Corpo Comp8

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10. Inspect Corporate Records

Sec. 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully preserve at its principaloffice a record of all business transactions and minutes of all meetings of stockholders or members, or of the board ofdirectors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, thenotice given, whether the meeting was regular or special, if special its object, those present and absent, and every actdone or ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the time whenany director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar

demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. Theprotest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on hisdemand.

The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspectionby any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he maydemand, writing, for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of thecorporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code,shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of anoffense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to aresolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed

upon the directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any actionunder this section that the person demanding to examine and copy excerpts from the corporation's records andminutes has improperly used any information secured through any prior examination of the records or minutes of suchcorporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making hisdemand.

Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept a recordof all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock forwhich subscription has been made, and the date of payment of any installment; a statement of every alienation, sale ortransfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws mayprescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stocktransfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours onbusiness days.

No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stockcorporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and ExchangeCommission and pays a fee as may be fixed by the Commission, which shall be renewable annually: Provided, That astock corporation is not precluded from performing or making transfer of its own stocks, in which case all the rules andregulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be applicable.(51a and 32a; B. P. No. 268.)

Afirca v PCGG

FACTS:

These cases were consolidated since they are related to the sequestration of the eastern TelecommunicationsPhilippines, Inc. (ETPI) in 1986 by the Presidential Commission on Good Government (PCGG) and the consequent filing

by the PCGG in 1987 of an action for reconveyance. Reversion, accounting and restitution of the alleged ill-gotten ETPIshares and damages in the Sandiganbayan. Subsequently, during the annual stockholders meeting in 1988, EduardoVillanueva as PCGG nominee, Roman Mabanta, Jr and Eduardo de los Angeles as nominees of the foreign investors,Cable and Wireless Ltd, and Jose Africa (who was absent) were elected as members of the board of directors (BOD).

Villanueva, in an organizational meeting was elected as president and general manager while Desuasido, Velasco andPayos were elected as acting corporate officers. The nomination and election of PCGG nominees/ designees to the ETPIBoard of Directors, as well as the election of its new officers, triggered a chain of contentious proceedings before theSandiganbayan and the Supreme Court between the members of the ETPI Board and its stockholders, on the one hand,and the PCGG's nominees/designees elected ETPI Board, on the other hand.

GR No. 83831


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Victor Africa, who claims to be an employee of ETPi as VP, general counsel, corporate secretary and special assistant tothe chairman and president filed a petition for injunction seeking to enjoin the PCGG and its nominees to the board ofdirectors and the newly-installed officers of ETPI from implementing their alleged illegal, invalid and immoral act ofousting him from his offices and positions at the ETPi pending determination of whether they have validly, legally andmorally assumed their supposed positions and offices as directors and/or officers of ETPI. He claims he was forciblytaken out of his office.

GR Nos. 85597 and 85621Jose Africa, Nieto, and Valdez, allegedly the registered stockholders of the ETPI instituted before the Sandiganbayan acomplaint for injunction and damages with prayer for a TRO seeking to enjoin Villanueva from acting as Director,President and/or General Manager of ETPI as well as to stop the PCGG from directly or indirectly interfering with themanagement of ETPI.

GR No. 85594

The same plaintiffs above as erstwhile members of the BOD of ETPI instituted before the Sandiganbayan another actionfor injunction and damages where they questioned the acts and orders of the PCGG leading to the election of thereindefendants Gutierrez, Javier, Payos, Roxas, Velasco, and Cable and Wireless representatives Mabanta and de los Angelesto the ETPI BOD. Claiming to tbe the duly elected members of the ETPI BOD, plaintiffs prayed that defendants beremoved from their ETPI positions, and that an inunction be issued perpetually restraining the PCGG from electing andsupporting the defendants in their ETPI roles

While motions to dismiss were pending and prior to the hearing set for the issuance of a TRO, the Clerk of Court of theSandiganbayan issued upon the request of the counsel of Jose L. Africa date October 18, 1988, a subpoena duces tecumand ad testificandum ordering the PCGG or its representatives to appear and testify before the Sandiganbayan duringthe hearing on November 3, 1988 at 2pm and to produce the stock and transfer book and all stubs of theoutstanding stock certificates of ETPI.

Three days later, another subpoena duces tecum was issued upon an amended request for subpoena by the samecounsel ordering Asst. SolGen Desuasido or his representative to appear before the Sandiganbayan and to produce theminutes of all meetings of the Board of Directors and Stockholders of ETPI held from January 29, 1988 todate.

The motion to quash by both the subpoenae was denied.

The PCGG and its nominees and designees filed a petition for certiorari alleging that the SB had no jurisdiction over themain action for damages since it was a suit against the State without its consent.

TOPICAL ISSUE: WON the issuance by the Sandiganbayan of the subpoena duces tecum and ad testificandum orderingthe PCGG or its representative to tesify and produce the stock and transger book, all stubs of the outstanding stockcertificates of ETPi and the minutes of all meetings of the BOD and the stockholders of ETPI held from January 29, 1988to date was valid.

HELD. YES.

In upholding therein the right of a stockholder of a sequestered company to inspect and/or examine the records of acorporation pursuant to Section 74 of the Corporation Code, the Court found nothing in Executive Orders Nos. 1, 2 and

14, as well as in BASECO, to indicate an implied amendment of the Corporation Code, much less an implied modificationof a stockholder's right of inspection as guaranteed by Section 74 thereof. The only express limitation on the right ofinspection, according to the Court, is that (1) the right of inspection should be exercised at reasonable hours onbusiness days; (2) the person demanding the right to examine and copy excerpts from the corporate records andminutes has not improperly used any information secured through any previous examination of the records of suchcorporation; and (3) the demand is made in good faith or for a legitimate purpose.Side Issues:

1. WON the deferment of the resolution of the motions to dismiss was tainted with grave abuse of discretion. YES.

While the court has the discretion to defer the hearing and determination of a motion to dismiss if the ground thereforis not indubitable, such deferment is in excess of jurisdiction if the ground for the motion to dismiss is lack ofjurisdiction or lack of cause of action, since the allegations of the complaint are deemed admitted and the motion do


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dismiss can be resolved without waiting for trial on the merits. Villanueva is correct in asserting that his MTD must firstbe resolved before trial on the merits may be had but the SC noted that this is a mere technical victory as it will berendered moot and academic by the following ruling on the merits of the grounds raised in his MTD.

2. WON the Sandiganbayan has jurisdiction. YESThe Sandiganbayan has exclusive and original jurisdiction in civil or criminal cases involving ill-gotten wealth underExecutive Order No. 14, as well as incidents arising from, incidental or related to such cases, subject to review on

certiorari exclusively by the Supreme Court. Since the injunctive suits filed by Jose L. Africa, et al. before theSandiganbayan stemmed from incidents arising from, incidental and related to the partial sequestration of ETPI, thedirective enunciated in the Pea case that "those who wish to question or challenge the Commission's acts or orders insuch cases must seek recourse in the same court, the Sandiganbayan, which is vested with exclusive and originaljurisdiction," applies to the instant case.

Neither would the principle of immunity of the State from suit invoked by the PCGG divest the Sandiganbayan of itsjurisdiction as while there were claims for damages alleged in the complaints in both cases, the same are, however,directed against the individual defendants in their personal capacities for having allegedly acted without legal authorityand in a manner adverse to the interests of ETPI. The doctrine of state immunity from suit applies only in actionsresulting in adverse consequences on the public treasury, whether in the disbursement of funds or loss of property.

