CIR vs. THE CLUB FILIPINO, INC.

DE CEBU
FACTS:
The "Club Filipino, Inc. de Cebu," is a civic corporation
organized under the laws of the Philippines with an original
authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00. Neither in the
articles or by-laws is there a provision relative to dividends
and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts,
shall be donated to a charitable Philippine Institution in Cebu.
The Club owns and operates a club house, a bowling
alley, a golf course (on a lot leased from the government),
and a bar-restaurant where it sells wines and liquors, soft
drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club is operated
mainly with funds derived from membership fees and dues.
Whatever profits it had, were used to defray its overhead
expenses and to improve its golf-course. In 1951. as a result
of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club
declared stock dividends; but no actual cash dividends were
distributed to the stockholders. In 1952, a BIR agent
discovered that the Club has never paid percentage tax on
the gross receipts of its bar and restaurant, although it
secured B-4, B-9(a) and B-7 licenses. In a letter dated
December 22, 1852, the Collector of Internal Revenue
assessed against and demanded from the Club certain
amount of tax. The Club wrote the Collector, requesting for
the cancellation of the assessment. The request having been
denied, the Club filed the instant petition for review.
ISSUE:

Whether or not the respondent Club is not non-stock

corporation to be liable for the payment of the sum of
12,068.84, as fixed and percentage taxes and surcharges
prescribed in sections 182, 183 and 191 of the Tax Code,
under which the assessment was made, in connection with
the operation of its bar and restaurant.
RULING:
NO. Having found as a fact that the Club was organized to
develop and cultivate sports of all class and denomination,
for the healthful recreation and entertainment of its
stockholders and members; that upon its dissolution, its
remaining assets, after paying debts, shall be donated to a
charitable Philippine Institution in Cebu; that it is operated
mainly with funds derived from membership fees and dues;
that the Club's bar and restaurant catered only to its
members and their guests; that there was in fact no cash
dividend distribution to its stockholders and that whatever
was derived on retail from its bar and restaurant was used to
defray its overall overhead expenses and to improve its golfcourse (cost-plus-expenses-basis), it stands to reason that
the Club is not engaged in the business of an operator of bar
and restaurant.
The facts that the capital stock of the respondent Club
is divided into shares, does not detract from the finding of
the trial court that it is not engaged in the business of
operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its
object or purpose, as stated in its articles and by-laws. It is a
familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business
prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation.

corporation because although it has a capital stock divided

into no par value shares, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders.

Republic v. City of Paranaque

Facts:
PRA which used to be PEA is a government corporation
created under presidential decree for the purpose of
performing reclamation activities. PRA was able to reclaim
and obtain title of several portions of the foreshore and
offshore areas of Manila Bay, including those located in
Paraaque City. Sometime in 2003, Paranaque City Treasurer
issued a warrant of levy on some of these reclaimed
properties based on the assessment of delinquent real
property taxes. RTC rendered a decision that PRA is a GOCC
and is therefore not exempt from payment of real property
taxes. Hence, PRA filed a petition for certiorari. PRA alleged
that they are not GOCC as they are not stock corporation as
they are not authorized to distribute dividends and allotment
of surplus and profits to its stockholders. They are neither
non-stock because it has no members and it is not organized
for charitable, religious, educational, and the like as provided
in Section 88 of the Corporation Code.
Issue:
Whether PRA is a GOCC and should pay real property taxes.
Held:
PRA is not a GOCC because it is neither a stock nor a nonstock corporation. It cannot be considered as a stock

PRA cannot be considered a non-stock corporation either

because it does not have members. A non-stock corporation
must have members. Moreover, it was not organized for any
of the purposes mentioned in Section 88 of the Corporation
Code. Specifically, it was created to manage all government
reclamation projects.
Furthermore, Section 16, Article XII of the Constitution states
the government-owned or controlled corporations created
through special charters are those that meet the twin
requirement of common good and economic viability which
was lengthily discussed in the case of Manila International
Airport Authority v. Court of Appeals.
PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate
commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate
powers and performing an essential public service pursuant
to Section 2(10) of the Introductory Provisions of the
Administrative Code. Being an incorporated government
instrumentality, it is exempt from payment of real property
tax.

