Corpo Digest 1

VI. CLASSES OF CORPORATIONS UNDER THE CORP.
CODE
Collector of Internal Revenue vs. Club Filipino
G.R. L-12719; May 31, 1962
FACTS:
Club Filipino is a civic organization organized under
the Philippine laws. However, neither in the articles or bylaws is there a provision relative to dividends and their
distribution, although it is covenanted that upon its
dissolution, the Clubs remaining assets, after paying debts,
shall be donated to a charitable Philippine institution in
Cebu. The Club owns a club house, a bowling alley, a golf
course and a bar restaurant. The Club is operated mainly
with funds derived from membership and dues. The Club
declared stock dividends but no actual cash dividends were
distributed to stockholders.
ISSUE:
WON Club Filipino is a stock corporation.
HELD:
The facts that the capital stock of the respondent

Club is divided into shares, does not detract from the finding
of the trial court that it is not engaged in the business of
operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its
object or purpose, as stated in its articles and by-laws. It is a
familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business
prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation. From the
extrinsic evidence adduced, the Tax Court concluded that
the Club is not engaged in the business as a barkeeper and
restaurateur.
Moreover, for a stock corporation to exist, two
requisites must be complied with, to wit: (1) a capital stock
divided into shares and (2) an authority to distribute to the
holders of such shares, dividends or allotments of the

surplus profits on the basis of the shares held (sec. 3, Act
No. 1459). In the case at bar, nowhere in its articles of
incorporation or by-laws could be found an authority for the
distribution of its dividends or surplus profits. Strictly
speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.
VIII. INCORPORATION
Philippine Trust Co. vs. Rivera
G.R. No. L-19761; January 29, 1923
FACTS:
Cooperative Naval Filipinas was incorporated under
the Philippine laws. Mariano Rivera was one of the
incorporators. The AOI were registered in the Bureau of
Commerce and Industry. In the course of time, the
corporation became insolvent and went into the hands of
Phil. Trust Co., as assignee in bankruptcy. The latter
instituted an action to recover unpaid stock subscription of
defendant. Defendant insists the resolution that has been
made on the reduction of the capital, the reason why he did
not fully pay the entire subscription.
ISSUE:
WON the reduction of the corporate capital by
releasing the subscribers from payment of their subscription
is valid and proper.
HELD:
It is established doctrine that subscription to the

capital of a corporation constitute a find to which creditors
have a right to look for satisfaction of their claims and that
the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the
payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A
corporation has no power to release an original subscriber
to its capital stock from the obligation of paying for his
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shares, without a valuable consideration for such release;

and as against creditors a reduction of the capital stock can
take place only in the manner an under the conditions
prescribed by the statute or the charter or the articles of
incorporation. Moreover, strict compliance with the statutory
regulations is necessary
In the case at bar, therefore held that the resolution
relied upon the defendant was without effect and that the
defendant was still liable for the unpaid balance of his
subscription.
Marcus vs. RH Macy
74 N.E. 2d 228; 1947
FACTS:
The Board of Directors gave notice to SH that among
the matters to be acted upon in its annual meeting would be
a proposal to amend certificate of incorporation to add to
the rights of preferred stockholders, voting rights equal to
those of common stockholders. Marcus objected and
demanded payment for the common stock owned by her.
ISSUE:
WON Marcus can exercise her appraisal right.
HELD:
The Court held that Marcus may invoke her appraisal
right. The aggregate number of shares having voting rights
equal to those of common shares was substantially
increased and thereby the voting power of each common
share outstanding prior to the meeting was altered or
limited by the resulting pro rata diminution of its potential
worth as a factor in the management of the corporate
affairs. Considering that she held diminished voting power;
that she notified the corporation of her objection; that her
shares were voted against the amendmentthese were
sufficient to qualify her to invoke her statutory appraisal
right.
Iglesia Evangelica Metodista En Las Islas Filipinas vs. Bishop

Lazaro
G.R. No. 184088; July 6, 2010
FACTS;
IEMELIF is a corporation sole. It was registered and
by-laws were created which empowered the election of
officers to manage the affairs of the organization. Although,
the petitioner remained a corporation sole on paper, it had
always acted like a corporation aggregate. The Consistory,
IEMELIFs BOD, together with the general membership
change the organizational structure from corporation sole
to corporation aggregate, which was approved by SEC.
However, the corporate papers remained unaltered as a
corporation sole.
About 28 years later, the issue reemerge. The SEC
answered, this time, is that the conversion was not properly
carried out and documented and that it needed to amend its
AOI for that purpose. Acting on the advice, the Consistory
resolved to convert but petitioner Rev. Nestor Pineda in
IEMELIFs name did not support the conversion. Petitioners
claim that a complete shift from IEMELIFs status as a
corporation sole to a corporation aggregate required, not
just an amendment of the IEMELIFs articles of
incorporation, but a complete dissolution of the existing
corporation sole followed by a re-incorporation.
ISSUE:
WON a corporation sole may be converted into a

corporation aggregate by mere amendment of its articles of
incorporation.
HELD:
A corporation may change its character as a
corporation sole into a corporation aggregate by mere
amendment of its articles of incorporation without first
going through the process of dissolution.
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True, the Corporation Code provides no specific

mechanism for amending the articles of incorporation of a
corporation sole. However, Section 109 of the Corporation
Code allows the application to religious corporations of the
general provisions governing non-stock corporations.
For non-stock corporations, the power to amend its
articles of incorporation lies in its members. The code
requires two-thirds of their votes for the approval of such an
amendment. So how will this requirement apply to a
corporation sole that has technically but one member (the
head of the religious organization) who holds in his hands its
broad corporate powers over the properties, rights, and
interests of his religious organization?
Although a non-stock corporation has a personality
that is distinct from those of its members who established it,
its articles of incorporation cannot be amended solely
through the action of its board of trustees. The amendment
needs the concurrence of at least two-thirds of its
membership. If such approval mechanism is made to
operate in a corporation sole, its one member in whom all
the powers of the corporation technically belongs, needs to
get the concurrence of two-thirds of its membership. The
one member, here the General Superintendent, is but a
trustee, according to Section 110 of the Corporation Code,
of its membership.
There is no point to dissolving the corporation sole of
one member to enable the corporation aggregate to emerge
from it. Whether it is a non-stock corporation or a
corporation sole, the corporate being remains distinct from
its members, whatever be their number. The increase in the
number of its corporate membership does not change the
complexion of its corporate responsibility to third parties.
The one member, with the concurrence of two-thirds of the
membership of the organization for whom he acts as
trustee, can self-will the amendment. He can, with
membership concurrence, increase the technical number of
the members of the corporation from sole or one to the
greater number authorized by its amended articles.
Gamboa vs. Teves

G.R. No. 176579; June 28, 2011
This is a petition to nullify the sale of shares of stock
of Philippine Telecommunications Investment Corporation
(PTIC) by the government of the Republic of the Philippines,
acting through the Inter-Agency Privatization Council (IPC),
to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of
First Pacific Company Limited (First Pacific), a Hong Kongbased investment management and holding company and a
shareholder of the Philippine Long Distance Telephone
Company (PLDT).
The petitioner questioned the sale on the ground that
it also involved an indirect sale of 12 million shares (or
about 6.3 percent of the outstanding common shares) of
PLDT owned by PTIC to First Pacific. With this sale, First
Pacifics common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This,
according to the petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than
40%, thus:
Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is
owned by such citizens; x x x
ISSUE:
Does the term capital in Section 11, Article XII of

the Constitution refer to the total common shares only, or to
the total outstanding capital stock (combined total of
common and non-voting preferred shares) of PLDT, a public
utility?
HELD:
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[The Court partly granted the petition and held that

the term capital in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in
the election of directors of a public utility, i.e., to the total
common shares in PLDT.]
Considering that common shares have voting rights
which translate to control, as opposed to preferred shares
which usually have no voting rights, the term capital in
Section 11, Article XII of the Constitution refers only to
common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term
capital shall include such preferred shares because the
right to participate in the control or management of the
corporation is exercised through the right to vote in the
election of directors. In short, the term capital in Section
11, Article XII of the Constitution refers only to shares of
stock that can vote in the election of directors.
To construe broadly the term capital as the total
outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a selfreliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility.
Young Auto Supply vs. CA

G.R. No. 104175; June 25, 1993
FACTS:
YASCO sold all their shares of stock in CMDC to
George Roxas. The latter was able to make a 50%
downpayment of the purchase price in cash while the other

half were made in post-dated checks. Subsequently, the
post-dated checks were dishonoured which prompted YASCO
to file an action for collection of sum of money in RTC of
Cebu. Roxas failed to answer hence he was declared in
default. Without waiting for the resolution of the motion for
lifting the order of default, he filed a petition for certiorari in
CA on the ground of improper venue.
ISSUE:
WON the venue was improperly laid.
HELD:
A corporation has no residence in the same sense in

which this term is applied to a natural person. But for
practical purposes, a corporation is in a metaphysical sense
a resident of the place where its principal office is located as
stated in the articles of incorporation. The Corporation Code
precisely requires each corporation to specify in its articles
of incorporation the "place where the principal office of the
corporation is to be located which must be within the
Philippines." The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of
allowing it to be ambulatory.
Actions cannot be filed against a corporation in any
place where the corporation maintains its branch offices.
The Court ruled that to allow an action to be instituted in
any place where the corporation has branch offices, would
create confusion and work untold inconvenience to said
entity. By the same token, a corporation cannot be allowed
to file personal actions in a place other than its principal
place of business unless such a place is also the residence
of a co-plaintiff or a defendant.
With the finding that the residence of YASCO for
purposes of venue is in Cebu City, where its principal place
of business is located, it becomes unnecessary to decide
whether Garcia is also a resident of Cebu City and whether
Roxas was in estoppel from questioning the choice of Cebu
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City as the venue. The decision of the Court of Appeals was

set aside.
Philips Export B.V. vs. CA
G.R. No. 96161; February 21, 1992
FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the
cancellation of the word Philips the corporate name of
Standard Philips Corporation in view of its prior registration
with the Bureau of Patents and the SEC. However, Standard
Philips refused to amend its Articles of Incorporation so
PEBV filed with the SEC a petition for the issuance of a Writ
of Preliminary Injunction, however this was denied ruling
that it can only be done when the corporate names are
identical and they have at least two words different. This
was affirmed by the SEC en banc and the Court of Appeals
thus the case at bar.
ISSUE:
WON Standard Philips can be enjoined from using

Philips in its corporate name.
HELD:
YES. A corporations right to use its corporate and

trade name is a property right, a right in rem, which it may
assert and protect against the whole world. According to
Sec. 18 of the Corporation Code, no corporate name may be
allowed if the proposed name is identical or deceptively
confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently
deceptive, confusing or contrary to existing law.
For the prohibition to apply, two requisites must be
present: (1) the complainant corporation must have
acquired a prior right over the use of such corporate name
and; (2) the proposed name is either identical or deceptively
or confusingly similar to that of any existing corporation or
to any other name already protected by law or patently

deceptive, confusing or contrary to existing law.
Lyceum of the Phils. vs. CA

G.R. No. 101897; March 5, 1993
FACTS:
Petitioner is an educational institution duly registered
with the SEC since 1950. Before the case at bar, petitioner
commenced a proceeding against Lyceum of Baguio with
the SEC to require it to change its corporate name and
adopt a new one not similar or identical to the petitioner.
SEC granted noting that there was substantial similarity
because of the dominant word Lyceum. CA and SC
affirmed. Petitioner filed similar complaint against other
schools and obtains a favorable decision from the hearing
officer. On appeal, SEC en banc reversed the decision and
held that the word Lyceum has not become so identified
with the petitioner and that the use thereof will not cause
confusion to the general public.
ISSUES:
1. WON the corporate names of the private
respondents are identical with or deceptively similar to that
of the petitioner.
2. WON the use by the petitioner of Lyceum in its
corporate name has been for such length of time and with
such exclusivity as to have become associated or identified
with the petitioner institution in the mind of the general
public (Doctrine of Secondary meaning).
HELD:
NO, to both. True enough, the corporate names of the
parties carry the word Lyceum but confusion and
deception are precluded by the appending of geographic
names. Lyceum generally refers to a school or an institution
of learning and it is natural to use this word to designate an
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entity which is organized and operating as an educational

institution.
Doctrine of Secondary meaning is a word of phrase
originally incapable of exclusive appropriation, might
nevertheless have been used so long and so exclusively by
one producer with reference to his article that, in trade and
to that branch of the purchasing public, the word or phrase
has come to mean that the article was his product.
Lyceum of the Philippines has not gained exclusive
use of Lyceum by long passage of time. The number alone
of the private respondents suggests strongly that the use of
Lyceum has not been attended with the exclusivity essential
for the applicability of the doctrine. It may be noted that one
of the respondents Western Pangasinan Lyceum used such
term 17 years before the petitioner registered with the SEC.
Moreover, there may be other schools using the name but
not registered with the SEC because they have not adopted
the corporate form of organization.
Armco Steel Corp. vs. SEC
G.R. No. L-54580; December 29, 1987
FACTS:
ARMCO Steel Corp. is a corporation organized in
Ohio, USA, hereinafter called ARMCO-OHIO. ARMCO
Marsteel-Alloy Corporation was incorporated in the
Philippines under its original name Marsteel Alloy Company,
Inc. but its name was changed to ARMCO-Marsteel Alloy
Corporation
hereinafter
called
ARMCO-Marsteel,
by
amendment of its Articles of Incorporation after the ARMCOOhio purchased 40% of its capital stock. Both said
corporations are engaged in the manufacture of steel
products.
On the other hand, ARMCO Steel Corporation was
incorporated in the Philippines, hereinafter called ARMCOPhilippines. A pertinent portion of its articles of
incorporation provides as among its purposes: "to contract,
fabricate ... manufacture ... regarding pipelines, steel frames

... ."
ARMCO-Ohio and ARMCO-Marsteel then filed a
petition in the SEC to compel ARMCO-Philippines to change
its corporate name on the ground that it is very similar, if
not exactly the same as the name of one of the petitioners.
SEC granted the petition. Respondent amended its articles
of incorporation by changing its name to "ARMCO
structures, Inc." which was filed with and approved by the
SEC. Petitioners filed a comment alleging that the change of
name of said respondent was not done in good faith and is
not in accordance with the order of the Commission which
was to take out ARMCO and substitute another word in lieu
thereof in its corporate name by amending the articles of
incorporation.
ISSUE:
WON ARMCO-Philippines had substantially complied

in good faith with said order and said compliance had
achieved the purpose of the order, by changing its
corporate name with the approval of SEC.
HELD:
NO. The said amendment in the corporate name of

petitioner is not in substantial compliance with the order. To
repeat, the order was for the removal of the word "ARMCO"
from the corporate name of the petitioner which it failed to
do. And even if this change of corporate name was
erroneously accepted and approved in the SEC it cannot
thereby legalize nor change what is clearly unauthorized if
not contemptuous act of petitioner in securing the
registration of a new corporate name against the very
previous order of the SEC. Certainly the said previous order
is not rendered functus oficio thereby. Had petitioner
revealed at the time of the registration of its amended
corporate name that there was the said order, the
registration of the amended corporate name could not have
been accepted and approved by the persons in-charge of
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the registration. The actuations in this respect of petitioner

are far from regular much less in good faith.
Noted in fact, ARMCO STEEL-PHILIPPINES has not only
an identical name but also a similar line of business. People
who are buying and using products bearing the trademark
"Armco" might be led to believe that such products are
manufactured by the respondent, when in fact, they might
actually be produced by the petitioners. Thus, the goodwill
that should grow and inure to the benefit of petitioners
could be impaired and prejudiced by the continued use of
the same term by the respondent.
P.C. Javier & Sons vs. CA
G.R. No. 129552; June 29, 2005
FACTS:
Petitioner applied with First Summa Bank for a loan
accommodation under the Industrial Guarantee Loan Fund
(IGLF). The corporation through Pablo Javier was advised
that its loan application was approved and that the same
shall be forwarded to the Central Bank for processing. The
Central Bank released the loan. To secure the loan, Javier
executed chattel mortgage in favor of the bank. In the
meantime, the bank changed its named to PAIC Savings and
Mortgage Bank Inc. Thereafter, the corporation failed to pay;
this prompted the bank to move for the extrajudicial
foreclosure of the mortgages. Petitioner filed an action to
restrain the extrajudicial foreclosure on the ground that First
Summa Bank and PAIC Bank are separate entities.
ISSUE:
WON the debtor should be formally notified of the
corporate creditors change of name.
HELD:
NO. There is no such requirement under the law or
any regulation ordering a bank that changes its corporate
name to formally notify all its debtors. This Court cannot
impose on a bank that changes its corporate name to notify

a debtor of such change absent any law, circular or
regulation requiring it. Such act would be judicial
legislation.
The
formal
notification
is,
therefore,
discretionary on the bank. Unless there is a law, regulation
or circular from the SEC or BSP requiring the formal
notification of all debtors of banks of any change in
corporate name, such notification remains to be a mere
internal policy that banks may or may not adopt.
A change in the corporate name does not make a
new corporation, whether effected by a special act or under
a general law. It has no effect on the identity of the
corporation, or on its property, rights, or liabilities. The
corporation, upon such change in its name, is in no sense a
new corporation, nor the successor of the original
corporation. It is the same corporation with a different
name, and its character is in no respect changed.
Pioneer Insurance vs. CA
G.R. No. 84197; July 28, 1989
FACTS:
Jacob S. Lim is an owner-operator of Southern Airlines
(SAL), a single proprietorship. Japan Domestic Airlines (JDA)
and Lim entered into a sales contract. Pioneer Insurance and
Surety Corp. as surety executed its surety bond in favor of
JDA on behalf of its principal Lim. Border Machinery and
Heacy Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed funds for
the transaction based on the misrepresentation of Lim that
they will form a new corporation to expand his business.
Lim as SAL executed in favor of Pioneer a deed of
chattel mortgage as security. Restructuring of obligation to
change the maturity was done twice without the knowledge
of the other defendants. Upon default on the payments,
Pioneer paid for him and filed a petition for the foreclosure
of chattel mortgage as security. Maglana, Bormaheco and
the Cervantess filed cross-claims against Lim alleging that
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they were not privies to the contracts signed by Lim and, by

way of counterclaim, sought for damages for being exposed
to litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in
question. After trial on the merits, a decision was rendered
holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.
ISSUE:
WON failure of the respondents to incorporate

automatically resulted to de facto partnership.
HELD:
NO. Partnership inter se does not necessarily exist,

for ordinarily persons cannot be made to assume the
relation of partners as between themselves, when their
purpose is that no partnership shall exist and it should be
implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally
formed does not become a partner with other subscribers
who engage in business under the name of the pretended
corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution.
The petitioner, in his answer, denied having received
any amount from respondents Bormaheco, the Cervantess
and Maglana. It is therefore clear that the petitioner never
had the intention to form a corporation with the respondents
despite his representations to them. Applying therefore the
principles of law, no de facto partnership was created
among the parties which would entitle the petitioner to a
reimbursement of the supposed losses of the proposed
corporation.
Municipality of Malabang vs. Benito
G.R. No. L-28113; March 28, 1969
Petitioner Balindong is the municipal mayor of

Malabang, Lanao del Sur while respondents are Mayor
Benito and councilors of Municipality of Balabagan of the
same province. Balabagan (formerly part of Malabang) was
created by Executive Order 386 of the then President Carlos
P. Garcia, out of barrios and sitios of the Malabang.
Citing Pelaez ruling that Republic Act 2370 (Barrio
Charter Act), vested power to create barrios in the provincial
board, and Section 68 of the Administrative Code, insofar as
it gives the President the power to create municipalities, is
unconstitutional. Petitioner sought to nullify E.O. 386 and
restrain respondents from performing their official functions.
Respondents argued that Pelaez ruling did not apply
because unlike the municipalities involved therein, the
municipality of Balabagan is at least a de facto corporation,
having been organized under color of a statute before this
was declared unconstitutional (by Pelaez ruling), its officers
having been either elected or appointed, and the
municipality itself having discharged its corporate functions
for the past five years preceding the institution of this
action.
ISSUE:
WON a corporation organized under a statute

subsequently declared void acquires status as de facto
corporation.
HELD:
NO. A corporation organized under a statute
subsequently declared invalid cannot acquire the status of a
de facto corporation unless there is some other statute
under which the supposed corporation may be validly
organized. Hence, in the case at bar, the mere fact that the
municipality was organized before the statute had been
invalidated cannot conceivably make it a de facto
corporation since there is no other valid statute to give color
of authority to its creation.
FACTS:
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Hall vs. Piccio