3. WON the actions are barred by res judicata because of the prior judgment in PCGG v. SEC and PCGG v.

Sandiganbayan. NO.

Res judicata does not apply because what was obviously raised and resolved by the Court was the scope and extent ofthe authority of the Sandiganbayan to issue injunctive writs on matters involving the exercise and performance of thepowers and functions of the PCGG as conservator in accordance with the ruling in BASECO vs. PCGG, et al. to prevent thedisposal and dissipation of the assets of sequestered companies or businesses.

On PCGG's insistence on the rule of bar by prior judgment, it is readily apparent that one fundamental requisite for theapplication of that doctrine ofres judicata is absent in the instant case, that is, the prior judgment or order must be ajudgment on the merits of the case. For a prior judgment to constitute a bar to a subsequent case, (1) it must be a finaljudgment or order, (2) the court rendering the same must have jurisdiction over the subject matter and over theparties, (3) it must be a judgment or order on the merits, and (4) there must be between the two cases identity of

parties, subject matter, and causes ofaction.There is no dispute that, substantially, the acts or orders of the PCGG which led to the election of the members of theboard of directors and officers of ETPI, as well as all acts done thereafter by the said board, are the incidents which gaverise to the causes of action involved in the injunction suit in SEC Case No. 3297 and the motion for injunction in CivilCase No. 0009, both of which gave rise to G.R. No. 82188. There is, accordingly, identity of the incidents upon which thecauses of action in Civil Cases Nos. 0048 and 0050 are based and those of the two cases which gave rise to G.R. No.82188. However, there is nothing, in the pronouncements of the Court in G.R. No. 82188 which finally resolved themerits of the factual issues raised therein by the opposing parties which included, among others, the alleged illegalmanner by which the meeting to elect the new board of directors was called and held on January 29, 1988; thequalification, experience and probity of those elected to the board contrary to the caveat in BASECO vs. PCGG, et al.,supra, on the substitution of directors of the board of sequestered corporations; and the alleged mismanagement of theoperations of ETPI by those elected to the board and the corporate offices by the PCGG.

Veraguth v Isabela Sugar Co.FACTS:

Eugenio Veraguth, a director and stockholder of the Isabela Sugar Company, Inc., filed this petition for mandamusdirectly with the Supreme Court against the Isabela Sugar Company, Inc., Gil Montilla, acting president of the company,and Agustin B. Montilla, secretary of the company.

Veraguth prays that:- the corporation and its officers be required within five days from receipt of notice of the petition to show cause

why they refuse to notify Veraguth as director, of the regular and special meetings of the board of directors,


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- a final and absolute writ of mandamus be issued to the corporations and its officers to notify immediately thepetitioner within the reglamentary period, of all regular and special meetings of the board of directors of theIsabela Sugar Central Company, Inc.,

- to place at his disposal at reasonable hours the minutes, documents, and books of the corporation for hisinspection as director and stockholder, and

- to issue immediately, upon payment of the fees, certified copies of any documentation in connection with saidminutes, documents, and the books of the corporation.

ISSUE:

WHETHER there was a malicious attempt to keep Director Veraguth from attending a special meeting of the board ofdirectors at which the compensation of the attorneys of the company was fixed, or WHETHER Director Veraguth, in aspirit of antagonism, has made the petition merely a pretext to cause trouble. UNDETERMINED

WHETHER a director has the unqualified rightto inspect the books and records of the corporation. YES

RATIO:

The corporation had by-laws, together with a resolution of the board of directors, providing for the holding of ordinaryand special meetings. At the time of the petition, it cannot yet be determined whether there was a malicious attempt tokeep Director Veraguth from attending a special meeting of the board of the board of directors at which thecompensation of the attorneys of the company was fixed, or whether Director Veraguth, in a spirit of antogonism, has

made this merely a pretext to cause trouble.

However, what is clear and decisive is that:- the meeting in question is in the past and has become a purely academic question;- no damage was caused to Veraguth by the action taken at the special meeting which he did not attend, since his

interests were fully protected by the Philippine National Bank; and- as to meetings in the future it is to be presumed that the secretary of the company will fulfill the requirements

of the resolutions of the company pertaining to regular and special meetings.

It is, however, Veraguths duty to give formal notice to the secretary of his post-office address if he desires notice sentto a particular residence.

The Corporation Law, section 51, provides that:

All business corporations shall keep and carefully preserve a record of all business transactions, and a minute of allmeetings of directors, members, or stockholders, in which shall be set forth in detail the time and place of holding the

meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the

meeting. . . .

The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of

any director, member, or stockholder of the corporation at reasonable hours.

Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all

reasonable times.

Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the booksand minutes of the corporation, and the right of inspection is not to be denied on the ground that the director orshareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected.

A director or stockholder can make copies, abstracts, and memoranda of documents, books, and papers as an incidentto the right of inspection, but cannot, without an order of a court, be permitted to take books from the office ofthe corporation.

But a director or stockholder does not have any absolute right to secure certified copies of the minutes of the

corporation until these minutes have been written up and approved by the directors.

Nothing improper occurred when the secretary declined to furnish certified copies of minutes which had not beenapproved by the board of directors. While the last resolution of the board of directors providing for priorapproval of the president of the corporation before the books of the corporation can be inspected is an illegal


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obstacle in the way of a stockholder or director, that resolution, so far as we are aware, has not been enforced

to the detriment of anyone.

In addition, the case seems to be a family dispute (Veraguth and the officers are of the same family) that has yet todevelop into one of serious litigation.

DISSENTING Opinion ofVICKERS:

An extraordinary meeting of the directors of the corporation was held at Isabela, Occidental Negros. A notice of thismeeting was sent to Veraguth by registered letter, but the notice was not received by him until a later date, because theletter was addressed to the plaintiff at Isabela. The post-office address of the plaintiff at that time was Pulupandan,Occidental Negros, and this fact was known to the defendant officers of the corporation, as shown by the notices,because these notices were not mailed until the day of the respective meetings, although the notice were dated threedays prior to the dates when they were mailed.

It is clear, therefore, that no notice of the meeting was given to Veraguth, because the notice of said meeting

was sent to Isabela instead of Pulupandan. Taking into consideration the relations existing between the parties, I amsatisfied that this notice was addressed to Isabela instead of Pulupandan for the purpose of depriving the

plaintiff of an opportunity of attending the meeting.

Veraguth seeks the protection of his right to a notice of all meetings of the board of directors, and prays thatthe officers impleaded be required to perform their duties in accordance with the law.It is obvious that if theofficers should again fail to notify Veraguth of any meeting of the board of directors, he would be in no better

position than he is at the present time. Under the theory of the majority opinion Veraguth would have no redress.

The refusal of the secretary of the corporation to allow Veraguth to read the resolution during the meeting on theground that it had not been signed by the directors, Veraguth was clearly within his rights in demanding that he begiven an opportunity to examine said resolution. It does not appear that there was any necessity for the directorsto sign the resolution in question. Such a resolution was a part of the secretary's minutes of the meeting, which

would ordinarily be reported for approval at the next meeting. In any event the directors had adopted theresolution, and whether it was to be signed or not, Veraguth as a director of the corporation had a right to see it.

