88. Puno vs.

Puno Enterprises
G.R. No. 177066 (September 11, 2009)

Facts:
Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno Enterprises, Inc.
On March 14, 2003, petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated
a complaint for specific performance against respondent. Petitioner averred that he is the son of the
deceased with the latters common-law wife, Amelia Puno. As surviving heir, he claimed entitlement to
the rights and privileges of his late

father as stockholder of respondent. The complaint thus prayed that respondent allow petitioner to
inspect its corporate book, render an accounting of all the transactions it entered into from 1962, and
give petitioner all the profits, earnings, dividends, or income pertaining to the shares of Carlos L. Puno.


Issue:
Whether or not Joselito Musni Puno as an heir is automatically entitled for the stocks upon the death of
a shareholder.

Held:
Upon the death of a shareholder, the heirs do not automatically become stockholders of the corporation
and acquire the rights and privileges of the deceased as shareholder of the corporation. The stocks must
be distributed first to the heirs in estate proceedings, and the transfer of the stocks must be recorded in
the books of the corporation. Section 63 of the Corporation Code provides that no transfer shall be
valid, except as between the 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 to exercise the rights of the deceased as stockholder.

98. Hi- Yield Realty Inc. v. CA
590 SCRA 548 (2009)

Facts:

Respondents entered into a loan contract amounting to PHP100,000 with Petitioner thereby
mortgaging a parcel of land located in Lumang Dayap, Cainta, Rizal. Upon respondent's failure to pay
the loan upon demand petitioner, thereafter moved for the extrajudicial foreclosure of the said property
and a new TCT was transferred in its name.
Respondent claims that he made an offer to pay twice during the redemption period but was refused by
petitioner hence, on the last day of redemption period he filed an action to the court. When all the
interest and other charges were fixed. The court asks respondent to pay the redemption price to
petitioner on a specified date (On or before April 8, 1994) but petitioner instead thereafter seeks the
extension of 45days for it has no sufficient money. At first the court denied the extension but in another
order contradicting its previous order it allowed respondent the extension to pay within 45 days.
Frustrated, petitioner seeks this court to review the decision of the trial court.

Issue:
Whether or not the extension of the redemptive period by the trial court was well within private
respondents preserved right to redeem?

Held:
It was serious error to make the final redemption of the foreclosed property dependent on the financial
condition of private respondent. It may have been difficult for private respondent to raise the money to
redeem the property but financial hardship is not a ground to extend the period of redemption. The
opportunity to redeem the subject property was never denied to private respondent. His timely formal
offer through judicial action to redeem was likewise recognized. But that is where it ends. The court
cannot sanction and grant every succeeding motion or petition specially if frivolous or unreasonable
filed by him because this would manifestly and unreasonably delay the final resolution of ownership
of the subject property.
As a result of the trial courts grant of a 45-day extended period to redeem, almost nine (9) years have
elapsed with both parties claims over the property dangling in limbo, to the serious impairment of
petitioners rights. This court calls the trial courts attention to the prejudice it has wittingly or
unwittingly caused the petitioner. It was really all too simple. The trial court should have seen, as in
fact it had already initially seen, that the 45-day extension sought by private respondent on April 8,
1994 was just a play to cover up his lack of funds to redeem the foreclosed property.
The right of redemption should be exercised within the specified time limit, which is one year from the
date of registration of the certificate of sale. Moreover, the redemptioner should make an actual tender
in good faith of the full amount of the purchase price as provided above, which means the auction price
of the property plus the creditors other legitimate expenses like taxes, registration fees, etc.
Redemptioners option when the redemption period is about to expire and the redemption cannot take
place on account of disagreement over the redemption price: may preserve his right of redemption
through judicial action which in every case must be filed within the one-year period of
redemption. The filing of the court action to enforce redemption, being equivalent to a formal offer to
redeem, would have the effect of preserving his redemptive rights and freezing the expiration of the
one-year period provided the action is filed on time and in good faith, the redemption price is finally
determined and paid within a reasonable time, and the rights of the parties are respected.
Three critical dimensions:
(1) timely redemption or redemption by expiration date (or, as what happened in this case, the
redemptioner was forced to resort to judicial action to freeze the expiration of the redemption
period);
(2) good faith as always, meaning, the filing of the private respondents action on August 13, 1993
must have been for the sole purpose of determining the redemption price and not to stretch the
redemptive period indefinitely; and
(3) once the redemption price is determined within a reasonable time, the redemptioner must make
prompt payment in full.

