Cagayan Valley Drug Corporation Officer, and (5) an Employment

Specialist in a labor case.

vs. Commissioner of Internal  In the case at bar, we so hold that
Revenue petitioner substantially complied with
Secs. 4 and 5, Rule 7 of the 1997
 Petitioner operates two drugstores, one Revised Rules on Civil Procedure.
in Tuguegarao, Cagayan, and the other  First, the requisite board resolution has
in Roxas, Isabela, under the name of been submitted albeit belatedly by
"Mercury Drug." petitioner.
 Petitioner granted 20% sales discounts  Second, we apply our ruling
to qualified senior citizens on purchases in Lepanto with the rationale that the
of medicine pursuant to (RA) 7432 and President of petitioner is in a position to
its implementing rules and regulations. verify the truthfulness and correctness of
 Pursuant to RR 2-94, petitioner treated the allegations in the petition.
the 20% sales discounts as deductions  Third, the President of petitioner has
from the gross sales in order to arrive at signed the complaint before the CTA at
the net sales, instead of treating them as the inception of this judicial claim for
a tax credit as provided by R.A. 7432. refund or tax credit.
 Petitioner file with the BIR a claim for tax  The petition is GRANTED.
refund/tax credit of the 20% sales
discount it granted to senior citizens. G. R. No. 144476 - April 8, 2003
 The BIR's inaction on petitioner's claim
for refund/tax credit compelled petitioner
ONG YONG, JUANITA TAN ONG,
to file a Petition for Review before the
WILSON T. ONG, ANNA L. ONG,
CTA in order to forestall the two-year
prescriptive period provided under Sec. WILLIAM T. ONG, WILLIE T. ONG, and
230 of the 1977 Tax Code, as amended. JULIE ONG ALONZO, Petitioners,
 CTA - Dismissed the actions for refund vs. DAVID S. TIU, CELY Y. TIU, MOLY
or tax credit on account of petitioner's YU GAW, BELEN SEE YU, D. TERENCE Y.
net loss in 1995. TIU, JOHN YU, LOURDES C. TIU,
 CA – Dismissed that the person who INTRALAND RESOURCES
signed the verification and certification DEVELOPMENT CORP., MASAGANA
of Non-forum shopping, President of TELAMART, INC., REGISTER OF DEEDS
petitioner, failed to adduce proof that he OF PASAY CITY, and the SECURITIES
was duly authorized by the board of AND EXCHANGE
directors to do so. COMMISSION, respondents.
 Issue: Whether petitioner's president
can sign the subject verification and
 In 1994, the construction of the
certification without the approval of its
Board of Directors. Yes Masagana Citimall in Pasay City
 Ruling: General Rule: All corporate was threatened with stoppage and
powers are exercised, all business incompletion when its owner, the
conducted, and all properties is First Landlink Asia Development
controlled by the board of directors. A Corporation (FLADC), which was
corporation has a separate and distinct owned by the Tius, encountered
personality from its directors and officers dire financial difficulties.
and can only exercise its corporate  It was heavily indebted to the
powers through the board of directors. Philippine National Bank (PNB) for
Thus, it is clear that an individual P190 million.
corporate officer cannot solely exercise  To stave off foreclosure of the
any corporate power pertaining to the mortgage on the two lots where
corporation without authority from the the mall was being built, the Tius
board of directors.
invited Ong Yong, Juanita Tan Ong,
 Exception: JURISPRUDENCE: Held
Wilson T. Ong, Anna L. Ong,
that the following officials or employees
William T. Ong and Julia Ong
of the company can sign the verification
Alonzo (the Ongs), to invest in
and certification without need of a board
resolution: (1) the Chairperson of the FLADC.
Board of Directors, (2) the President of a  Under the Pre-Subscription
corporation, (3) the General Manager or Agreement they entered into, the
Acting General Manager, (4) Personnel Ongs and the Tius agreed to
 maintain equal shareholdings in Subscription agreement filed by the
FLADC: the Ongs were to subscribe Ongs and ordered the liquidation of
to 1,000,000 shares at a par value FLADC to return the investment of
of P100.00 each while the Tius the respective parties.
were to subscribe to an additional  S.C. - affirmed the fact that both
549,800 shares at P100.00 each in the Ongs and the Tius violated
addition to their already existing their respective obligations under
subscription of 450,200 shares. the Pre-Subscription Agreement.
