1. MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E.

DULAY AND NEPOMUCENO REDOVAN,

petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A.
TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.

Facts:
 Manuel R. Dulay Enterprises, Inc, a domestic corporation obtained various loans for the construction of its hotel
project, Dulay Continental Hotel (now Frederick Hotel).
 Manuel Dulay by virtue of Board Resolution No 18 sold the subject property to spouses Maria Theresa and Castrense
Veloso.
 Maria Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the subject property to private
respondent Manuel A. Torres. #fluffypeaches Upon the failure of Maria Veloso to pay Torres, the property was sold to
Torres in an extrajudicial foreclosure sale.
 Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the apartment.
 RTC ordered the corporation and the tenants to vacate the building.
 Petitioners: RTC had acted with GAD when it applied the doctrine of piercing the veil of corporate entity considering
that the sale has no binding effect on corporation as Board Resolution No. 18 which authorized the sale of the subject
property was resolved without the approval of all the members of the board of directors and said Board Resolution
was prepared by a person not designated by the corporation to be its secretary.
Issue:
 WON the sale to Veloso is valid notwithstanding that it was resolved without the approval of all the members of the
board of directors. (YES)
Ruling
 Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by
the directors of a close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in
writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them makes prompt
objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed
ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the
corporation after having knowledge thereof.
 Dulay Inc. is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage
is not necessary to bind the corporation for the action of its president. #fluffypeaches At any rate, corporate
action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the corporation after having
knowledge of the meeting which, in his case, Virgilio Dulay failed to do.

 Although a corporation is an entity which has a personality distinct and separate from its individual stockholders or
members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong,
protect fraud or defend crime.

2. SAN JUAN STRUCTURAL FABRICATORS VS CA (296

SCRA 631)
San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals
296 SCRA 631 [GR No. 129459 September 29, 1998]

Facts: Plaintiff-appellant San Juan structural and steel fabricators Inc.’s amended complaint alleged that on
February 14, 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as lot 30, Block 1 of the Acropolis Greens
Subdivision located in the district of Murphy, Quezon City, Metro Manila containing an area of 414 sqm,
covered by TCT no. 362909; that as stipulated in the agreement of February 14, 1i989, plaintiff-appellant
paid the down payment in the sum of P100,000, the balance to be paid on or before March 2, 19889; that on
March 1, 1989,Mr. Andres T. Co, president of Plaintiff-appellant corporation, wrote a letter to defendant-
appellee Motorich Sales Corporation requesting a computation for the balance to be paid; that said letter
was coursed through the defendant-appellee’s broker. Linda Aduca who wrote the computation of the
balance; that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the
balance, covered by Metrobank cashier’s check no. 004223 payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee were supposed to meet in the plaintiff-
appellant’s office but defendant-appellee’s treasurer, Nenita Lee Gruenbeg did not appear; that defendant-
appelle despite repeated demands and in utter disregard of its commitments had refused to execute the
transfer of rights/deed of assignment which is necessary to transfer the certificate of title; that defendant
ACL development corporation is impleaded as a necessary party since TCT no. 362909 is still in the name
of said defendant; while defendant VNM Realty and Development Corporation is likewise impleaded as a
necessary party in view of the fact that it is the transferor of the right in favor of defendant-appellee
Motorich Sales Corporation; that on April 6, 1989 defendant ACL Development Corporation and Motorich
Sales Corporation entered into a deed of absolute sale whereby the former transferred to the latter the
subject property; that by reason of said transfer; the registry of deeds of Quezon City issued a new title in
the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenbeg and
Reynaldo L. Gruenbeg, under TCT no. 3751; that as a result of defendants-appellees Nenita and Motorich’s
bad faith in refusing to execute a formal transfer of rights/deed of assignment, plaintiff-appellant suffered
moral and nominal damages which may be assessed against defendant-appellees in the sum of P500,000;
that as a result of an unjustified and unwarranted failure to execute the required transfer or formal deed of
sale in favor of plaintiff-appellant, defendant-appellees should be assessed exemplary damages in the sum
of P100,000; that by reason of the said bad faith in refusing to execute a transfer in favor of plaintiff-
appellant the latter lost opportunity to construct a residential building in the sum of P100,000 and that as a
consequence of such bad faith, it has been constrained to obtain the services of counsel at an agreed fee of
P100,000 plus appearance fee of for every appearance in court hearings.

Issues: Whether or not the corporation’s treasurer act can bind the corporation.

Whether or not the doctrine of piercing the veil of corporate entity is applicable.

Held: No. Such contract cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the
property of the corporation is not the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express authorization from the
corporation’s board of directors.

Section 23 of BP 68 provides the Board of Directors or Trustees – Unless otherwise provided in this code,
the corporate powers of all corporations formed under this code shall be exercised, all business conducted,
and all property of such corporations controlled and held by the board of directors or trustees to be elected
from among the stockholders of stocks, or where there is no stock, from among the members of the
corporations, who shall hold office for 1 year and until their successors are elected and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions, cannot bind the corporation,
unless it has ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to respondent Gruenbeg to sell its parcel of land,
we hold that the February 14, 1989 agreement entered into by the latter with petitioner is void under Article
1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot be ratified.

The statutorily granted privilege of a corporate veil may be used only for legitimate purposes. On equitable
consideration,the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or
inequity, defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another corporation.

We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud,
or an illegal act on inequity committed on third person. The question of piercing the veil of corporate
fiction is essentially, then a matter of proof. In the present case, however, the court finds no reason to pierce
the corporate veil of respondent Motorich. Petitioner utterly failed to establish the said corporation was
formed, or that it is operated for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense
of third persons like petitioner.