Paranaque City claim that MIAA is a government owned and

controlled corporation therefore not exempted to real estate
tax.
Issues:
Whether or not MIAA is an instrumentality of the government
and not a government owned and controlled corporation and
as such exempted from tax. Whether or not the land and
buildings of MIAA are part of the public dominion and thus
cannot be the subject of levy and auction sale.
Manila International Airport Authority vs CA
Facts:
Manila International Airport Authority (MIAA) is the operator
of the Ninoy International Airport located at Paranaque City.
The Officers of Paranaque City sent notices to MIAA due to
real estate tax delinquency. MIAA then settled some of the
amount. When MIAA failed to settle the entire amount, the
officers of Paranaque city threatened to levy and subject to
auction the land and buildings of MIAA, which they did. MIAA
sought for a Temporary Restraining Order from the CA but
failed to do so within the 60 days reglementary period, so the
petition was dismissed. MIAA then sought for the TRO with
the Supreme Court a day before the public auction, MIAA was
granted with the TRO but unfortunately the TRO was received
by the Paranaque City officers 3 hours after the public
auction.
MIAA claims that although the charter provides that the title
of the land and building are with MIAA still the ownership is
with the Republic of the Philippines. MIAA also contends that
it is an instrumentality of the government and as such
exempted from real estate tax. That the land and buildings of
MIAA are of public dominion therefore cannot be subjected to
levy and auction sale. On the other hand, the officers of

Ruling:
Under the Local government code, government owned and
controlled corporations are not exempted from real estate
tax. MIAA is not a government owned and controlled
corporation, for to become one MIAA should either be a stock
or non stock corporation. MIAA is not a stock corporation for
its capital is not divided into shares. It is not a non stock
corporation since it has no members. MIAA is an
instrumentality of the government vested with corporate
powers and government functions.
Under the civil code, property may either be under public
dominion or private ownership. Those under public dominion
are owned by the State and are utilized for public use, public
service and for the development of national wealth. The ports
included in the public dominion pertain either to seaports or
airports. When properties under public dominion cease to be
for public use and service, they form part of the patrimonial
property of the State.
The court held that the land and buildings of MIAA are part of
the public dominion. Since the airport is devoted for public
use, for the domestic and international travel and
transportation. Even if MIAA charge fees, this is for support of
its operation and for regulation and does not change the

character of the land and buildings of MIAA as part of the

public dominion. As part of the public dominion the land and
buildings of MIAA are outside the commerce of man. To
subject them to levy and public auction is contrary to public
policy. Unless the President issues a proclamation
withdrawing the airport land and buildings from public use,
these properties remain to be of public dominion and are
inalienable. As long as the land and buildings are for public
use the ownership is with the Republic of the Philippines.

not consider its total revenues, because its free services to

patients was P218,187,498 or 65.20% of its 1998 operating
income (i.e., total revenues less operating expenses) of
P334,642,615.8 St. Lukes also claimed that its income does
not inure to the benefit of any individual.
St. Lukes maintained that it is a nonstock and nonprofit
institution for charitable and social welfare purposes under
Section 30(E) and (G) of the NIRC. It argued that the making
of profit per se does not destroy its income tax exemption.
Issue:
The sole issue is whether St. Lukes is liable for deficiency
income tax in 1998 under Section 27(B) of the NIRC, which
imposes a preferential tax rate of 10% on the income of
proprietary nonprofit hospitals.
Ruling:

CIR v. St. Lukes Medical Center

Facts:
St. Lukes is a non-profit non-stock corporation. The BIR
assessed its deficiency taxes. St. Lukes filed an
administrative protest. The BIR argued before the CTA that
Section 27(B) of the NIRC, which imposes a 10% preferential
tax rate on the income of proprietary nonprofit hospitals,
should be applicable to St. Lukes.
The BIR claimed that St. Lukes was actually operating for
profit in 1998 because only 13% of its revenues came from
charitable purposes. Moreover, the hospitals board of
trustees, officers and employees directly benefit from its
profits and assets. St. Lukes had total revenues of
P1,730,367,965 or approximately P1.73 billion from patient
services in 1998.7 St. Lukes contended that the BIR should

We hold that Section 27(B) of the NIRC does not remove the
income tax exemption of proprietary nonprofit hospitals
under Section 30(E) and (G). Section 27(B) on one hand, and
Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption. The
effect of the introduction of Section 27(B) is to subject the
taxable income of two specific institutions, namely,
proprietary nonprofit educational institutions36 and
proprietary nonprofit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate
under the last paragraph of Section 30 in relation to Section
27(A)(1). Section 27(B) of the NIRC imposes a 10%
preferential
tax rate on the income of (1) proprietary nonprofit
educational institutions and (2) proprietary nonprofit
hospitals. The only qualifications for hospitals are that they

must be proprietary and nonprofit. Proprietary means

private, following the definition of a proprietary educational
institution as any private school maintained and
administered by private individuals or groups with a
government permit. Nonprofit means no net income or
asset accrues to or benefits any member or specific person,
with all the net income or asset devoted to the institutions
purposes and all its activities conducted not for profit. Nonprofit does not necessarily mean charitable.
There is no dispute that St. Lukes is organized as a nonstock
and nonprofit charitable institution. However, this does not
automatically exempt St. Lukes from paying taxes. This only
refers to the organization of St. Lukes. Even if St. Lukes
meets the test of charity, a charitable institution is not ipso
facto tax exempt. To be exempt from real property taxes,
Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property actually, directly and
exclusively for charitable purposes. To be exempt from
income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be organized and operated
exclusively for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that
the institution be operated exclusively for social welfare.

are exempt from the payment of premium tax and DST. For
this reason, Sunlife filed with the CIR an administrative claim
for tax credit of its alleged erroneously paid premium tax and
DST for the aforestated tax periods.
CIR argued that Sun Life ought to have registered, foremost,
with the Cooperative Development Authority before it could
enjoy the exemptions from premium tax and DST extended
to purely cooperative companies or associations under
[S]ections 121 and 199 of the Tax Code. For its failure to
register, it could not avail of the exemptions prayed for.
Moreover, the CIR alleged that Sun Life failed to prove that
ownership of the company was vested in its members who
are entitled to vote and elect the Board of Trustees among
[them]. The CIR further claimed that change in the 1997 Tax
Code subjecting mutual life insurance companies to the
regular corporate income tax rate reflected the legislatures
recognition that these companies must be earning profits.
Issue:
The Tax Court erred in granting the refund[,] because
respondent does not fall under the exception provided for
under Section 121 (now 123) of the Tax Code to be exempted
from premium tax and DST and be entitled to the refund.
Ruling:

Republic v. Sunlife
Facts:
Sunlife is a mutual life insurance company. In 1997, it filed
and paid with the BIR its premium tax return and
documentary stamp tax declaration returns. Subsequently,
there was a case wherein a court decided that mutual life
insurance companies are purely cooperative companies and

Without a doubt, respondent is a cooperative engaged in a

mutual life insurance business. First, it is managed by its
members. Both the CA and the CTA found that the
management and affairs of respondent were conducted by its
memberpolicyholders. 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. On the basis of its bylaws, its ownership has been