G.R. No. L-2598; June 29, 1950
FACTS:
Petitioners Arnold Hall, Bradley Hall and private
respondents Fred Brown, Emma Brown, Hipolita Chapman
and Ceferino Abella signed and acknowledged the AOI of the
Far Eastern Lumber and Commercial Co., Inc. organized to
engage in a general lumber business to carry on as general
contractors, operators and managers.
Immediately after the execution of the articles of
incorporation, the corporation proceeded to do business
with the adoption of by-laws and the election of its officers.
Then, the articles of incorporation were filed in SEC for the
issuance of the corresponding certificate of incorporation.
Pending action on the AOI, private respondents filed a
civil case against the Halls alleging among other things that
Far Eastern Lumber and Commercial Co, was an
unregistered partnership and that they wished to have it
dissolved because of bitter dissension among the members,
mismanagement and fraud by the managers and heavy
financial losses. The petitioners filed a Motion to Dismiss
contesting the courts jurisdiction and the sufficiency of the
cause of action but Judge Piccio ordered the dissolution of
the company and appointed a receiver.
ISSUE:
WON the court had jurisdiction to decree the

dissolution of the company because it being a de facto
corporation, dissolution may only be ordered in a quo
warranto proceeding in accordance with Section 19.
HELD:
YES. The court had jurisdiction but Section 19 does

not apply. It held that there was no de facto corporation on
the ground that the corporation cannot claim to be in good
faith to be a corporation when it has not yet obtained its

certificate of incorporation.
The immunity of collateral attack is granted to
corporations claiming in good faith to be corporation under
this act. Such a claim is compatible with the existence of
errors and irregularities but not with a total or substantial
disregard of the law. Unless there has been an evident
attempt to comply with the law, the claim to be a
corporation under this act could not be made in good
faith.
Moreover, this is not a suit in which the corporation is
a party. This is litigation between stockholders of the alleged
corporation for the purpose of obtaining its dissolution. Even
the existence of a de jure corporation may be terminated in
a private suit for its dissolution between stockholders,
without the intervention of the state.
Cagayan Fishing vs. Sandiko
G.R. No. L-43350; December 23, 1937
FACTS:
Manuel Tabora is the registered owner of four parcels
of land. The four parcels were mortgaged for loans and
indebtedness. However, Tabora executed a public document
(Exhibit A) by virtue of which the four parcels of land owned
by him was sold to the plaintiff company, which at that time
is still under the process of incorporation.
A year later, the BOD of said company adopted a
resolution authorizing its president to sell the four parcels of
lands in question to Teodoro Sandiko. Exhibits B, C and D
were thereafter made and executed. Exhibit B is a deed of
sale where the plaintiff sold, ceded and transferred to the
defendant the four parcels of land. Exhibit C is a promissory
note drawn by the defendant in favor of the plaintiff. Exhibit
D is a deed of mortgage executed where the four parcels of
land were given a security for the payment of the
promissory note. Defendant failed to pay thus plaintiff filed
a collection of sum of money in the Court of First Instance in
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Manila. The latter rendered judgment absolving the

defendant. Plaintiff has appealed to this court and makes an
assignment of various errors.
judicial district where the business was located. Arkansas

law requires filing in both offices.
ISSUE:
valid.
Was there colorable compliance enough to give the

supposed corporation at least the status of a de facto
corporation?
HELD:
HELD:
WON the sale made by the plaintiff corporation is
NO. The transfer was made almost five months

before the incorporation of the company. Although, a duly
organized corporation has the power to purchase and hold
such real property as the purposes for which such
corporation was formed may permit and for this purpose
may enter into such contracts as may be necessary.
However before a corporation may be said to be lawfully
organized, many things have to be done. Among other
things, the law requires the filing of articles of incorporation.
Although there is a presumption that all the
requirements of law have been complied with, in the case
before us it can not be denied that the plaintiff was not yet
incorporated when it entered into a contract of sale. It was
not even a de facto corporation at the time. Not being in
legal existence then, it did not possess juridical capacity to
enter into the contract.
Corporations are creatures of the law, and can only
come into existence in the manner prescribed by law. It
should have a full and complete organization and existence
as an entity before it can enter into any kind of a contract or
transact any business.
Harill vs. Davis
168 F. 187; 1909
FACTS:
The constitutive documents were filed with the clerk
of the Court of Appeals but not with the clerk of court in the
ISSUE:
NO. Neither the hope, the belief, nor the statement

by parties that they are incorporated, nor the signing of the
articles of incorporation which are not filed, where filing is
requisite to create the corporation, nor the use of the
pretended franchise of the nonexistent corporation, will
constitute such a corporation de facto as will exempt those
who actively and knowingly use s name to incur legal
obligations from their individual liability to pay them. There
could be no incorporation or color of it under the law until
the articles were filed (requisites for valid incorporation).
Asia Banking Corp. vs. Standard Products Co.
G.R. No. 22106; September 11, 1924
FACTS:
The plaintiff corporation sued defendant corporation
for failure to pay the promissory note. Trial court rendered
judgment in favor of plaintiff. Defendant appealed and its
defense was that the plaintiff failed to prove affirmatively
the corporate existence of the parties and the appellant
insists that under these circumstances the court erred in
finding that the parties were corporations with juridical
personality and assigns same as reversible error.
ISSUE:
WON plaintiff was unable to prove its corporate

existence.
HELD:
- 10 -
NO. The general rule is that in the absence of fraud a

person who has contracted or otherwise dealt with an
association in such a way as to recognize and in effect admit
its legal existence as a corporate body is thereby estopped
to deny its corporate existence in any action leading out of
or involving such contract or dealing, unless its existence is
attacked for cause which have arisen since making the
contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations.
Hence, the defendant is estopped from denying its
own corporate existence. It is also estopped from denying
the others corporate existence.
Cranson vs. International Business Machines Corp.
234 MD. 477, 200 A. 2D 33; 1964
FACTS:
Cranson was asked to be an investor in a new
business corporation and after he acceded, there are other
people who had formed the corporation with him. A stock
certificate evidencing his ownership of shares in the
corporation was given to him. The transactions were done
as if it were a corporation and eventually Cranson was
elected president and all the dealings with IBM were
conducted by him for the corporation. At no time did he
assume personal obligation or pledge his individual credit to
IBM. But the lawyers of the corporation made an oversight
of not filing the certificate of incorporation and when claim
for payment were charged against the Real Estate Service
Bureau, IBM charged Cranson in his personal capacity.
ISSUE:
WON a defectively incorporated association would

warrant a charge against officers in their personal capacity.
HELD:
NO. Traditionally, two doctrines have been used by

the courts to clothe an officer of a defectively incorporated
association with the corporate attribute of limited liability.

The first, often referred to as the doctrine of de facto
corporations, has been applied in those cases where there
are elements showing: (1) the existence of law authorizing
incorporation: (2) an effort in good faith to incorporate
under the existing law; and (3) actual user or exercise of
corporate powers. The second, doctrine of estoppel:
employed when the person seeking to hold the officer
personally liable has contracted or otherwise dealt with the
association in such a manner as to recognize and in effect
admit its existence as a corporate body.
When there is a concurrence of the three elements
necessary for the application of the de facto corporation
doctrine, there exists an entity which is a corporation de
jure against all persons BUT THE STATE. On the other hand,
the estoppel theory is applied only to the facts of each
particular case and may be invoked even when there is no
corporation de facto.
IBM, having dealt with the Bureau as if it were a
corporation and relied on its credit rather than that of
Cranson, is estopped to assert that the Bureau was not
incorporated at the time the typewriters were franchised.
Where one has recognized the corporate existence of
an association, he is estopped to assert the contrary with
respect to claim arising out of such dealings.
Salvatierra vs. Garlitos et. al.

G.R. No. L-11442; May 23, 1958
FACTS:
Salvatierra leased his land to the corporation. He
filed a suit for accounting, rescission and damages against
the corporation and its president for his share of the
produce. Judgment against both was obtained. The
president of the corporation complains for being held
personally liable.
- 11 -
ISSUE:
WON the president can be personally held liable to

plaintiff.
HELD:
YES. He is liable. The general rule is that a person

who has contracted or dealt with an association in such a
way as to recognize its existence as a corporate body is
ESTOPPED from denying the same in an action arising out of
such transaction or dealing, unless there is fraud in the
transaction.
A person who acts as an agent without authority or
without a principal is himself regarded as the principal,
possessed of all the rights and subject to all the liabilities of
a principal, a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent.
Albert vs. University Publishing Co.
G.R. No. L-19118; January 30, 1965
FACTS:
Mariano Albert entered into a contract with University
Publishing Co., Inc. through Jose M. Aruego, its President,
whereby University would pay plaintiff for the exclusive right
to publish his revised Commentaries on the Revised Penal
Code. The contract stipulated that failure to pay one
installment would render the rest of the payments due.
When University failed to pay the second installment, Albert
sued for collection and won. However, upon execution, it
was found that University was not registered with the SEC.
Albert petitioned for a writ of execution against Jose M.
Aruego as the real defendant. University opposed, on the
ground that Aruego was not a party to the case.
ISSUE:
WON Aruego can be held personally liable to the

plaintiff.
HELD:
YES. The Supreme Court found that Aruego
represented a non-existent entity and induced not only
Albert but the court to believe in such representation.
Aruego, acting as representative of such non-existent
principal, was the real party to the contract sued upon, and
thus assumed such privileges and obligations and became
personally liable for the contract entered into or for other
acts performed as such agent. One who has induced
another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law,
cannot thereafter set up against his victim the principle of
corporation by estoppel
The Supreme Court likewise held that the doctrine of
corporation by estoppel cannot be set up against Albert
since it was Aruego who had induced him to act upon his
(Aruego's) willful representation that University had been
duly organized and was existing under the law.
Chiang Kai Shek School vs. CA
G.R. No. L-58028; April 18, 1989
FACTS:
Fausta F. Oh reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was
told she had no assignment for the next semester. Oh was
shocked for she had been teaching in the school since1932
for a continuous period of almost 33 years. And now, for no
apparent or given reason, this abrupt dismissal. She
demanded separation pay, social security benefits, salary
differentials, maternity benefits and moral and exemplary
damages.
The original defendant was the Chiang Kai Shek
School but when it filed a motion to dismiss on the ground
that it could not be sued, the complaint was amended.
- 12 -
Certain officials of the school were also impleaded to make

them solidarily liable with the school. Court of First Instance
of Sorsogon dismissed the complaint. On appeal, its decision
was set aside by the respondent court, which held the
school suable and liable while absolving the other
defendants.
WON a school that has not been incorporated may be
sued by reason alone of its long continued existence and
recognition by the government.
claimed that they were engaged in a business with Lim Tong

Lim but who was not a signatory to the agreement. They
failed to pay thus PFGI filed collection suit against the three:
Chua, Yao and Lim as general partners because Ocean
Quest is a non-existing corporation as shown by a certificate
from SEC. Lim filed for the lift of the Writ of Attachment but
RTC maintained the writ and ordered the sale of the nets.
RTC maintains that there is partnership because of the
Compromise Agreement entered by them, although silent as
to the nature of their obligations but presumes that there is
equal distribution of the profit and loss. CA affirmed.
HELD:
ISSUE:
ISSUE:
YES. Having been recognized by the government, it

was under obligation to incorporate under the Corporation
Law within 90 days from such recognition. It appears that it
had not done so at the time the complaint was filed
notwithstanding that it had been in existence even earlier
than 1932. The petitioner cannot now invoke its own noncompliance with the law to immunize it from the private
respondent's complaint.
There should also be no question that having
contracted with the private respondent every year for thirty
two years and thus represented itself as possessed of
juridical personality to do so, the petitioner is now estopped
from denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through
estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied
or disproved as against the person relying on it."
Lim Tong Lim vs. Phil. Fishing Gear Industries
G.R. No. 136448; November 3, 1999
FACTS:
Chua and Yao entered into a contract for the
purchase of fishing nets on behalf of Ocean Quest Fishing
Corp. from Phil Fishing Gear Industries. Chua and Yao
WON Lim may be regarded as a partner when the

sole basis is the Compromise Agreement and not
considering the fact that he has not signed any transaction
nor met any of the representatives of the Phil. Fishing Gears.
HELD:
YES. There is partnership. It is clear in the factual

findings that they have decided to engage in a fishing
business where they bought boats from the loan they got
from J. Lim, who is Lims brother. The partnership extended
not only to the boats but also to the nets and the floats.
In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally among them the
excess of loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the
term common fund under Article 1767. The contribution to
such fund need not be case of fixed assets; it could be an
intangible like credit or industry. That the parties agreed
that any loss or profits from the sale and operation of the
boats would be divided early among them also shows that
they had indeed formed a partnership.
Technically, it is true that petitioner did not directly
act on behalf of the corporation. However, having reaped
the benefits of the contract entered into by person with
whom he previously had an existing relationship, he is
- 13 -
deemed to be part of said association and is covered by the

scope of the doctrine of corporation by estoppel.
International Express Travel vs. CA

G.R. No. 119002; October 19, 2000
FACTS:
Express Travel wrote a letter to the Phil. Football
Federation thru the president Henry Kahn offering its
services to the latter and Kahn accepted this. The federation
consisting of athletes and officials, went to the South East
Asian Games in Malaysia and other trips to other countries.
Federation incurred expenses and made two partial
payments. Kahn issued a personal check as a partial
payment then failed to pay thereafter. Express Travel sued
Henry Kahn in his personal capacity and as president and
impleaded the federation as an alternative defendant. Henry
Kahn allege that there is no cause of action against him in
his personal capacity or official capacity and that he did not
guarantee the payment and merely acted as an agent. RTC
ruled that Henry Kahn is personally liable and that there is
no proof that the federation has a corporate existence. CA
reversed on the ground that Federation has juridical
existence.
ISSUE:
WON Federation has a juridical existence.
HELD:
NO. The basis of CA that RA 3135 Revised Charter of

the Phil. Amateur Athletic Federation and PD 604 that
recognizes the juridical existence of National Sports
Association is not correct. Mere passage of these laws DOES
NOT AUTOMATICALLY vest the associations a CORPORATE
STATUS. The State must give its consent: in the form of a
special law of a general enabling act. These laws merely

recognized the existence of national sports associations.
Henry Kahn shall be held liable for the unpaid
obligations of the unincorporated Federation. It is a settled
rule that any person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent.
Petitioner cannot be held estopped because the
doctrine of corporation by estoppel is mistakenly applied by
the respondent court to the petitioner. The application of the
doctrine applies to a third party only when he tries to
escape liability on a contract from which he has benefited
on the irrelevant ground of defective corporation. Petitioner
is not trying to escape liability but is the one claiming from
the contract.
IX. INTERNAL ORGANIZATION OF CORPORATIONS
Loyola Grand Villas Homeowners vs. CA
G.R. No. 117188; August 7, 1997
FACTS:
HIGC (Guaranty Corp), a quasi-judicial body,
recognized LGVHAI as the sole homeowners association in
Loyola Grand Villas in Marikina and QC. HIGC revoked the
certificate of North Association and South Association. North
is registered with HIGC and has submitted its by-laws.
When Soliven inquired about the status of the
LGVHAI, he was told by the legal counsel of HIGC that LGV
has been AUTOMATICALLY dissolved because it did not
submit its by-laws and that it has been a non-user of the
corporate charter because HIGC did not receive any report
on the association activities. Apparently, this information
resulted in the registration of South Association with HIGC
and subsequently filed its by-laws. These developments
prompted the officers of the LGVHAI to lodge a complaint
- 14 -
with the HIGC. They questioned the revocation of LGVHAIs

certificate of registration without due notice and hearing
and concomitantly prayed for the cancellation of the
certificates of registration of the North and South
Associations by reason of the earlier issuance of a certificate
of registration in favor of LGVHAI.
ISSUE:
WON the failure of a corporation to file its by-laws
within one (1) month from the date of its incorporation, as
mandated by Art. 46 of the Corporation Code, results in the
corporation's automatic dissolution.
HELD:
No. Failure to file by-laws does not result in the

automatic dissolution of the corporation. It only constitutes
a ground for such dissolution.
Incorporators must be given the chance to explain
their neglect or omission and remedy the same. Proper
notice and hearing are cardinal components of due process
in any democratic institution, agency or society. There must
be a hearing to determine the existence of the ground and
assuming that there is such finding, the penalty is not
revocation but may be only suspension of the charter.
Although, the code is silent on the result of the failure
to adopt and file the by-laws within the required period. PD
902-A provides, it is clear that the failure to file by-laws
within the required period is only a ground for suspension or
revocation of the certificate of registration of corporations.
Fleischer vs. Botica Nolasco Inc.
G.R. No. L-23241; March 14, 1925
FACTS:
Manuel Gonzales made a written statement to the

respondent, requesting that 5 shares of stock sold by him to
Henry Fleischer be noted transferred to Fleischer's name. He
also acknowledged in said written statement the
preferential right of the corporation to buy said five
shares but later withdrew and cancelled his written
statement. However, the respondent replied that his letter
was of no effect, and that the shares in question had been
registered in the name of the Botica Nolasco, Inc.
Fleischer filed an amended complaint against the
respondent, alleging that he became the owner of 5 shares
of fully paid stock purchase by him from the original owner,
Manuel
Gonzalez.
Despite
repeated
demands,
respondent refused to register said shares in his name in
the books of the corporation. Respondents defense is that it
has preferential right to buy the shares at the par value
based on their Art. 12 of the by-laws. Trial court favored
petitioner and ordered the shares be registered. Hence, this
appeal.
ISSUE:
WON respondents Art. 12 of the by-laws is in conflict
with the Corporation Law (now Corporation Code).
HELD:
YES. Although the corporation is empowered to make
by-laws, the same must not be inconsistent with any
existing law, for the transferring of its stocks. By-law should
be in harmony with the law on the subject of transfer of
stock. By-laws are intended for the protection and regulation
of the corporation and not for restriction.
As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into
effect the objective of the corporation and are not
contradictory to the general policy of the laws of the land.
Under a statute authorizing by-laws for the transfer of stock,
a corporation can do no more than prescribe a general
- 15 -
mode of transfer on the corporation books and cannot

justify an restriction upon the right of sale.
NOTE: The Corporation Code allows reasonable transfer
restriction in close corporations.
Government of Philippine Islands vs. El Hogar Filipino
G.R. No. L-26649; July 13, 1927
FACTS:
The plaintiff instituted a quo warranto proceeding
against respondent for the purpose of depriving it of its
corporate franchise, excluding from it all corporate rights
and privileges and effecting a final dissolution of the
corporation.
The by-laws of the corporation states a provision
that: the BOD, by vote of an absolute majority of its
members, is empowered to CANCEL SHARES AND RETURN
TO THE OWNER thereof the balance resulting from the
liquidation thereof, whenever, by reason of their conduct of
any other motive, the continuation as members of the
owners of such shares is not desirable. The plaintiff
questioned the validity because it conflicts with the
Corporation Law which declares that the BOARD SHALL NOT
HAVE THE POWER TO FORCE THE SURRENDER AND
WITHRAWAL OF UNMATURED STOCK EXCEPT IN CASE OF
LIQUIDATION OF THECORPORATION OR OF FORFEITURE OF
THE STOCK FOR DELINQUENCY.
Second cause of action of the plaintiff was based on
the BODs failure to hold annual meetings and fill vacancies.
There is also a provision in the by-laws that the directors
shall elect from among the shareholder members to fill the
vacancies that may occur in the BOD until the election at
the general meeting.
Third cause of action is the fact the directors of El
Hogar have been receiving large compensation because the
by-laws provide a 5% of the net profit shown by the annual
balance sheet to be distributed to the directors in proportion

to their attendance at meetings of the board.
Fourth cause of action, procedures to adopt when one
is elected as a BOD must own at least P5000 pay-up of
shares as security.
ISSUES:
First, is a provision in the by-laws allowing the BOD,
by vote of absolute majority, to cancel shares valid?
Second, is mere failure to elect officers terminates
the term of existing officers?
Third, is a provision in the by-laws fixing the salary of
directors valid?
Fourth, is a provision requiring persons elected to the
Board of Directors to own at least P 5,000 shares valid?
HELD:
First. No. It is a patent nullity, being in direct conflict

with Sec. 187 of the Corporation Law which prohibits forced
surrender of unmatured stocks except in case of dissolution.
Second. No. Unless the law or the charter of the
corporation expressly provides that an office shall become
at the expiration of the term of office for which the officer
was elected, the general rule is to allow the officer to hold
over until his successor is duly qualified. MERE FAILURE OF A
CORPORATION TO ELECT OFFICERS DOES NOT TERMINATE
THE TERM OF EXISTINGOFFICERS AND DISSOLVE THE
CORPORATION.
Third. Yes. Since the Corporation Law does not
prescribe the rate of compensation, the power to fix
compensation lies with the corporation. The remedy is in the
hands of the stockholders.
Fourth. Yes.
The Corporation Law gives the
corporation the power to provide qualifications of its
directors and the requirement of security from them for the
proper discharge of the duties of their office.
Gokongwei Jr. vs. SEC et. al.
- 16 -
G.R. No. L-45911; April 11, 1979