3. G.R. No. L-23241 March 14, 1925

HENRY FLEISCHER, plaintiff-appellee,

vs.
BOTICA NOLASCO CO., INC., defendant-appellant.

FACTS: This action was commenced in the CFI against the board of directors of the
Botica Nolasco, Inc., a corporation duly organized and existing under the laws of the
Philippine Islands. The plaintiff prayed that said board of directors be ordered to register
in the books of the corporation five shares of its stock in the name of Henry Fleischer,
the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting
from the refusal of said body to register the shares of stock in question. (Basta na
amend ung complaint)

defendant answered the amended complaint denying generally and specifically each
and every one of the material allegations thereof, and, as a special defense, alleged that
the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from
the plaintiff said shares at the par value of P100 a share, plus P90 as dividends
corresponding to the year 1922, and that said offer was refused by the plaintiff.

Trial Court held that, in his opinion, article 12 of the by-laws of the corporation which
gives it preferential right to buy its shares from retiring stockholders, is in conflict with
Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a
judgment in favor of plaintiff.

Hence, this appeal.

ISSUE: whether or not article 12 of the by-laws of the corporation is in conflict with the
provisions of the Corporation Law (Act No. 1459).

Questioned article 12 creates in favor of the Botica Nolasco, Inc., a preferential right to
buy, under the same conditions, the share or shares of stock of a retiring shareholder.
Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt
such by-law?

HELD:

The particular provisions of the Corporation Law referring to transfer of shares of stock
are as follows:

SEC. 13. Every corporation has the power:

xxx xxx xxx

(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of
the number of its officers and directors within the limits prescribed by law, and for the
transferring of its stock, the administration of its corporate affairs, etc.

xxx xxx xxx

SEC. 35. The capital stock of stock corporations shall de divided into shares for which
certificates signed by the president or the vice-president, countersigned by the
secretary or clerk and sealed with the seal of the corporation, shall be issued in
accordance with the by-laws. Shares of stock so issued are personal property and may
be transferred by delivery of the certificate indorsed by the owner or his attorney in fact
or other person legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is entered and noted upon the
books of the corporation so as to show the names of the parties to the transaction, that
date of the transfer, the number of the certificate, and the number of shares
transferred.

No share of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.

The holder of shares, as owner of personal property, is at liberty, under said section
(Sec. 35), to dispose of them in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions of law. Therefore, a stock
corporation in adopting a by-law governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No. 1459, and said by-law
should be made to harmonize with said provisions. It should not be inconsistent
therewith.
The by-law now in question was adopted under the power conferred upon the
corporation by section 13, paragraph 7, above quoted; but in adopting said by-law the
corporation has transcended the limits fixed by law in the same section, and has not
taken into consideration the provisions of section 35 of Act No. 1459.

As a general rule, the by-laws of a corporation are valid if they are reasonable and
calculated to carry into effect the objects of the corporation, and are not contradictory
to the general policy of the laws of the land.

On the other hand, it is equally well settled that by-laws of a corporation must be
reasonable and for a corporate purpose, and always within the charter limits. They must
always be strictly subordinate to the constitution and the general laws of the land. They
must not infringe the policy of the state, nor be hostile to public welfare. They must not
disturb vested rights or impair the obligation of a contract, take away or abridge the
substantial rights of stockholder or member, affect rights of property or create
obligations unknown to the law.

The validity of the by-law of a corporation is purely a question of law. (South Florida
Railroad Co. vs. Rhodes, 25 Fla., 40.)

The power to enact by-laws restraining the sale and transfer of stock must be found in
the governing statute or the charter. Restrictions upon the traffic in stock must have
their source in legislative enactment, as the corporation itself cannot create such
impediments. By-law are intended merely for the protection of the corporation, and
prescribe regulation and not restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power, cannot ordinarily inquire
into or pass upon the legality of the transaction by which its stock passes from one
person to another, nor can it question the consideration upon which a sale is based. A
by-law cannot take away or abridge the substantial rights of stockholder. Under a
statute authorizing by- laws for the transfer of stock, a corporation can do no more than
prescribe a general mode of transfer on the corporate books and cannot justify an
unreasonable restriction upon the right of sale.

xxx

that a corporation has no power to prevent or to restrain transfers of its shares, unless
such power is expressly conferred in its charter or governing statute. This conclusion
follows from the further consideration that by-laws or other regulations restraining such
transfers, unless derived from authority expressly granted by the legislature, would be
regarded as impositions in restraint of trade.

The only restraint imposed by the Corporation Law upon transfer of shares is found in
section 35 of Act No. 1459, quoted above, as follows: “No transfer, however, shall be
valid, except as between the parties, until the transfer is entered and noted upon the
books of the corporation xxx This restriction is necessary in order that the officers of the
corporation may know who are the stockholders, which is essential in conducting
elections of officers, in calling meeting of stockholders, and for other purposes. But any
restriction of the nature of that imposed in the by-law now in question, is ultra vires,
violative of the property rights of shareholders, and in restraint of trade.

And moreover, the by-laws now in question cannot have any effect on the appellee. He
had no knowledge of such by-law when the shares were assigned to him. He obtained
them in good faith and for a valuable consideration. He was not a privy to the contract
 created by said by-law between the shareholder Manuel Gonzalez and the Botica
Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.

A by-law of a corporation which provides that transfers of stock shall not be valid unless
approved by the board of directors, while it may be enforced as a reasonable regulation
for the protection of the corporation against worthless stockholders, cannot be made
available to defeat the rights of third persons. (Farmers’ and Merchants’ Bank of
Lineville vs. Wasson, 48 Iowa, 336.)