vested in its memberpolicy holders who are each entitled to
one vote and who, in turn, elect from among themselves the
members of its board of trustees. Being the governing body
of a nonstock corporation, the board exercises corporate
powers, lays down all corporate business policies, and
assumes responsibility for the efficiency of management.
Second, it is operated with money collected from its
members. Since respondent is composed entirely of
members who are also its policyholders, all premiums
collected obviously come only from them. Third, it is licensed
for the mutual protection of its members, not for the profit of
anyone.
Verily, a mutual life insurance corporation is a cooperative
that promotes the welfare of its own members. It does not
operate for profit, but for the mutual benefit of its memberpolicy holders. They receive their insurance at cost, while
reasonably and properly guarding and maintaining the
stability and solvency of the company.
It does not follow that because respondent is registered as a
nonstock corporation and thus exists for a purpose other
than profit, the company can no longer make any profits.41
Earning profits is merely its secondary, not primary, purpose.
In fact, it may not lawfully engage in any business activity for
profit, for to do so would change or contradict its nature42 as
a nonprofit entity.43 It may, however, invest its corporate
funds in order to earn additional income for paying its
operating expenses and meeting benefit claims. Any excess
profit it obtains as an incident to its operations can only be
used, whenever necessary or proper, for the furtherance of
the purpose for which it was organized.
Registration is not necessary.

Tan v. Sycip
Facts: Petitioner Grace Christian High School (GCHS) is a
nonstock, nonprofit educational corporation with fifteen (15)
regular members, who also constitute the board of trustees.4
During the annual members meeting there were only eleven
(11) living membertrustees, as four (4) had already died. Out
of the eleven, seven (7) attended the meeting through their
respective proxies. The meeting was convened and chaired
by Atty. Sabino Padilla, Jr. over the objection of Atty. Antonio
C. Pacis, who argued that there was no quorum. In the
meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia
Khoo, and Judith Tan were voted to replace the four deceased
membertrustees. When the controversy reached the
Securities and Exchange Commission (SEC), petitioners
maintained that the deceased membertrustees should not be
counted in the computation of the quorum because, upon
their death, members automatically lost all their rights
(including the right to vote) and interests in the corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6,
1998 meeting null and void for lack of quorum. She held that
the basis for determining the quorum in a meeting of
members should be their number as specified in the articles
of incorporation, not simply the number of living members.
The SEC en banc denied the appeal of petitioners and
affirmed the Decision of the hearing officer in toto. It found to
be untenable their contention that the word members, as
used in Section 52 of the Corporation Code, referred only to
the living members of a nonstock corporation
Issue: Whether or not in NONSTOCK corporations, dead
members should still be counted in determination of quorum
for purposed of conducting the Annual Members Meeting
Ruling:

The quorum in a members meeting is to be reckoned as the

actual number of members of the corporation, the next
question to resolve is what happens in the event of the death
of one of them.
Membership in and all rights arising from a nonstock
corporation are personal and nontransferable, unless the
articles of incorporation or the bylaws of the corporation
provide otherwise. In other words, the determination of
whether or not dead members are entitled to exercise their
voting rights (through their executor or administrator),
depends on those articles of incorporation or bylaws. Under
the ByLaws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member.
Section 91 of the Corporation Code further provides that
termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of
incorporation or the bylaws. Applying Section 91 to the
present case, we hold that dead members who are dropped
from the membership roster in the manner and for the cause
provided for in the ByLaws of GCHS are not to be counted in
determining the requisite vote in corporate matters or the
requisite quorum for the annual members meeting. With
remaining members, the quorum in the present case should
be 6. Therefore, there being a quorum, the annual members
meeting, conducted with six members present, was valid.
The ByLaws of GCHS prescribed the specific mode of filling
up existing vacancies in its board of directors that is, by a
majority vote of the remaining members of the board. While
a majority of the remaining corporate members were
present, however, the election of the four trustees cannot
be legally upheld for the obvious reason that it was held in an
annual meeting of the members, not of the board of trustees.
We are not unmindful of the fact that the members of GCHS
themselves also constitute the trustees, but we cannot
ignore the GCHS bylaw provision, which specifically