108. Turner vs. Lorenzo Shipping Corp.
G.R. No. 157479 (November 24, 2010)

Facts:
The petitioners (Philip and Elnora Turner) held 1,010,000 shares of stock of the respondent (Lorenzo
Shipping Corp.), a domestic corporation engaged primarily in cargo shipping activities. The respondent
decided to amend its articles of incorporation to remove the stockholders pre-emptive rights to newly
issued shares of stock. The petitioners voted against the amendment and demanded payment of their
shares at the rate of P2.276/share based on the book value of the shares, or a total of P2,298,760.00.
The respondent found the fair value of the shares demanded to be unacceptable. It insisted that the
market value on the date before the action to remove the pre-emptive right was taken should be the
value, or P0.41/share (P414,100.00) and that the payment could be made only if the respondent had
unrestricted retained earnings in its books to cover the value of the shares, which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an appraisal committee
pursuant to Sec. 82 of the Corporation Code. The committee reported its valuation of P2.54/share, for
an aggregate value of P2,565,400.00.
Subsequently, the petitioners demanded payment based on the valuation plus 2%/month penalty from
the date of their original demand for payment, as well as the reimbursement of the amounts advanced
as professional fees to the appraisers.
Respondent refused the petitioners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when the corporation had
unrestricted retained earnings to cover the fair value of the shares, but that it had no retained earnings at
the time of the petitioners demand, as borne out by its Financial Statements for Fiscal Year 1999
showing a deficit of P72,973,114.00 as of December 31, 1999.
Upon the respondents refusal to pay, the petitioners sued the respondent for collection and damages in
the RTC on January 22, 2001.
The petitioners filed their motion for partial summary judgment, claiming thatthe respondent has an
accumulated unrestricted retained earnings of P11,975,490.00, evidenced by its Financial Statement as
of the Quarter Ending March 31, 2002;
The respondent opposed the motion for partial summary judgment, stating that the determination of the
unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and that
the petitioners did not have a cause of action against the respondent.

RTC granted the petitioners motion fixing the fair value of the shares of stocks at P2.54 per share. The
evidence submitted shows that the respondent has retained earnings of P11,975,490 as of March 21,
2002. This is not disputed by the defendant. Its only argument against paying is that there must be
unrestricted retained earnings at the time the demand for payment is made. RTC further stated that the
law does not say that the unrestricted retained earnings must exist at the time of the demand. Even if
there are no retained earnings at the time the demand is made if there are retained earnings later, the
fair value of such stocks must be paid. The only restriction is that there must be sufficient funds to
cover the creditors after the dissenting stockholder is paid.
Subsequently, on November 28, 2002, the RTC issued a writ of execution.
The respondent commenced a special civil action for certiorari in the CA. CA issued a TRO, enjoining
the petitioners, and their agents and representatives from enforcing the writ of execution. By then,
however, the writ of execution had been partially enforced.The TRO then lapsed without the CA
issuing a writ of preliminary injunction to prevent the execution. Thereupon, the sheriff resumed the
enforcement of the writ of execution.
CA granted respondent's petition. The Orders and the corresponding Writs of Garnishment are
NULLIFIED and theCivil Case is ordered DISMISSED.

Issue:
WON the petitioners have a valid cause of action against the respondent.

Held:
No. SC upheld the decision of the CA. RTC acted in excess of its jurisdiction.
No payment shall be made to any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover the payment(apply the Trust fund doctrine). In case the
corporation has no available unrestricted retained earnings in its books, Sec. 83 provides that if the
dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and
dividend rights shall immediately be restored.
The respondent had indisputably no unrestricted retained earnings in its books at the time the
petitioners commenced the Civil Caseon January 22, 2001. It proved that the respondents legal
obligation to pay the value of the petitioners shares did not yet arise.The Turners right of action arose
only when petitioner had already retained earnings in the amount of P11,975,490.00 on March 21,
2002; such right of action was inexistent on January 22, 2001 when they filed the Complaint.