Gonzales v PNB

FACTS:

Ramon A. Gonzalez bought a share of stock from the PNB, and as a stockholder, Gonzalez sought to look over the booksand records of PNB. It was admitted that Gonzalezs purpose in doing so was to verify the truth on certain transactionswhich the bank entered into as well as to inquire into the validity of said transactions. These include the undertaking ofthe bank to finance Southern Negros Development Bank in the latters purchase of a sugar mill, the financing of theCebu-Mactan Bridge and the construction of Passi Sugar Mill at Iloilo.

In fact, Gonzalez previously instituted several cases against the bank questioning the propriety of these transactions. Itwas also found that Gonzalez procured a share from the bank precisely to pry into its records and use the informationagainst the latter. Gonzalez was subsequently denied by the officers of the bank in his attempt to be furnished onceagain of its records. The bank contended that his request was not germane to his interest as one-stock shareholder andfor the cloud of doubt as to his real intention and purpose in acquiring said share.

Thus, Gonzalez instituted an action for mandamus against PNB praying that the latter be ordered to allow him to lookinto the books and record of PNB in order to satisfy himself as to the truth of the published reports regarding theabovementioned undertakings.

ISSUE: Whether or not the officers of PNB can be compelled to allow Gonzalez to inspect the records of the

former

NO.

HELD: The Supreme Court denied the petition.


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Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of therespondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except tosatisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bankand to inquire into their validity.

The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the rightof inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in

order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obviouspurpose was to arm himself with materials which he can use against the respondent bank for acts done by the latterwhen the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civicconsciousness, but it could not be said that his purpose is germane to his interest as a stockholder.

While seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is nowexpressly required as a condition for such examination that the one requesting it must not have been guilty of

using improperly any information secured through a prior examination, and that the person asking for such

examination must be acting in good faith and for a legitimate purpose in making his demand.

Finally, the inspection would run counter to the express mandate of PNBs charter. Its charter limits the inspection ofthe banks records to certain qualified officials.Having its own charter, PNB is not governed by the Corp Code and theright of inspection could not be made to apply given the express restriction in its charter.

11. Financial Statements

Sec. 75. Right to financial statements. - Within ten (10) days from receipt of a written request of any stockholder ormember, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet asof the end of the last taxable year and a profit or loss statement for said taxable year, showing in reasonable detail itsassets and liabilities and the result of its operations.

At the regular meeting of stockholders or members, the board of directors or trustees shall present to suchstockholders or members a financial report of the operations of the corporation for the preceding year, which shallinclude financial statements, duly signed and certified by an independent certified public accountant.However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certifiedunder oath by the treasurer or any responsible officer of the corporation. (n)

12. Appraisal Right

Sec. 81. Instances of appraisal right.- Any stockholder of a corporation shall have the right to dissent and demandpayment of the fair value of his shares in the following instances:

1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights ofany stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstandingshares of any class, or of extending or shortening the term of corporate existence;2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of thecorporate property and assets as provided in the Code; and3. In case of merger or consolidation. (n)

Sec. 82. How right is exercised. - The appraisal right may be exercised by any stockholder who shall have voted

against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after thedate on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the demandwithin such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is implemented oraffected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stockrepresenting his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding anyappreciation or depreciation in anticipation of such corporate action.

If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, thewithdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined andappraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by thecorporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and theiraward shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment


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shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books tocover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, thestockholder shall forthwith transfer his shares to the corporation. (n)

Sec. 83. Effect of demand and termination of right. - From the time of demand for payment of the fair value of astockholder's shares until either the abandonment of the corporate action involved or the purchase of the said sharesby the corporation, all rights accruing to such shares, including voting and dividend rights, shall be suspended in

accordance with the provisions of this Code, except the right of such stockholder to receive payment of the fair valuethereof: Provided, That if the dissenting stockholder is not paid the value of his shares within 30 days after the award,his voting and dividend rights shall immediately be restored. (n)

Sec. 84. When right to payment ceases. - No demand for payment under this Title may be withdrawn unless thecorporation consents thereto. If, however, such demand for payment is withdrawn with the consent of the corporation,or if the proposed corporate action is abandoned or rescinded by the corporation or disapproved by the Securities andExchange Commission where such approval is necessary, or if the Securities and Exchange Commission determines thatsuch stockholder is not entitled to the appraisal right, then the right of said stockholder to be paid the fair value of hisshares shall cease, his status as a stockholder shall thereupon be restored, and all dividend distributions which wouldhave accrued on his shares shall be paid to him. (n)

Sec. 85. Who bears costs of appraisal. - The costs and expenses of appraisal shall be borne by the corporation, unless

the fair value ascertained by the appraisers is approximately the same as the price which the corporation may haveoffered to pay the stockholder, in which case they shall be borne by the latter. In the case of an action to recover suchfair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stockholder toreceive payment was unjustified. (n)

Sec. 86. Notation on certificates; rights of transferee. - Within ten (10) days after demanding payment for his shares,a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for notationthereon that such shares are dissenting shares. His failure to do so shall, at the option of the corporation, terminate hisrights under this Title. If shares represented by the certificates bearing such notation are transferred, and thecertificates consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall ceaseand the transferee shall have all the rights of a regular stockholder; and all dividend distributions which would haveaccrued on such shares shall be paid to the transferee. (n)

Sec. 105. Withdrawal of stockholder or dissolution of corporation. - In addition and without prejudice to other rightsand remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason,compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issuedvalue, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock:Provided, That any stockholder of a close corporation may, by written petition to the Securities and ExchangeCommission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those incontrol of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporationor any stockholder, or whenever corporate assets are being misapplied or wasted.

13. Derivative Suit

INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES

Rule I

GENERAL PROVISIONS

Section 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases involving thefollowing:

(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers orpartners, amounting to fraud or misrepresentation which may be detrimental to the interest of the publicand/or of the stockholders, partners, or members of any corporation, partnership, or association;(2) Controversies arising out of intra-corporate, partnership, or association relations, between and amongstockholders, members, or associates; and between, any or all of them and the corporation, partnership, orassociation of which they are stockholders, members, or associates, respectively;(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations,partnerships, or associations;


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(4) Derivative suits; and(5) Inspection of corporate books.

(b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In determiningwhether a suit is a nuisance or harassment suit, the court shall consider, among others, the following:

(1) The extent of the shareholding or interest of the initiating stockholder or member;(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;(4) Availability of appraisal rights for the act or acts complained of; and(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case.

Sec. 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be applicable and arenot inconsistent with these Rules, are hereby adopted to form an integral part of these Rules.

Sec. 3. Construction. - These Rules shall be liberally construed in order to promote their objective of securing a just,summary, speedy and inexpensive determination of every action or proceeding.

Sec. 4. Executory nature of decisions and orders. - All decisions and orders issued under these Rules shall

immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or implementation of thedecision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal.

Sec. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which hasjurisdiction over the principal office of the corporation, partnership, or association concerned. Where the principaloffice of the corporation, partnership or association is registered in the Securities and Exchange Commission as MetroManila, the action must be filed in the city or municipality where the head office is located.

Sec. 6. Service of pleadings. - When so authorized by the court, any pleading and/or document required by theseRules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronicmail (e-mail). In such cases, the date of transmission shall be deemed to be prima facie the date of service.