FACTS:
Petitioner, stockholder of San Miguel Corp. filed a
petition with the SEC for the declaration of nullity of the bylaws etc. against the majority members of the BOD and San
Miguel. It is stated in the by-laws that the amendment or
modification of the by-laws may only be delegated to the
BODs upon an affirmative vote of stockholders representing
not less than 2/3 of the subscribed and paid up capital stock
of the corporation, which 2/3 could have been computed on
the basis of the capitalization at the time of the
amendment. Petitioner contends that the amendment was
based on the 1961 authorization, the Board acted without
authority and in usurpation of the power of the stockholders
in amending the by-laws in 1976. He also contends that the
1961 authorization was already used in 1962 and 1963. He
also contends that the amendment deprived him of his right
to vote and be voted upon as a stockholder (because it
disqualified competitors from nomination and election in the
BOD of SMC), thus the amended by-laws were null and void.
While this was pending, the corporation called for a
stockholders meeting for the ratification of the amendment
to the by-laws. This prompted petitioner to seek for
summary judgment. This was denied by the SEC. In another
case filed by petitioner, he alleged that the corporation had
been using corporate funds in other corporations and
businesses outside the primary purpose clause of the
corporation in violation of the Corporation Code.
ISSUE:
Are the amendments in the by-laws are valid?
HELD:
YES. The validity and reasonableness of a by-law is
purely a question of law. Whether the by-law is in conflict
with the law of the land, or with the charter of the
corporation or is in legal sense unreasonable and therefore
unlawful is a question of law. However, this is limited where
the reasonableness of a by-law is a mere matter of

judgment, and one upon which reasonable minds must
necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those
who are authorized to make by-laws and who have
exercised authority.
The Court held that a corporation has authority
prescribed by law to prescribe the qualifications of directors.
It has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the
rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.
A corporation, under the Corporation law, may
prescribe in its by-laws the qualifications, duties and
compensation of directors, officers, and employees. Any
person who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of
the stockholders and he impliedly contracts that the will of
the majority shall govern in all matters within the limits of
the acts of incorporation and lawfully enacted by-laws and
not forbidden by law.
Any corporation may amend its by-laws by the
owners of the majority of the subscribed stock. It cannot
thus be said that petitioners has the vested right, as a stock
holder, to be elected director, in the face of the fact that the
law at the time such stockholder's right was acquired
contained the prescription that the corporate charter and
the by-laws shall be subject to amendment, alteration and
modification.
A Director stands in a fiduciary relation to the
corporation and its shareholders, which is characterized as a
trust relationship. An amendment to the corporate by-laws
which renders a stockholder ineligible to be director, if he be
also director in a corporation whose business is in
competition with that of the other corporation, has been
sustained as valid. This is based upon the principle that
where the director is employed in the service of a rival
company, he cannot serve both, but must betray one or the
other. The amendment in this case serves to advance the
- 17 -
benefit of the corporation and is good. Corporate officers are

also not permitted to use their position of trust and
confidence to further their private needs, and the act done
in furtherance of private needs is deemed to be for the
benefit of the corporation. This is called the doctrine of
corporate opportunity.
Grace Christian High School vs. CA
G.R. No. 108905; October 23, 1997
FACTS:
Grace Christian High School is an educational
institution at the Grace Village in Quezon City. Grace Village
Association, Inc., on the other hand, is an organization of lot
and/or building owners, lessees and residents at Grace
Village.
In 1968, the by-laws of the association provide that
the annual meeting of the members shall be held per
calendar year and that the election of the BOD shall be by
plurality of votes.
In 1975, a committee of the BOD prepared a draft of
an amendment to the by-laws a substantial addition was
made
wherein
GRACE
CHRISTIAN
HIGH
SCHOOL
representative is a permanent Director of the ASSOCIATION.
However, said draft was never presented to the general
membership for approval. Nevertheless, Grace Christian
High School was given a permanent seat in the board of
directors of the association.
On 1990, the association's committee decided to reexamine the 1975 by-laws for the reason that there was
deprivation on the part of the voters to vote for 15 directors
(because of a reserved permanent seat for GCHS). Hence,
notices were sent to the members of the association that
the provision on election of directors of the 1968 by-laws of
the association would be observed.
The school requested the chairman of the election
committee to change the notice of election claiming that it
was in violation of the 1975 by-laws and unlawfully deprived
Grace Christian High School of its vested right to a
permanent seat in the board. The GVA denied their request.
The school brought suit for mandamus in the HIGC. The

association, on the other hand, sought the opinion of the
SEC on the validity of this provision and rendered that the
practice of allowing unelected members in the board was
contrary to the existing by-laws of the association and to
92 of the Corporation Code.
The case was set for hearing and HIGC rendered a
decision dismissing the school's action. The appeals board
of the HIGC affirmed the decision of the hearing officer.
Petitioner appealed to the CA but again lost.
ISSUE:
WON the amendments made in the by-laws in 1975

was valid.
HELD:
NO. A by-law provision granting to a stockholder a

permanent representation in the Board of Directors is
contrary to the Corporation Code requiring all members of
the Board to be elected by the stockholders or members.
Even when the members of the association may have
formally adopted the provision, their action would be of no
avail because no provision of the by-laws can be adopted if
it is contrary to law.
Hence, the school cannot claim a vested right to sit in
the board on the basis of "practice." Practice, no matter
how long continued, cannot give rise to any vested right if it
is contrary to law. Even less tenable is the school's claim
that its right is "coterminus with the existence of the
association."
Thomson vs. CA
G.R. No. 116631; October 28, 1998
FACTS:
- 18 -
Petitioner was the EVP and later on the Management

Consultant of the private respondent, American Chamber of
Commerce in the Philippines (AmCham).
While petitioner was still working with private
respondent, his superior, Burridge, retired as AmCham's
President. Burridge wanted to transfer his proprietary share
in the Manila Polo Club (MPC) to petitioner. However,
through the intercession of Burridge, private respondent
paid for the share but had it listed in petitioner's name.
Upon his admission as a new member of the MPC, petitioner
paid the transfer fee from his own funds; but private
respondent
subsequently
reimbursed
this
amount.
Thereafter, MPC issued Proprietary Membership Certificate
but petitioner failed to execute a document recognizing
private respondent's beneficial ownership over said share.
When petitioner's contract of employment was up for
renewal, he notified private respondent that he would no
longer be available as EVP, but the latter insisted that he
stay for 6 months. Petitioner indicated his acceptance of the
consultancy arrangement with a counter-proposal among
others is the retention of the Polo Club share. Private
respondent rejected the counter-proposal. Pending the
negotiation
for
consultancy
arrangement,
private
respondent executed a release and quitclaim against
petitioner.
Private respondent sent a letter to the petitioner
demanding the return and delivery of the MPC share but
failed to get a response. Hence, the former filed a complaint
against petitioner for the return of MPC share. The trial court
awarded the MPC share to petitioner on the ground that the
AOI and By-laws of Manila Polo Club prohibit artificial
persons, such as corporations, to be club members. CA
reversed the decision of the trial court.
ISSUE:
WON the CA erred in ordering petitioner to transfer

the contested MPC share to a nominee of private
respondent notwithstanding MPCs AOI and By-laws
prohibition for being a club member.
HELD:
NO. Private respondent does not insist nor intend to
transfer the club membership in its name but rather to its
designated nominee. The Manila Polo Club does not
necessarily prohibit the transfer of proprietary shares by its
members. The Club only restricts membership to deserving
applicants in accordance with its rules, when the amended
Articles of Incorporation states that: "No transfer shall be
valid except between the parties, and shall be registered in
the Membership Book unless made in accordance with these
Articles and the By-Laws". Thus, as between parties herein,
there is no question that a transfer is feasible.
Moreover, authority granted to a corporation to
regulate the transfer of its stock does not empower it to
restrict the right of a stockholder to transfer his shares, but
merely authorizes the adoption of regulations as to the
formalities and procedure to be followed in effecting
transfer.
In this case, the petitioner was the nominee of the
private respondent to hold the share and enjoy the
privileges of the club. But upon the expiration of petitioner's
employment as officer and consultant of AmCham, the
incentives that go with the position, including use of the
MPC share, also ceased to exist. It now behooves petitioner
to surrender said share to private respondent's next
nominee, another natural person.
Salafranca
vs.
Philamlife
(Pamplona)
Association
G.R. No. 121791; December 23, 1998
Homeowners
FACTS:
Petitioner Enrique Salafranca started working with
private respondent as administrative officer for a period of 6
months. He was re-appointed to his position three more
times. After petitioners term of employment expired on, he
- 19 -
still continued to work in the same capacity, albeit, without

the benefit of a renewed contract.
Sometime in 1987, private respondent decided to
amend its by-laws. Included therein was a provision
regarding officers, specifically, the position of administrative
officer under which said officer shall hold office at the
pleasure of the Board of Directors.
In view of the development, private respondent
informed the petitioner that his term of office shall be coterminus with the Board of Directors which appointed him to
his position. Furthermore, until he submits a medical
certificate his employment shall be on a month to month
basis. Notwithstanding the failure of petitioner to submit his
medical certificate, he continued to work until his
termination.
Petitioner filed a complaint for illegal dismissal,
money claims and for damages. The Labor Arbiter rendered
decision in favor of petitioner on the ground that the
amendment would not be applicable to complainant who
had become a regular employee long time before the
amendment took place. The NLRC reversed the decision of
the Labor Arbiter.
ISSUE:
WON the dismissal of petitioner was valid by virtue of
the amendment in the by-laws making petitioners position
co-terminus with that of the BOD.
HELD:
NO. Although the right to amend by-laws lies solely in

the discretion of the employer, this being in the exercise of
management prerogative or business judgment, however
such right cannot impair the obligation of existing contracts
or rights or undermine the right to security of tenure of a
regular employee. Otherwise, it would enable an employer
to remove any employee from employment by the simple
expediency of amending its by-laws and providing the
position shall cease to exist upon occurrence of a specified
event.
If private respondent wanted to make the petitioners

position co-terminus with that of the Board of Directors,
then the amendment must be effective after petitioners
stay with the private respondent, not during his term.
Obviously, the measure taken by the private respondent in
amending its by-laws is nothing but a devious, but crude,
attempt to circumvent petitioners right to security of tenure
as a regular employee guaranteed under the Labor Code.
China Banking Corp. vs. CA
G.R. No. 117604; March 26, 1997
FACTS:
Galicano Calapatia, stockholder of Valley Golf and
Country Club Inc. (VGCCI), pledged his stock certificate to
petitioner as a security for the loan. Petitioner requested
VGCCI that the pledge agreement be recorded in their
books. Due to Calapatia failure to pay, petitioner filed a
petition for extrajudicial foreclosure of pledged stock;
notified and ordered VGCCI to transfer the pledged stock in
its name and in the corporate books. VGCCI refused in view
of Calapatias unsettled accounts with the club.
Despite the refusal, the foreclosure ensued and
petitioner emerged the highest bidder and a certificate of
sale was issued. Meanwhile, VGCCI sent a notice of demand
to Calapatia for the full payment of his overdue account. For
failure to pay, the delinquent stock was published and
auctioned.
Petitioner advised VGCCI that it is the new owner of
Calapatias stock certificate and requested that a new
certificate of stock be issued in its name. VGCCI replied that
by reason of delinquency, Calapatias stock was sold at
public auction. Petitioner protested the sale and filed a
complaint for the nullification of auction made by VGCCI in
the RTC of Makati. The trial court dismissed the complaint
on the ground of intra-corporate controversy.
Thereafter, petitioner filed a complaint in SEC on the
same grounds. SEC ruled in favor of VGCCI. Petitioner
- 20 -
appealed to SEC en banc and the latter reversed the

decision. VGCCI appealed to CA and the latter set aside the
orders of SEC on the ground of lack of jurisdiction because it
does not involve intra-corporate controversy.
ISSUE:
WON the petitioner is bound by the VGCCIs by-laws.
HELD:
NO. In order to be bound, the third party must have

acquired knowledge, either actual or constructive, of the
pertinent by-laws at the time the transaction or agreement
between said third party and the shareholder was entered
into, in this case, at the time the pledge agreement was
executed. VGCCI could have easily informed petitioner of its
by-laws when it sent notice formally recognizing petitioner
as pledgee of one of its shares registered in Calapatia's
name.
By-laws signifies the rules and regulations or private
laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and its
stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it.
In other words, by-laws are the relatively permanent and
continuing rules of action adopted by the corporation for its
own government and that of the individuals composing it
and having the direction, management and control of its
affairs, in whole or in part, in the management and control
of its affairs and activities. The purpose of a by-law is to
regulate the conduct and define the duties of the members
towards the corporation and among themselves. They are
self-imposed and, although adopted pursuant to statutory
authority, have no status as public law.
X. CAPITAL STRUCTURE OF CORPORATIONS

Republic Planters Bank vs. Agana
G.R. No. 51765; March 3, 1997
FACTS:
Private respondent Robes Francisco Realty &
Development Corp. secured a loan from petitioner. As part
of the proceeds of the loan, preferred shares of stocks were
issued to private respondent corporation. In other words,
instead of giving the legal tender totalling to the full amount
of the loan, petitioner lent such amount partially in the form
of money and of stock certificates. Said stock certificates
were in the name of private respondent Adalia Robes and
Carlos Robes, later on, subsequently endorsed his shares in
favor of Adalia Robes.
Said certificates of stock bear the following terms and
conditions: (1) the right to receive a quarterly dividend of
1%, cumulative and participating; (2) that such preferred
shares may be redeemed, by the system of drawing lots, at
any time after 2 years from the date of issue at the option of
the corporation.
Private respondents proceeded against petitioner and
filed a complaint anchored on private respondents alleged
rights to collect dividends under the preferred shares in
question and to have petitioner redeem the same under the
terms and conditions of the stock certificates. The trial court
ordered the petitioner to pay private respondents the face
value of the stock certificates as redemption price, plus 1%
quarterly interest. Hence this petition.
ISSUE:
WON the bank can be compelled to redeem the

preferred shares issued to RFRDC and Robes.
HELD:
- 21 -
NO. While the stock certificate does allow

redemption, the option to do so was clearly vested in the
bank. The redemption therefore is clearly the type known as
"optional". Thus, except as otherwise provided in the stock
certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either
compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth
therein use the word "may". It is a settled doctrine in
statutory construction that the word "may" denotes
discretion, and cannot be construed as having a mandatory
effect. The redemption of said shares cannot be allowed.
The Central Bank made a finding that the Bank has been
suffering from chronic reserve deficiency, and that such
finding resulted in a directive to the President and Acting
Chairman of the Board of the bank prohibiting the latter
from redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank to the
prejudice of its depositors and creditors. Redemption of
preferred shares was prohibited for a just and valid reason.
The directive issued by the Central Bank Governor was
obviously meant to preserve the status quo, and to prevent
the financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its depositors
and creditors, but also to the banking industry as a whole.
The directive, in limiting the exercise of a right granted by
law to a corporate entity, may thus be considered as an
exercise of police power.
NOTE: This case gave a comprehensive overview of the
nature of preferred shares and redeemable shares.
Preferred share of stock, on one hand, is one which
entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to
induce persons to subscribe for shares of a corporation.
Preferred shares take a multiplicity of forms. The most
common forms may be classified into two: (1) preferred
shares as to assets; and (2) preferred shares as to
dividends. The former is a share which gives the holder
thereof preference in the distribution of the assets of the

corporation in case of liquidation; the latter is a share the
holder of which is entitled to receive dividends on said share
to the extent agreed upon before any dividends at all are
paid to the holders of common stock. There is no guaranty,
however, that the share will receive any dividends. The
declaration of dividends is dependent upon the availability
of surplus profit or unrestricted retained earnings, as the
case may be. Preferences granted to preferred stockholders,
moreover, do not give them a lien upon the property of the
corporation nor make them creditors of the corporation, the
right of the former being always subordinate to the latter.
Dividends are thus payable only when there are profits
earned by the corporation and as a general rule, even if
there are existing profits, the board of directors has the
discretion to determine whether or not dividends are to be
declared.
Redeemable shares, on the other hand, are shares
usually preferred, which by their terms are redeemable at a
fixed date, or at the option of either issuing corporation, or
the stockholder, or both at a certain redemption price.
Redemption by the corporation of its stock is, in a sense, a
repurchase of it for cancellation. The present Code allows
redemption of shares even if there are no unrestricted
retained earnings on the books of the corporation. This is a
new provision which in effect qualifies the general rule that
the corporation cannot purchase its own shares except out
of current retained earnings. However, while redeemable
shares may be redeemed regardless of the existence of
unrestricted retained earnings, this is subject to the
condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of
capital stock. Redemption, therefore, may not be made
where the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its
debts as they mature.
COCOFED vs. Republic of the Philippines
- 22 -
G.R. No. 177857-58; September 17, 2009

FACTS:
COCOFED seeks the Courts approval of the
conversion of Class A and Class B common shares of San
Miguel Corporation (SMC) registered in the names of
Coconut Industry Investment Fund and the so-called 14
Holding
Companies
(collectively
known
as
CIIF
companies) into SMC Series 1 Preferred Shares.
COCOFED proposes to constitute a trust fund to be
known as the Coconut Industry Trust Fund (CITF) for the
Benefit of the Coconut Farmers, with respondent Republic,
acting through the Philippine Coconut Authority (PCA), as
trustee. Respondent Republic filed its Comment questioning
COCOFEDs personality to seek the Courts approval of the
desired conversion.
Respondent Republic also disputes
COCOFEDs right to impose and prescribe terms and
conditions on the proposed conversion, maintaining that the
CIIF SMC common shares are sequestered assets and are in
custodia legis under PCGGs administration. It postulates
that, owing to the sequestrated status of the said common
shares, only PCGG has the authority to approve the
proposed conversion and seek the necessary Court
approval.
ISSUE:
Conversion of Shares.
HELD:
The court resolved to approve the conversion, taking

into account certain circumstances and hard economic
realities as discussed below:
No doubt shares of stock are not the safest of
investments, moored as they are on the ever changing
worldwide and local financial conditions. The proposed
conversion would provide better protection either to the
government or to the eventually declared real stock owners,
depending on the final ruling on the ownership issue. In the
event SMC suffers serious financial reverses in the short or
long term and seeks insolvency protection, the owners of

the preferred shares, being considered creditors, shall have,
vis--vis common stock shareholders, preference in the
corporate assets of the insolvent or dissolved corporation.
In the case of the SMC Series 1 Preferred Shares, these
preferential features are made available to buyers of said
shares and are amply protected in the investment.
The redemption value of the preferred shares
depends upon and is actually tied up with the issue price
plus all the cumulated and unpaid dividends. This
redemption feature is envisaged to effectively eliminate the
market volatility risks on the side of the share owners.
Undoubtedly, these are clear advantages and benefits that
inure to the share owners who, on one hand, prefer a stable
dividend yield on their investments and, on the other hand,
want security from the uncertainty of market forces over
which they do not have control.
The proposed conversion will address the concerns
and allay the fears of well meaning sectors, and insulate
and protect the sequestered CIIF SMC shares from potential
damage or loss. Moreover, the conversion may be viewed as
a sound business strategy to preserve and conserve the
value of the governments interests in CIIF SMC shares.
Preservation is attained by fixing the value today at a
significant premium over the market price and ensuring that
such value is not going to decline despite negative market
conditions. Conservation is realized thru an improvement in
the earnings value via the 8% per annum dividends versus
the uncertain and most likely lower dividends on common
shares.
NOTE: This case discussed the classification of shares, its
voting and non-voting rights and instances of appraisal
right. Treasury stocks was emphasized The common shares after conversion and release
from sequestration become treasury stocks or shares.
Treasury shares are shares of stock which have been issued
and fully paid for, but subsequently reacquired by the
issuing corporation by purchase, redemption, donation or
- 23 -
through some other lawful means. Such shares may again

be disposed of for a reasonable price fixed by the board of
directors.
A treasury share or stock, which may be common or
preferred, may be used for a variety of corporate purposes,
such as for a stock bonus plan for management and
employees or for acquiring another company. It may be held
indefinitely, resold or retired. While held in the companys
treasury, the stock earns no dividends and has no vote in
company affairs.
F. STOCKS & STOCKHOLDERS
1.) CONSIDERATION FOR SHARES
Garcia vs. Lim Chu Sing
G.R. No. L-39427; February 24, 1934
FACTS:
Lim Cuan Sy had an account with the Mercantile Bank
of China (plaintiff bank) in the form of "trust receipts"
guaranteed by Lim Chu Sing (respondent) as surety & with
chattel mortgage securities. Lim Cuan Sy failed to comply
with his obligations. The plaintiff bank required Lim Chu
Sing, as surety, to deliver a promissory note. The plaintiff
bank, without the knowledge & consent of the defendant,
foreclosed the chattel mortgage and privately sold the
property covered thereby. The defendant is an owner of
shares of stock in the plaintiff bank.
Meanwhile, plaintiff bank was subsequently placed
under liquidation. The defendant filed a motion for the
inclusion of the principal debtor Lim Cuan Sy as party
defendant with the CFI-Manila so that he could avail himself
of the benefit of the exhaustion of the property of said Lim
Cuan Sy. The motion was denied. The proceeds of the sale
of the mortgaged chattels together with other payments
made were applied to the amount of the promissory note in
question, leaving the balance which the plaintiff now seeks

to collect.
ISSUE:
WON it is proper to COMPENSATE the respondents
indebtedness to the value of his shares of stock with the
Mercantile Bank of China.
HELD:
NO. A share of stock or the certificate thereof is not

indebtedness to the owner nor evidence of indebtedness
and therefore, it is not a credit. Stockholders as such are not
creditors of the corporation.
The capital stock of a corporation is a trust fund to be
used more particularly for the security of the creditors of the
corporation who presumably deal with it on the credit of its
capital.
Apodaca vs. NLRC
G.R. No. 80039; April 18, 1989
FACTS:
Petitioner was employed in respondent corporation.
He was persuaded by respondent Mirasol to subscribe to
1,500 shares which he paid partially. Petitioner was
appointed President and General Manager of the respondent
corporation but later on he resigned. Petitioner instituted
with the NLRC a complaint against private respondents for
the payment of his unpaid wages, his cost of living
allowance, the balance of his gasoline and representation
expenses and his bonus compensation. Private respondents
admitted that there is due to petitioner but this was applied
to the unpaid balance of his subscription. Petitioner
questioned the set-off alleging that there was no call or
notice for the payment of the unpaid subscription and that,
accordingly, the alleged obligation is not enforceable.
ISSUE;
- 24 -
(1) Whether or not NLRC has jurisdiction to resolve a

claim for non-payment of stock subscriptions to a
corporation.
(2) If so, whether or not an obligation arising
therefrom be offset against a money claim of an employee
against the employer.
HELD:
(1) NLRC has no jurisdiction to determine such intracorporate dispute between the stockholder and the
corporation as in the matter of unpaid subscriptions. This
controversy is within the exclusive jurisdiction of the
Securities and Exchange Commission (now RTC).
(2) No. The unpaid subscriptions are not due and
payable until a call is made by the corporation for payment.
Private respondents have not presented a resolution of the
board of directors of respondent corporation calling for the
payment of the unpaid subscriptions. It does not even
appear that a notice of such call has been sent to petitioner
by the respondent corporation. As there was no notice or
call for the payment of unpaid subscriptions, the same is not
yet due and payable.
Even if there was a call for payment, an obligation
arising from non-payment of stock subscriptions to a
corporation cannot be offset against a money claim of an
employee against the employer.
National Exchange vs. Dexter
G.R. No. L-27872; February 25, 1928
FACTS:
Dexter subscribed to 300 shares. The subscription
contract provided that the shares will be paid solely from
the dividends. Company became insolvent. Assignee in
insolvency sued Dexter for the balance. Dexter's defense
was that under the contract, payment would come from the
dividends. Without dividends, he cannot be obligated to
pay.
ISSUE:
WON the stipulation contained in the subscription to
the effect that the subscription is payable from the first
dividends declared on the shares has the effect of relieving
the subscriber from personal liability in an action to recover
the value of the shares.
HELD:
The Court held that the subscription contract was