The RTC concluded that the respondents obligation to pay had accrued by its having the unrestricted
retained earnings after the making of the demand by the petitioners. It based its conclusion on the fact
that the Corporation Code did not provide that the unrestricted retained earnings must already exist at
the time of the demand.
The RTCs construal of the Corporation Code was unsustainable, because it did not take into account
the petitioners lack of a cause of action against the respondent. In order to give rise to any obligation to
pay on the part of the respondent, the petitioners should first make a valid demand that the respondent
refused to pay despite having unrestricted retained earnings. Otherwise, the respondent could not be
said to be guilty of any actionable omission that could sustain their action to collect.
Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint
cure the lack of cause of action. The petitioners right of action could only spring from an existing
cause of action. Thus, a complaint whose cause of action has not yet accrued cannot be cured by an
amended or supplemental pleading alleging the existence or accrual of a cause of action during the
pendency of the action. For, only when there is an invasion of primary rights, not before, does the
adjective or remedial law become operative. Verily, a premature invocation of the courts intervention
renders the complaint without a cause of action and dismissible on such ground. In short, the Civil
Case, being a groundless suit, should be dismissed.
Even the fact that the respondent already had unrestricted retained earnings more than sufficient to
cover the petitioners claims on June 26, 2002 (when they filed their motion for partial summary
judgment) did not rectify the absence of the cause of action at the time of the commencement of the
Civil Case. The motion for partial summary judgment, being a mere application for relief other than by
a pleading, was not the same as the complaint in the Civil Case. Thereby, the petitioners did not meet
the requirement of the Rules of Court that a cause of action must exist at the commencement of an
action, which is "commenced by the filing of the original complaint in court."

118. BARAYUGA VS. ADVENTIST UNIVERSITY OF THE PHILIPPINES
G.R. NO. 168008 (August 17, 2011)

Facts:
AUP is a non-stock and non-profit domestic educational institution incorporated under Philippine laws
was directly under the North Philippine Union Mission (NPUM) of the Southern Asia Pacific Division
of the Seventh Day Adventists. During the 3
rd
Quinquennial Session of the General Conference of
Seventh Day Adventists held f, the NPUM Executive Committee elected the members of the Board of
Trustees of AUP, including the Chairman and the Secretary. Respondent Nestor D. Dayson was elected
Chairman while the petitioner was chosen Secretary.
Following the conclusion of the 3
rd
Quinquennial Session, the Board of Trustees appointed the
petitioner President of AUP. During his tenure( November 11 to November 13, 2002) a group from the
NPUM conducted an external performance audit. The audit revealed the petitioners autocratic
management style, like making major decisions without the approval or recommendation of the proper
committees, including the Finance Committee; and that he had himself done the canvassing and
purchasing of materials and made withdrawals and reimbursements for expenses without valid
supporting receipts and without the approval of the Finance Committee. The audit concluded that he
had committed serious violations of fundamental rules and procedure in the disbursement and use of
funds. The NPUM Upon receipt of the CGAS report that confirmed the initial findings of the auditors
informed the petitioner of the findings and required him to explain.
In the January 27, 2003 special meeting. The members voted to remove him as President because of his
serious violations of fundamental rules and procedures in the disbursement and use of funds as revealed
by the special audit.
The petitioner brought his suit for injunction and damages in the RTC, with prayer for the issuance of a
temporary restraining order against the Board of Trustees.
He alleged that:
1. He was relieved as President without valid grounds despite his five-year term by the Board
of Trustees;
2. that the Board of Trustees had thereby acted in bad faith; and
3. That his being denied ample and reasonable time to present his evidence deprived him of his
right to due process.
The respondents denied the allegations of the petitioner, and claimed that petitioner had been validly
removed for cause and was given the opportunity to be heard in his defense.
Trial Court: granted the TRO
Court of Appeals: reversed the RTC decision
Issue :
Whether or not petitioner has a vested right in office

Held:
In AUPs case, its amended By-Laws provided the term of the members of the Board of Trustees, and
the period within which to elect the officers, thusly:


Board of Trustees

Section 1. At the first meeting of the members of the corporation, and thereafter every two years, a
Board of Trustees shall be elected. It shall be composed of fifteen members in good and regular
standing in the Seventh-day Adventist denomination, each of whom shall hold his office fora term of
two years, or until his successor has been elected and qualified. If a trustee ceases at any time to be
a member in good and regular standing in the Seventh-day Adventist denomination, he shall thereby
cease to be a trustee.

Officers

Section 1. Election of officers. At their organization meeting, the members of the Board of Trustees
shall elect from among themselves a Chairman, a Vice-Chairman, a President, a Secretary, a Business
Manager, and a Treasurer. The same persons may hold and perform the duties of more than one office,
provided they are not incompatible with each other.

In light of foregoing, the members of the Board of Trustees were to serve a term of office of only two
years; and the officers, who included the President, were to be elected from among the members of the
Board of Trustees during their organizational meeting, which was held during the election of the Board
of Trustees every two years. Naturally, the officers, including the President, were to exercise the powers
vested by Section 2 of the amended By-Laws for a term of only two years, not five years.
Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for
only two years, or until January 22, 2003. By the time of his removal for cause as President on January
27, 2003, he was already occupying the office in a hold-over capacity, and could be removed at any
time, without cause, upon the election or appointment of his successor. His insistence on holding on to
the office was untenable, therefore, and with more reason when one considers that his removal was due
to the loss of confidence on the part of the Board of Trustees.