Sec. 7. Signing of pleadings, motions and other papers. - Every pleading, motion, and other paper of a party

represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whoseaddress shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paperand state his address.

The signature of an attorney or party constitutes a certification by the signer that he ha read the pleading, motion, orother paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry, it is wellgrounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversalof existing jurisprudence; and that it is not interposed for any improper purpose, such as to harass or to causeunnecessary delay or needless increase in the cost of litigation.

If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly signed by thepleader or movant, after he is notified of the omission.

Sec. 8. Prohibited pleadings. - The following pleadings are prohibited:(1) Motion to dismiss; (2) Motion for a bill of particulars; (3) Motion for new trial, or for reconsideration of judgment ororder, or for re-opening of trial; (4) Motion for extension of time to file pleadings, affidavits or any other paper, exceptthose filed due to clearly compelling reasons. Such motion must be verified and under oath; and (5) Motion forpostponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motionmust be verified and under oath.

Sec. 9. Assignment of cases. - All cases filed under these Rules shall be tried by judges designated by the SupremeCourt to hear and decide cases transferred from the Securities and Exchange Commission to the Regional Trial Courtsand filed directly with said courts pursuant to Republic Act No. 8799, otherwise known as the Securities RegulationCode.


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Rule 2

COMMENCEMENT OF ACTION AND PLEADINGS

Section 1. Commencement of action. - An action under these Rules is commenced by the filing of a verified complaintwith the proper Regional Trial Court.

Sec. 2. Pleadings allowed. - The only pleadings allowed to be filed under these Rules are the complaint, answer,

compulsory counterclaims or cross-claims pleaded in the answer, and the answer to the counterclaims or cross-claims.

Sec. 3. Verification. - The complaint and the answer shall be verified by an affidavit stating that the affiant has read thepleading and the allegations therein are true and correct based on his own personal knowledge or on authentic records.

Sec. 4. Complaint. - The complaint shall state or contain:(1) the names, addresses, and other relevant personal or judicial circumstances of the parties;(2) all facts material and relevant to the plaintiff's cause or causes of action, which shall be supported by affidavits ofthe plaintiff or his witnesses and copies of documentary and other evidence supportive of such cause or causes ofaction;(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;(4) a certification that

(a) the plaintiff has not therefore commenced any action or filed any claim involving the same issues in any

court, tribunal or quasi-judicial agency, and, to the best of his knowledge, no such other action or claim ispending therein;(b) if there is such other action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shallreport that fact within five (5) days therefrom to the court; and

(5) the relief sought.

Sec. 5. Summons. - The summons and the complaint shall be served together not later than five (5) days from the dateof filing of the complaint.

(a) Service upon domestic private juridical entities. - If the defendant is a domestic corporation, service shall bedeemed adequate is made upon any of the statutory or corporate officers as fixed by the by-laws or theirrespective secretaries. If the defendant is a partnership, service shall be deemed adequate if made upon any ofthe managing or general partners or upon their respective secretaries. If the defendant is an association service

shall be deemed adequate if made upon any of its officers or their respective secretaries.(b) Service upon foreign private juridical entity. - When the defendant is a foreign private juridical entity whichis transacting or has transacted business in the Philippines, service may be made on its resident agentdesignated in accordance with law for that purpose, or, if there be no such agent, on the government officialdesignated by law to that effect, or on any of its officers or agents within the Philippines.

Sec. 6. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, withinfifteen (15) days from service of summons.

In the answer, the defendant shall:(1) Specify each material allegation of fact the truth of which he admits;(2) Specify each material allegation of fact the truth of which he does not admit. Where the defendant desiresto deny only a part of an averment, he shall specify so much of it as true and material and shall deny only the

remainder;(3) Specify each material allegation of facts as to which truth he has no knowledge or information sufficient toform a belief, and this shall have the effect of a denial;(4) State the defenses, including grounds for a motion to dismiss under the Rules of Court;(5) State the law, rule, or regulation relied upon;(6) Address each of the causes of action stated in the complaint;(7) State the facts upon which he relied for his defense, including affidavits of witnesses and copies ofdocumentary and other evidence supportive of such cause or causes of action;(8) State any compulsory counterclaim/s and cross-claim/s; and(9) State the relief sought.


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The answer to counterclaims or cross-claims shall be filed within ten (10) days from service of the answer in whichthey are pleaded.

Sec. 7. Effect of failure to answer. - If the defendant fails to answer within the period above provided, he shall beconsidered in default. Upon motion or motu proprio, the court shall render judgment either dismissing the complaint orgranting the relief prayed for as the records may warrant. In no case shall the court award a relief beyond or differentfrom that prayed for.

Sec. 8. Affidavits, documentary and other evidence. - Affidavits shall be based on personal knowledge, shall set forthsuch facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on thematters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules onadmissibility of evidence.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading:Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre-trialbrief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence,except in the following cases:

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if hefails or refuses to execute an affidavit after a written request therefor;(2) If the failure to submit the evidence is for meritorious and compelling reasons; and

(3) Newly discovered evidence.

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to itsintroduction in evidence.

Rule 3

MODES OF DISCOVERY

Section 1. In general. - A party can only avail of any of the modes of discovery not later than fifteen (15) days from thejoinder of issues.

Sec. 2. Objections. - Any mode of discovery such as interrogatories, request for admission, production or inspection ofdocuments or things, may be objected to within ten (10) days from receipt of the discovery device and only on the

ground that the matter requested is patently incompetent, immaterial, irrelevant or privileged in nature. The court shallrule on the objections not later than fifteen (15) days from the filing thereof.

Sec. 3. Compliance. - Compliance with any mode of discovery shall be made within ten (10) days from receipt of thediscovery device, or if there are objections, from receipt of the ruling of the court.

Sec. 4. Sanctions. - The sanctions prescribed in the Rules of Court for failure to avail of, or refusal to comply with, themodes of discovery shall apply. In addition, the court may, upon motion, declare a party non-suited or as in default, asthe case may be, if the refusal to comply with a mode of discovery is patently unjustified.

Rule 4

PRE-TRIAL

Section 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for availment of, andcompliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue andserve an order immediately setting the case for pre-trial conference and directing the parties to submit their respectivepre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief insuch manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for thepre-trial.

The parties shall set forth in their pre-trial briefs, among other matters, the following:(1) Brief statement of the nature of the case, which shall summarize the theory or theories of the party in clearand concise language;(2) Allegations expressly admitted by either or both parties;(3) Allegations deemed admittedly by either or both parties;


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(4) Documents not specifically denied under oath by either or both parties;(5) Amendments to the pleadings;(6) Statement of the issues, which shall separately summarize the factual and legal issues involved in the case;(7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavitssupporting their positions on each of the issues;(8) All other pieces of evidence, whether documentary of otherwise and their respective purposes;(9) Specific proposals for an amicable settlement;

(10) Possibility of referral to mediation or other alternative modes of dispute resolution;(11) Proposed schedule of hearings; and(12) Such other matters as may aid in the just and speedy disposition of the case.