void since it works a fraud on creditors who rely on the
theoretical capital of the company (subscribed shares).
Under the contract, this theoretical value will never be
realized since if there are no dividends, stockholders will not
be compelled to pay the balance of their subscriptions.
2.) UNPAID SUBSCRIPTIONS
Velasco vs. Poizat
G.R. No. L-11528; March 15, 1918
FACTS:
Poizat subscribed to 20 shares but only paid for 5.
Board made a call for payment through a resolution. Poizat
refused to pay. Corporation became insolvent. Assignee in
insolvency sued Poizat whose defense was that the call was
invalid for lack of publication.
ISSUE:
WON Poizat is liable to the unpaid subscription.
HELD:
YES. A stock subscription is subsisting liability from

the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he
is relieved from such liability by the by-laws of the
- 25 -
corporation. The subscriber is as much bound to pay the

amount of the share subscribed by him as he would be to
pay any other debt, and the right of the company to
demand payment is no less incontestable.
The Board call became immaterial when insolvency
supervenes, all unpaid subscriptions become at once due
and enforceable.
Lingayen Gulf Electric vs. Baltazar
G.R. No. L-4824; June 30, 1953
FACTS:
Companys president subscribed to shares and paid
partially. The Board made a call for payment through a
resolution. However, the president refused to pay,
prompting the corporation to sue. The defense was that the
call was invalid for lack of publication.
ISSUE:
WON the petitioner company is liable for unpaid
subscription despite the lack of publication.
HELD:
NO. Notice of any call for the payment of unpaid
subscription should be made not only personally but also by
publication once a week, for four consecutive weeks in some
newspapers.
In a solvent corporation, there must be a published
call for the payment of unpaid subscriptions before payment
could be demanded. The ruling in Poizat does not apply
since the company here is solvent. No cancellation or
release from obligation can be valid without the consent of
the stockholder.
De Silva vs. Aboitiz
G.R. No. L-19893; March 31, 1923
FACTS:
De Silva subscribed to 650 shares and paid for 200.
The company notified him that his shares will be declared
delinquent and sold in a public auction if he does not pay
the balance. De Silva did not pay. The company advertised
a notice of delinquency sale. De Silva sought an injunction
because the by-laws allegedly provide that unpaid
subscriptions will be paid from the dividends allotted to
stockholders.
ISSUE:
WON De Silva is liable despite the provision in the bylaws regarding dividends as payment for unpaid
subscriptions.
HELD:
YES. Although, the by-laws provide that unpaid
subscriptions may be paid from such dividends The
defendant corporation, through its board of directors, made
use of its discretionary power, taking advantage of the first
of the two remedies: delinquency sale or specific
performance.
Settled is the rule that nothing in this act shall
prevent the directors from collecting, by action in any court
of proper jurisdiction, the amount due on any unpaid
subscription, together with accrued interest and costs and
expenses incurred.
Lumanlan vs. Cura
G.R. No. L-39861; March 21, 1934
FACTS:
Lumanlan had unpaid subscriptions. Companys
receiver sued him for the balance and won. While the case
was on appeal, the company and petitioner entered into a
compromise whereby he would directly pay a creditor of the
company. In exchange, the company would forego
whatever balance remained on the unpaid subscription. He
- 26 -
agreed since he would be paying less than his unpaid

subscription. Afterwards, the corporation still sued him for
the balance because the company still has unpaid creditors.
His defense was the compromise agreement.
3.) RIGHTS OF UNPAID SHARES
ISSUE:
WON Lumanlan is still liable despite the compromise
agreement.
NOTE: The three cases thereunder are correlated, read and

comprehend thoroughly.
Fua Cun vs. Summers
G.R. No. L-19441; March 27, 1923
HELD:
YES. The Court held that the agreement cannot
prejudice creditors. The subscriptions constitute a fund to
which they have a right to look to for satisfaction of their
claims. Therefore, the corporation has a right to collect all
unpaid stock subscriptions and any other amounts which
may be due it, notwithstanding the compromise agreement.
China Banking Corp. vs. CA (supra)
G.R. No. 117604; March 26, 1997
ISSUE:
Unpaid Claim with regards to unpaid subscription.
HELD:
the corporation were merely the monthly dues. Hence, the

aforequoted provision does not apply.
Sec. 63 of the Corporation Code which provides that

"no shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation" cannot be utilized by VGCCI. The term "unpaid
claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising
from any other transaction.
In the case at bar, the subscription for the share in
question has been fully paid as evidenced by the issuance
of Membership Certificate No. 1219. What Calapatia owed
FACTS:
Chua Soco bought 500 shares of China Banking Corp.
at par value of P100.00, paying the sum of P25,000.00, 50%
of the subscription price. Chua mortgaged the said shares in
favor of plaintiff Fua Cun to secure a promissory note for the
sum of P25,000.00. In the meantime, Chua Soco's interest
in the 500 shares were attached and levied upon to satisfy
his debt with China Banking Corp. Fua Cun brought an
action to have himself declared to hold priority over the
claim of China Bank, to have the receipt for the shares
delivered to him, and to be awarded damages for wrongful
attachment, on the ground that he was owner of 250 shares
by virtue of Chua Soco's payment of half of the subscription
price.
ISSUE:
WON petitioner is entitled to issuance of stock
certificate.
HELD:
NO. A subscriber does not become the owner of a
particular number of shares corresponding to the amount he
already paid but merely holds a right of equity in the total
number of shares subscribed. Complete ownership over the
- 27 -
total number of shares subscribed will only vest with the

stockholder upon payment of the whole subscription price.
In the absence of special agreement to the contrary,
a subscriber for a certain number of shares of stock does
not, upon payment of one-half of the subscription price
become entitled to the issuance of certificates for one-half
of the number of shares subscribed for; the subscriber's
right consists only in equity entitling him to a certificate for
the total number of shares subscribed for by him upon
payment of the remaining portion of the subscription price.
Baltazar vs. Lingayen Gulf
G.R. No. L-16236; June 30, 1965
FACTS:
Baltazar, et al. subscribed to a certain number of
shares of Lingayen Gulf Electric Power. They had made only
partial payment of the subscription but the corporation
issued them certificates corresponding to shares covered by
the partial payments. Corporation wanted to deny voting
rights to all subscribed shares until total subscription is paid.
ISSUE:
WON petitioner is entitled to issuance of stock
certificate.
HELD:
YES. The Court held that shares of stock covered by
fully paid capital stock shares certificates are entitled to
vote. Where the corporation has issued certificate of stock
of a definite number corresponding to the initial payment
made on the subscription, said shares may validly be voted
at all meetings and only the remaining number of shares in
the unpaid subscription will be affected by the call and
subsequent declaration of delinquency in case of nonpayment of the subscription balance.
Corporation may choose to apply payments to
subscription either as: (a) full payment for corresponding
number of stock the par value of which is covered by such

payment; or (b) as payment pro-rata to each subscribed
share. The corporation chose the first option, and, having
done so, it cannot unilaterally nullify the certificates issued.
Nava vs. Peers Marketing Corp.
G.R. No. L-28120; November 25, 1976
FACTS:
Teofilo Co subscribed to 80 shares of Peers Marketing
Corp. at P100.00 a share for a total of P8,000.00. He,
however, paid only P2,000.00 corresponding to 20 shares or
25% of total subscription. Nava bought 20 shares from Co
and sought its transfer in the books of the corporation. The
corporation refused to transfer said shares in its books.
ISSUE:
WON the shares may be transferred in the books of
the corporation and may stock certificate be issued.
HELD:
NO. It was held that the transfer is effective only

between Co and Nava and does not affect the corporation.
The Fua Cun ruling applies. Lingayen Gulf does not apply
because, unlike in Lingayen Gulf, no certificate of stock was
issued to Co.
No shares of stock against which the corporation
holds an unpaid claim are transferable in the books of the
corporation. Mandamus will not lie to compel corporate
officers to record the transfer of shares in its books where
no shares of stocks were issued for the unpaid subscription.
The issuance of the certificate of stock, its indorsement and
delivery to the transferee, and the surrender thereof to the
corporation are requisites for the recording of the transfer in
the corporate books.
- 28 -
CAMPOS NOTES: The Nava case reinforced the ruling in

the Fua Cun case, making it clear that the decision in
Lingayen Gulf case should be applicable only to the
special circumstances appearing there.
Section 64 of the Code clearly supports the Fua Cun
case and its prohibitory language seems to rule out an
agreement contrary to its provisions. The rule applies to par
and no par stocks leaving no room for the application of the
Lingayen Gulf case.
4.) NATURE & FUNCTION OF STOCK CERTIFICATES
Tan vs. SEC
G.R. No. 95696; March 3, 1992
FACTS:
Petitioner is the incorporator of the respondent
corporation. Stock Certificate No. 2 was given to him as
evidenced of his shares. He was elected president and
thereafter in order to complete the membership of the five
(5) directors in the Board, he sold 50 shares out 400 shares
of capital stock to his brother. Stock Certificate No. 2 was
cancelled and the corresponding Certificates Nos. 6 and 8
were issued. Petitioner did not endorse and instead kept the
cancelled certificate. Later on, petitioner was dislodged from
the position and thereafter withdrew from the corporation.
Years later, petitioner filed a case against respondent
corporation before the Cebu SEC Extension Office,
questioning for the first time, the cancellation of his
aforesaid Stock Certificates Nos. 2 and 8. The bone of
contention raised by the petitioner is that the deprivation of
his shares despite the non-endorsement or surrender of his
Stock Certificate Nos. 2 and 8, was without the process
contrary to the provision of Section 63 of the Corporation
Code.
ISSUE:
HELD:
A certificate of stock is the paper representative or
tangible evidence of the stock itself and of the various
interests therein. The certificate is not stock in the
corporation but is merely evidence of the holder's interest
and status in the corporation, his ownership of the share
represented thereby, but is not in law the equivalent of such
ownership. It expresses the contract between the
corporation and the stockholder, but is not essential to the
existence of a share in stock or the nation of the relation of
shareholder to the corporation.
A certificate of stock is not a negotiable instrument.
"Although it is sometime regarded as quasi-negotiable, in
the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is nonnegotiable, because the holder thereof takes it without
prejudice to such rights or defenses as the registered
owner/s or transferors creditor may have under the law,
except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel."
In the case at bar, a by-law which prohibits a transfer
of stock without the consent or approval of all the
stockholders or of the President or Board of Directors is
illegal as constituting undue limitation on the right of
ownership and in restraint of trade.
While Sec. 47 (9) of the Corporation Code grants to
stock corporations the authority to determine in the by-laws
the "manner of issuing certificates" of shares of stock,
however, the power to regulate is not the power to prohibit,
or to impose unreasonable restrictions of the right of
stockholders to transfer their shares. To uphold the
cancellation of a stock certification as null and void for lack
of delivery of the cancelled "mother" certificate whose
endorsement was deliberately withheld by petitioner, is to
prescribe certain restrictions on the transfer of stock in
violation of the Corporation Code as the only law governing
transfer of stocks.
Nature and function of stock certificates.

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5.) PROOF OF OWNERSHIP OF SHARES

Nautica Canning Corp. vs. Yumul
G.R. No. 164588; October 19, 2005
FACTS:
Yumul was appointed Chief Operating Officer/General
Manager of Nautica. First Dominion Prime Holdings, Inc.,
Nauticas parent company, through its Chairman Alvin Y.
Dee, granted Yumul an Option to Purchase up to 15% of the
total stocks it subscribed from Nautica. A Deed of Trust and
Assignment was executed between First Dominion Prime
Holdings, Inc. and Yumul whereby the former assigned
14,999 of its subscribed shares in Nautica to the latter.
After Yumuls resignation from Nautica, he wrote a
letter to Dee requesting the latter to formalize his offer to
buy Yumuls 15% share in Nautica and demanding the
issuance of the corresponding certificate of shares in his
name should Dee refuse to buy the same. Dee denied the
request claiming that Yumul was not a stockholder of
Nautica. Yumul requested that the Deed of Trust and
Assignment be recorded in the Stock and Transfer Book of
Nautica, and that he, as a stockholder, be allowed to inspect
its books and records. Yumuls requests were denied. Yumul
filed a petition for mandamus praying that the Deed of Trust
and Assignment be recorded in the Stock and Transfer Book
of Nautica and that the certificate of stocks corresponding
thereto be issued in his name.
ISSUE:
WON Yumul is a stockholder. (Proof of Ownership of

Shares)
HELD:
YES. Indeed, it is possible for a business to be wholly

owned by one individual. The validity of its incorporation is
not affected when such individual gives nominal ownership
of only one share of stock to each of the other four
incorporators. This is not necessarily illegal. But, this is

valid only between or among the incorporators privy to the
agreement. It does bind the corporation which, at the time
the agreement is made, was non-existent.
Thus,
incorporators continue to be stockholders of a corporation
unless, subsequent to the incorporation, they have validly
transferred their subscriptions to the real parties in interest.
A transfer of shares of stock not recorded in the stock
and transfer book of the corporation is non-existent as far as
the corporation is concerned. As between the corporation
on one hand, and its shareholders and third persons on the
other, the corporation looks only to its books for the purpose
of determining who its shareholders are. It is only when the
transfer has been recorded in the stock and transfer book
that a corporation may rightfully regard the transferee as
one of its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize such
rights as it is mandated by law to recognize arises.
Lao vs. Lao
G.R. No. 170585; October 6, 2008
FACTS:
Petitioners David and Jose Lao filed a petition with
the SEC against respondent Dionisio Lao, president of Pacific
Foundry Shop Corporation (PFSC). Petitioners prayed for a
declaration as stockholders and directors of PFSC, issuance
of certificates of shares in their name and to be allowed to
examine the corporate books of PFSC.
Petitioners claimed that they are stockholders of
PFSC based on the General Information Sheet filed with the
SEC, in which they are named as stockholders and directors
of the corporation. David Lao acquired his shares from his
father and Jose Lao from respondent himself. Respondent
denied petitioners' claim. He also claimed that petitioners
did not acquire any shares in PFSC by any of the modes
recognized by law, namely subscription, purchase, or
transfer.
- 30 -
Meanwhile, R.A. 8799, otherwise known as the

Securities Regulation Code, was enacted, transferring
jurisdiction over all intra-corporate disputes from the SEC to
the RTC. RTC denied their petition on the ground that they
have no stock certificates in their names.
ISSUE:
Is the mere inclusion as shareholder in the General

Information Sheet of a corporation sufficient proof that one
is a shareholder in such corporation?
HELD:
NO. The mere inclusion as shareholder of petitioners
in the General Information Sheet of PFSC is insufficient proof
that they are shareholders of the company. The information
in the document will still have to be correlated with the
corporate books of PFSC.
A certificate of stock is the evidence of a holder's
interest and status in a corporation. It is a written
instrument signed by the proper officer of a corporation
stating or acknowledging that the person named in the
document is the owner of a designated number of shares of
its stock. It is prima facie evidence that the holder is a
shareholder of a corporation.
6.) RESTRICTIONS ON TRANSFER OF SHARES
Fleischer vs. Botica Nolasco (supra)
G.R. No. L-23241; March 14, 1925
Under a statute authorizing by-laws for the transfer of stock,

a corporation can do no more than prescribe a general
mode of transfer on the corporation books and cannot
justify an restriction upon the right of sale.
Moreover, a by-law which prohibits a transfer of stock
without the consent or approval of all the stockholders or of
the President or Board of Directors is illegal as constituting
undue limitation on the right of ownership and in restraint of
trade.
The only restraint imposed by the Corporation Law
upon transfer of shares is found in Section 35 of Act No.
1459 (now Section 63): "No transfer, however, shall be
valid, except as between the parties, until the transfer is
entered and noted upon the books of the corporation so as
to show the names of the parties to the transaction, the
date of the transfer, the number of the certificate, and the
number of shares transferred." This restriction is necessary
in order that the officers of the corporation may know who
are the stockholders, which is essential in conducting
elections of officers, in calling meeting of stockholders, and
for other purposes. but any restriction of the nature of that
imposed in the by-law now in question, is ultra vires,
violative of the property rights of shareholders, and in
restraint of trade.
Thomson vs. CA (supra)
G.R. No. 116631; October 28, 1998
ISSUE:
Restrictions on Transfer of Shares.
ISSUE:
Is a by-law restricting a transfer of shares valid?
HELD:
As a general rule, the by-laws of a corporation are

valid if they are reasonable and calculated to carry into
effect the objective of the corporation and are not
contradictory to the general policy of the laws of the land.
HELD:
The Manila Polo Club does not necessarily prohibit

the transfer of proprietary shares by its members. The Club
only restricts membership to deserving applicants in
accordance with its rules, when the amended Articles of
Incorporation states that: "No transfer shall be valid except
between the parties, and shall be registered in the
- 31 -
Membership Book unless made in accordance with these

Articles and the By-Laws". Thus, as between parties herein,
there is no question that a transfer is feasible. Moreover,
authority granted to a corporation to regulate the transfer of
its stock does not empower it to restrict the right of a
stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure
to be followed in effecting transfer.
that upon the death of Clemente Guerrero, his shares of

stock became the property of his estate, and his property
and that of his widow should first be settled and liquidated
in accordance with law before any distribution can be
effected so that petitioners may not be a party to any
scheme to evade payment of estate or inheritance tax and
in order to avoid liability to any third persons or creditors.
SEC granted the writ of mandamus. SEC en banc and CA
likewise affirmed the decision of SEC.
ISSUES:
(1) WON SEC has jurisdiction.
(2) Restrictions on Transfer of Shares.
Rural Bank of Salinas Inc. vs. CA

G.R. No. 96674; June 26, 1992
FACTS:
Clemente Guerrero, President of the petitioner-bank,
executed a SPA in favor of his wife, private respondent
Melania Guerrero, giving and granting the latter full power
and authority to sell or otherwise dispose of and/or
mortgage his 473 shares of stock of the Bank registered in
his name. First deed of assignment was made on the 472
out of 473 shares, in favor of private respondents Luz
Andico, Wilhelmina Rosales and Francisco Guerrero, Jr.
Months later, second deed of assignment was executed for
the remaining one share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner-bank the two Deeds of Assignment
for registration with a request for the transfer in the Bank's
stock and transfer book of the shares of stock so assigned,
the cancellation of stock certificates and the issuance of
new stock certificates covering the transferred shares of
stocks in the name of the new owners thereof. However,
petitioner-bank denied the request.
Private respondent filed a mandamus against
petitioner-bank in the SEC. The latter alleged in their answer
HELD:
(1) YES. Section 5 (b) of P.D. No. 902-A grants to the