Whenever a corporation refuses to transfer and register stock in cases like the present,
mandamus will lie to compel the officers of the corporation to transfer said stock upon
the books of the corporation.

Petition denied. Decision of trial court affirmed.

RURAL BANK OF SALINAS, INC. and MANUEL SALUD ET. AL., vs. CA, SEC and MELANIA
GUERRERO ET. AL. G.R. No. 96674. June 26, 1992
March 15, 2018

FACTS:

Clemente Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, Melania, giving and granting the latter full power
of authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the
Bank registered in his name. before the death of Clemente, Melania, pursuant to the
said SPA, executed Deed of Assignments for the shares of stock in favor of private
respondents. After the death of Clemente, Melania proceeded in presenting the said
Deeds and for registration with a request for the transfer in the Bank’s stock and
transfer book of the 473 shares of stock so assigned, the cancelation of stock certificates
in the name of Clemente and the issuance of new stock certificates in the name of the
new owners thereof. The Bank however denied the request. Melania then filed with SEC
an action for Mandamus against Rural Bank of Salinas, its President and Secretary. The
latter bank contended in its answer that the shares of Guerrero became the property of
his estate and thus must be first settled and liquidated before distribution.

ISSUES:

1. Whether SEC has jurisdiction over the matter.

2. Whether petitioner may restrict the registration of shares of stock or its transfer.

RULING:

1. YES. Sec. 5 (b) of PD 902-A grants to the SEC the original and exclusive jurisdiction to
hear and decide cases involving intracorporate controversies. An intracorporate
controversy has been defined as one which arises between a stockholder and the
corporation. There is no distinction, qualification, not any exception whatsoever. The
case at bar involves shares of stock, their registration, cancellation and issuances
thereof by petitioner.

3. NO. Sec. 63 of the Corporation Code provides that the shares of stock issued are
personal property and may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person legally authorized to make
the transfer. A corporation either by its Board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfer. The Restrictions in the transfer of stock must
have their source in legislative enactment, as the corporation itself cannot create such
 impediment. By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such power, cannot ordinarily inquire
into or pass upon the legality of the transactions by which its stock passes from one
person to another, nor can it question the consideration upon which a sale is based. The
right to transfer shares is inherent from the stockholders ownership of the same, thus
whenever a corporation refuses to transfer and register stocks, mandamus will lie to
compel the officers of the corporation to transfer said stocks to the books of the
corporation.

Ong Yong V. Tiu (2003)

G.R. No. 144476 April 8, 2003

Lessons Applicable: Pre-incorporation Subscription (Corporate Law)

FACTS:

 1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when
its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became
heavily indebted to the Philippine National Bank (PNB) for P190M
 To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to
invest in FLADC.
 Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in
FLADC
 Ongs: subscribe to 1,000,000 shares
 Tius: subscribe to an additional 549,800 shares in addition to their already existing subscription
of 450,200 shares
 Tius: nominate the Vice-President and the Treasurer plus 5 directors
 Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the
board of directors of FLADC and right to manage and operate the mall.
 Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares)
 Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for
their subscription to 1M shares)
 February 23, 1996: Tius rescinded the Pre-Subscription Agreement
 February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement
 SEC: confirmed recission of Tius
 Ongs filed reconsideration that their P70M was not a premium on capital stock but
an advance loan
 SEC en banc: affirmed it was a premium on capital stock
 CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them to
rescission) but, "for practical considerations," that is, their inability to work together, it was best
to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original
investment of the Ongs and awarding practically everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

 did not justify the rescission of the contract

 providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since
the obligation pertained to FLADC itself
 failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions
also pertained to the corporation and not to the Ongs
 the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994
was to raise the P190 million
 law requires that the breach of contract should be so "substantial or fundamental" as to defeat
the primary objective of the parties in making the agreement
 since the cash and other contributions now sought to be returned already belong to FLADC, an
innocent third party, said remedy may no longer be availed of under the law.
 Any contract for the acquisition of unissued stock in an existing corporation or a corporation still
to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding
the fact that the parties refer to it as a purchase or some other contract
 allows the distribution of corporate capital only in three instances: (1) amendment of the
Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable
shares by the corporation, regardless of the existence of unrestricted retained earnings,25 and
(3) dissolution and eventual liquidation of the corporation.
 They want this Court to make a corporate decision for FLADC.
 The Ongs' shortcomings were far from serious and certainly less than substantial; they were in
fact remediable and correctable under the law. It would be totally against all rules of justice,
fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds.

Republic v. Sunlife Assurance Company of Canada

G.R. No. 158085, 14 October 2005, 473 SCRA 129

FACTS:

Respondent is a mutual life insurance company organized and existing under the laws of
Canada. It is registered and authorized by the SEC and the Insurance Commission to
engage in business in the Philippines as mutual life insurance company. Sun Life filed
with the CIR its insurance premium tax return for the third quarter of 1997 in the
amount of 31,485, 834. 51 and paid its DST for the amount of 30,000,000.00.
On December 20, 1997, CA, as affirmed by the Supreme Court, rendered in Insular Life
Assurance Co. Ltd. vs CIR a decision that mutual life insurance companies are purely
cooperative companies and are exempt from the payment of premium tax and DST. Sun
Life surmised that being a mutual life insurance it is exempt from the payment of
premium tax and DST and hence filed an administrative case against the CIR for tax
credit for its erroneously paid premium tax and DST. CIR raised as special and
affirmative defences that petitioner’s claim for refund is subject to administrative
routinary investigation by the CIR, Petitioner must prove that it falls under the exception
provided for under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and be entitled to the refund sought and It is incumbent upon petitioner to
show that it has complied with the provisions of Section 204[,] in relation to Section
229, both in the 1997 Tax Code.