Sec. 2. Nature and purpose of pre-trial conference. - During the pre-trial conference, the court shall, with its activeparticipation, ensure that the parties consider in detail all of the following:

(1) The possibility of an amicable settlement;(2) Referral of the dispute to mediation or other forms of dispute resolution;(3) Facts that need not be proven, either because they are matters of judicial notice or expressly or deemedadmitted;(4) Amendments to the pleadings;(5) The possibility of obtaining stipulations and admission of facts and documents;(6) Objections to the admissibility of testimonial, documentary and other evidence;

(7) Objections to the form or substance of any affidavit, or part thereof;(8) Simplification of the issues;(9) The possibility of submitting the case for decision on the basis of position papers, affidavits, documentaryand real evidence;(10) A complete schedule of hearing dates; and(11) Such other matters as may aid in the speedy and summary disposition of the case.

Sec. 3. Termination. - The preliminary conference shall be terminated not later than ten (10) days after itscommencement, whether or not the parties have agreed to settle amicably.

Sec. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court determines that, uponconsideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered,the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of

twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, notlater than ninety (90) days fromthe expiration of the period to file the memoranda.Sec. 5. Pre-trial order; judgment after pre-trial. - The proceedings in the pre-trial shall be recorded. Within ten (10)days after the termination of the pre-trial, the court shall issue an order which shall recite in detail the matters taken upin the conference, the actions taken thereon, the amendments allowed in the pleadings, and the agreements oradmissions made by the parties as to any of the matters considered. The court shall rule on all objections to orcomments on the admissibility of any documentary or other evidence, including any affidavit or any part thereof.Should the action proceed to trial, the order shall explicit define and limit the issues to be tried and shall strictly followthe form set forth in Annex "A" of these Rules.

The contents of the order shall control the subsequent course of the action, unless modified before trial to preventmanifest injustice.

After the pre-trial, the court may render judgment, either full or partial, as the evidence presented during the pre-trialmay warrant.

Rule 5

TRIAL

Section 1. Witnesses. - If the court deems necessary to hold hearings to determine specific factual matters beforerendering judgment, it shall, in the pre-trial order set the case for trial on the dates agreed upon by the parties.Only persons whose affidavits were submitted may be presented as witnesses, except in cases specified in Section 8,Rule 2 of these Rules. The affidavits of the witnesses shall serve as their direct testimonies, subject to cross-examination in accordance with existing rules on evidence.


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Sec. 2. Trial schedule. - Unless judgment is rendered pursuant to Rule 4 of these Rules, the initial hearing shall be heldnot later than thirty (30) days from the date of the pre-trial order. The hearings shall be completed not later than sixty(60) days from the date of the initial hearing, thirty (30) days of which shall be allotted to the plaintiffs and thirty (30)days to the defendants in the manner prescribed in the pre-trial order. The failure of a party to present a witness on ascheduled hearing date shall be deemed a waiver of such hearing date. However, a party may present such witness orwitnesses within his remaining allotted hearing dates.

Sec. 3. Written offer of evidence. - Evidence not otherwise admitted by the parties or ruled upon by the court duringthe pre-trial conference shall be offered in writing not later than five (5) days from the completion of the presentationof evidence of the party concerned. The opposing party shall have five (5) days from receipt of the offer to file hiscomments or objections. The court shall make its ruling on the offer within five (5) days from the expiration of theperiod to file comments or objections.

Sec. 4. Memoranda. - Immediately after ruling on the last offer of evidence, the court shall order the parties tosimultaneously file, within thirty (30) days from receipt of the order, their respective memoranda. The memorandashall contain the following:

(1) A "Statement of the Case," which is a clear and concise statement of the nature of the action and a summary of theproceedings;

(2) A "Statement of the Facts," which is a clear and concise statement in narrative form of the established facts, withreference to the testimonial, documentary or other evidence in support thereof;(3) A "Statement of the Issues," which is a clear and concise statement of the issues presented to the court forresolution;(4) The "Arguments," which is a clear and concise presentation of the argument in support of each issue; and(5) The "Relief," which is a specification of the order or judgment which the party seeks to obtain.No reply memorandum shall be allowed.

Sec. 5. Decision after trial. - The court shall render a decision not later than (90) days from the lapse of the period tofile the memoranda, with or without said pleading having been filed.

Rule 6

ELECTION CONTESTS

Section 1. Cases covered. - The provisions of this rule shall apply to election contests in stock and non-stockcorporations.

Sec. 2. Definition. - An election contests refers to any controversy or dispute involving title or claim to any electiveoffice in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and thequalifications of candidates, including the proclamation of winners, to the office of director, trustee or other officerdirectly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articleof incorporation or by-laws so provide.

Sec. 3. Complaint. - In addition to the requirements in Section 4, Rule 2 of these Rules, the complaint in an electioncontests must state the following:

(1) The case was filed fifteen (15) days from the date of the election if the by-laws of the corporation do not

provide for a procedure for resolution of the controversy, or within fifteen (15) days from the resolution of thecontroversy by the corporation as provided in its by-laws; and (2) The plaintiff has exhausted all intra-corporate remedies in election cases as provided for in the by-laws of the corporation.

Sec. 4. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, thecourt, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in formand substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of thecomplaint, on the defendant within two (2) days from its issuance.

Sec. 5. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten(10) days from service of summons and the complaint. The answer shall contain the matters required in Section 6, Rule2 of these Rules.


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Sec. 6. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer theaffidavits of witnesses, documentary and other evidence in support thereof, if any.

Sec. 7. Effect of failure to answer. - If the defendants fails to file an answer within the period above, the court shall,within ten (10) days from the lapse of said period, motu proprio or on motion, render judgments as may be warrantedby the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall

the court award a relief beyond or different from that prayed for.

Sec. 8. Trial. - If the court deems it necessary to hold a hearing to clarify specific factual matters before renderingjudgment, it shall, within ten (10) days from the filling of the last pleading, issue an order setting the case for hearingfor the purpose. The order shall, in clear and concise terms, specify the factual matters the court desires to be clarifiedand the witnesses, whose affidavits have been submitted, who will give the necessary clarification.

The hearing shall be set on a date not later than ten (10) days from the date of the order, and shall be completed notlater than fifteen (15) days from the date of the first hearing. The affidavit of a witness who fails to appear forclarificatory questions of the court shall be ordered stricken off the record.

Sec. 9. Decision. - The Court shall render a decision with fifteen (15) days from receipt of the last pleading, or from thedate of the last hearing as the case may be. The decision shall be based on the pleadings, affidavits, documentary and

other evidence attached thereto and the answers of the witnesses to the clarificatory questions of the court givenduring the hearings.

Rule 7

INSPECTION OF CORPORATE BOOKS AND RECORDS

Section 1. Cases covered. - The provisions of this Rule shall apply to disputes exclusively involving the rights ofstockholders or members to inspect the books and records and/or to be furnished with the financial statements of acorporation, under Sections 74 and 75 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of thePhilippines.

Sec. 2. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state thefollowing:

(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to befurnished with financial statements under Sections 74 and 75 of the Corporation Code of the Philippines;(2) A demand for inspection and copying of books and records and/or to be furnished with financialstatements made by the plaintiff upon defendant;(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals, if any;and(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal,stating the law and jurisprudence in support thereof.

Sec. 3. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the complaint, thecourt, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in formand substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of thecomplaint, on the defendant within two (2) days from its issuance.

Sec. 4. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten(10) days from the service of summons and the complaint. In addition to the requirements in Section 6, Rule 2 of theseRules, the answer must state the following:

(1) The grounds for the refusal of defendant to grant the demands of the plaintiff, stating the law andjurisprudence in support thereof;(2) The conditions or limitations on the exercise of the right to inspect which should be imposed by the court;and(3) The cost of inspection, including manpower and photocopying expenses, if the right to inspect is granted.