SEC the original and exclusive jurisdiction to hear and
decide cases involving intra-corporate controversies. An
intra-corporate controversy has been defined as one which
arises between a stockholder and the corporation. There is
no distinction, qualification, nor any exception whatsoever
(Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar
involves shares of stock, their registration, cancellation and
issuances thereof by petitioner Rural Bank of Salinas. It is
therefore within the power of respondent SEC to adjudicate.
(2) Respondent SEC correctly ruled in favor of the
registering of the shares of stock in question in private
respondent's names. Such ruling finds support under
Section 63 of the Corporation Code. The only limitation
imposed by Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the shares
intended to be transferred, which is absent here.
A corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock
transfers. Restrictions in the traffic of stock must have their
source in legislative enactment, as the corporation itself
cannot create such impediment. By-laws are intended
merely for the protection of the corporation, and prescribe
regulation, not restriction; they are always subject to the
- 32 -
charter of the corporation. The corporation, in the absence

of such power, cannot ordinarily inquire into or pass upon
the legality of the transactions by which its stock passes
from one person to another, nor can it question the
consideration upon which a sale is based. The right of a
transferee/assignee to have stocks transferred to his name
is an inherent right flowing from his ownership of the stocks.
7.) VALIDITY OF TRANSFERS/ REGISTRATION OF SHARES
Razon vs. IAC
G.R. No. 74306; March 16, 1992
FACTS:
Petitions centers on the ownership of 1,500 shares of
stock in E. Razon, Inc. covered by Stock Certificate No. 003
issued and registered under the name of Juan T. Chuidian in
the books of the corporation. The then Court of First
Instance of Manila, now Regional Trial Court of Manila,
declared that Enrique Razon, the petitioner is the owner of
the said shares of stock. The then Intermediate Appellate
Court, now Court of Appeals, however, reversed the trial
court's decision and ruled that Juan T. Chuidian, the
deceased father of petitioner Vicente B. Chuidian is the
owner of the shares of stock. Both parties filed separate
motions for reconsideration. Enrique Razon wanted the
appellate court's decision reversed and the trial court's
decision affirmed while Vicente Chuidian asked that all cash
and stock dividends and all the pre-emptive rights accruing
to the 1,500 shares of stock be ordered delivered to him.
The appellate court denied both motions. Hence, these
petitions.
ISSUE:
stock?
HELD:
When there is an effective transfer of shares of
The law is clear that in order for a transfer of stock

certificate to be effective, the certificate must be properly
indorsed and that title to such certificate of stock is vested
in the transferee by the delivery of the duly indorsed
certificate of stock. (Section 35, Corporation Code)
Since the certificate of stock covering the questioned
1,500 shares of stock registered in the name of the late Juan
Chuidian was never indorsed to the petitioner, the inevitable
conclusion is that the questioned shares of stock belong to
Chuidian. The petitioner's asseveration that he did not
require an indorsement of the certificate of stock in view of
his intimate friendship with the late Juan Chuidian can not
overcome the failure to follow the procedure required by law
or the proper conduct of business even among friends. To
reiterate, indorsement of the certificate of stock is a
mandatory requirement of law for an effective transfer of a
certificate of stock.
Torres vs. CA
G.R. No. 120138; September 5, 1997
FACTS:
The late Manuel A. Torres, Jr. (Judge Torres for brevity)
was the majority stockholder of Tormil Realty &
Development Corporation while private respondents who
are the children of Judge Torres, deceased brother Antonio A.
Torres, constituted the minority stockholders.
The 1987 annual stockholders meeting and election
of directors of Tormil corporation was scheduled in
compliance with the provisions of its by-laws. Judge Torres
assigned from his own shares, one (1) share each to
petitioners Tobias, Jocson, Jurisprudencia, Azura and
Pabalan. These assigned shares were in the nature of
qualifying shares, for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and company)
to the Board of Directors as Torres nominees.
The annual stockholders meeting was held as
scheduled. Two representatives of the SEC were present in
- 33 -
the meeting. Antonio Torres Jr. questioned the presence of

the SEC representatives holding that the subject meeting is
for the family corporation and private firm. The SEC
representatives explained that it was merely in response to
the request of Manuel Torres, Jr. and that SEC has
jurisdiction over all registered corporations. The meeting
resulted into chaos which in effect ousted Manuel Torres and
his group but nevertheless were able to elect the officers.
Consequently, private respondents instituted a
complaint with the SEC praying in the main, that the
election of petitioners to the Board of Directors be annulled.
Private respondents alleged that the petitioners-nominees
were not legitimate stockholders of Tormil because the
assignment of shares to them violated the minority
stockholders right of pre-emption as provided in the
corporations articles and by-laws.
ISSUE:
WON the assignment of shares made by Judge Torres
is valid despite being only the signatory to the certificates
issued.
HELD:
NO. It is the corporate secretarys duty and obligation

to register valid transfers of stocks and if said corporate
officer refuses to comply, the transferor-stockholder may
rightfully bring suit to compel performance. In the absence
of any provision to the contrary, the corporate secretary is
the custodian of corporate records. Corollarily, he keeps the
stock and transfer book and makes proper and necessary
entries therein.
In the case at bar, the stock and transfer book of
TORMIL was not kept by Ms. Maria Cristina T. Carlos, the
corporate secretary but by respondent Torres, the President
and Chairman of the Board of Directors of TORMIL. In
contravention to the above cited provision, the stock and
transfer book was not kept at the principal office of the
corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries

made in the stock and transfer book on March 8, 1987 by
respondent Torres of an alleged transfer of nominal shares
to Pabalan and Co. cannot therefore be given any valid
effect. Where the entries made are not valid, Pabalan and
Co. cannot therefore be considered stockholders of record of
TORMIL. Because they are not stockholders, they cannot
therefore be elected as directors of TORMIL.
Rivera vs. Florendo
G.R. No. L-57586; October 8, 1986
FACTS:
Isamu Akasako, a Japanese national who was
allegedly the real owner of the shares of stock in the name
of one Aquilino Rivera, a registered stockholder of
Fujuyama Hotel and Restaurant, Inc., sold 2,550 shares of
the same to Milagros Tsuchiya along with the assurance that
Tsuchiya would be made President of the corporation after
the purchase. Rivera assured her that he would sign the
stock certificates because Akasako was the real owner.
However, after the sale was consummated and the
consideration paid, Rivera refused to make the indorsement
unless he is also paid.
Tsuchiya, et al. attempted several times to have the
shares registered but were refused compliance by the corp.
They filed a special action for mandamus and damages.
ISSUES:
WON Rivera had the right to refuse the indorsement
of the shares of stock in question.
WON the Corporation had the right to refuse the
registration of the respondents shares.
HELD:
The Supreme Court denied the writ of preliminary
mandatory injunction and remanded the case to the lower
court for a trial on the merits. As found in Sec. 63 of the
- 34 -
Corporation Code, shares of stock may be transferred by

delivery of the certificate after indorsement by the owner or
his attorney-in-fact or other person legally authorized to
make the transfer. By this provision it is evident that
Riveras indorsement must be obtained before any transfer
of the questioned shares is effected.
On the matter of jurisdiction, the SEC does not have
jurisdiction of the case since the dispute is not an intracorporate controversy. What it simply involves is a conflict
on the ownership of a group of shares between the
registered owner and an outside party. Hence, because of
this conflict in ownership rights, a mandatory injunction can
not lie.
Lim Tay vs. CA
G.R. No. 126891; August 5, 1998
FACTS:
Sy Guiok and Sy Lim secured a loan from Lim Tay.
This was secured by a contract of pledge whereby the
former pledged their 300 shares of stock each in Go Fay &
Company to the latter. However, they failed to pay their
respective loans. Hence, Lim Tay filed a petition for
mandamus against Go Fay & Company with the SEC praying
that an order be issued directing the corporate secretary of
the said corporation to register the stock transfers and issue
new certificates in favor of Lim Tay.
Go Fay & Company filed its answer contending that
SEC had no jurisdiction to entertain the complaint on the
ground that since Lim Tay was not a stockholder of the
company, no intra corporate controversy took place; and
furthermore, that the default of payment of Sy Guiok and Sy
Lim did not automatically vest in Lim Tay the ownership of
the
pledged
shares.
SEC dismissed the complaint. On appeal to the CA, it
affirmed SECs decision.
ISSUE:
WON Lim Tay is the owner of the shares previously

subjected to pledge, for him to cause the registration of said
shares in his own name.
HELD:
Lim Tay's ownership over the shares was not yet
perfected when the Complaint was filed. The contract of
pledge certainly does not make him the owner of the shares
pledged. When shares of stocks are pledged by means of
endorsement in blank and delivery of the covering
certificates to secure a mortgage loan, the pledgee does not
become the owner of the shares simply by the failure of the
registered stockholder to pay his loan. Consequently,
without proper foreclosure, the lender cannot demand that
the shares be registered in his name. A contract of pledge of
shares does not make the pledgee the owners of the shares
pledged.
Ponce vs. Alsons Cement
G.R. No. 139802; December 10, 2002
FACTS:
Vicente C. Ponce and Fausto Gaid, incorporator of
Victory Cement Corporation (VCC), executed a Deed of
Undertaking
and
Indorsement
whereby Gaid acknowledges that Ponce is the owner of the
shares and he was therefore assigning/endorsing it to
Ponce. VCC was renamed Floro Cement Corporation (FCC)
and then to Alsons Cement Corporation (ACC). Up to the
present, no certificates of stock corresponding to the
239,500 subscribed and fully paid shares of Gaid were
issued in the name of Fausto G. Gaid and/or the plaintiff.
Despite repeated demands, the ACC refused to issue the
certificates of stocks.
Ponce, filed a complaint with the SEC for mandamus
and damages against Alsons Cement Corporation and its
corporate secretary Francisco M. Giron, Jr. ACC and Giron
- 35 -
moved to dismiss. SEC Hearing Officer Enrique L. Flores, Jr.

granted the motion to dismiss. Ponce appealed the Order of
dismissal. The Commission En Banc reversed the appealed
Order and directed the Hearing Officer to proceed with the
case. In ruling that a transfer or assignment of stocks need
not be registered first before it can take cognizance of the
case to enforce Ponce's rights as a stockholder, the
Commission En Banc cited the Supreme Court's ruling in
Abejo vs. De la Cruz. ACC and Giron appealed the decision
of the SEC En Banc to CA. The latter ruled that mandamus
should be dismissed for failure to state a cause of action.
ISSUE:
WON the certificate of stocks of Gaid can be

transferred to Ponce.
HELD:
NO. Pursuant to Section 63 of the Corporation Code, a

transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the
one hand, and its shareholders and third persons on the
of determining who its shareholders are. It is only when the
transfer has been recorded in the stock and transfer book
that a corporation may rightfully regard the transferee as
one of its stockholders. From this time, the consequent
obligation on the part of the corporation to recognize such
rights as it is mandated by law to recognize arises. Hence,
without such recording, the transferee may not be regarded
by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock
certificates in the name of the transferee even when there
has been compliance with the requirements of Section 64 of
the Corporation Code. The stock and transfer book is the
basis for ascertaining the persons entitled to the rights and
subject to the liabilities of a stockholder. Where a transferee
is not yet recognized as a stockholder, the corporation is
under no specific legal duty to issue stock certificates in the

transferee's name.
Even if a certificate is indorsed and delivered to a
third person it does not automatically entitle such person to
register such certificate in his name, or compel the
corporation to register the certificate in his name even. An
indorsed and delivered certificate does not create a clear
right with respect to the possession of such certificate by
the third person, as the same mode (indorsement and
delivery) applies to sale, pledge and mortgage. This is
where the registered owner must come in; he must inform
the corporation whether the disposition was a pledge, or
mortgage or sale, which would determine whether or not
the third person is entitled registration. Since almost all
dealings comprise of the same mode, the owner must
apprise the corporation with the necessary information and
instructions.
Rural Bank of Salinas Inc. vs. CA (supra)

G.R. No. 96674; June 26, 1992
ISSUE:
WON the corporate secretary is compelled to register
the said transfer of shares.
HELD:
YES. Based on those circumstances, there was a clear
duty on the part of the corporate secretary to register the
473 shares in favor of the new owners, since the person who
sought the transfer of shares had express instructions from
and specific authority given by the registered stockholder to
cause the disposition of stocks registered in his name.
The right of a transferee/assignee to have stocks
transferred to his name is an inherent right flowing from his
ownership of the stocks. Thus, whenever a corporation
refuses to transfer and register stock, mandamus will lie to
compel the officers of the corporation to transfer said stock
- 36 -
in the books of the corporation. This is because the

corporation's obligation to register is ministerial. (Note,
however, that in such cases, the person requesting the
registration must be the prima facie owner of the shares.
Cf. Lim Tay v. CA, 293 SCRA 634)
Hager vs. Bryan
G.R. No. 6230; January 18, 1911
FACTS:
Petitioner filed an original action to secure a writ of
mandamus against the respondent, to compel him, as
secretary of the Visayan Electric Company, to transfer upon
the books of the company certain shares of stock. He
based the urgency of his action on a supposed agreement to
sell the said shares to a Mr. Levering. Furthermore, he also
stated that the issuing company holds no unpaid claims
against the shares of stock. However, on the books of the
company, it turns out that petitioner is not the registered
owner of the stock which he seeks to have transferred. His
only claim as owner is based on his averment that such
were indorsed to him on February 5 by the Bryan-Landon
Company, in whose name it is registered on the books of the
Visayan Electric Company. There was no allegation that the
petitioner holds any power of attorney from the BryanLandon Company authorizing him to make demand on the
secretary of the Visayan Electric Company to make the
transfer which petitioner seeks to have made through the
medium of the mandamus of this court.
ISSUE:
WON a writ of mandamus will lie under the
circumstances of the case to allow the transfer of shares as
being requested by the petitioner.
HELD:
The Supreme Court denied the writ. Petitioner did

not have the right to demand the transfer since he was not
the stockholder of record. This was proven by the fact that

the said shares were still registered under the name of
Bryan-Landon Company. Furthermore, even the latter did
not demand from the company the transfer of said shares.
Neither did it give by way of a special power of attorney to
petitioner the authority to effect such a transfer. Hence,
there is no clear and legal obligation upon the respondent
that will justify the issuance of a writ to compel the latter to
perform a transfer.
As a general rule, as between the corporation on the
one hand, and its shareholders and third persons on the
of determining who its shareholders are, so that a mere
indorsee of a stock certificate, claiming to be the owner, will
not necessarily be recognized as such by the corporation
and its officers, in the absence of express instructions of the
registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer.
Bitong vs. CA
G.R. No. 123553; July 13, 1998
FACTS:
Bitong was the treasurer and member of the BOD of
Mr. & Mrs. Publishing Co. She filed a complaint with the SEC
to hold respondent spouses Apostol liable for fraud,
misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of the
corporation to the prejudice of the stockholders.
She
alleges that certain transactions entered into by the
corporation were not supported by any stockholders
resolution.
The complaint sought to enjoin Apostol from further
acting as president-director of the corporation and from
disbursing any money or funds. Apostol contends that
Bitong was merely a holder-in-trust of the JAKA shares of the
corporation, hence, not entitled to the relief she prays for.
SEC Hearing Panel issued a writ enjoining Apostol.
- 37 -
After hearing the evidence, SEC Hearing Panel

dissolved the writ and dismissed the complaint filed by
Bitong. Bitong appealed to the SEC en banc which the latter
reversed SEC Hearing Panel decision. Apostol filed petition
for review with the CA. CA reversed SEC en banc ruling
holding that Bitong was not the owner of any share of stock
in the corporation and therefore, not a real party in interest
to prosecute the complaint.
Abejo vs. De la Cruz

G.R. No. L-63558; May 19, 1987
ISSUE:
WON Bitong is the real party-in-interest.
HELD:
issued and subjects him to no liabilities. Where there is an

inherent lack of power in the corporation to issue the stock,
neither the corporation nor the person to whom the stock is
issued is estopped to question its validity since an estoppel
cannot operate to create stock which under the law cannot
have existence.
NO. Based on the evidence presented, it could be

gleaned that Bitong was not a bona fide stockholder of the
corporation. Several corporate documents disclose that the
true party in interest was JAKA.
Section 63 of the Corporation Code envisions a
formal certificate of stock which can be issued only upon
compliance with certain requisites. First, the certificate
must be signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation. A mere typewritten
statement advising a stockholder of the extent of his
ownership is a corporation without qualification and/or
authentication cannot be considered as a formal certificate
of stock. Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a
stock certificate where it is never detached from the stock
books although blanks therein are properly filled up if the
person whose name is inserted therein has no control over
the books of the company. Third, the par value, as to par
value shares, or the full subscription as to no par value
shares, must first be fully paid. Fourth, the original
certificate must be surrendered where the person
requesting the issuance of a certificate is a transferee from
a stockholder.
Stock issued without authority and in violation of law
is void and confers no rights on the person to whom it is
FACTS:
Case involves a dispute between the principal
stockholders of the corporation Pocket Bell Philippines, Inc.
(Pocket Bell) namely spouses Abejos and the purchaser,
Telectronic Systems, Inc. (Telectronics) of their minority
shareholdings and of shares registered in the name of
spouses Bragas. With the said purchases, Telectronics
would become the majority stockholder, holding 56% of the
outstanding stock and voting power of the corporation
Pocket Bell.
Telectronics requested the corporate secretary of the
corporation, Norberto Braga, to register and transfer to its
name, and those of its nominees the total 196,000 Pocket
Bell shares in the corporation's transfer book, cancel the
surrendered
certificates
of
stock
and
issue
the
corresponding new certificates of stock in its name and
those of its nominees. The latter refused to register the
aforesaid transfer of shares in the corporate books,
asserting that the Bragas claim pre-emptive rights over the
Abejo shares and that Virginia Braga never transferred her
shares to Telectronics but had lost the five stock certificates
representing those shares. This triggered off the series of
intertwined actions between the protagonists, all centered
on the question of jurisdiction over the dispute. The Bragas
assert that the regular civil court has original and exclusive
jurisdiction as against the SEC, while the Abejos and
Telectronics, as new majority shareholders, claim the
contrary. Respondent Judge de la Cruz issued an order
- 38 -
rescinding the order which dismissed the complaint of the

Bragas in the RTC, thus holding that the RTC and not the
SEC had jurisdiction. Respondent judge also revived the TRO
previously issued restraining Telectronics' agents or
representatives from enforcing their resolution constituting
themselves as the new set of officers of Pocket Bell and
from assuming control of the corporation and discharging
their functions. The Abejos filed a MR, which motion was
duly opposed by the Bragas, which was denied by
respondent Judge.
requirement that a stockholder of a corporation must be a

registered one in order that the Securities and Exchange
Commission may take cognizance of a suit seeking to
enforce his rights as such stockholder." This is because the
SEC by express mandate has "absolute jurisdiction,
supervision and control over all corporations" and is called
upon to enforce the provisions of the Corporation Code,
among which is the stock purchaser's right to secure the
corresponding certificate in his name under the provisions of
Section 63 of the Code.
ISSUE:
(1) Who has jurisdiction?
(2) WON the corporate secretary may refuse to
register the transfer of shares in the corporate books.
HELD:
(1) The Court ruled that the SEC has original and
exclusive jurisdiction and that the SEC correctly ruled in
dismissing the Bragas' petition questioning its jurisdiction,
that "the issue is not the ownership of shares but rather the
non-performance by the Corporate Secretary of the
ministerial duty of recording transfers of shares of stock of
the Corporation of which he is secretary."
The dispute at bar, as held by the SEC, is an intracorporate dispute that has arisen between and among the
principal stockholders of the corporation Pocket Bell due to
the refusal of the corporate secretary, backed up by his
parents as erstwhile majority shareholders, to perform his
"ministerial duty" to record the transfers of the corporation's
controlling (56%) shares of stock, covered by duly endorsed
certificates of stock, in favor of Telectronics as the purchaser
thereof.
(2) NO. As pointed out by the Abejos, Pocket Bell is
not a close corporation, and no restriction over the free
transferability of the shares appears in the Articles of
Incorporation, as well as in the bylaws and the certificates of
stock themselves, as required by law for the enforcement of
such restriction. As the SEC maintains, "There is no
8.) UNAUTHORIZED TRANSFERS

Santamaria vs. Hongkong and Shanghai Bank
G.R. No. L-2808; August 31, 1951
FACTS:
Santamaria secured her order for a number of shares
with RJ Campos & Co. with her stock certificate representing
her shares with Batangas Minerals. The said certificate was
originally issued in the name of her broker and endorsed in
blank by the latter. As Campos failed to make good on the
order, Santamaria demanded the return of the certificate.
However, she was informed that Hongkong Bank had
acquired possession of it inasmuch as it was covered by the
pledge made by Campos with the bank. Thereafter, she
instituted an action against Hongkong Bank for the recovery
of the certificate. Trial court decided in her favor. The bank
appealed.
ISSUES:
(1) WON Santamaria was chargeable with negligence
which gave rise to the case.
(2) WON the Bank was obligated to inquire into the
ownership of the certificate.
HELD:
- 39 -
(1) The facts of the case justify the conclusion that

she was negligent. She delivered the certificate, which was
endorsed in blank, to Campos without having taken any
precaution. She did not ask the Batangas Minerals to cancel
it and instead, issue another in her name. In failing to do so,
she clothed Campos with apparent title to the shares
represented by the certificate. By her misplaced confidence
in Campos, she made possible the wrong done. She was
therefore estopped from asserting title thereto for it is wellsettled that where one of the innocent parties must suffer
by reason of a wrongful or unauthorized act, the loss must
fall on the one who first trusted the wrongdoer.
(2) The subject certificate is what is known as a
street certificate. Upon its face, the holder is entitled to
demand its transfer into his name from the issuing
corporation. The bank is not obligated to look beyond the
certificate to ascertain the ownership of the stock. A
certificate of stock, endorsed in blank, is deemed quasinegotiable, and as such, the transferee thereof is justified in
believing that it belongs to the transferor.
De los Santos vs. McGrath
G.R. No. L-4818; February 28, 1955
FACTS:
De los Santos filed a claim with the Alien Property
Custodian for a number of shares of the Lepanto
Corporation. He contended that said shares were bought
from one Campos and Hess, both of them dead. The
Philippine Alien Property Administrator rejected the claim.
He instituted the present action to establish title to the
aforementioned shares of stock.
The US Attorney General, the successor of the Alien
Property Administrator, opposed the action on the ground
that the said shares of stock were bought by one Madrigal,
in trust for the true owner, Matsui, and then delivered to the
latter indorsed in blank.
ISSUE:
Had de los Santos in fact purchased the shares of
stock?
HELD:
De los Santos sole evidence that he purchased the

said shares was his own unverified testimony. The alleged
vendors of the shares of stock, who could have verified the
allegation, were already dead. Further, the receipt that
might have proven the sale was said to have been lost in a
fire. On the other hand, it was shown that the shares of
stock were registered in the records of Lepanto in the name
of Madrigal, the trustee of Matsui; that Matsui was
subsequently given possession of the corresponding stock
certificates, though endorsed in blank; and, that Matsui had
neither sold, conveyed nor alienated these to anybody.
It is the rule that if the owner of the certificate has
endorsed it in blank, and is stolen, no title is acquired by an
innocent purchaser of value. This is so because even though
a stock certificate is regarded as quasi-negotiable, in the
sense that it may be transferred by endorsement, coupled
with delivery, the holder thereof takes it without prejudice to
such rights or defenses as the registered owner or credit
may have under the law, except in so far as such rights or
defenses are subject to the limitations imposed by the
principles governing estoppel.
COMPARISON of Santamaria case and De los Santos case:
In Santamaria case, a certificate of stock, indorsed
in blank, is deemed quasi-negotiable, and as such the
transferee thereof is justified in believing that it belongs to
the holder and transferor.
In De los Santos case, although a stock certificate
is sometimes regarded as quasi-negotiable, in the sense
that it may be transferred by endorsement, coupled with
delivery it is well settled that the instrument is nonnegotiable, because the holder thereof takes it without
prejudice to such rights or defense as the registered owner
or credit may have under the law, except in so far as such
- 40 -
rights or defenses are subject tot eh limitations imposed by