ISSUE:

Whether or not respondent is a cooperative and whether or not it needs to be

registered under CDA

RULING:
For the first issue, the court ruled that respondent is a cooperative. The tax code defines
cooperative as an association conducted by the members thereof with the money
collected from among themselves and solely for their own protection and not for profit.
Respondent is without doubt a cooperative because of the following reasons:
First, it is managed by its members. Both CA and CTA found that the management and
affairs of respondent were conducted by its policyholders. A stock insurance company
doing business in the Philippines may alter its organization and transform itself into a
mutual insurance company. Respondent has been mutualized or converted from a stock
life insurance company to a nonstock mutual life insurance corporation pursuant to
Section 266 of the Insurance Code of 1978.
Second, it operated with money collected from its members. Since respondent is
composed entirely of members who are also it policyholders, all premiums obviously
comes only from them. The member-policyholders constitute both insurer and insured
who contribute, by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid. The premiums pooled into this fund are
earmarked for the payment of their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the profit of
anyone. A mutual life insurance company is conducted for the benefit of its member-
policyholders, who pay into its capital by way of premiums. To that extent, they are
responsible for the payment of all its losses. The cash paid in for premiums and the
premium notes constitute their assets x x x. In the event that the company itself fails
before the terms of the policies expire, the member-policyholders do not acquire the
status of creditors. Rather, they simply become debtors for whatever premiums that
they have originally agreed to pay the company, if they have not yet paid those amounts
in full, for [m]utual companies x x x depend solely upon x x x premiums. Only when the
premiums will have accumulated to a sum larger than that required to pay for company
losses will the member-policyholders be entitled to a pro rata division thereof as profits.
For the second issue, the court ruled that under the Tax Code although respondent is a
cooperative, registration with the Cooperative Development Authority (CDA) is not
necessary in order for it to be exempt from the payment of both percentage taxes on
insurance premiums, under Section 121; and documentary stamp taxes on policies of
insurance or annuities it grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax provision requires
a mutual life insurance company to register with that agency in order to enjoy
exemption from both percentage and documentary stamp taxes.
Second, the provisions of the Cooperative Code of the Philippines do not apply. only
cooperatives to be formed or organized under the Cooperative Code needed
registration with the CDA. Respondent already existed before the passage of the new
law on cooperatives. It was not even required to organize under the Cooperative Code,
not only because it performed a different set of functions, but also because it did not
operate to serve the same objectives under the new law — particularly on productivity,
marketing and credit extension.
The insurance against losses of the members of a cooperative referred to in Article 6(7)
of the Cooperative Code is not the same as the life insurance provided by respondent to
member-policyholders. The former is a function of a service cooperative, the latter is
not. Cooperative insurance under the Code is limited in scope and local in character. It is
not the same as mutual life insurance.
Consequently, the court held that respondent is exempt from insurance premium tax
and DST.

Cebu Country Club, Inc. (CCCI) et al., v. Elizagaque, G.R. No. 160273, January 18, 2008.
11
MAY
[SANDOVAL-GUTIERREZ, J.]
(Long Version Digest)

FACTS

Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-
profit and non-stock private membership club, having its principal place of business in
Banilad, Cebu City. Petitioners herein are members of its Board of Directors. In 1996,
respondent filed with CCCI an application for proprietary membership. The application
was indorsed by CCCI’s two (2) proprietary members, namely: Edmundo T. Misa and
Silvano Ludo. As the price of a proprietary share was around the P5 million range, Benito
Unchuan, then president of CCCI, offered to sell respondent a share for only P3.5
million. Respondent, however, purchased the share of a certain Dr. Butalid for only P3
million. Consequently, on September 6, 1996, CCCI issued Proprietary Ownership
Certificate No. 1446 to respondent.

During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of
Directors, action on respondent’s application for proprietary membership was deferred.
In another Board meeting held on July 30, 1997, respondent’s application was voted
upon. As shown by the records, the Board adopted a secret balloting known as the
“black ball system” of voting wherein each member will drop a ball in the ballot box. A
white ball represents conformity to the admission of an applicant, while a black ball
means disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous
vote of the directors is required. When respondent’s application for proprietary
membership was voted upon during the Board meeting on July 30, 1997, the ballot box
contained one (1) black ball. Thus, for lack of unanimity, his application was
disapproved.

On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of

reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote
another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997,
respondent again sent CCCI a letter inquiring whether any member of the Board
objected to his application. Again, CCCI did not reply. Consequently, on December 23,
1998, respondent filed with the Regional Trial Court (RTC), Branch 71, Pasig City a
complaint for damages against petitioners

ISSUE

Whether in disapproving respondent’s application for proprietary membership with

CCCI, petitioners are liable to respondent for damages, and if so, whether their liability
is joint and several.

RULING

YES.

In rejecting respondent’s application for proprietary membership, we find that

petitioners violated the rules governing human relations, the basic principles to be
observed for the rightful relationship between human beings and for the stability of
social order. The trial court and the Court of Appeals aptly held that petitioners
committed fraud and evident bad faith in disapproving respondent’s applications. This is
contrary to morals, good custom or public policy. Hence, petitioners are liable for
damages pursuant to Article 19 in relation to Article 21 of the same Code.

It bears stressing that the amendment to Section 3(c) of CCCI’s Amended By-Laws
requiring the unanimous vote of the directors present at a special or regular meeting
was not printed on the application form respondent filled and submitted to CCCI. What
was printed thereon was the original provision of Section 3(c) which was silent on the
required number of votes needed for admission of an applicant as a proprietary
member.

