88. Puno vs. Puno EnterprisesG.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. CA590 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 makethefinal 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 anactual tender in good faithof 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 throughjudicial actionwhich 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 PHILIPPINESG.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 3rdQuinquennial Session of the General Conference of Seventh Day Adventists held f, the NPUM Executive Committee elected the members of the Board of Trusteesof 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 3rdQuinquennial 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 theFinance 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 TROCourt of Appeals: reversed the RTC decisionIssue :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 TrusteesSection 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.

OfficersSection 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. AmpilG.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, and2) 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 thattrading 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.