prescribes that vacancies in the board must be filled up by

the remaining trustees. In other words, these remaining
membertrustees must sit as a board in order to validly elect
the new ones. Indeed, there is a welldefined distinction
between a corporate act to be done by the board and that by
the constituent members of the corporation. The board of
trustees must act, not individually or separately, but as a
body in a lawful meeting. On the other hand, in their annual
meeting, the members may be represented by their
respective proxies, as in the contested annual members
meeting of GCHS.
Ao-As v. CA
Facts: Lutheran Church is a religious organization with a
governing body was originally composed of 7 directors and
they later on became 11 due to the splitting of districts and
this was done through a resolutions pursuant to Section 2 of
Article 7 of the LCP By-Laws which provides that: "LCP in
convention may form additional districts as it sees fit".
The board managed the LCP without any challenge from the
membership until several years later when certain
controversies arose involving the resolutions of the Board
terminating the services of the LCP business manager and
corporate treasurer since 1979, Mr. Eclesio Hipe which
sparked a series of intracorporate complaints and led to the
formation of two groups, the Batong group which were the
duly elected board of LCP and the Ao-as group which served
in various capacities in LCP.
These two groups filed different actions and petitions against
each other and both conducted their own elections. When the
case reached the CA, it rendered a decision in favor of
Batong group.

Issue: Whether the Court of Appeals erred in declaring as

invalid the manner of elections of the Board of Directors of
the LCP as provided in its By-Laws.

bona fide directors. Even the election of LCP officers in the

SEC-SICD sponsored national convention of the LCP must be
considered as invalid.2

Ruling: The Court notes that the LCP By-Laws provide for a
special procedure for the election of its directors. This was
the procedure followed by both the [Batong group] and the
[Ao-As group]. "Section 2. Composition of the Board of
Directors of LCP.

In any case, the stipulation in the By-Laws is not contrary to

the Corporation Code. Section 89 of the Corporation Code
pertaining to non-stock corporations provides that "(t)he right
of the members of any class or classes (of a non-stock
corporation) to vote may be limited, broadened or denied to
the extent specified in the articles of incorporation or the bylaws." This is an exception to Section 6 of the same code
where it is provided that "no share may be deprived of voting
rights except those classified and issued as preferred or
redeemable shares, unless otherwise provided in this Code."
The stipulation in the By-Laws providing for the election of
the Board of Directors by districts is a form of limitation on
the voting rights of the members of a non-stock corporation
as recognized under the aforesaid Section 89. Section 24,
which requires the presence of a majority of the members
entitled to vote in the election of the board of directors,
applies only when the directors are elected by the members
at large, such as is always the case in stock corporations by
virtue of Section 6.

a. The Board of Directors shall be composed of the President

of LCP and the President and lay representative of each
District.
b. Newly elected members of the LCP Board of Directors shall
assume their positions immediately after LCP conventions or
the October LCP Board of Directors meeting in the year in
which they are elected."
However, Section 24 of the Corporation Code provides that
"[a]t all elections of directors or trustees, there must be
present, either in person or by representative to act by
written proxy, x x x if there be no capital stock, a majority of
the members entitled to vote."
It is clear from Section 24 that in the election of the trustees
of a non-stock corporation, it is necessary that at least "a
majority of the members entitled to vote" must be present at
the meeting held for the purpose. It follows that trustees
cannot be elected by zones or regions, each zone or region
electing independently and separately a member of the
board of trustees of the corporation, such method being
violative of Section 24. (SEC Opinions, Jan. 30, 1969, April 1,
1981). The election of the directors by district or regions as
provided in the LCP By-Laws where a majority of the
members are not present is inconsistent with the Corporation
[Code] and must be struck down as invalid. Consequently,
the directors elected by district cannot be considered as