Petitioners explained that the amendment was not printed on the application form due
to economic reasons. We find this excuse flimsy and unconvincing. Such amendment,
aside from being extremely significant, was introduced way back in 1978 or almost
twenty (20) years before respondent filed his application. We cannot fathom why such a
prestigious and exclusive golf country club, like the CCCI, whose members are all
affluent, did not have enough money to cause the printing of an updated application
form.

It is thus clear that respondent was left groping in the dark wondering why his
application was disapproved. He was not even informed that a unanimous vote of the
Board members was required. When he sent a letter for reconsideration and an inquiry
whether there was an objection to his application, petitioners apparently ignored him.
Certainly, respondent did not deserve this kind of treatment. Having been designated by
San Miguel Corporation as a special non-proprietary member of CCCI, he should have
been treated by petitioners with courtesy and civility. At the very least, they should
have informed him why his application was disapproved.

The exercise of a right, though legal by itself, must nonetheless be in accordance with
the proper norm. When the right is exercised arbitrarily, unjustly or excessively and
results in damage to another, a legal wrong is committed for which the wrongdoer must
be held responsible.

Section 31 of the Corporation Code provides:

SEC. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully
and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors,
or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. (Emphasis
ours)

The challenged Decision and Resolution of the Court of Appeals are AFFIRMED with
modification in the sense that (a) the award of moral damages is reduced
fromP2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced from
P1,000,000.00 toP25,000.00; and (c) the award of attorney’s fees and litigation
expenses is reduced from P500,000.00 andP50,000.00 to P50,000.00 and P25,000.00,
respectively.

CALATAGAN GOLF CLUB v. SIXTO CLEMENTE, GR No. 165443, 2009-04-16

Facts:

Clemente applied to purchase one share of stock of Calatagan, indicating in his

application for membership his mailing address at "Phimco Industries, Inc. - P.O. Box
240, MCC," complete residential address, office and residence telephone numbers, as
well as the company (Phimco)... with which he was connected, Calatagan issued to him
Certificate of Stock No. A-01295 on 2 May 1990 after paying P120,000.00 for the
share.[2
Calatagan charges monthly dues on its members to meet expenses for general
operations, as well as costs for upkeep and improvement of the grounds and facilities.

The provision on monthly dues is incorporated in Calatagan's Articles of Incorporation

and By-Laws. It is also... reproduced at the back of each certificate of stock.[3] As
reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads:

The owners of shares of stock shall be subject to the payment of monthly dues in an
amount as may be prescribed in the by-laws or by the Board of Directors which shall in
no case be less that [sic] P50.00 to meet the expenses for the general operations of the
club,... and the maintenance and improvement of its premises and facilities, in addition
to such fees as may be charged for the actual use of the facilities x x x

When Clemente became a member the monthly charge stood at P400.00. He paid
P3,000.00 for his monthly dues on 21 March 1991 and another P5,400.00 on 9
December 1991. Then he ceased paying the dues. At that point, his balance amounted
to P400.00.

Ten (10) months later, Calatagan made the initial step to collect Clemente's back
accounts by sending a demand letter dated 21 September 1992.

It was followed by a second letter dated 22 October 1992. Both letters were sent to
Clemente's mailing address as indicated in his... membership application but were sent
back to sender with the postal note that the address had been closed.[

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for
more than sixty (60) days, specifically P5,600.00 as of 31 October 1992

Calatagan also included Clemente's name in the list of delinquent members posted on
the club's bulletin board.

On 1

December 1992, Calatagan's board of directors adopted a resolution authorizing the

foreclosure of shares of delinquent members, including Clemente's; and the public
auction of these shares.

On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time
signed by its Corporate Secretary, Atty. Benjamin Tanedo, Jr.

The letter contains a warning that unless Clemente settles his outstanding dues, his
share would be included among the delinquent... shares to be sold at public auction on
15 January 1993. Again, this letter was sent to Clemente's mailing address that had
already been closed.[

On 5 January 1993, a notice of auction sale was posted on the Club's bulletin board, as
well as on the club's premises. The auction sale took place as scheduled on 15 January
1993, and Clemente's share sold for P64,000.

According to the Certificate... of Sale issued by Calatagan after the sale, Clemente's
share was purchased by a Nestor A. Virata.

At the time of the sale, Clemente's accrued monthly dues amounted to P5,200.00.[9] A
notice of foreclosure of Clemente's... share was published in the 26 May 1993 issue of
the Business World
Clemente learned of the sale of his share only in November of 1997.

He filed a claim with the Securities and Exchange Commission (SEC) seeking the
restoration of his shareholding in Calatagan with damages.

On 15 November 2000, the SEC rendered a decision dismissing Clemente's complaint.

Citing Section 69 of the Corporation Code which provides that the sale of shares at an
auction sale can only be questioned within six (6) months from the date of sale, the SEC
concluded that

Clemente's claim, filed four (4) years after the sale, had already prescribed.

Clemente, the SEC ruled, had acted in bad faith in assuming as he claimed that his non-
payment of monthly dues would merely render his share "inactive."

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the
Court of Appeals promulgated a decision reversing the SEC.

The appellate court restored Clemente's one share with a directive to Calatagan to issue
in his a new share, and awarded to Clemente a... total of P400,000.00 in damages, less
the unpaid monthly dues of P5,200.00.