Sec. 5. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer theaffidavits of witnesses, documentary and other evidence in support thereof, if any.


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Sec. 6. Effect of failure to answer. - If the defendants fails to file an answer within the period above provided, thecourt, within ten (10) days from the lapse of the said period, motu proprio or upon motion, shall render judgment aswarranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. Inno case shall the court award a relief beyond or different from that prayed for.

Sec. 7. Decision. - The court shall render a decision based on the pleadings, affidavits and documentary and other

evidence attached thereto within fifteen (15) days from receipt of the last pleading. A decision ordering defendants toallow the inspection of books and records and/or to furnish copies thereof shall also order the plaintiff to deposit theestimated cost of the manpower necessary to produce the books and records and the cost of copying, and state, in clearand categorical terms, the limitations and conditions to the exercise of the right allowed or enforced.

Rule 8

DERIVATIVE SUITS

Section 1. Derivative action. A stockholder or member may bring an action in the name of a corporation orassociation, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and thetime the action was filed;(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all

remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation orpartnership to obtain the relief he desires;(3) No appraisal rights are available for the acts or acts complained of; and(4) The suits is not a nuisance or harassment suit.

In case of nuisance of harassment suit, the court shall forthwith dismiss the case.

Sec. 2. Discontinuance. - A derivative action shall not be discontinued, compromised or settled without approval of thecourt. During the pendency of the action, any sale of shares of the complaining stockholders shall be approved by thecourt. If the court determines that the interest of the stockholders or members will be substantially affected by thediscontinuance, compromise or settlement, the court may direct that notice, by publication or otherwise, be given to thestockholders or members whose interest it determines will be so affected.

Rule 9MANAGEMENT COMMITTEE

Section 1. Creation of a management committee. - As an incident to any of the cases filed under these Rules or theInterim Rules Corporate Rehabilitation, a party may apply for the appointment of a management committee for thecorporation, partnership or association, when there is imminent danger of:

(1) Dissipation, loss, wastage or destruction of assets or other properties; and (2) Paralyzation of its businessoperations which may be prejudicial to the interest of the minority stockholders, parties-litigants or thegeneral public.

Sec. 2. Receiver. -- In the event the court finds the application to be sufficient in form and substance, the court shallissue an order; (a) appointing a receiver of known probity, integrity and competence and without any conflict of

interest as hereunder defined to immediately take over the corporation, partnership or association, specifying suchpowers as it may deem appropriate under the circumstances, including any of the powers specified in Section 5 of thisRule;(b) fixing the bond of the receiver;(c) directing the receiver to make a report as to the affairs of the entity under receivership and on other relevantmatters within sixty (60) days from the time he assumes office;(d) prohibiting the incumbent management of the company, partnership or association from selling, encumbering,transferring or disposing in any manner any of its properties except in the ordinary course of business; and(e) directing the payment in full of all administrative expenses incurred after the issuance of the order.

Sec. 3. Receiver and management committee as officers of the court. - The receiver and the members of themanagement committee in the exercise of their powers and performance of


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their duties are considered officers of the court and shall be under its control and supervision.

Sec. 4. Composition of the management committee. - After due notice and hearing, the court may appoint amanagement committee composed of three (3) members chosen by the court. In the appointment of themembers of the management committee, the following qualifications shall be taken into consideration by thecourt.

(1) Expertise and acumen to manage and operate a business similar in size and completely as thatthe corporation, association or partnership sought to be put under management committee;(2) Knowledge in management and finance;(3) Good moral character, independence and integrity;(4) A lack of a conflict of interest as defined in these Rules; and(5) Willingness and ability to file a bond in such amount as may be determined by the court.

Without limiting the generality of the following, a member of a management committee may be deemed tohave a conflict of interest if:

(1) He is engaged in a line of business which completes with the corporation, association orpartnership sought to be placed under management;(2) He is a director, officer or stockholder charged with mismanagement, dissipation or wastage of

the properties of the entity under management; or(3) He is related by consanguinity or affinity within the fourth civil degree to any director, officer orstockholder charged with mismanagement, dissipation or wastage of the properties of the entityunder management.

Sec. 5. Powers and functions of the management committee. - Upon assumption to office of themanagement committee, the receiver shall immediately render a report and turn over the management andcontrol of the entity under his receivership to the management committee.

The management committee shall have the power to take custody of and control all assets and propertiesowned or possessed by the entity under management. It shall take the place of the management and board ofdirectors of the entity under management, assume their rights and responsibilities, and preserve the entity'sassets and properties in its possession. Without limiting the generality of the foregoing, the management

committee shall exercise the following powers and functions:

(1) To investigate the acts, conduct, properties, liabilities, and financial condition of the corporation,association or partnership under management;(2) To examine under oath the directors and offices of the entity and any other witnesses that it maydeem appropriate;(3) To report to the court any fact ascertained by it pertaining to the causes of the problems, fraud,misconduct, mismanagement and irregularities committed by the stockholders, directors,management or any other person;(4) To employ such person or persons such as lawyers, accountants, auditors, appraisers and staff asare necessary in performing its functions and duties as management committee;(5) To report to the court any material adverse change in the business of the corporation, associationor partnership under management;(6) To evaluate the existing assets and liabilities, earnings and operations of the corporation,association or partnership under management;(7) To determine and recommended to the court the best way to salvage and protect the interest ofthe creditors, stockholders and the general public, including the rehabilitation of the corporation,association or partnership under management;(8) To prohibit and report to the court any encumbrance, transfer, or disposition of the debtor'sproperty outside of the ordinary course of business or what is allowed by the court;(9) To prohibit and report to the court any payments made outside of the ordinary course ofbusiness;


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(10) To have unlimited access to the employees, premises, books, records and financial documentsduring business hours;(11) To inspect, copy, photocopy or photograph any document, paper, book, account or letter,whether in the possession of the corporation, association or partnership or other persons;(12) To gain entry into any property for the purposes of inspecting, measuring, surveying, orphotographing it or any designated relevant object or operation thereon;

(13) To bring to the attention of the court any material change affecting the entity's ability to meet itsobligations;(14) To revoke resolutions passed by the Executive Committee or Board of Directors/Trustees or anygoverning body of the entity under management and pass resolution in substitution of the same toenable it to more effectively exercise its powers and functions;(15) To modify, nullify or revoke transactions coming to its knowledge which it deems detrimental orprejudicial to the interest of the entity under management;(16) To recommend the termination of the proceedings and the dissolution of the entity ifdetermines that the continuance in business of such entry is no longer feasible or profitable or nolonger works to the best interest of thestockholders, parties-litigants, creditors or the general public;(17) To apply to the court for any order or directive that it may deem necessary or desirable to aid itin the exercise of its powers and performance of its duties and functions; and(18) To exercise such other powers as may, from time to time, be conferred upon it by the court.

Sec. 6. Action by management committee. - A majority of its members shall be necessary for themanagement committee to act or make a decision. The chairman of the management committee shall bechosen by the members from among themselves. The committee may delegate its management functions asmay be necessary to operate the business of the entity under management and preserve its assets.