Valley Golf v. Caram

Facts:
In 1961, Caram purchased and paid in full one share in the
capital stock of Valley Golf, a non-stock non profit
corporation. However, starting 1980 till 1987, Caram had not
paid his monthly membership dues and for this reason Valley
Golf sent several letters informing him to settle his
delinquent account and should he fail to do so Valley Golf
would exercise its right to sell the Golf Share to satisfy the
outstanding amount, again pursuant to the provisions of the

bylaws. The golf share was sold. It turned out that Caram
died in 1986 so when his heirs who were unaware of the
controversy over the golf share, initiated an intestate
proceeding which included the golf share as part of the
estate. When they learned that it was sold, they filed an an
action for reconveyance with damages.
Valley golf argues that that by virtue of the bylaw provisions
a lien is created on the shares of its members to ensure
payment of dues, charges and other assessments on the
members.
Issue:
Whether a nonstock corporation seize and dispose of the
membership share of a fullypaid member on account of its
unpaid debts to the corporation when it is authorized to do so
under the corporate bylaws 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 nonstock 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 bylaws.
On the basis of Section 91, the Supreme Court ruled that the
right of a non-stock corporation such as Valley Golf to expel a

member through the forfeiture of the Golf Share may be

established in the by-laws alone, as is the situation in this
case. However, the Supreme Court proceed to declare the
sale as invalid. The Supreme Court 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.

Arroyo v. Rosal Homeowners

Facts:
Petitioners Jasmin Alipato, Primitivo Belandres, Nestor
Leduna, Anita de los Reyes, and Gina Caballero were among
the actual occupants of a parcel of land located in Bacolod
City. They occupied the land by mere tolerance of the
landowner long before it was acquired by PCIB. To evade
eviction and in order to avail of the benefits of acquiring land
under the Community Mortgage Program (CMP) of the
National Home Mortgage Finance Corporation (NHMFC), the
said occupants formally organized themselves into an
association, the Rosal Homeowners Association, Inc. (RHAI), a
non-stock non-profit organization. RHAI obtained a loan from
NHMFC and were able to acquire the lot from PCIB.
To fully avail of the benefits of the CMP, the NHMFC required
the RHAI members to sign the Lease Purchase Agreement
(LPA) and to maintain their membership in good standing in
accordance with the provisions of the By-Laws of RHAI.
Alipato, et al., however, refused to sign the LPA as a
precondition under the CMP. They likewise failed to attend
the regular meetings and pay their membership dues as
required by the RHAI By-Laws. As a result, RHAI approved a
resolution to enforce the eviction of Alipato, et al. and
recover possession of the portions of land which they were
occupying. Pursuant to the said resolution, RHAI, through
written letters of demand, called for Alipato, et al. to vacate
the premises and deliver possession thereof to RHAI. Alipato,
et al. ignored the demand. Thus, RHAI filed an action for
recovery of possession of the subject property before the
RTC.
Both the RTC and CA ruled in favor of RHAI. Hence, this
instant petition.

Alipato, et al. insist that they cannot be ejected from the

property since they are the actual occupants thereof even
before the landowner acquired the same. They also averred
that they were denied due process when they were expelled
from RHAI without notice.
Ruling:
The records of this case disclose that there was a board
resolution issued for the expulsion of the erring or defaulting
members of RHAI. The latter were duly informed that they
were already expelled as members of the association through
notices sent to them. These notices, however, were refused
to be received by petitioners. Their expulsion was made
pursuant to the By-Laws of RHAI as shown by the testimony
of Mildred de la Pea (dela Pea), President, on crossexamination by the counsel for petitioners.
The testimony during the trial strongly indicates that
petitioners were duly expelled from RHAI. There is nothing
irregular when they were expelled for non-payment of dues
and for non-attendance of meetings. This is expressly
sanctioned by the By-Laws of RHAI.
Apparently, petitioners refusal to sign and submit the LPA,
the most important requirement of the NHMFC for the
acquisition of the land, disqualified them as loan
beneficiaries. As such, they acquire no better rights than
mere occupants of the subject land.
Petitioners presence as non-paying occupants had caused
RHAI to experience deficiency in the payment of the monthly
amortizations for the land to the detriment of the other RHAI
members who had been complying with the requirements.
This was the reason why RHAI filed a suit against them to
cause their eviction from their present occupancy and to
place, in their stead, substitutes who would be willing to
comply with the requirements. Before the case was filed,

RHAI made formal demands to petitioners to vacate the lots

they were occupying. As testified to by Jeanette Deslate,
Regional Director (Region IV) of the NHMFC.