In rejecting the SEC's finding that the action had prescribed, the Court of Appeals cited
the SEC's own ruling in SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that
Section 69 of the Corporation Code specifically refers to unpaid subscriptions to
capital... stock, and not to any other debt of stockholders. With the insinuation that
Section 69 does not apply to unpaid membership dues in non-stock corporations, the
appellate court employed Article 1140 of the Civil Code as the proper rule of
prescription. The provision sets the... prescription period of actions to recover movables
at eight (8) years.

It

It noted the by-law requirement that within ten (10) days after the Board has ordered
the sale at auction of a member's share of stock for indebtedness, the Corporate
Secretary shall notify the owner thereof and advise the Membership Committee... of
such fact.

Hence, the present appeal.

Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69
of the Corporation Code, and that the requisite notices under both the law and the by-
laws had been rendered to Clemente.

Issues:

Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent
several notices to Clemente's specified mailing address."

Ruling:

Section 69 of the Code provides that an action to recover delinquent stock sold must be
commenced by the filing of a complaint within six (6) months from the date of sale. As
correctly pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code
entitled

"Stocks and Stockholders" and refers specifically to unpaid subscriptions to capital stock,
the sale of which is governed by the immediately preceding Section 68.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure
to govern the payment of monthly dues, the declaration of a member as delinquent,
and the constitution of a lien on the shares and its eventual public sale to answer for the
member's debts.

Under Section 91 of the Corporation Code, membership in a non-stock corporation

"shall beterminated in the manner and for the causes provided in the articles of
incorporation or the by-laws."

We do not agree; we cannot label as due diligence Calatagan's act of sending the
December 7, 1992 letter to Clemente's mailing... address knowing fully well that the
P.O. Box had been closed.

Due diligence or good faith imposes upon the Corporate Secretary - the chief repository
of all corporate records - the obligation to check Clemente's other address which, under
the By-Laws, have to be kept on... file and are in fact on file.

Ultimately, the petition must fail because Calatagan had failed to duly observe both the
spirit and letter of its own by-laws. The by-law provisions was clearly conceived to afford
due notice to the delinquent member of the impending sale, and not just to provide an
intricate... façade that would facilitate Calatagan's sale of the share. But then, the bad
faith on Calatagan's part is palpable

Nothing in Section 32 of Calatagan's By-Laws requires that the final notice prior to the
sale be made solely through the... member's mailing address. Clemente cites our
aphorism-like pronouncement in Rizal Commercial Banking Corporation v. Court of
Appeals[15] that "[a] simple telephone call and an ounce of good faith x x x could have
prevented this present... controversy." That memorable observation is quite apt in this
case.

Calatagan's bad faith and failure to observe its own By-Laws had resulted not merely in
the loss of Clemente's privilege to play golf at its golf course and avail of its amenities,
but also in significant pecuniary damage to him. For that loss, the only blame that could
be... thrown Clemente's way was his failure to notify Calatagan of the closure of the P.O.
Box. That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first place,
does he deserve answerability for failing to notify the club of the closure of the postal
box? Indeed,... knowing as he did that Calatagan was in possession of his home address
as well as residence and office telephone numbers, he had every reason to assume that
the club would not be at a loss should it need to contact him. In addition, according to
Clemente, he was not even aware... of the closure of the postal box, the maintenance of
which was not his responsibility but his employer Phimco's.

The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of
the Civil Code,[16] under the Chapter on Human Relations. These provisions, which the
Court of Appeals did apply, enunciate a general obligation under law for... every person
to act fairly and in good faith towards one another. A non-stock corporation like
Calatagan is not exempt from that obligation in its treatment of its members. The
obligation of a corporation to treat every person honestly and in good faith extends
even to its... shareholders or members, even if the latter find themselves contractually
 bound to perform certain obligations to the corporation. A certificate of stock cannot be
a charter of dehumanization.

The award of actual damages is of course warranted since Clemente has sustained
pecuniary injury by reason of Calatagan's wrongful violation of its own By-Laws.

The Court of Appeals also awarded Clemente P200,000.00 as moral damages,

P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees. We agree that
the award of such damages is warranted.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.

SO ORDERED.

VALLEY GOLF & COUNTRY CLUB, INC., Petitioner, vs. ROSA O. VDA. DE CARAM,
Respondent.

G.R. No. 158805 | April 16, 2009

FACTS:

Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf

course. The members and their guests are entitled to play golf on the said course and
avail of the facilities and privilege. The shareholders are likewise assessed monthly
membership dues.

Cong. Fermin Z. Caram, Jr., respondent’s husband, subscribed and paid in full 1 Golf
Share of the petitioner and was subsequently issued with a stock certificate which
indicated a par value of P9,000.00. It was alleged by the petitioner that Caram stopped
paying his monthly dues and that it has sent 5 letters to Caram concerning his
delinquent account. The Golf Share was subsequently sold at public auction for
P25,000.00 after the BOD had authorized the sale and the Notice of Auction Sale was
published in the Philippine Daily Inquirer

Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and
the RTC included the Golf Share as part of Caram’s estate. The RTC approved a project
of partition of Caram’s estate and the Golf Share was adjudicated to the wife, who paid
the corresponding estate tax due, including that on the golf Share.

It was only through a letter that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of
correspondence, the Caram heirs were subsequently informed in a letter that they were
entitled to the refund of P11,066.52 out of the proceeds of the sale of the Golf Share,
which amount had been in the custody of the petitioner.