Sec. 7. Transactions deemed to be in bad faith. - All transactions made by the previous management anddirectors shall be deemed fraudulent and are rescissible if made within thirty (30) days prior to theappointment of the receiver or management committee or during their incumbency as receiver ormanagement committee.

Sec. 8. Fees and expenses. - The receiver or the management committee and the persons hired by it shall beentitled to reasonable professionals fees reimbursement of expenses which shall be considered as

administrative expenses.

Sec. 9. Immunity from suit. - The receiver and members of the management committee and the personsemployed by them shall not be subject to any action, claim or demand in connection with any act done oromitted by them in good faith in the exercise of their functions and powers. All official acts and transactionsof the receiver or management committee duly approved or ratified by the court shall render them immunefrom any suit in connection with such act or transaction.

Sec. 10. Reports. - Within a period of sixty (60) days from the appointment of its members, the managementcommittee shall make a report to the court on the state of the corporation, partnership or association undermanagement. Thereafter, the management committee shall report every three (3) months to the court or asoften as the court may require on the general condition of the entity under management.

Sec. 11. Removal and replacement of a member of the management committee. -A member of the

management is deemed removed upon appointment by the court of his replacement chosen in accordancewith Section 4 of this Rule.

Sec. 12. Discharge of the management committee. - The management committee shall be discharged anddissolved under the following circumstances:(1) Whenever the court, on motion of motu proprio, has determined that the necessity for the managementcommittee no longer exist;(2) By agreement of the parties; and(3) Upon termination of the proceedings.


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Upon its discharge and dissolution, the management committee shall submit its final report and renderaccounting of its management within such reasonable time as the court may allow.

Rule 10

PROVISIONAL REMEDIES

Section 1. Provisional remedies. - A party may apply for any of the provisional remedies provided in theRules of Court as may be available for the purposes. However, no temporary restraining order or status quoorder shall be issued save in exceptional cases and only after hearing the parties and the posting of bond.

Rule 11

SANCTIONS

Section 1. Sanctions of the parties or counsel. - In any of the following cases, the court may, upon motionmotu proprio, impose appropriate sanctions:

(1) In case the court determines in the course of the proceeding that the action is a nuisance orharassment suit;(2) In case a pleading, motion or other paper is filed in violation of Section 7, Rule 1 of these Rules;(3) In case a party omits or violates the certification required under Section 4, Rule 2 of these Rules;

(4) In case or unwarranted denials in the answer to the complaint;(5) In case of willful concealment or non-disclosure of material facts or evidence;

The sanctions may include an order to pay the other party of parties the amount of the reasonable expensesincurred because of the act complained of, including reasonable attorney's fees.

Sec. 2. Disciplinary sanctions on the judge. - The presiding judge may, upon a verified complaint filed withthe Office of the Court Administrator, be subject to disciplinary action under any of the following cases;

(1) Failure to observe this special summary procedures prescribed in these Rules; or(2)Failure to issue a pre-trial order in form prescribed in these Rules.

Rule 12

FINAL PROVISIONS

Section. 1. Severability. - If any provision or section of these Rules is held invalid, the remaining provisionsor sections shall not be affected thereby.

Sec. 2. Effectivity. - These Rules shall take effect on 1 April 2001 following its publication in two (2)newspapers of general circulation in the Philippines.

SMC v Kahn

FACTS:

On December 1983, 14 corporations initially acquired some 33 million shares of outstanding capital stock ofSan Miguel Corporation and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. When the latterdied, Eduardo Cojuanco was elected as the substitute trustee. However, after the EDSA revolution, Cojuancofled out of the country, and subsequently an agreement was entered into between the 14 corporations andAndres Soriano III (as an agent of several persons) for the purchase of the shares held by the former.

Actually, according to Soriano and the other private respondents, the buyer of the shares was NeptuniaCorporation, a foreign corporation and wholly-owned subsidiary of San Miguel International,anothersubsidiary wholly owned by San Miguel Corporation. Neptunia paid the downpayment from the proceeds ofcertain loans. PCGG then sequestered the shares subject of the sale so San Miguel suspended all the otherinstallments of the price to the sellers. The 14 corporations then sued for rescission and damages.

Meanwhile, PCGG directed San Miguel to issue qualifying shares to seven (7) individuals including Eduardo delos Angeles from the sequestered shares for them to hold in trust.


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Then, the San Miguel board of directors passed a resolution assuming the loans incurred by Neptunia for thedownpayment.

De los Angeles assailed the resolution alleging that it was not passed by the board aside from its delitoriouseffects on the corporations interest. When his efforts to obtain relief within the corporation proved futile, hefiled this action with the SEC.

Respondent directors alleged that de los Angeles has no legal standing having been merely imposed by thePCGG and that the twenty (20) shares owned by him personally cannot fairly and adequately represent theinterest of the minority. They claim that de los Angeles did not come to court with clean hands. They alsoclaim that the SEC has no jurisdiction over the controversy because the matter involved are exclusively withinthe business judgment of the BOD.

The Court of Appeals ruled that de los Angeles had no legal capacity to institute the derivative suit.

ISSUES:

1. WON the SEC has jurisdiction over the case. YESThe dispute herein concerns acts of the BOD claimed to amount to fraud and misrepresentation which may bedetrimental to the interest of the stockholders, or is one arising out of intra-corporate relations between and

among stockholders, or between any or all of them and the corporation of which they are stockholders.

His complaint does not involve any property illegally acquired or misappropriated by Marcos, et al, whichwould make it fall under the jurisdiction of the Sandiganbayan. Rather, the case involves assets indisputablybelonging to SMC which were, in de los Angeles' view, being illicitly committed by a majority of its BOD toanswer for loans assumed by a sister corporation, Neptunia.

2. WON de los Angeles has personality to bring suit. YESThe requisites of a derivative suit are:1. the party bringing the suit should be a stockholder as of the time of the act or transactions complained of,the number of shares not being material;2. exhaustion of intra-corporate remedies (has made a demand on the board of directors for the appropriaterelief but the latter has failed or refused to heed his plea); and

3. the cause of action actually devolves on the corporation and not to the particular stockholder bringing thesuit.

The bona fide ownership by a stockholder in his own right suffices to invest him with the standing to bring aderivative suit for the benefit of the corporation. The number of his shares is immaterial since he is not suingin his own behalf, or for the protection or vindication of his own particular right, or the redress of a wrongcommitted against him individually but in behalf and for the benefit of the corporation. It is undisputed thatapart from the qualifying shares given to him by the PCGG, he owns 20 shares in his own right, as regardswhich he cannot from any aspect be deemed to be beholden to the PCGG, his ownership of his shares beingprecisely what he invokes as the source of his authority to bring the derivative suit. Furthermore, it was notnecessary for de los Angeles to be a director in order to bring a derivative suit, all he had to be was astockholder.

De los Angeles complaint is confined to the issue of the validity of the assumption by the corporation of theindebtedness of Neptunia, allegedly for the benefit of certain of its officers and stockholders and is distinctfrom the ownership of the sequestered shares. Like mentioned above, the dispute concerns the acts of theboard of directors claimed to amount to fraud and misrepresentation which may be detrimental to theinterest of the stockholders, or is one arising out of intra-corporate relations between and amongstockholders, or between any or all of them and the corporation of which they are stockholders (meaning thatthe cause of action still belongs to the corporation).