the principles governing estoppel.
9.) COLLATERAL TRANSFERS
Uson vs. Diosomito
G.R. No. L-42135; June 17, 1935
FACTS:
Toribia Uson filed a civil action for debt against
Vicente Diosomito. Upon institution of said action, an
attachment was duly issued and respondents property was
levied upon, including 75 shares of the North Electric Co.,
which stood in his name on the books of the company when
the attachment was levied. The sheriff sold said shares at a
public auction with Uson being the highest bidder. Jollye
claims to be the owner of said certificate of stock issued
to him by the North Electric Co.
There is no dispute that Diosomito was the original
owner of said shares, which he sold to Barcelon. However,
Barcelon did not present these certificates to the
corporation for registration until 19 months after the
delivery thereof by Barcelon, and 9 months after the
attachment and levy on said shares. The transfer to Jollye
was made 5 months after the issuance of a certificate of
stock in Barcelon's name.
ISSUE:
Is a bona fide transfer of the shares of corp., not

registered or noted on the books of the corp., valid as
against a subsequent lawful attachment of said shares,
regardless of whether the attaching creditor had actual
notice of said transfer or not?
HELD:
NO, it is not valid. The transfer of the 75 shares in
the North Electric Co., Inc made by the defendant Diosomito
as to the defendant Barcelon was not valid as to the
plaintiff. Toribia Uson, on 18 Jan. 1932, the date on which

she obtained her attachment lien on said shares of stock will
still stood in the name of Diosomito on the books of the
corp. Sec. 35 provides that No transfer, however, is valid,
except as between the parties, until the transfer is entered
and noted upon the books of the corporation so as to show
the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of
shares transferred.
All transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as
to the corporation and to subsequent purchasers in good
faith, and indeed, as to all persons interested, except the
parties to such transfers.
Chua Guan vs. Samahang Magsasaka
G.R. No. L-42091; November 2, 1935
FACTS:
A certain Co Toco was the owner of 5,894 shares of
Samahang Magsasaka, Inc. which he mortgaged to Chua
Chiu to guarantee the payment of debt. The corresponding
certificates were delivered to Chua Chiu and were duly
registered in the office of the register of deeds of Manila and
in the office of the said corporation. About five months
after, Chua Chui assigned all his rights and interest in said
mortgage to the plaintiff, Chua Gan which was also duly
recorded. Co Toco defaulted. The plaintiff foreclosed on the
mortgage. In the public auction he won as the highest
bidder. However, upon presenting the certificates to the
corporation for registration, the officers refused because
they and the plaintiff could not agree on the noting of
nine other attachments that had been issued, served and
noted on the books of the corporation against the shares of
Co Toco.
ISSUE:
- 41 -
WON the said mortgage takes priority over the

already noted writs of attachment.
HELD:
The Supreme Court ruled that the attaching creditors
are entitled to priority over the defectively registered
mortgage of the appellant. The court argues that the
registration in the register of deeds must be done both at
the place where the owner is domiciled and at the place
where the principal office of the corporation is located. The
purpose of this is to give sufficient constructive of any claim
or encumbrance over the recorded shares to third persons.
Furthermore, any share still standing in the name of the
debtor on the books of the corporation will be liable to
seizure by attachment or levy on execution at the instance
of other creditors. Thus, the game here is to have the
highest or most preferred priority over any pledged or
mortgaged shares.
NOTE: The provision of the Chattel Mortgage Law (Act No.
1508) providing for delivery of mortgaged property to the
mortgagee as a mode of constituting a chattel mortgage is
no longer valid in view of the Civil Code provision defining
such as a pledge.
Chemphil Export & Import vs. CA
G.R. Nos. 112438-39; December 12, 1995
FACTS:
This case involved a consortium of banks which
obtained a writ of preliminary attachment in a civil case
("consortium case") over shares of stock belonging to Mr.
Antonio Garcia in the Chemical Industries of the Philippines
("Chemphil"). The attachment, which was served on the
secretary to the President of Chemphil, was not registered in
the stock and transfer book of Chemphil. A few years
thereafter, Mr. Garcia sold the same shares of stock to the
Ferro Chemicals, Inc. ("FCI"). FCI subsequently assigned the
shares to the Chemphil Export and Import Corporation

("CEIC"). The shares were registered and recorded in the
corporate books of Chemphil in CEICs name and the
corresponding stock certificates were issued to it.
The consortium case was appealed to the CA. While
the appeal was pending, Mr. Garcia and the bank consortium
amicably settled the case. The CA rendered a judgment by
compromise. Unfortunately, Mr. Garcia failed to comply with
the compromise agreement. The consortium of banks
caused to be sold on execution the shares of stock (earlier
attached by them), which were the same shares
subsequently sold by Mr. Garcia to CEIC. A certificate of sale
covering the shares was issued in the name of the bank
consortium.
ISSUE:
Who has priority to the shares of stock an attaching
creditor or the subsequent buyer?
HELD:
The Supreme Court ruled that the attachment lien
acquired by the bank consortium is valid and effective even
as against the buyer (FCI) and its assignee (CEIC),
notwithstanding the fact that said attachment lien was not
registered in the corporate books of Chemphil. "Both the
Revised Rules of Court and the Corporation Code", according
to the Court, "do not require annotation in the corporations
stock and transfer book for the attachment of shares of
stock to be valid and binding on the corporation and third
party."
Consequently, when FCI purchased the shares of
stock from Mr. Garcia, it purchased them subject to the
attachment lien of the bank consortium. In this regard, the
High Court explained that a preliminary attachment is a
security for the satisfaction of whatever judgment may be
obtained by the attaching creditor in a court action, which
continues until the judgment debt is fully satisfied.
COMPARISON of the abovementioned three cases:
- 42 -
Among the three cases mentioned, settled is the rule

that the attaching creditor enjoys priority to the shares of
stock as against a subsequent lawful buyer.
XII. CORPORATE POWERS
Republic of the Philippines vs. Acoje Mining Co.
G.R. No. L-18062; February 28, 1963
FACTS:
Acoje Mining requested to the Director of Posts for
opening of a post, telegraph and money order offices at its
mining camp. The latter signify its willingness but requested
that a board resolution be passed upon regarding
assumption of direct responsibility in case of pecuniary loss.
The board resolution was approved and thereafter a post
office branch was opened.
A postmaster was hired to conduct the operations of
post office. The postmaster that was hired went on a leave
but never returned. The company immediately informed the
officials of the Manila Post Office and the provincial auditor
of Zambales of postmasters disappearance with the result
that the accounts of the postmaster were checked and a
shortage was found. Several demands were made upon the
company for the payment of the shortage, having failed; the
petitioner commenced the present action. The company in
its answer denied liability contending that the resolution of
the board of directors wherein it assumed responsibility for
the act of the postmaster is ultra vires, and in any event its
liability under said resolution is only that of a guarantor who
answers only after the exhaustion of the properties of the
principal, aside from the fact that the loss claimed by the
plaintiff is not supported by the office record.
Resolution adopted by the company to open a post

office branch at the mining camp and to assume sole and
direct responsibility for any dishonest, careless or negligent
act of its appointed postmaster is NOT ULTRA VIRES because
the act covers a subject which concerns the benefit,
convenience, and welfare of the companys employees and
their families.
While as a rule an ultra vires act is one committed
outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond
the powers conferred upon it by law, there are however
certain corporate acts that may be performed outside of the
scope of the powers expressly conferred if they are
necessary to promote the interest or welfare of the
corporation.
National Power Corp. vs. Vera
G.R. No. 83558; February 27, 1989
Is the board resolution for the approval of post office

branch ultra vires?
FACTS:
Sea Lion International Port Services, private
respondent, filed a complaint for prohibition and mandamus
against petitioner NPC alleging that it had acted in bad faith
in not renewing its contract for stevedoring services for its
plant and in taking over its stevedoring services.
Respondent judge issued a restraining order against NPC
enjoining the latter from undertaking stevedoring services
at its pier. Consequently, NPC filed an "Urgent Motion" to
dissolve the restraining order, asserting that respondent
judge had no jurisdiction to issue the order and private
respondent, whose contract with NPC had expired prior to
the commencement of the suit, failed to establish a cause of
action for a writ of preliminary injunction. The respondent
judge denied the NPCs motion and issued a TRO after
finding that NPC was not empowered by its Charter to
engage in stevedoring and arrastre services.
HELD:
ISSUE:
ISSUE:
- 43 -
WON the undertaking of stevedoring services is

empowered by the NPCs charter powers.
HELD:
YES. To carry out the national policy of total
electrification of the country, the NPC was created and
empowered not only to construct, operate and maintain
power plants, reservoirs, transmission lines, and other
works, but also to exercise such powers and do such things
as may be reasonably necessary to carry out the business
and purposes for which it was organized, or which, from
time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish said
purpose.
In determining whether or not an NPC act falls within
the purview of the above provision, the Court must decide
whether or not a logical and necessary relation exists
between the act questioned and the corporate purpose
expressed in the NPC charter. For if that act is one which is
lawful in itself and not otherwise prohibited, and is done for
the purpose of serving corporate ends, and reasonably
contributes to the promotion of those ends in a substantial
and not in a remote and fanciful sense, it may be fairly
considered within the corporation's charter powers.
Government of Phil. Islands vs. El Hogar Filipino (supra)
G.R. No. L-26649; July 13, 1927
NOTE: This case is an example of how the implied powers
concept may be used to justify certain acts of a corporation.
A quo warranto proceeding instituted by the
Government against El Hogar, a building and loan
association, to deprive it of its corporate franchise.
1. El Hogar held title to real property for a period in
excess of 5 years in good faith; hence this cause will
not prosper.
2. El Hogar owned a lot and bldg. at a business district

in Manila allegedly in excess of its reasonable
requirements, held valid because, it was found to be
necessary and legally acquired and developed.
3. El Hogar leased some office space in its bldg.; it
administered and managed properties belonging to
delinquent stockholders; and managed properties of
its stockholders even if such were not mortgaged to
them.
Held: first two valid, but the third is ultra vires
because the administration of property in that
manner is more befitting of the business of a real
estate agent or trust company and not of a building
and loan association.
4. Compensation to the promoter and organizer
allegedly excessive and unconscionable.
Held: Court cannot dwell on the issue since
the promoter is not a party in the proceeding and it is
the corp. or its stockholders who may bring a
complaint on such.
5. Issuance of special shares did not affect El Hogar's
character as a building and loan association nor
make its loans usurious.
6. Corporate policy of using a depreciation rate of 10 %
per annum is not excessive, because according to the
SC, the by-laws expressly authorizes the BOD to
determine each year the amount to be written down
upon the expenses of installation and the property of
the corp.
7. The Corp. Law does not expressly grant the power of
maintaining reserve funds but such power is implied.
All business enterprises encounter periods of gains
and losses, and its officers would usually provide for
the creation of a reserve to act as a buffer for such
circumstances.
8. That loans issued to member borrowers are being
used for purposes other than the bldg. of homes not
invalid because there is no statute which expressly
- 44 -
declares that loans may be made by these

associations solely for the purpose of bldg. homes.
9. Sec. 173 of the Corp. Law provides that "any person"
may become a stockholder on a bldg. and loan
association. The word "person" is used on a broad
sense including not only natural persons but also
artificial persons.
Pirovano, et. al. vs. De la Rama
G.R. No. L-5377; December 29, 1954
FACTS:
Enrico Pirovano, president of the defendant company,
managed the company until it became a multi-million
corporation by the time Pirovano was executed by the
Japanese during the occupation.
BOD Resolution: Out of the proceeds, the sum of
P400,000 be set aside for equal division among the 4 minor
children, convertible into shares of stock of the De la Rama
Steamship Company, at par and, for that purpose, that the
present registered stockholders of the corporation be
requested to waive their pre-emptive right to 4,000 shares
of the unissued stock of the company in order to enable
each of the 4 minor heirs to obtain 1,000 shares at par.
Plaintiffs herein are the minor children of the late
Enrico Pirovano represented by their mother and judicial
guardian Estefania Pirovano. They seek to enforce certain
resolutions adopted by the Board of Directors and
stockholders of the defendant company giving to said minor
children of the proceeds of the insurance policies taken on
the life of their deceased father Enrico Pirovano with the
company as beneficiary. Defendant's main defense is: that
said resolutions and the contract executed pursuant thereto
are ultra vires, and, if valid, the obligation to pay the
amount given is not yet due and demandable. RTC
ruled
that contract or donation is not ultra vires.
ISSUE:
WON corporation donation of the proceeds of the

insurance policies is an ultra vires act.
HELD:
NO. The AOI of the corporation provided two relevant
items: (1) to invest and deal with moneys of the company
not immediately required, in such manner as from time to
time may be determined; and (2) to aid in any other manner
any person, association or corporation of which any
obligation or in which any interest is held by this corporation
or in the affairs of prosperity of which this corporation has a
lawful interest.
From this, it is obvious that the corporation properly
exercised within its chartered powers the act of availing of
insurance proceeds to the heirs of the insured and deceased
officer.
NOTE: Ultra vires act vs. Illegal Acts
A distinction should be made between corporate acts
or contracts which are illegal and those which are merely
ultra vires. The former contemplates the doing of an act
which is contrary to law, morals, or public policy or public
duty, and are, like similar transactions between the
individuals void. They cannot serve as basis of a court
action, nor require validity ultra vires acts on the other
hand, or those which are not illegal and void ab initio, but
are merely within are not illegal and void ab initio, but are
not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and
enforceable when ratified by the stockholders.
Harden, et. al. vs. Benguet
G.R. No. L-37331; March 18, 1933
FACTS:
A contract between Benguet Consolidated Mining and
Balatoc Mining Co. provided that Benguet will bring in
capital, equipment. and technical expertise in exchange for
- 45 -
capital shares in Balatoc. Harden was a stockholder of

Balatoc and he contends that this contract violated the
Corporation Law which restricts the acquisition of interest by
a mining corporation in another mining corporation.
ISSUE:
NO. The contract between the two corporations was

an ultra vires act. However, it is not one tainted with
illegality, therefore, the accompanying rights and
obligations based on the contract of carriage between them
and the plaintiff cannot be avoided by raising such a
defense.
WON the plaintiff can maintain an action based upon

the violation of the law supposedly committed by
respondent company.
XIII. CONTROL AND MANAGEMENT
HELD:
1.) BOARD OF DIRECTORS/TRUSTEES
NO. The provision was adopted by the lawmakers

with a sole view to the public policy that should control in
the granting of mining rights. Furthermore, the penalties
imposed in what is now section 190 (A) of the Corporation
Law for the violation of the prohibition in question are of
such nature that they can be enforced only by a criminal
prosecution or by an action of quo warranto. but these
proceedings can be maintained only by the AttorneyGeneral in representation of the Government.
Bissell vs. Michigan Southern
22 NY 258; 1860
FACTS:
Two railroad corporations contend that they
transcended their own powers and violated their own
organic laws. Hence, they should not be held liable for the
injury of the plaintiff who was a passenger in one of their
trains.
ISSUE:
WON the contract made between the two railroad

corporations is valid and as such can be use a defense to
evade the liability against the passenger.
HELD:
Ramirez vs. Orientalist Co.

G.R. No. 11897; September 24, 1918
FACTS:
Orientalist Co. engaged in the theatre business,
desired to be the exclusive agent of Ramirez, who is based
in Paris, for two film outfitsclair Films and Milano films.
Through the active involvement and negotiations of Ramon
El Presidente Fernandez, a director of Orientalist and also
its treasurer, Orientalist was able to secure an offer, the
terms of which were acceptable to the Board as well as to
the stockholders. It appears that this acceptance of the
terms of the offer was decided during an informal meeting
of the board, and conveyed to Ramirez in two letters signed
only by Fernandez, both in his individual and his capacity as
treasurer of Orientalist. It turns out that the company was
not financially capable to comply with the obligations set
forth in the agency contract, and about this time films had
already been delivered to the company. Two stockholders
meetings were organized, the first adopted a resolution
approving the action of the board on the offer, the second
raising the contingency of the lack of funds and the proviso
that the four officers involved, including Fernandez would
continue importing the films using their own funds. Ramirez
sues Orientalist and Fernandez for what is due on the
contract. RTC ruled Oriental as the principal debtor while
Fernandez is subsidiarily liable.
- 46 -
ISSUE:
(1) WON the treasurer has an independent authority
to bind the respondent company by signing its name to the
letters in questioned.
(2) Can stockholders ratify the abovementioned
contract?
HELD:
(1) NO. It is declared in section 28 of the Corporation

Law that corporate power shall be exercised, and all
corporate business conducted by the board of directors; and
this principle is recognized in the by-laws of the corporation
in question which contain a provision declaring that the
power to make contracts shall be vested in the board of
directors. It is true that it is also declared in the same bylaws that the president shall have the power, and it shall be
his duty, to sign contract; but this has reference rather to
the formality of reducing to proper form the contract which
are authorized by the board and is not intended to confer an
independent power to make contract binding on the
corporation.
(2) NO. The subsequent action by the stockholders in
not ratifying the contract must be ignored. The functions of
the stockholders are limited of nature. The theory of a
corporation is that the stockholders may have all the profits
but shall return over the complete management of the
enterprise to their representatives and agents, called
directors. Accordingly, there is little for the stockholders to
do beyond electing directors, making by-laws, and
exercising certain other special powers defined by law. In
conformity with this idea, it is settled that contracts
between a corporation and a third person must be made by
directors and not stockholders. It results that where a
meeting of the stockholders is called for the purpose of
passing on the propriety of making a corporate contract, its
resolutions are at most advisory and not in any wise binding
on the board.
Expert Travel & Tours vs. CA

G.R. No. 152392; May 26, 2005
FACTS:
Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the
Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.
KAL, through appointed counsel, filed a complaint
against Expert Travel with the RTC for the collection of sum
of money. The verification and certification against forum
shopping was signed by the same appointed counsel, who
indicated therein that he was the resident agent and legal
counsel of KAL and had caused the preparation of the
complaint. Expert Travel filed a motion to dismiss the
complaint on the ground that the appointed counsel was not
authorized to execute the verification and certificate of nonforum shopping as required by the Rules of Court. KAL
opposed the motion, contending that he is a resident agent
and was registered as such with the SEC as required by the
Corporation Code. He also claimed that he had been
authorized to file the complaint through a resolution of the
KAL Board of Directors approved during a special meeting,
wherein the board of directors conducted a special
teleconference which he attended. It was also averred that
in the same teleconference, the board of directors approved
a resolution authorizing him to execute the certificate of
non-forum shopping and to file the complaint. Suk Kyoo Kim
alleged, however, that the corporation had no written copy
of the aforesaid resolution. TC denied motion to dismiss. CA
affirms.
ISSUE:
- 47 -
Can a special teleconference be recognized as

legitimate means to approved a board resolution and
authorize an agent to execute an act in favor of the
corporation?
HELD:
YES. In this age of modern technology, the courts
may take judicial notice that business transactions may be
made
by
individuals
through
teleconferencing.
teleconferencing and videoconferencing of members of
board of directors of private corporations is a reality, in light
of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied
with related to such conferences.
HOWEVER, in the case at bar, even given the
possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents
Board of Directors, the Court is not convinced that one was
conducted; even if there had been one, the Court is not
inclined to believe that a board resolution was duly passed
specifically authorizing Atty. Aguinaldo to file the complaint
and execute the required certification against forum
shopping. Facts and circumstances show that there was
gross failure on the part of company to prove that there was
indeed a special teleconference such as failure to produce a
written copy of the board resolution via teleconference.
NOTE: Read SEC Memo Circular No. 15-2001, the guidelines
for the conduct of teleconferencing and videoconferencing.
Citibank, N.A. vs. Chua
G.R. No. 102300; March 17, 1993
FACTS:
Petitioner
is
a
foreign
commercial
banking
corporation duly licensed to do business in the Philippines.
Private respondents, spouses Cresencio and Zenaida Velez,
were good clients of petitioner bank's branch in Cebu until

when they filed a complaint for specific performance and
damages against the former for violation of BP 22 and
several count of estafa cases in RTC of Cebu.
On the date of pre-trial conference, counsel for
petitioner bank appeared, presenting a special power of
attorney executed by Citibank officer in favor of petitioner
bank's counsel, the J.P. Garcia & Associates, to represent
and bind petitioner bank at the pre-trial conference of the
case at bar. Inspite of this special power of attorney, counsel
for private respondents orally moved to declare petitioner
bank as in default on the ground that the special power of
attorney was not executed by the Board of Directors of
Citibank. Respondent judge denied private respondents' oral
motion to declare petitioner bank as in default and set the
continuation of the pre-trial conference. The private
respondents filed for reconsideration, and this time the
respondent holds the petitioner bank in default for failure to
have a proper representation. CA affirms.
ISSUE:
WON a resolution of the board of directors of a

corporation is always necessary for granting authority to an
agent to represent the corporation in court cases.
HELD:
In the corporate hierarchy, there are three levels of
control: (1) the board of directors, which is responsible
for corporate policies and the general management of the
business affairs of the corporation; (2) the officers, who in
theory execute the policies laid down by the board, but in
practice often have wide latitude in determining the course
of business operations; and (3) the stockholders who have
the residual power over fundamental corporate changes,
like amendments of the articles of incorporation. However,
just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to
individual officers or agents appointed by it.
- 48 -
Although as a general rule, all corporate powers are

