. Due to the
be properly indorsed and that title to such certificate of stock is vested in
withdrawal, the cancellation of Stock Certificate 2 and 8 was effected and
the transferee by the delivery of the duly indorsed certificate of stock.
recorded in the stock and transfer book. Alfonso then filed a case with Cebu
(Section 35, Corporation Code) Since the certificate of stock covering the
SEC, questioning the cancellation of his aforesaid Stock Certificates 2 and 8.
questioned 1,500 shares of stock registered in the name of the late Juan
Petitioner argues that he was deprived of his shares despite the non-
Chuidian was never indorsed to the petitioner, the inevitable conclusion is endorsement or surrender of Stock Certificates 2 and 8 which is contrary to
that the questioned shares of stock belong to Chuidian. The petitioner's
Section 63 of the Corporation Code.
asseveration that he did not require an indorsement of the certificate of
stock in view of his intimate friendship with the late Juan Chuidian cannot
ISSUE: Whether or not the cancellation of Stock Certificate 2 and the
overcome the failure to follow the procedure required by law or the proper
subsequent issuance of Stock Certificate Number 8 was null and void
conduct of business even among friends. To reiterate, indorsement of the
because of the non-endorsement of Stock Certificate Number 2 by Alfonso
certificate of stock is a mandatory requirement of law for an effective
Tan.
the Quezon College, Inc. presented a claim before the CFI of Bulacan in her
HELD: No. The cancellation and the transfers of stock were valid. There was testate proceeding, for the collection of the sum of P20,000, representing
a delivery of Stock Certificate No. 2 made by Alfonso Tan to the corporation the value of the subscription to the capital stock of the Quezon College, Inc.
before it was replaced with Stock Certificate No. 6 for 50 shares to Angel Tan which was then opposed by the administrator of the estate.
and Stock Certificate No. 8 for 350 shares to the Alfonso.
Issue: Whether or not the condition entered into by both parties are valid.
From the facts deduced in the case, there was already delivery of
the unendorsed Stock Certificate No. 2, which made the issuance of Stock Held: No, Under article 1115 of the old Civil Code which provides as follows:
Certificate Nos. 6 and 8 valid. All the acts required for the transferee to "If the fulfillment of the condition should depend upon the exclusive will of
exercise its rights over the acquired stocks were attendant and even the the debtor, the conditional obligation shall be void.”
corporation was protected from other parties, considering that the said
transfer was earlier recorded or registered in the corporate stock and Velasco vs Poizat
transfer book. Facts: Velasco is the assignee in the insolvency of Philippine Chemical
Product Company and is seeking to recover from Jean Poizat the unpaid
Furthermore, it is necessary to delineate the function of the stock subscription made by him to the stock of the corporation. Poizat, one of the
itself form the actual delivery or endorsement of the certificate of stock incorporators and once the treasurer and manager of the corporation,
itself because a certificate of stock is not necessary to render one a subscribed for 20 shares and paid in the par value of 5 shares (P500). While
stockholder in a corporation. The certificate is not stock in the corporation in this capacity he called in and collected all subscriptions except 15 shares
but is merely evidence of the holder’s interest and status in the subscribed by him and another 15 by Jose Infante. 2 resolutions were
corporation, his ownership of the share represented thereby, but is not in adopted by the board: (1) proposal that the directors or SHs make good by
law the equivalent of such ownership. It expresses the contract between new subscription the 15 shares w/h had been surrendered by Infante, and
the corporation and the stockholder, but is not essential to the existence of that the latter would be released from his obligation to the corporation; (2)
a share in stock or the nation of the relation of the shareholder to the as to Poizat, who was absent, he should be required to pay the amount of
corporation. The fact of the matter is, the new holder, Angel S. Tan has his subscription upon the 15 shares he owes to the corporation. Poizat, in a
already exercised his rights and prerogatives as stockholder and was even letter states that he was also to be relieved from his subscription, and that
elected as member of the board of directors in the respondent corporation he prefers to lose the whole of the 25% rather than continue investing more.
with the full knowledge and acquiescence of petitioner. Due to the transfer Soon the company became insolvent, and Velasco as assignee sues Poizat
of 50 shares, Angel S. Tan was clothed with rights and responsibilities in the for his unpaid subscription.
board of the respondent corporation when he was elected as officer
thereof. Issue:
Whether or not, Poizat is liable on his subscription
Trillana vs Quezon College, G. R. No. L-5003, June 27, 1953
Facts: Damasa Crisostomo subscribed 200 shares of capital stock with a par
value of P100 each through a letter sent to the Board of Trustees of the
Quezon College, enclosed with the letter are a sum of money as her initial Held:
payment and her assurance of full payment after she harvested fish. On Poizat is still liable on his subscription. A stock subscription is a contract
October 26, 1948, Damasa Crisostomo passed away. As no payment appears between the corporation on one side, and the subscriber on the other. It is
to have been made on the subscription mentioned in the foregoing letter, a rule that a subscription for shares of stock does not require an express
promise to pay the amount subscribed, as the law implies a promise to pay
on the part of the subscriber. A stock subscription is a subsisting liability
from the time the subscription is made, since it requires the subscriber to
pay interest quarterly from that date unless he is relieved from such liability
by the by-laws. There are two (2) remedies for the enforcement of stock
subscriptions: (1) the first is a special remedy which consists in permitting
the corporation to put up the unpaid stock for sale, and is merely a remedy
in addition to that which proceeds by action in court; (2) the other is an
action in court, which exists even though no mention thereof is made in
statute. Under the Insolvency Law, the assignee of the insolvent corporation
succeeds to all the corporate rights of action vested in the corporation prior
to its insolvency, and the assignee therefore has the same freedom with
respect to suing upon a stock subscription as directors themselves would
have had under Sec 49 above cited. Another reason: When insolvency
supervenes upon a corporation and the court assumes jurisdiction to wind
it up, all unpaid stock subscriptions become payable on demand, and are at
once recoverable in an action instituted by the assignee in court. It evidently
cannot be permitted that a subscriber should escape from his lawful
obligation by reason of the failure of officers to perform their duty in making
the call; and when the original mode of making the call becomes
impracticable, the obligation must be treated as due upon demand. As to
the Infante release, it is not prejudicial to the right of the corporation or its
assignee to recover from Poizat, although in releasing Infante, the board
overstepped its bounds and should still be liable on shares that were not
taken up and paid for by the corporation.

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