Chua v CA

FACTS:


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On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts offalsification of public documents. She alleged that the Chuas prepared, certified, and falsified the Minutes ofthe Annual Stockholders meeting of the Board of Directors of the Siena Realty Corporation, duly notarizedbefore a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial Registry and therefore, a publicdocument, by making or causing it to appear in said Minutes of the Annual Stockholders Meeting that one

LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in fact, as the saidaccused fully well knew that said Lydia C. Hao was never present during the Annual Stockholders Meetingheld on April 30, 1994 and neither has participated in the proceedings thereof to the prejudice of publicinterest and in violation of public faith and destruction of truth as therein proclaimed.Thereafter, the City Prosecutor filed the Information MeTC of Manila against Francis Chua but dismissed theaccusation against Elsa Chua. Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appearedas private prosecutors and presented Hao as their first witness.After Hao's testimony, Chua moved to exclude complainant's counsels as private prosecutors in the case onthe ground that Hao failed to allege and prove any civil liability in the case. The MeTC granted Chua's motionand ordered the complainant's counsels to be excluded from actively prosecuting Criminal Case No. 285721.Hao moved for reconsideration but it was denied.Upon Hao's petition for certiorari in her own behalf and for the benefit of Siena Realty Corporation, the RTC

in an order reversed the MeTC Order and allowed the intervention of the private prosecutors.Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. He argued before the Court ofAppeals that respondent had no authority whatsoever to bring a suit in behalf of the Corporation since therewas no Board Resolution authorizing her to file the suit.Hao claimed that the suit was brought under the concept of a derivative suit. She maintained that when thedirectors or trustees refused to file a suit even when there was a demand from stockholders, a derivative suitwas allowed.The CA held that the action was indeed a derivative suit, for it alleged that petitioner falsified documentspertaining to projects of the corporation and made it appear that the petitioner was a stockholder and adirector of the corporation. It held that the corporation was a necessary party to the petition filed with theRTC and even if private respondent filed the criminal case, her act should not divest the Corporation of itsright to be a party and present its own claim for damages.

ISSUE:1. WON the criminal complaint is in the nature of a derivative suit. NO

Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot bemade part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas, where thecourt said that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitionerasserts that in this case, the civil aspect of a criminal case cannot be treated as a derivative suit, consideringthat Siena Realty Corporation was not the private complainant.The Court ruled that Chua misapprehended the ruling in that case. The case there was a mere appeal on thecivil aspect of a criminal case for estafa and falsification of public document. A mere appeal in the civil aspectcannot be treated as a derivative suit because the appeal lacked the basic requirement that it must be allegedin the complaint that the shareholder is suing on a derivative cause of action for and in behalf of thecorporation and other shareholders who wish to join.Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an injuredparty, its power to sue is lodged with its board of directors or trustees. An individual stockholder is permittedto institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect orvindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued,or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party,with the corporation as the real party in interest.A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is anecessary party to the suit. And the relief which is granted is a judgment against a third person in favor of thecorporation. Similarly, if a corporation has a defense to an action against it and is not asserting it, astockholder may intervene and defend on behalf of the corporation.


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Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable. When acriminal action is instituted, the civil action for the recovery of civil liability arising from the offense chargedshall be deemed instituted with the criminal action, unless the offended party waives the civil action, reservesthe right to institute it separately or institutes the civil action prior to the criminal action.In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifyingcorporate documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena

Realty Corporation is an offended party. Hence, Siena Realty Corporation has a cause of action. And the civilcase for the corporate cause of action is deemed instituted in the criminal action.However, the board of directors of the corporation in this case did not institute the action against petitioner.Private respondent was the one who instituted the action. Private respondent asserts that she filed aderivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of thecorporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholdersuing for and on behalf of the corporation must allege in his complaint that he is suing on a derivativecause of action on behalf of the corporation and all other stockholders similarly situated who may

wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a partybecause not only is the corporation an indispensable party, but it is also the present rule that it must beserved with process. The judgment must be made binding upon the corporation in order that the corporationmay get the benefit of the suit and may not bring subsequent suit against the same defendants for the samecause of action. In other words, the corporation must be joined as party because it is its cause of action that is

being litigated and because judgment must be a res adjudicata against it.In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalfand for the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereofcould not be deemed in the nature of a derivative suit.

2. WON Siena Realty was a proper petitioner when Hao filed a petition for certiorari. YES

The SC found that the recourse of the complainant to the respondent Court of Appeals was proper. Thepetition was brought in her own name and in behalf of the Corporation. Although, the corporation was not acomplainant in the criminal action, the subject of the falsification was the corporation's project and thefalsified documents were corporate documents. Therefore, the corporation is a proper party in the petitionfor certiorari because the proceedings in the criminal case directly and adversely affected the corporation.

3.

WON private prosecutors should be allowed to actively participate in the trial of the criminal case.YES

Generally, the basis of civil liability arising from crime is the fundamental postulate that every man criminallyliable is also civilly liable. When a person commits a crime he offends two entities namely (1) the society inwhich he lives in or the political entity called the State whose law he has violated; and (2) the individualmember of the society whose person, right, honor, chastity or property has been actually or directly injuredor damaged by the same punishable act or omission. An act or omission is felonious because it is punishableby law, it gives rise to civil liability not so much because it is a crime but because it caused damage to another.Additionally, what gives rise to the civil liability is really the obligation and the moral duty of everyone torepair or make whole the damage caused to another by reason of his own act or omission, whether doneintentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of thepenalty imposed by law for the commission of the crime.The civil action involves the civil liability arisingfrom the offense charged which includes restitution, reparation of the damage caused, and indemnificationfor consequential damages.Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal actionpursuant to Rule 111, the offended party may intervene by counsel in the prosecution of the offense. Rule111(a) of the Rules of Criminal Procedure provides that, "[w]hen a criminal action is instituted, the civilaction arising from the offense charged shall be deemed instituted with the criminal action unless theoffended party waives the civil action, reserves the right to institute it separately, or institutes the civil actionprior to the criminal action."


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Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, norinstitute the civil action for damages arising from the offense charged. Thus, the SC found that the privateprosecutors can intervene in the trial of the criminal action.

Yu v Yukayguan

FACTS:

This is a case that stemmed from the petition of Anthony Yu against his younger half-brother JosephYukayguan and other who were all shareholders of Winchester Industrial Supply, Inc., a company engaged inhardware and industrial equipment business. Named respondents were members of the Yukayguan family,including patriarch Joseph, matriarch Nancy, and the couples children Jerald Nerwin and Jill Neslie.

The case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf and onbehalf of Winchester, Inc., primarily in order to compel petitioners to account for and reimburse to the saidcorporation the corporate assets and funds which the latter allegedly misappropriated for their personalbenefit. During the pendency of the proceedings before the court a quo, the parties were able to reach anamicable settlement wherein they agreed to divide the assets of Winchester, Inc. among themselves. Thisamicable settlement was already partially implemented by the parties, when respondents repudiated thesame, for which reason the RTC proceeded with the case on its merits. On 10 November 2004, the RTCpromulgated its Decision dismissing respondents Complaint for failure to comply with essential pre-

requisites before they could avail themselves of the remedies under the Interim Rules of ProcedureGoverning Intra-Corporate Controversies; and for inadequate substantiation of respondents allegations insaid Complaint after consideration of the pleadings and evidence on record.

In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the f