Calatagan Golf Club v. Sixto Clemente

Facts: Calatagan Golf Club sold the golf share of Clemente
sometime January 1993 after Clemente allegedly stop paying
its membership dues. Clemente learned of the sale of his
share only in November of 1997. He filed a claim with the
SEC seeking the restoration of his shareholding in Calatagan
with damages.
On 15 November 2000, the SEC rendered a decision
dismissing Clementes 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 Clementes
claim, filed four (4) years after the sale, had already
prescribed. The SEC further held that Calatagan had
complied with all the requirements for a valid sale of the
subject share, Clemente having failed to inform Calatagan
that the address he had earlier supplied was no longer his
address. 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.
Ruling: 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 members debts. Under Section
91 of the Corporation Code, membership in a nonstock
corporation shall be terminated in the manner and for the
causes provided in the articles of incorporation or the bylaws. The Bylaw provisions are elaborate in explaining the
manner and the causes for the termination of membership in
Calatagan, through the execution on the lien of the share.
The Court is satisfied that the ByLaws, as written, affords due
protection to the member by assuring that the member
should be notified by the Secretary of the looming execution
sale that would terminate membership in the club. In
addition, the ByLaws guarantees that after the execution
sale, the proceeds of the sale would be returned to the
former member after deducting the outstanding obligations.
If followed to the letter, the termination of membership under
this procedure outlined in the ByLaws would accord with
substantial justice. 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
faade that would facilitate Calatagans sale of the share. But
then, the bad faith on Calatagans part is palpable. As found
by the Court of Appeals, Calatagan very well knew that
Clementes postal box to which it sent its previous letters had
already been closed, yet it persisted in sending that final
letter to the same postal box. What for? Just for the exercise,
it appears, as it had known very well that the letter would
never actually reach Clemente.
Calatagans bad faith and failure to observe its own By-Laws
had resulted not merely in the loss of Clementes 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 Clementes 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 Phimcos.
The utter bad faith exhibited by Calatagan brings into
operation Articles 19, 20 and 21 of the Civil Code 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.
DULAY ENTERPRISES, INC v. CA
FACTS:
Manuel R. Dulay Enterprises, Inc, a domestic corporation with
the following as members of its Board of Directors: Manuel R.
Dulay with 19,960 shares and designated as president,
treasurer and general manager, Atty. Virgilio E. Dulay with 10
shares and designated as vice-president; Linda E. Dulay with
10 shares; Celia Dulay-Mendoza with 10 shares; and Atty.
Plaridel C. Jose with 10 shares and designated as secretary. It
owned a property covered by TCT No. 17880 and known as

Dulay Apartment consisting of sixteen (16) apartment units

on a six hundred eighty-nine (689) square meters lot, more
or less, located at Seventh Street (now Buendia Extension)
and F.B. Harrison Street, Pasay City.
Manuel Dulay by virtue of Board Resolution petitioner
corporation sold the subject property to private respondents
spouses Maria Theresa and Castrense Veloso in the amount
of P300,000.00 as evidenced by the Deed of Absolute Sale.
Subsequently, private respondent Maria Veloso, without the
knowledge of Manuel Dulay, mortgaged the subject property
to private respondent Manuel A. Torres for a loan of
P250,000.00 which was duly annotated. Upon the failure of
private respondent Maria Veloso to pay private respondent
Torres, the subject property was sold on April 5, 1978 to
private respondent Torres as the highest bidder in an
extrajudicial foreclosure sale as evidenced by the Certificate
of Sheriff's Sale issued on April 20, 1978. Torres filed an
Affidavit of Consolidation of ownership and a certificate of
title was subsequently issued to private respondent Manuel
Torres.
Virgilio Dulay then sought for the annulment of the decision
of the court in favor of Torres contending that the sale
between Dulay and Veloso has no binding effect on the
corporation since the Board resolution 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:
Whether or not the doctrine of piercing the veil of corporate
entity is applicable.
RULING:

NO. Petitioner Corporation is classified as a close

corporation and consequently a board resolution authorizing
the sale or mortgage of the subject property is not necessary
to bind the corporation for the action of its president. 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,
petitioner Virgilio Dulay failed to do.
To begin with, Virgilio is an incorporator and one of the board
of directors designated at the time of the organization of
Manuel R. Dulay Enterprises, Inc. In ordinary parlance, the
said entity is loosely referred to as a family corporation. The
nomenclature, if imprecise, however, fairly reflects the
cohesiveness of a group and the parochial instincts of the
individual members of such an aggrupation of which Manuel
R. Dulay Enterprises, Inc. is typical: fourfifths of its
incorporators being close relatives namely, three (3) children
and their father whose name identifies their corporation
(Articles of Incorporation of Manuel R. Dulay Enterprises, Inc.,
Exh. 31A).

San Juan Structural and Steel Fabricators, Inc.'s amended

complaint alleged that on 14 February 1989, plaintiffappellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of
land. On March 1, 1989. Mr. Andres T. Co, president of
plaintiff-appellant corporation, wrote a letter to defendantappellee Motorich Sales Corporation requesting for a
computation of the balance to be paid: that said letter was
coursed through 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 Motorich Sales Corporation were
supposed to meet in the office of plaintiff-appellant but
defendant-appellee's treasurer, Nenita Lee Gruenberg, did
not appear; that defendant-appellee Motorich Sales
Corporation 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.
Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and
Chairman of Motorich did not sign the agreement adverted to
in par. 3 of the amended complaint that Mrs. Gruenbergs
signature on the agreement (ref: par. 3 of Amended
Complaint) is inadequate to bind Motorich. Petitioner
contends that being solely owned by the Spouses Gruenberg,
the company can be treated as a close corporation which can
be bound by the acts of its principal stockholder who needs
no specific authority.

SAN JUAN STRUCTURAL vs. COURT OF APPEALS, et.al.

FACTS:

ISSUE:

May a corporate treasurer, by herself and without any

authorization from the board of directors, validly sell a parcel
of land owned by the corporation? May the veil of corporate
fiction be pierced on the mere ground that almost all of the
shares of stock of the corporation are owned by said
treasurer and her husband?.
RULING:
True, Gruenberg and Co signed on February 14, 1989, the
Agreement, according to which a lot owned by Motorich Sales
Corporation was purportedly sold. Such contract, however,
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.
First, petitioner itself concedes having raised the issue
belatedly, not having done so during the trial, but only when
it filed its sur-rejoinder before the Court of Appeals. Thus,
this Court cannot entertain said issue at this late stage of the
proceedings. It is well-settled the points of law, theories and
arguments not brought to the attention of the trial court need

not be, and ordinarily will not be, considered by a reviewing

court, as they cannot be raised for the first time on appeal.
Allowing petitioner to change horses in midstream, as it
were, is to run roughshod over the basic principles of fair
play, justice and due process.
The articles of incorporation34 of Motorich Sales Corporation
does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of
shares is restricted in favor of any stockholder or of the
corporation, or (3) listing its stocks in any stock exchange or
making a public offering of such stocks is prohibited. From its
articles, it is clear that Respondent Motorich is not a close
corporation.35 Motorich does not become one either, just
because Spouses Reynaldo and Nenita Gruenberg owned
99.866% of its subscribed capital stock. The [m]ere
ownership by a single stockholder or by another corporation
of all or nearly all of the capital stock of a corporation is not
of itself sufficient ground for disregarding the separate
corporate personalities.36 So, too, a narrow distribution of
ownership does not, by itself, make a close corporation.