128. Steelcase, Inc., v. Design International Selections, Inc.,
G.R. No. 171995 (April 18, 2012)

Facts:
Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan, USA and is
engaged in the manufacture of office furniture with dealers worldwide. Design InternationalSelections,
Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business,
including the distribution of furniture. Steelcase and DISI orally entered into a dealership agreement
whereby Steelcase granted DISI the right to market, sell, distribute, install and service its products to
end-user customers within the Philippines. The business relationship continued smoothly until it was
terminated after the agreement was breached in 1999. Steelcase filed a complaint for sum of money
against DISI alleging that DISI had an unpaid account of $600,000. It also prayed that DISI be ordered
to pay actual or compensatory damages, exemplary damages, attorneys fees and costs of suit.
Meanwhile, DISI alleged that the complaint failed to state a cause of action and that the complaint
should be dismissed because of Steelcases lack of legal capacity to sue in Philippine courts due to that
fact that it doesnt have a license to operate in the country.
The RTC dismissed Steelcases complaint. It has likewise concluded that Steelcase wasdoing
business in the Philippines as contemplated by RA 7042 (The Foreign Investments Act of 1991) and
since it did not have the license to do business in the country, it was barred from seeking redress from
Philippine courts until it obtained the requisite license to do so. The CA affirmed the ruling of the RTC.
Steelcase contends that DISI is an independent distributor of Steelcase products and not an agent or
conduit of Steelcase.
Moreover, DISI is acting as Steelcases appointed local distributor, and is transacting business in its
own name and for its own account.

Issue:
Whether or not Steelcase had been doing business in the Philippines without a license


Held:
The phrase doing business is clearly defined in Section 3(d) of RA 7042 (Foreign Investments Act of
1991) which states that the phrase doing business shall include soliciting orders, service contracts,
opening offices, whether called liaison offices or branches; appointing representatives or distributors
domiciled in the Philippines totaling 180 days or more; participating in the management, supervision
or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to, and in the
progressive prosecution of, commercial gain or of the purpose and object of the business organization.
The second sentence of Section 3(d) states that the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to
do business nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.

On such account, the appointment of a distributor in the Philippines is not sufficient to constitute
doing business unless it is under the full control of the foreign corporation. Steelcase, therefore, is
foreign corporation not doing business in the Philippines by its act of appointing a distributor falls
under one of the exceptions under RA 7042.


138. Abacus Securities Corp. V. Ampil
G.R. No. 160016 (February 17, 2006)

Abacus Securities Corporation ("Abacus') is engaged in business as a broker and dealer of securities of
listed companies at the Philippine Stock Exchange Center. Sometime in April 1997, Respondent Ruben
Ampil opened a cash account with Abacus for his transactions in securities: Ampils purchases were
consistently unpaid from April 10 to 30, 1997; Ampil failed to pay in full, or even just his deficiency
for the transactions on April 10 and 11, 1997; despite Ampils failure to cover his initial deficiency,
Abacus subsequently purchased and sold securities for Ampils account on April 25 and 29; Abacus did
not cancel or liquidate a substantial amount of respondents stock transactions until May 6, 1997.

Issues:
1) Whether the pari delicto rule is applicable in the present case, and
2) Whether the trial court had jurisdiction over Abacus alleged violation of the Revised Securities Act.

Held:

Main Issue:Applicability of the Pari Delicto Principle

The provisions governing the above transactions are Sections 23 and 25 of the RSA and Rule 25-1 of
the RSA Rules, which state as follows:

SEC. 23. Margin Requirements.
x xxxxxxxx

(b)It shall be unlawful for any member of an exchange or any broker or dealer, directly or indirectly, to
extend or maintain credit or arrange for the extension or maintenance of credit to or for any customer

(1)On any security other than an exempted security, in contravention of the rules and regulations which
the Commission shall prescribe under subsection (a) of this Section;
(2)Without collateral or on any collateral other than securities, except (i) to maintain a credit initially
extended in conformity with the rules and regulations of the Commission and (ii) in cases where the
extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of subparagraph (1) of this subsection.
x xxxxxxxx

SEC. 25.Enforcement of margin requirements and restrictions on borrowings. To prevent indirect
violations of the margin requirements under Section 23 hereof, the broker or dealer shall require the
customer in non margin transactions to pay the price of the security purchased for his account within
such period as the Commission may prescribe, which shall in no case exceed three trading days;
otherwise, the broker shall sell the security purchased starting on the next trading day but not beyond
ten trading days following the last day for the customer to pay such purchase price, unless such sale
cannot be effected within said period for justifiable reasons. The sale shall be without prejudice to the
right of the broker or dealer to recover any deficiency from the customer. x xx.