 Furthermore, they agreed that the  The Ongs filed MR on the
Tius were entitled to nominate the grounds (a) that specific
Vice-President and the Treasurer performance and not rescission
plus five directors while the Ongs was the proper remedy under the
were entitled to nominate the premises; and (b) that, assuming
President, the Secretary and six rescission to be proper, the subject
directors (including the chairman) decision of this Court should be
to the board of directors of FLADC. modified to entitle movants to their
Moreover, the Ongs were given the proportionate share in the mall.
right to manage and operate the  S.C. – Granted the Ongs’
mall. motions for reconsideration
 Accordingly, the Ongs paid P100 and resolve whether the Tius
million in cash for their subscription could legally rescind the Pre-
to 1,000,000 shares of stock while Subscription Agreement. We
the Tius committed to contribute to rule that they could not.
FLADC a four-storey building and  A subscription contract necessarily
two parcels of land respectively involves the corporation as one of
valued at P20 million (for 200,000 the contracting parties since the
shares), P30 million (for 300,000 subject matter of the transaction is
shares) and P49.8 million (for property owned by the corporation
49,800 shares) to cover their its shares of stock. Thus, the
additional 549,800 stock subscription contract (denominated
subscription therein. by the parties as a Pre-
 The Ongs paid in another P70 Subscription Agreement) whereby
million to FLADC and P20 million to the Ongs invested P100 million for
the Tius over and above their P100 1,000,000 shares of stock was,
million investment, the total sum of from the viewpoint of the law, one
which (P190 million) was used to between the Ongs and FLADC, not
settle the P190 million-mortgage between the Ongs and the Tius.
indebtedness of FLADC to PNB. Otherwise stated, the Tius did not
 The business harmony between the contract in their personal capacities
Ongs and the Tius in FLADC, with the Ongs since they were not
however, was shortlived because selling any of their own shares to
the Tius, on February 23, 1996, them. It was FLADC that did.
rescinded the Pre-Subscription  However, although the Tius were
Agreement. The Tius accused the adversely affected by the Ongs'
Ongs of unwillingness to let them assume
1. Refusing to credit to them the their positions, rescission due to
FLADC shares covering their real breach of contract is definitely the
property contributions; wrong remedy for their personal
2. Preventing David S. Tiu and Cely Y. grievances. The Corporation
Tiu from assuming the positions of Code, SEC rules and even the
and performing their duties as Rules of Court provide for
Vice-President and Treasurer, appropriate and adequate
respectively, and intra-corporate remedies, other
3. Refusing to give them the office than rescission, in situations
spaces agreed upon. like this. Rescission is certainly
 The Ongs denied these allegations. not one of them, specially if the
 SEC – Confirmed the confirmation party asking for it has no legal
of the rescission of the Pre- personality to do so and the
 requirements of the law therefor property of the corporation is
have not been met. allowed.
 Hence, the Tius, in their personal  Rescission will, in the final analysis,
capacities, cannot seek the result in the premature liquidation
ultimate and extraordinary remedy of the corporation without the
of rescission of the subject benefit of prior dissolution in
agreement based on a less than accordance with Sections 117, 118,
substantial breach of subscription 119 and 120 of the Corporation
contract. Not only are they not Code
parties to the subscription contract  WHEREFORE, the motion for
between the Ongs and FLADC; they reconsideration, dated March 15,
also have other available and 2002, of petitioners Ong Yong,
effective remedies under the law. Juanita Tan Ong, Wilson Ong, Anna
 All this notwithstanding, granting Ong, William Ong, Willie Ong and
but not conceding that the Tius Julie Ong Alonzo and the motion
possess the legal standing to sue for partial reconsideration, dated
for rescission based on breach of March 15, 2002, of petitioner Willie
contract, said action will Ong are hereby GRANTED.
nevertheless still not prosper since
rescission will violate the Trust
Fund Doctrine and the procedures
for the valid distribution of assets
and property under the Corporation
Code.
 The Trust Fund Doctrine provides
that subscriptions to the capital
stock of a corporation constitute a
fund to which the creditors have a
right to look for the satisfaction of
their claims.
 This doctrine is the underlying
principle in the procedure for
the distribution of capital
assets, embodied in the
Corporation Code, which allows
the distribution of corporate
capital only in three instances:
1. Amendment of the Articles of
Incorporation to reduce the
authorized capital stock,
2. Purchase of redeemable shares
by the corporation, regardless
of the existence of unrestricted
retained earnings, and
3. Dissolution and eventual
liquidation of the corporation.
 In the instant case, the rescission
of the Pre-Subscription Agreement
will effectively result in the
unauthorized distribution of the
capital assets and property of the
corporation, thereby violating the
Trust Fund Doctrine and the
Corporation Code, since rescission
of a subscription agreement is not
one of the instances when
distribution of capital assets and