to be exercised by the board of directors, exceptions are
made where the Code provides otherwise under Sec. 25 and
47. It is clear that corporate powers may be directly
conferred upon corporate officers or agents by statute, the
articles of incorporation, by-laws or by resolution or other
act of the board of directors. In addition, an officer who is
not a director may also appoint other agents when so
authorized by the by-laws or by the board of directors. Such
are referred to as express powers. There are also powers
incidental to express powers conferred. It is a fundamental
principle in the law of agency that every delegation of
authority, whether general or special, carries with it, unless
the contrary be expressed, implied authority to do all of
those acts, naturally and ordinarily done in such cases,
which are reasonably necessary and proper to be done in
order to carry into effect the main authority conferred.
Since the by-laws are a source of authority for
corporate officers and agents of the corporation, a
resolution of the Board of Directors of Citibank appointing an
attorney in fact to represent and bind it during the pre-trial
conference of the case at bar is not necessary because its
by-laws allow its officers, the Executing Officer and the
Secretary Pro-Tem, to execute a power of attorney to a
designated bank officer, clothing him with authority to direct
and manage corporate affairs.
Boyer-Roxas vs. CA
G.R. No. 100866; July 14, 1992
FACTS:
The corporation, Heirs of Eugenia Roxas Inc, was
established to engage in agriculture to develop the
properties inherited from Eugenia Roxas and Eufroncio
Roxas, which includes the land upon which the Hidden
Valley Springs Resort was put up, including various
improvements thereon, using corporate funds. The AOI of
Heirs Inc. was amended for this purpose. Heirs Inc. claims
that Boyer-Roxas and Guillermo Roxas had been in

possession of the various properties and improvements in
the resort and only upon the tolerance of the corporation. It
was alleged that they committed acts that impeded the
corporations expansion and normal operation of the resort.
They also did not comply with court and regulatory orders,
and thus the corporation adopted a resolution authorizing
the ejectment of the defendants. TC grants. CA affirms.
Boyer and Roxas contend that, being stockholders, their
possession of the properties of the corporation must be
respected in view of their ownership of an aliquot portion of
all properties of the corporation.
ISSUE:
WON the possession of the properties in question
must be respected in view of being a stockholder.
HELD:
NO. Regarding properties owned by the corporation,
under the doctrine of corporate entity properties registered
in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of
stock constitute personal property, they do not represent
property of the corporation. A share of stock only typifies an
aliquot part of the corporations property, or the right to
share in its proceeds to that extent when distributed
according to law and equity, but its holder is not the owner
of any part of the capital of the corporation, nor is he
entitled to the possession of any definite portion of its
property or assets. The stockholder is not a co-owner or
tenant in common of the corporate property.
The corporation has a personality distinct and
separate from its members and transacts business only
through its officers or agents. Whatever authority these
officers or agents may have is derived from the board or
other governing body, unless conferred by the charter of the
corporation itself. An officer's power as an agent of the
corporation must be sought from the statute, charter, the
by-laws or in a delegation of authority to such officer, from
- 49 -
the acts of the board of directors, formally expressed or

implied from a habit or custom of doing business.
In this case the elder Roxas who then controlled the
management of the corporation, being the majority
stockholder, consented to the petitioners use and stay
within the properties. The Board did not object and were
allowed to stay until it adopted a resolution to the effect of
authorizing to eject them. Since their stay was merely by
tolerance, in deference to the wishes of the majority
stockholder who controlled the corporation, when Roxas
died his actions cannot bind the company forever. There is
no provision in the by-laws or any other resolution
authorizing their continued stay.
Valle Verde Country Club vs. Africa
G.R. No. 151969; September 4, 2009
FACTS:
Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan),
Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor
Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto
Sunico, and Ray Gamboa were elected as BOD during
the Annual Stockholders Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC). Requisite quorum could not be
obtained so they continued in a hold-over capacity.
First resignation: Dinglasan, BOD still constituting a
quorum elected Eric Roxas (Roxas). Second resignation:
Makalintal, Jose Ramirez (Ramirez) was elected by the
remaining BOD.
Respondent Africa (Africa), a member of VVCC,
questioned the election of Roxas and Ramirez as members
of the petitioners Board with the SEC and the RTC as
contrary to Sec. 23 and 29 of the Corporation Code. He
claimed that a year after Makalintals election as member of
the petitioners Board in 1996, his term as well as those of
the other members should be considered to have already
expired. Thus, according to him, the resulting vacancy
should have been filled by the stockholders in a regular or
special meeting called for that purpose, and not by the

remaining members of the petitioners Board. RTC favored
respondent. SEC ruled on the same ground as RTC.
Petitioner appealed in SC for certiorari being partially
contrary to law and jurisprudence.
ISSUE:
Can the members of a corporations board of

directors elect another director to fill in a vacancy caused by
the resignation of a hold-over director?
HELD:
NO. The holdover period is not part of the term of
office of a member of the board of directors. When Section
23 of the Corporation Code declares that the board of
directorsshall hold office for one (1) year until their
successors are elected and qualified, we construe the
provision to mean that the term of the members of the
board of directors shall be only for one year; their
term expires one year after election to the office. The
holdover period that time from the lapse of one year from
a members election to the Board and until his successors
election and qualification is not part of the directors
original term of office, nor is it a new term; the holdover
period, however, constitutes part of his tenure. Corollary,
when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the
incumbent is holding the succeeding term.
The powers of the corporations board of directors
emanate from its stockholders. This theory of delegated
power of the board of directors similarly explains why, under
Section 29 of the Corporation Code, in cases where the
vacancy in the corporations board of directors is caused not
by the expiration of a members term, the successor so
elected to fill in a vacancy shall be elected only for the
unexpired term of the his predecessor in office. The law
has authorized the remaining members of the board to fill in
a vacancy only in specified instances, so as not to retard or
- 50 -
impair the corporations operations; yet, in recognition of

the stockholders right to elect the members of the board, it
limited the period during which the successor shall serve
only to the unexpired term of his predecessor in office.
It also bears noting that the vacancy referred to in
Section 29 contemplates a vacancy occurring within the
directors term of office. When a vacancy is created by
the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29 declares that
it shall be the corporations stockholders who shall possess
the authority to fill in a vacancy caused by the expiration of
a members term.
NOTE: The court distinguished term and tenure.
Term is the time during which the officer may claim
to hold the office as of right, and fixes the interval after
which the several incumbents shall succeed one another.
The term of office is not affected by the holdover. The term
is fixed by statute and it does not change simply because
the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term
due to the fact that a successor has not been elected and
has failed to qualify.
Tenure represents the term during which the
incumbent actually holds office. The tenure may be shorter
(or, in case of holdover, longer) than the term for reasons
within or beyond the power of the incumbent.
2.) OFFICERS
Yu Chuck vs. Kong Li Po
G.R. No. L-22450; December 3, 1924
FACTS:
Kong Li Po is a corporation engaged in the publication
of a Chinese newspaper. Its AOI provide for a president who
shall sign all contracts and other instruments of writing, but
does not provide for a business or general manager. CC
Chen or TC Chen was appointed general business manager

of the paper. He then entered into an agreement with Yu
Chuck for the printing of the newspaper for P580 per month.
Yu Chuck worked for a year until they were discharged by
the new manager Tan Tian Hong because CC Chen had left
for China. Yu Chuck sues the paper, claiming the contract
was for a period of 3 years, and that discharge without just
cause before the expiration of this term entitles them to
receive full pay for the remainder of the term. Kong Li Po
counters that CC Chen was not authorized to enter into the
contract with Yu Chuck. TC ruled in favor of Yu Chuck,
concluding that the contract had been impliedly ratified by
Kong Li Po and that although he had no express authority to
enter into the contract; since he was general business
manager in charge of the printing of the paper he had
implied authority to employ the petitioners.
ISSUE:
WON CC Chen had the power to bind the corporation
through the contract mentioned.
HELD:
The general rule is that the power to bind a
corporation by contract lies with its board of directors or
trustees, but this power may either expressly or impliedly
be delegated to other officers or agents of the corporation,
and it is well settled that except where the authority of
employing servants and agent is expressly vested in the
board of directors or trustees, an officer or agent who has
general control and management of the corporation's
business, or a specific part thereof, may bind the
corporation by the employment of such agent and
employees as are usual and necessary in the conduct of
such business. But the contracts of employment must be
reasonable.
In the case at bar, although the court affirmed the
power to bind the corporation may be made by an officer or
agent, the contract of employment in the printing business
- 51 -
is not reasonable for it was too long and onerous to the

business.
Woodchild Holdings vs. Roxas Electric
G.R. No. 140667; August 12, 2004
FACTS:
The respondent was the owner of two parcels of land
located along the Sumulong Highway. Petitioner wanted to
buy the one parcel on which it planned to construct its
warehouse building. Roxas, as the president of respondent
company, accepted the offer through the BOD resolution
issued by the latter. However, the respondent posits that
Roxas was not so authorized under the May 17, 1991
Resolution of its Board of Directors to impose a burden or to
grant a right of way in favor of the petitioner on Lot No.491A-3-B-1, much less convey a portion thereof to the
petitioner. Hence, the respondent was not bound by such
provisions contained in the deed of absolute sale.
ISSUE:
WON whether the respondent is bound by the
provisions in the deed of absolute sale granting to the
petitioner beneficial use and a right of way over a portion of
Lot No. 491-A-3-B-1 accessing to the Sumulong Highway.
the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree

to sell to the petitioner a portion thereof. The authority of
Roxas, under the resolution, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to
create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to
sell Lot No. 491-A-3-B-2 to the petitioner on such terms and
conditions which he deems most reasonable and
advantageous. The general rule is that the power of
attorney must be pursued within legal strictures, and the
agent can neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be done. In
sum, then, the consent of the respondent to the assailed
provisions in the deed of absolute sale was not obtained;
hence, the assailed provisions are not binding on it.
The doctrine of apparent authority was not applicable
in this case because the president of the company was
given a specific authority by virtue of a board resolution to
sell a particular land. Any actions of the president outside
such vested authority shall not bind the corporation with
third party. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts
of the agent.
HELD:
Board of Liquidators vs. Heirs of Kalaw

G.R. No. L-18805; August 14, 1967
NO. Generally, the acts of the corporate officers

within the scope of their authority are binding on the
corporation. However, under Article 1910 of the New Civil
Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified
such acts expressly or tacitly, or is estopped from denying
them. Thus, contracts entered into by corporate officers
beyond the scope of authority are unenforceable against the
corporation unless ratified by the corporation.
Evidently, Roxas was not specifically authorized
under the said resolution to grant a right of way in favor of
FACTS:
Maximo Kalaw is chairman of the board and general
manager of the National Coconut Corporation (NACOCO), a
non-profit GOCC empowered by its charter to buy sell barter
export and deal in coconut, copra, and desiccated coconut.
Bocar, Garcia and Moll were directors. It entered into
contracts for the trading and delivery of copra. Nature
intervened4 typhoons devastated agriculture and copra
production. NACOCO was on the verge of sustaining losses
and could not be able to make good on the contracts.
- 52 -
Sensing this, Kalaw submitted the contracts to the board for

approval and made a full disclosure of the situation. No
action was taken, and no vote was taken on the matter. On
20 Jan 1947 the board met again with Kalaw, Bocar, Garcia,
and Moll in attendance, and approved the contracts.
NACOCO however only partially performed the contracts.
One of the contracts concerns the Louis Drayfus & Co.,
which sued NACOCO. NACOCO settled out-of-court and paid
Drayfus P567,024.52 representing 70% of total claims. The
total settlements sum up to P1.3M. NACOCO sues Kalaw,
and his directors Bocar, Moll and Garcia to recover this sum,
alleging negligence, bad faith and breach of trust in
approving the contracts, by not having them approved by
the board. TC dismisses complaint. NACOCO claims that the
by-laws provide that prior board approval is required before
the GM can perform or execute in behalf of NACOCO all
contracts necessary to accomplish its purpose.
ISSUE:
WON the Kalaw contracts are valid despite its lack of

prior board approval as required by the NACOCO by-laws.
entities. Long before some of these contracts were disputed,

he contracted by himself alone, without board approval. All
of the members of the board knew about this practice and
have entrusted fully such decisions with Kalaw. He was
never questioned nor reprimanded nor prevented from this
practice. In fact, the board itself, through its acts and by
acquiescence, have laid aside the by-law requirement of
prior board approval. Thus, it cannot now declare that these
contracts (failures) are not binding on NACOCO.
Ratification by a corporation of an unauthorized act
or contract by its officers relates back to the time of the act
or contract ratified and is equivalent to original authority.
The theory of corporate ratification is predicated upon the
right of a corporation to contract, and any ratification or
adoption is equivalent to a grant of prior authority.
Ratification cleanses the contract from all its defects from
the moment it was constituted. Thus, even in the face of an
express by-law requirement of prior approval, the law on
corporations is not to be held too rigid and inflexible as to
fail to recognize equitable considerations.
HELD:
The contracts in question are forward sales

contractsa sales agreement entered into, even though the
goods are not yet in the hands of the seller. Given the
peculiar nature of copra trading, i.e. copra must be disposed
of as soon as possible else it would lose weight and would
decrease its value, it necessitates a quick turnover and
execution of the contract on short notice (w/in 24 hours). It
would be difficult if not impractical to call a formal meeting
of the board each time a contract is to be executed.
Kalaw was a corporate officer entrusted with general
management and control of NACOCO. He had implied
authority to make any contract or do any act which is
necessary for the conduct of the business. He may, without
authority from the board, perform acts of ordinary nature for
as long as these redound to the interest of the corporation.
Particularly, he contracted forward sales with business
Matling Industrial vs. Coros

G.R. No. 157802; October 13, 2010
FACTS:
This case involves the dismissal of Coros who held
the position of vice president for finance and administration
of the company. He was at the same time a member of its
board of directors.
Coros filed a complaint for illegal dismissal with the
Labor Arbiter. The company sought the dismissal of the case
on the ground that, since he is a corporate officer and
director, his complaint is an intra-corporate dispute which,
- 53 -
at that time, was under the jurisdiction of the Securities and

Exchange Commission (now RTC) . The Labor Arbiter, NLRC
and CA denied the companys plea and ruled that Coros is
not a corporate officer and therefore his complaint falls
within the Labor Arbiters jurisdiction. The company
elevated the matter to the tribunal for final resolution.
The company argued that Coros was appointed to his
position by its president pursuant to the authority given to
him by the board of directors in its by-laws. On the basis of
that grant of power, it was as if Coros was directly appointed
by the board, thus making him a corporate officer. Coros
countered that inasmuch as his position does not appear in
the companys by-laws and he was not directly appointed by
the board, he should be classified as an ordinary or noncorporate officer.
ISSUES:
WON respondent is a corporate officer?
Who is a corporate officer?
HELD:
NO. Central to the issue is Section 25 of the

Corporation Code, which states that immediately after their
election, the directors of a corporation must formally
organize by the election of a president, a treasurer, a
secretary, and such other officers as may be provided for in
the by-laws.
The tribunal stated that for a position to be
considered a corporate office, it is essential that it is one of
those expressly mentioned in the Corporation Code or in the
companys by-laws. Thus, the creation of an office pursuant
to or under a by-law enabling provision is NOT enough to
make a position a corporate office.
The companys argument that its by-laws made a
valid delegation of the boards appointing power to the
president was rejected by the tribunal. It pointed out that
the delegation is invalid because the law requires the board
itself to elect the corporate officers. That power is
exclusively vested in the board of directors and could not
be delegated to subordinate officers or agents. Moreover,

the tribunal explained, the appointment authority granted to
the president was limited to the creation of non-corporate
offices to be occupied by ordinary employees. Their
appointment is incidental to the presidents duty as
executive to assist him in running the company.
3.) BOARD COMMITTEES
Hayes vs. Canada Atlantic & Plant Steamship Co.
181 F. 289; 1910
FACTS:
Petitioner is one of the executive committee of
respondent company. In this case, the Executive Committee:
(a) removed the Treasurer and appointed a new one; (b)
fixed the annual salary of the members of the Executive
Committee; (c) amended the by-laws by giving the President
the sole authority to call a stockholder's meeting and a
board of directors meeting; and (d) amended the
composition of the Executive Committee by limiting it to just
2 persons.
ISSUE:
Were these actions valid?
HELD:
No, because the Executive Committee usurped the
powers vested in the board and the stockholders. If their
actions were valid, it would put the corporation in a situation
wherein only two men, acting in their own pecuniary
interests, would have absorbed the powers of the entire
corporation.
"Full powers" should be interpreted only in the
ordinary conduct of business and not total abdication of
board and stockholders' powers to the Executive
Committee. "FULL POWERS" does not mean unlimited or
absolute power.
- 54 -
XIV. DUTIES OF
STOCKHOLDERS
DIRECTORS
AND
CONTROLLING
Benguet Electric Cooperative vs. NLRC

G.R. No. 89070; May 18, 1992
FACTS:
Cosalan, GM of the Benguet Electric Cooperative, was
informed by COA that cash advances received by officers
and employees of Benguet Electric had been virtually
written off the books, that per diems and allowances
showed substantial inconsistencies with the directives of the
National Electrification Administration, and that several
irregularities in the utilization of funds released by NEA to
Benguet. Cosalan then implemented the remedial measures
recommended by COA. Board members of Benguet
responded by abolishing the housing allowance of Cosalan,
reduced his salary, representation and other allowances,
and directed him to hold in abeyance all disciplinary actions,
and struck his name out as principal signatory of Benguet
Electric. The Board adopted another series of resolutions
which resulted in the ouster of Cosalan as GM. Cosalan
nonetheless continued to work as GM, contending that only
the NEA can suspend and remove him. The Board then
refused to act on Cosalan request to release compensation
due him. Cosalan files a complaint with the NLRC against
the Board of Benguet Electric, and impleaded Benguet
Electric itself as well as the individual members of the board
in their official and private capacities. Labor Arbiter rules in
favor of Cosalan, holding both the company and the board
solidarily liable to Cosalan. NLRC modifies award to Cosalan
by declaring Benguet alone, and not the Board members,
was liable to Cosalan. Benguet appeals.
ISSUE:
WON both the corporation and board members are

liable to Cosalan.
HELD:
YES. The Board members and officers of a
corporation who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority
in so acting, and act in good faith, do not become liable,
civilly or otherwise, for the consequences of their acts.
Those acts are properly attributed to the corporation alone
and no personal liability is incurred. In this case, the board
members obviously wanted to get rid of Cosalan and acted
with indecent haste in removing him from his GM position.
This shows strong indications that the members of the board
had illegally suspended and dismissed him precisely
because he was trying to rectify the financial irregularities.
The Board members are also liable for damages
under Sec. 31 of the Corporation Code, which by virtue of
Sec. 4 thereof, makes it applicable in a supplementary
manner to all corporations, including those with special or
individual charters so long as these are not inconsistent
therewith.
The Board members are also guilty of gross
negligence and bad faith in directing the affairs of the
corporation in enacting the said resolutions, and in doing so,
acted beyond the scope of their authority.
Prime White Cement vs. IAC
G.R. No. L-68555; March 19, 1993
FACTS:
Prime White Cement entered into a dealership
agreement with one of its directors, Alejandro Te, for the
latter to be the exclusive distributor of 20,000 bags of Prime
White cement per month @ P9.70 per bag for the entire
Mindanao area for 5 years, and that a letter of credit be
opened to secure payment. Te advertised his dealership and
was able to obtain possible clients, and entered into
- 55 -
agreements with several hardware stores for the purchase

of the cement. Te then informed Prime White of the orders,
but the latter imposed additional conditions, which
effectively delayed the delivery of the cement, lowered the
number of bags to be delivered, and increased the price per
bag. It also made the prices subject to change unilaterally
and additional conditions on the manner of payment. Te
refused to comply and Prime White cancelled the dealership
agreement. Te sued for specific performance and damages.
TC ruled in favor of Te.
ISSUE:
WON the dealership agreement is a valid and
enforceable contract binding on the corporation.
reasonable under the circumstances, it may be ratified by

the stockholders provided a full disclosure of his adverse
interest is made.
Gokongwei Jr. vs. SEC et. al. (supra)
G.R. No. L-45911; April 11, 1979
ISSUE:
WON the amended by-laws of SMC of disqualifying a

competitor (Interlocking director) from nomination or
election to the Board of Directors of SMC are valid and
reasonable.
HELD:
NO. It is not valid and enforceable. All corporate

powers are exercised by the Board. It may also delegate
specific powers to its President or other officers. In the
absence of express delegation, a contract entered into by
the President in behalf of the corporation, may still bind the
latter if the board should ratify expressly or impliedly. In the
absence of express or implied ratification, the President may
as a general rule bind the corporation through a contract in
the ordinary course of business, provided the same is
reasonable under the circumstances. These rules are
applicable where the President or other officer acting for the
corporation is dealing with a third person.
The situation is different where a director or officer is
dealing with his own corporation. Te was not an ordinary
stockholder; he was a member of the Board and Auditor of
the corporation. He is what is often called a self-dealing
director. As a director, he holds a position of trust and
owes a duty of loyalty to his corporation. In case his
interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit. The
trust relationship springs from the control and guidance of
the corporate affairs and property interests of the
stockholders. A directors contract with his corporation is not
in all instances void or voidable. If the contract is fair and
HELD:
Under US corporate law, corporations have the power

to make by-laws declaring a person employed in the service
of a rival company to be ineligible for the corporation's
Board of Directors. ... An amendment which renders
ineligible, or if elected, subjects to removal, a director if he
be also a director in a corporation whose business is in
competition with or is antagonistic to the other corporation
is valid." This is based upon the principle that where the
director is so employed in the service of a rival company, he
cannot serve both, but must betray one or the other. Such
an amendment "advances the benefit of the corporation and
is good." In the Philippines, section 21 of the Corporation
Law expressly provides that a corporation may make bylaws for the qualifications of directors. Thus, it has been
held that an officer of a corporation cannot engage in a
business in direct competition with that of the corporation
where he is a director by utilizing information he has
received as such officer, under "the established law that a
director or officer of a corporation may not enter into a
competing enterprise which cripples or injures the business
of the corporation of which he is an officer or director.
- 56 -
It is also well established that corporate officers "are

not permitted to use their position of trust and confidence to
further their private interests." In a case where directors of a
corporation cancelled a contract of the corporation for
exclusive sale of a foreign firm's products, and after
establishing a rival business, the directors entered into a
new contract themselves with the foreign firm for exclusive
sale of its products, the court held that equity would regard
the new contract as an offshoot of the old contract and,
therefore, for the benefit of the corporation, as a "faultless
fiduciary may not reap the fruits of his misconduct to the
exclusion of his principal.
Strong vs. Repide
G.R. No. L-2101; November 15, 1906
FACTS:
This action was brought to recover 800 shares of the
capital stock of the Philippine Sugar Estates Development
Company, Limited, an anonymous society formed to hold
the Dominican friar lands.
The shares were the property of one of the plaintiffs,
Mrs. Strong, as part of the estate of her first husband. They
were purchased by the defendant through a broker who
dealt with her agent, one Jones, who had the script in her
possession and who had made the sale without the
knowledge of the plaintiff. The defendant was a director,
was the managing agent, and was in his own right the
majority stockholder of the society.
ISSUE:
WON a director and majority stockholder must
disclose his information to another stockholder before
buying stock from him.
HELD:
YES. The director and controlling stockholder who

purchased the shares of another stockholder through an
agent was held to be guilty of concealing the impending

purchase of the friar lands they own by the government, a
significant fact which would affect the price of the shares.
Although ordinarily, the relationship between
directors and stockholders of a corporation is not of a
fiduciary character as to oblige the director to disclose to a
stockholder the general knowledge which he may possess
regarding the value of the shares of the company before he
purchases any form a shareholder, there are cases when
such duty and obligation upon the director is present. Being
the chief negotiator for the sale of the lands, the director
was the only person who knew of the advantages and the
impending increase in the value of the shares such that he
is precluded from acquiring stocks from other shareholders
without first informing them of the pertinent facts affecting
the value of the shares being bought. It is fraudulent for a
stockholder to buy from a shareholder without disclosing his
identity.
NOTE: Special Facts Doctrine: a doctrine holding that a
corporate officer with superior knowledge gained by virtue
of being an insider owes a limited fiduciary duty to a
shareholder in transactions involving transfer of stock.
Steinberg vs. Velasco