Caram’s wife filed an action for reconveyance of the Golf Share with damages before the
SEC against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the
wife, ordering Valley Golf to convey ownership of the Golf Share, or in the alternative. to
issue one fully paid share of stock of Valley Golf of the same class as the Golf Share to
the wife. Damages totaling P90,000.00 were also awarded to the wife.
The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation
Code, a share stock could only be deemed delinquent and sold in an extrajudicial sale at
public auction only upon the failure of the stockholder to pay the unpaid subscription or
balance for the share. However, the section could not have applied in Caram’s case
since he had fully paid for the Golf Share and he had been assessed not for the share
itself but for his delinquent club dues. Proceeding from the foregoing premises, the SEC
hearing officer concluded that the auction sale had no basis in law and was thus a
nullity. The SEC en banc and the Court of Appeals affirmed the hearing officer’s
decision, and so the petitioner appealed before SC.

ISSUE:

WON a non-stock corporation seize and dispose of the membership share of a

fully-paid member on account of its unpaid debts to the corporation when it is
authorized to do so under the corporate by-laws but not by the Articles of
Incorporation?

RULING:

The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a
non-stock corporation such as Valley Golf.

Section 91 of the Corporation Code provides:

SEC. 91. Termination of membership.—Membership shall be terminated in the

manner and for the causes provided in the articles of incorporation or the by-
laws. Termination of membership shall have the effect of extinguishing all rights
of a member in the corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws. (Emphasis supplied)

A share can only be deemed delinquent and sold at public auction only upon the failure
of the stockholder to pay the unpaid subscription. Delinquency in monthly club dues was
merely an ordinary debt enforceable by judicial action in a civil case. A provision creating
a lien upon shares of stock for unpaid debts, liabilities, or assessments of stockholders
to the corporation, should be embodied in the Articles of Incorporation, and not merely in
the by-laws. Moreover, the by-laws of petitioner should have provided formal notice
and hearing procedure before a member’s share may be seized and sold.

The procedure for stock corporation’s recourse on unpaid subscription is not

applicable in member’s shares in a non-stock corporation.

SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith
when it sent the final notice to Caram under the pretense they believed him to be still
alive, when in fact they had very well known that he had already died. The Court stated:

Whatever the reason Caram was unable to respond to the earlier notices, the
fact remains that at the time of the final notice, Valley Golf knew that Caram,
having died and gone, would not be able to settle the obligation himself, yet they
 persisted in sending him notice to provide a color of regularity to the resulting
sale.

That reason alone, evocative as it is of the absence of substantial justice in the sale of
the Golf Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the
Court of Appeals.

Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the
final notice to Caram on the deliberate pretense that he was still alive could bring into
operation Articles 19, 20 and 21 under the Chapter on Human Relations of the Civil
Code. These provisions enunciate a general obligation under law for every person to act
fairly and in good faith towards one another. Non-stock corporations and its officers are
not exempt from that obligation.

REV. LUIS AO-AS v. CA, GR NO. 128464, 2006-06-20

Facts:
[The members of the Batong group] are the duly elected board of directors of the
LCP
[the Ao-As group] have served in various capacities as directors or officers of the
LCP.
[the Ao-As group] filed SEC-SICD Case No. 3857 for accounting and damages with
prayer for preliminary injunction and appointment of a management committee...
asserting the following causes of action:
"First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of
the La Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas
Batong;
Second, the alleged non-liquidation and/or unaccounting of cash advances in the
aggregate amount of P323,750.00 by petitioner Thomas Batong;
Third, the alleged dissipation and/or unaccounting of the LCP general fund in the
amount of 4.8 million;
Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner
Victorio Saquilayan;
Fifth, severance of church-partnership relationship with Lutheran Church-Missouri
Synod (LCMS); and
Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan
office."
During the hearings on the application for creation of a management committee, [the
Batong group] filed an Urgent Motion to Suspend the Proceedings of the Case in
view of an amicable settlement agreed upon by the parties entitled "A FORMULA
FOR CONCORD". However,... notwithstanding the FORMULA FOR CONCORD,
the SEC-SICD denied [the Batong group's] motion to suspend proceedings.
the SEC-SICD Hearing Officer after the presentation of the parties respective
evidence, issued an Order creating a management committee.
[the Batong group] filed with the SEC En Banc a Petition for Certiorari with prayer for
a temporary restraining order alleging that the SEC-SIDC acted with grave abuse of
discretion in creating the management committee.
[the Ao-As group] filed a motion for issuance of a writ of preliminary injunction
seeking to enjoin [the Batong group] not only from continuing to act as LCP board of
directors but also from calling a national convention to elect new set of officers and...
members of the Board as provided in the LCP Constitution and By-Laws.
the SEC-SIDC ordered the issuance of a writ of preliminary injunction
[the Batong group] allege that the SEC-SIDC management committee used the
Order... to carry out ultra vires acts, more specifically: (i) to take control of and
closing down church buildings; (ii) to evict LCP clergymen from their church
parsonages; (iii)... to ordain and appoint new clergymen to replace incumbent
members of the church hierarchy.
However, even before the creation of the management committee, the LCP national
convention had already been called in a Board meeting
During the 17th LCP National Convention, the delegates representing the majority of
the members which comprised the three districts (North Luzon, South Luzon and
Mindanao) issued a "Manifesto" to initiate by themselves the election for a new set of
church... leaders because the incumbent directors were enjoined to act as a board.
Similarly, prior to the issuance of the writ of preliminary injunction and the
appointment of the management committee, the SLD (South Luzon District) of LCP
already held its district conference... which elected, among other of its officers, the
SLD Lay
Representative pursuant to the LCP Constitution and By Laws.
The district conference for NLD was likewise held before the issuance of the writ of
preliminary injunction
In said convention, the local congregations and clergymen executed a manifesto
expressing their own opposition to the appointment of a... management committee.
[The Batong group] then filed with the SEC En Banc a Supplemental Petition dated
November 13, 1992 alleging the supervening events in the case which took place
after the filing of the original petition
Subsequent to the 17th LCP national convention of October 1992, a special
convention was called by the SEC Management Committee... to elect a different set
of officers for LCP.
[the Batong Group] filed a Second Supplement to its petition for certiorari in the SEC
En Banc alleging the supervening events and seeking the review of an Order of the
Hearing Officer... which enlisted the aid of the Secretary of the Department... of
Interior and Local Government and the PNP Director General to enforce the writ of
preliminary injunction.
Pending the resolution of the above-mentioned petitions, the management
committee took control of several church properties, replaced clergymen from their
parsonages and froze all bank accounts in the name of LCP.
[The Batong group] then filed a Petition for Mandamus and Damages with Prayer for
Preliminary Mandatory Injunction... seeking to unfreeze the bank accounts and
recover the seized buildings.
All of the aforementioned petitioners (sic) were denied by the SEC En Banc.
The Batong group then filed a Petition for Review with the Court of Appeals seeking
to annul the Decision of the Securities and Exchange Commission En Banc. In said
Petition, the Batong group alleged that the Ao-As group persisted in carrying out
ultra vires and... illegal acts... the Court of Appeals ruled in favor of the Batong group
Issues:
The creation of a management
committee is not warranted by
the facts of the case.
Ruling:
Refusal to allow stockholders (or members of a non-stock corporation) to examine
books of the company is not a ground for appointing a receiver (or creating a
management committee) since there are other adequate remedies, such as a writ of
mandamus.[24] Misconduct of corporate directors or other officers is not a ground
for the appointment of a receiver where there are one or more adequate legal action
against the officers, where they are solvent, or other remedies.[25]
The appointment of a receiver for a going corporation is a last resort remedy, and
should not be employed when another remedy is available. Relief by receivership is
an extraordinary remedy and is never exercised if there is an adequate remedy at
law or if the harm can be... prevented by an injunction or a restraining order. Bad
judgment by directors, or even unauthorized use and misapplication of the
company's funds, will not justify the appointment of a receiver for the corporation if
appropriate relief can otherwise be had
The fact that the President of the LCP needs the concurrence of only two other
directors to authorize the release of surplus funds plainly contradicts the conclusion
of conspiracy among the presently 11-man board. Neither does the fact that the
Board of Directors of the
LCP prepares the annual budget and the annual auditing of properties of the LCP
justify the conclusion that the alleged acts of respondent Batong was done in concert
with the other directors. There should have been evidence that such dissipation took
place with the... knowledge and express or implied consent of most or the entire
board. Good faith is always presumed.[27] As it is the obligation of one who alleges
bad faith to prove it, so should he prove that such bad faith was shared by all
persons to whom... he attributes the same.
G.R. No. 123552 February 27, 2003
Twin Towers Condominium Corp. v. CA