xxx. The law places the burden of compliance with margin requirements primarily upon the brokers
and dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the mandatory close-out
rule,clearly vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a
customers order, if payment is not received within three days from the date of purchase. The word
shall as opposed to the word may, is imperative and operates to impose a duty, which may be
legally enforced. For transactions subsequent to an unpaid order, the broker should require its customer
to deposit funds into the account sufficient to cover each purchase transaction prior to its execution.
These duties are imposed upon the broker to ensure faithful compliance with the margin requirements
of the law, which forbids a broker from extending undue credit to a customer.

The main purpose is to give a government credit agency an effective method of reducing the aggregate
amount of the nations credit resources which can be directed by speculation into the stock market and
out of other more desirable uses of commerce and industry x x x.

A related purpose of the governmental regulation of margins is the stabilization of the
economy. Restrictions on margin percentages are imposed in order to achieve the objectives of the
government with due regard for the promotion of the economy and prevention of the use of excessive
credit.

Otherwise stated, the margin requirements set out in the RSA are primarily intended to achieve a
macroeconomic purpose -- the protection of the overall economy from excessive speculation in
securities. Their recognized secondary purpose is to protect small investors.

The law places the burden of compliance with margin requirements primarily upon the brokers and
dealers.Sections 23 and 25 and Rule 25-1, otherwise known as the mandatory close-out rule,clearly
vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a customers
order, if payment is not received within three days from the date of purchase. The word shall as
opposed to the word may, is imperative and operates to impose a duty, which may be legally
enforced. For transactions subsequent to an unpaid order, the broker should require its customer to
deposit funds into the account sufficient to cover each purchase transaction prior to its execution. These
duties are imposed upon the broker to ensure faithful compliance with the margin requirements of the
law, which forbids a broker from extending undue credit to a customer.

It will be noted that trading on credit (or margin trading) allows investors to buy more securities than
their cash position would normally allow.[24] Investors pay only a portion of the purchase price of the
securities; their broker advances for them the balance of the purchase price and keeps the securities as
collateral for the advance or loan.[25] Brokers take these securities/stocks to their bank and borrow the
balance on it, since they have to pay in full for the traded stock. Hence, increasing margins[26] i.e.,
decreasing the amounts which brokers may lend for the speculative purchase and carrying of stocks is
the most direct and effective method of discouraging an abnormal attraction of funds into the stock
market and achieving a more balanced use of such resources.

x xx [T]he x xx primary concern is the efficacy of security credit controls in preventing speculative
excesses that produce dangerously large and rapid securities price rises and accelerated declines in the
prices of given securities issues and in the general price level of securities. Losses to a given investor
resulting from price declines in thinly margined securities are not of serious significance from a
regulatory point of view. When forced sales occur and put pressures on securities prices, however, they
may cause other forced sales and the resultant snowballing effect may in turn have a general adverse
effect upon the entire market.

The nature of the stock brokerage business enables brokers, not the clients, to verify, at any time, the
status of the clients account. Brokers, therefore, are in the superior position to prevent the unlawful
extension of credit. Because of this awareness, the law imposes upon them the primary obligation to
enforce the margin requirements.

In securities trading, the brokers are essentially the counterparties to the stock transactions at the
Exchange.Since the principals of the broker are generally undisclosed, the broker is personally liable
for the contracts thus made. Hence, petitioner had to advance the payments for respondents trades.
Brokers have a right to be reimbursed for sums advanced by them with the express or implied
authorization of the principal, in this case, respondent.

It should be clear that Congress imposed the margin requirements to protect the general economy, not
to give the customer a free ride at the expense of the broker.[38] Not to require respondent to pay for
his April 10 and 11 trades would put a premium on his circumvention of the laws and would enable him
to enrich himself unjustly at the expense of petitioner.

Second Issue:
Jurisdiction

It is axiomatic that the allegations in the complaint, not the defenses set up in the answer or in the
motion to dismiss determine which court has jurisdiction over an action. Were we to be governed by
the latter rule, the question of jurisdiction would depend almost entirely upon the defendant.

The instant controversy is an ordinary civil case seeking to enforce rights arising from the Agreement
(AOF) between petitioner and respondent. It relates to acts committed by the parties in the course of
their business relationship. The purpose of the suit is to collect respondents alleged outstanding debt to
petitioner for stock purchases.