Subject: Corporation Law

Facts:
Twin Towers Condominium Corp. (P) is a non-stock corporation organized for the sole purpose of holding title to
and managing the common areas of Twin Towers Condominium. ALS Management & Development Corp. (R) is a
registered owner of Unit 4-A wherein its pres. Litonjua occupies therein. P collects from all its members quarterly
assessments and dues as authorized by its Master Deed and its By-Laws. R failed to pay assessments and dues
starting 1986 up to the 1st quarter of 1988. P claimed against both ALS and Litonjua P118,923.20 as unpaid
assessments and dues. R claims that it is the corp. & not Litonuja who is liable and claims damages against P’s
act of preventing usage of facilities. The SEC Hearing Officer ordered P to pay Litonjua moral and exemplary
damages for maliciously including Litonjua’s name in the list of delinquent unit owners and for impleading him
as R but ordered the latter to pay the assessments and dues to P. The SEC en banc nullified the award of
damages and attorney’s fees to Litonjua on the ground that the SEC had no jurisdiction over Litonjua.

The SEC en banc held that there is no intracorporate relationship between P and Litonjua who is not the registered
owner of the Unit & not a member of P and P can’t raise corp. veil doctrine. Specifically, Rule 26.3 of P’s house
rules expressly authorize denial of the use of condominium facilities to delinquent members. P justifies such by
invoking Section 36, paragraph 11 of the Corporation Code which grants every corporation the power "to exercise
such powers as may be essential or necessary to carry out its purpose or purposes as stated in its Articles of
Incorporation." P claims that there is here implied the power to enact such measures as may be necessary to carry
out the provisions of the Articles of Incorporation, By-Laws and Master Deed to deal with delinquent members. R
assail the validity of House Rule 26.3 alleging that it is ultra vires so it claims it can validly deduct the value of the
services withheld from the assessments and dues since it was barred from using the Condominium facilities for
which the assessments and dues were being collected.

Issue:
Whether P House Rule 26.3 is Ultra Vires.

Ruling:
No. The Master Deed empowers P to enforce the provisions of the Master Deed in accordance with P’s By-Laws
and expressly authorizes P to exercise all powers granted to the management body by the Condominium Act,
Articles of Incorp. & By-Laws, the Master Deed, and the Corporation Code under the Sec. 9 (a) (1) & (3) of the
Condomium Act. P’s By-Laws expressly authorize P’s Board of Directors to promulgate rules and regulations on
the use and enjoyment of the common areas. P would be unable to carry out its main purpose of maintaining the
Condominium common areas and facilities if members refuse to pay their dues and yet continue to use these
areas and facilities. To impose a temporary ban on the use of the common areas and facilities until the
assessments and dues in arrears are paid is a reasonable measure that P may undertake to compel the prompt
payment of assessments and dues.