G.R. No. L-30460; March 12, 1929
FACTS:
The board of the corporation authorized the purchase
of 330shares of capital stock of the corporation and the
declaration of dividends at a time when the corporation was
indebted and in such a bad financial condition. The directors
relied on the face value on the books of its A/R, which had
little or no value. Furthermore it appears that two of the
directors were permitted to resign so that they could sell
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their stock to the corporation. The corporation became

insolvent, and the receiver Steinberg sues the directors.
ISSUE:
Duty to creditors.
HELD:
Creditors of a corporation have the right to assume

that so long as there are outstanding debts and liabilities,
the BOD will not use the assets of the corporation to buy its
own stock, and will not declare dividends to stockholders
when the corporation is insolvent.
In this case, it was found that the corporation did not
have an actual bona fide surplus from which dividends could
be paid. Moreover, the Court noted that the Board of
Directors purchased the stock from the corporation and
declared the dividends on the stock at the same Board
meeting, and that the directors were permitted to resign so
that they could sell their stock to the corporation. Given all
of this, it was apparent that the directors did not act in good
faith or were grossly ignorant of their duties. Either way,
they are liable for their actions which affected the financial
condition of the corporation and prejudiced creditors.
XV. DEVICES AFFECTING CONTROL
Everett vs. Asia Banking
G.R. No. L-25241; November 3, 1926
FACTS:
Teal & Company is indebted to HW Peabody & Co. for
P300K for tractors, plows, and parts delivered, of which it
has paid P150K. Asia Banking Corp held drafts accepted by
Teal under the HW Peabodys guarantee. Tractors were
returned to HW Peabody due to its being unsellable due to
financial and agricultural depression in the RP. Teal ordered
another lot of tractors from Smith Kirkpatrick, but shipment
was delayed until the rescission of the credit of Teal with
Asia Bank. Yet Smith still delivered the order, and Teal at the
request and advice of the Bank accepted the drafts and
stored the same. Asia Banking persuaded Teal, Peabody,
and Smith Kirkpatrick to enter into a creditors agreement
wherein it was mutually agreed that neither of the parties
should take action to collect its debts from Teal for 2 years.
Teal soon became indebted to Asia Bank for P750,000,
secured by mortgage. The Bank then suggested that, for the
mutual protection of Teal and itself, it was advisable that the
Bank should temporarily obtain control of the management
and affairs of the company.
To this end, it was necessary for the stockholders to
place their shares in a voting trust to be held by the Bank,
and then the Bank would finance Teal under its own
supervision. The Teal stockholders were thus induced to
enter into the Voting Trust Agreement, with the purpose that
the agreement will be intended for the protection of all
parties from outside creditors. Shortly after the execution
and delivery of the voting trust and the MOA, Mullen as GM
of the Bank, caused the displacement and removal
stockholder representatives in the Board and the
substitution in their place of the Banks employees or
representatives. The new Board, who have not purchased
any share of stock of Teal, proceeded to remove the
Corporate Secretary, discharge all the old managers and
displace them with creatures of their own choosing whose
interest consisted wholly in pleasing themselves and the
Bank, and who were wholly foreign to the stockholders.
ISSUE:
WON the action should have been brought by Teal
and Co., and not the majority stockholders thereof.
HELD:
NO. Teal and Co., including its Board, was already
under the control of Asia Banking. Thus, it would have been
useless to ask the Board to institute the present suit, and
the law does not require litigants to perform useless acts.
The court held that the stockholders could bring the said
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action (in the nature of a derivative suit) on behalf of Teal

and Co.
When the Board of Directors in a Corporation is under
the complete control of the principal defendants in the case
and it is obvious that a demand upon the board of directors
to institute an action and prosecute the same effectively
would be useless, the action may be brought by one or more
of the stockholders without such demand. The Court
however, did not rule on the propriety or impropriety of the
Voting Trust Agreement between the Bank and the
Company.
NOTE: However, it may be inferred that the stockholders
may bring suit against the trustees if the voting trust
agreement is being used by the said Trustees to perpetuate
fraud against the corporation, as is present in this case. The
stockholders would still have legal standing to institute the
suit in behalf of the corporation for acts done by the
trustees to defraud the corporation, when the said trustees
already have control of the Board of the said corporation. A
derivative suit is still proper.
NIDC vs. Aquino
G.R. No. L-34192; June 30, 1988
FACTS:
Batjak, a manufacturer of coco oil and copra cake for
export, is on the brink of bankruptcy. It entered in to a
Financial Agreement with PNB for additional operating
capital for its 3 processing mills and to pay its other debts to
other banks. Under the agreement with PNB, NIDC, a whollyowned subsidiary of PNB, would invest P6.7M worth of
preferred shares convertible within 5 years into common
stock to pay off the other debts and the balance to pay off
its own due with PNB. PNB also granted various credit
accommodations. Batjak as part of the deal mortgaged all
its properties in the province. A 5-year voting trust
agreement was executed in favor of NIDC by the
stockholders representing 60% outstanding stock of Batjak.

Years later, PNB instituted foreclosure proceedings against
the mortgaged properties due to Batjaks insolvency, and
soon became owner of the properties. Batjak failed to
exercise its right to redeem within the period allowed and
PNB transferred ownership of the 2 oil mills to NIDC. Three
years later, Batjak represented by majority stockholders,
inquired with NIDC if it was still interested in negotiating the
renewal of the voting trust agreement. NIDC replied that it
was no longer interested and requested turn-over of all
Batjak assets and properties. Batjak demanded an
accounting of all assets and properties and operations but
NIDC refused to comply. Batjak then filed an action for
mandamus. CFI Judge Aquino issued a TRO prohibiting NIDC
from removing any record, report, or document or disposing
all of the properties of Batjak, and allowed Batjak to inspect
the same. Batjak then moved for the appointment of a
receiver. NIDC and PNB opposes, but overruled by CFI. MRs
denied.
ISSUE:
WON NIDC was constituted as trustee of the assets,

management and operations of Batjak due to the expiration
of the Voting Trust Agreement.
HELD:
NO. A Voting Trust Agreement only transfers voting or
other rights pertaining to the shares subject of the
agreement, or control over the stock. Stockholders of a
corporation that lost all its assets through foreclosures
cannot go after those properties.
However, the acquisition by PNB-NIDC of the
properties in question was not made or effected under the
capacity of a trustee but as a foreclosing creditor for the
purpose of recovering on a just and valid obligation of
Batjak.
XVI. RIGHT OF INSPECTION
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Pardo vs. Hercules Lumber

G.R. No. L-22442; August 1, 1924
FACTS:
Corporate secretary of Hercules Lumber refused to
permit Pardo, a stockholder, or his agent to inspect the
records and business transactions of the company at the
times desired by Pardo. Basis of the refusal was the
provision in the companys by-laws which stipulated that
every stockholder may examine the books of the company
and other documents upon the days which the board
annually fixes.
ISSUE:
When is the time or times within which the right of

inspection may be exercised?
HELD:
The resolution of the board limiting the rights of

stockholders to inspect its records to a period of 10 days
prior to the annual SH meeting is an unreasonable
restriction in accordance with the Corporation Code which
provides that the right to inspect can be exercised at
reasonable hours. The right of inspection was interpreted to
mean that the right may be exercised at reasonable hours
on business days throughout the year, and not merely
during an arbitrary period of a few days chosen by the
directors.
Gonzales vs. PNB
G.R. No. L-24850; March 1, 1926
FACTS:
Gonzales instituted a suit, as a taxpayer, against Sec.
of Public Works and Communications, the Commissioner of
Public Highways, and PNB for alleged anomalies committed
regarding the banks extension of credit to import public
works equipment intended for the massive development

program. The petitioners standing was questioned because
he did not own any share in PNB. Consequently,
Petitioner bought 1 share of PNB stocks in order to gain
standing as a stockholder.
Petitioner thereafter sought to inquire and ordered
PNB to produce its books and records which the Bank
refused, invoking the provisions from its charter created by
Congress. The petitioner filed petition for mandamus to
compel PNB to produce its books and records. The RTC
dismissed the petition and it ruled that the right to examine
and inspect corporate books is not absolute, but is limited to
purposes reasonably related to the interest of the
stockholder, must be asked for in good faith for a specific
and honest purpose and not gratify curiosity or for
speculative or vicious purposes.
ISSUE:
WON the right of inspection may be compelled by
Gonzales.
HELD:
NO. The Code has prescribed limitations to the right
of inspection, requiring as a condition for examination that
the person requesting must not have been guilty of using
improperly any information secured through a prior
examination, and that the person asking for such must be
acting in good faith and for a legitimate purpose. It is the
stockholder seeking to exercise the right of inspection to set
forth the reasons and purposes for which he desires such
inspection. SC held that the purpose of Gonzales, which was
to arm himself with evidence which he can use against the
bank for acts done by the latter when he was still a total
stranger (i.e. not a SH), were not deemed proper motives
and his request was denied.
Veraguth vs. Isabela Sugar Co.
G.R. No. L-37064; October 4, 1932
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FACTS:
Veraguth, a director and stockholder of the Isabela
Sugar Company, Inc., filed a petition with the lower court
praying that: a final and absolute writ of mandamus be
issued to each and all of the respondent directors to notify
him within the reglementary period, of all regular and
special meetings of the board of directors of the Company,
and to place at his disposal at reasonable hours the
minutes, documents, and books of said corporation for his
inspection as director and stockholder. He likewise contends
that when asked that he be permitted to inspect the books
of the corporation, he was denied access on the ground that
the board of directors adopted a resolution providing for
inspection of the books and the taking of copies only by
authority of the President of the corporation previously
obtained in each case.
ISSUE:
WON Veraguth can exercise the right of inspection of
the books prior to the approval of the Board.
HELD:
NO. Directors have the unqualified right to inspect
the books and records of a corporation at all reasonable
times. Pretexts may not be put forward by the officers to
keep a director or stockholder from inspecting the books
and minutes of the corporation, and the right to inspect
cannot be denied on the grounds that the director or
stockholders are on unfriendly terms with the officers. A
director or stockholder has no absolute right to secure
certified copies of the minutes until these minutes have
been written up and approved by the directors.
Gokongwei Jr. vs. SEC et. al. (supra)
G.R. No. L-45911; April 11, 1979
ISSUE:
WON Gokongwei may be allowed to inspect the books

of the corporation.
HELD:
YES. Where the right to inspect is granted by statute

to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a
stockholder and for some purpose germane thereto or in the
interest of the corporation. The inspection has to be
germane to the petitioners interest as a stockholder and
has to be proper and lawful in character and not inimical to
the interest of the corporation.
The stockholders right to inspect is based on his
ownership of the assets and property of the corporation. It is
therefore an incident of ownership of the corporate
property, whether this ownership or interest be termed an
equitable ownership, beneficial ownership, or quasiownership, and is predicated upon the necessity of selfprotection. On application for mandamus to enforce the
right, it is proper for the court to inquire into and consider
the stockholders good faith and his purpose and motives in
seeking inspection. But the impropriety of purpose such as
will defeat enforcement must be set up by the corporation
defensively if the Court is to take cognizance of it as a
qualification. In other words, the law take from the
stockholder the burden of showing the propriety of purpose
and place upon the corporation the burden of showing
impropriety of purpose or motive.
The foreign subsidiary is wholly-owned by SMC and
therefore under its control, and would be more in accord
with equity, good faith, and fair dealing to construe the
statutory right of Gokongwei as stockholder to inspect the
books of the parent as extending to the books of the
subsidiary in its control.
XVII. DERIVATIVE SUIT
- 61 -
Evangelista vs. Santos

G.R. No. L-1721; May 19, 1950
FACTS:
Plaintiffs, minority stockholders of Vitali Lumber
Company, alleges in their complaint that defendant as
president, manager and treasurer of their company, through
fault, neglect and abandonment allowed it lumber
concession to lapse and its properties and assets to
disappear causing the complete ruin of the corporations
operation and total depreciation of its stocks.
They pray for an accounting from the defendant of
the corporate affairs and assets, payment to them of the
value of their respective participation in said assets on the
basis of the value of the stocks held by each of them and to
pay the cost of the suit.
protect their rights, refuse to sue, or where a demand upon

them to file the necessary suit would be futile because they
are the very ones to be sued or because they hold the
controlling interest in the corporation, then in that case any
of the stockholders is allowed to bring suit. But in that case,
the corporation is the real party in interest.
Republic Bank vs. Cuaderno
G.R. No. L-22399; March 30, 1967
WON the plaintiff-stockholders has the right to bring

suit in their benefit.
FACTS:
A derivative suit was brought against the officers and
the board. Complaint alleged that the directors approved a
resolution granting excessive compensation to the corporate
officers. Suit was filed in order to prevent dissipation of the
corporate funds for the payment of salaries of the said
officers. Board claims the action cannot prosper for failure to
compel the board to file the suit for and in behalf of the
corporation.
HELD:
ISSUE:
NO. The complaint shows that the action is for

damages resulting from mismanagement of the affairs and
assets of the corporation by its principal officer, it being
alleged that defendant's maladministration has brought
about the ruin of the corporation and the consequent loss of
value of its stocks. The injury complained of is thus primarily
to the corporation, so that the suit for the damages claimed
should be by the corporation rather than by the
stockholders. The stockholders may not directly claim those
damages for themselves for that would result in the
appropriation by and the distribution among them of part of
the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities
something which cannot be legally done.
But while it is to the corporation that the action
should pertain in cases of this nature, however, if the
officers of the corporation, who are the ones called upon to
WON the action cannot prosper for failure to compel

the board to file suit in behalf of the corporation.
ISSUE:
HELD:
NO. It is settled that an individual stockholder is
permitted to institute a derivative or representative suit on
behalf of the corporation wherein he holds stock in order to
protect or vindicate 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. Normally, it is the
corporation through the board of directors which should
bring the suit. But as in this case, the members of the
board of directors of the bank were the nominees and
creatures of respondent Roman and thus, any demand for
- 62 -
an intra-corporate remedy would be futile, the stockholder is

permitted to bring a derivative suit.
Should the corporation be made a party? The
English practice is to make the corporation a party plaintiff
while the US practice is to make it a party defendant. What
is important though is that the corporation should be made
a party in order to make the court's ruling binding upon it
and thus bar any future re-litigation of the issues.
efforts to obtain relief within the corporation proved futile,

he filed this action with the SEC. Respondent directors
alleged that de los Angeles has no legal standing having
been merely imposed by the PCGG and that the twenty
(20) shares owned by him personally cannot fairly and
adequately represent the interest of the minority.
ISSUE:
WON de los Angeles have the legal standing to sue.
(Derivative suit)
San Miguel Corporation vs. Khan

G.R. No. 85339; August 11, 1989
FACTS:
Fourteen corporations initially acquired shares of
outstanding capital stock of SMC and constituted a Voting
Trust thereon in favor of Andres Soriano, Jr. When the latter
died Eduardo Cojuanco was elected as the substitute
trustee. However, after the EDSA revolution, Cojuanco fled
out of the country, and subsequently an agreement was
entered into between the 14 corporations and Andres
Soriano III (as an agent of several persons) for the purchase
of the shares held by the former.
Actually the buyer of the shares was Neptunia
Corporation, a foreign corporation and wholly-owned
subsidiary of another subsidiary wholly owned by SMC.
Neptunia paid the downpayment from the proceeds of
certain loans. PCGG then sequestered the shares subject of
the sale so SMC suspended all the other installments of the
price to the sellers. The 14 corporations then sued for
rescission and damages.
Meanwhile, PCGG directed SMC to issue qualifying
shares to seven (7) individuals including Eduardo de los
Angeles from the sequestered shares for them to hold in
trust. Then, the SMCs board of directors passed a resolution
assuming the loans incurred by Neptunia for the
downpayment. De los Angeles assailed the resolution
alleging that it was not passed by the board aside from its
deleterious effects on the corporations interest. When his
HELD:
YES. The bona fide ownership by a stockholder in his
own right suffices to invest him with the standing to bring a
derivative suit for the benefit of the corporation. The
number of his shares is immaterial since he is not suing in
his own behalf, or for the protection or vindication of his
own particular right, or the redress of a wrong committed
against him individually but in behalf and for the benefit of
the corporation.
The 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 appropriate relief 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 the suit.
Yu vs. Yukayguan
G.R. No. 177549; June 18, 2009
FACTS:
The case stemmed from the petition of Anthony Yu
et. al. against his younger half-brother Joseph Yukayguan et.
al., who were all shareholders of Winchester Industrial
- 63 -
Supply Inc., a company engaged in hardware and industrial

equipment business.
Accusing
his
older
brothers
family
of
misappropriating funds and assets of the company,
Yukayguan filed a derivative suit. After trial, the Cebu
Regional Trial Court dismissed the case, saying Yukayguan
failed to follow and observe the essentials for filing of a
derivative suit or action. The ruling was upheld but later
reversed by the Court of Appeals, prompting Yu to elevate
the matter to the SC.
ISSUE:
Mandatory requirements before courts can give due
course to derivative suits or legal actions that may be
taken by a stockholders on behalf of a corporation or
association.
HELD:
The fact that Winchester, Inc. is a family corporation
should not in any way exempt respondents from complying
with the clear requirements and formalities of the rules for
filing a derivative suit.
A stockholders right to institute a derivative suit is
not based on any express provision of the Corporation Code,
or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or
officers liable for damages suffered by the corporation and
its stockholders for violation of their fiduciary duties.
However, there are mandatory requirements before a
derivative suit can be given due course by the Court. Citing
Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the SC said
derivative actions may be filed provided that the suing party
was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time
the action was filed; and 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 or partnership to obtain the relief he desires. As

additional requirements, the SC said there must be no
appraisal rights which would allow a stockholder to sell
his holdings back to the company available and the suit is
not a nuisance or harassment suit.
XVIII. MERGERS AND CONSOLIDATION
Global Business Holdings vs. Surecomp Software
G.R. No. 173463; October 13, 2010
FACTS:
Respondent Surecomp Software, a foreign corporation duly
organized and existing under the laws of the Netherlands,
entered into a software license agreement with Asian Bank
Corporation (ABC), a domestic corporation, for the use of its
IMEX Software System (System) in the banks computer
system.
ABC merged with petitioner Global Business Holdings
with Global as the surviving corporation. When Global took
over the operations of ABC, it found the System unworkable
for its operations, and informed Surecomp of its decision to
discontinue with the agreement and to stop further
payments thereon. Consequently, for failure of Global to pay
its obligations under the agreement despite demands,
Surecomp filed a complaint for breach of contract.
ISSUE:
WON Global shall be responsible for all the liabilities

and obligations of ABC after having merged with the latter.
HELD:
YES. It cannot be denied that there is indeed a

contract entered into between Surecomp and Global, the
latter as a successor-in-interest of the merging, Global is
estopped from denying Surecomps capacity to sue it for
alleged breach of that contract with damages.
- 64 -
In the merger of two existing corporations, one of the

corporations survives and continues the business, while the
other is dissolved, and all its rights, properties, and liabilities
are acquired by the surviving corporation.
In the case at bar, there is neither proof nor

allegation that appellee had made any of the above
exceptions. Hence, Pacific Farms cannot assume the debts
and liabilities of Insular Farms.
Edward Nell Company vs. Pacific Farms

G.R. No. L-20850; November 29, 1965
Laguna Transportation vs. SSS

G.R. No. L-14606; April 28, 1960
FACTS:
The Edward Nell Co. secured a judgment representing
the unpaid balance of the price of a pump sold to Insular
Farms. Pacific Farms then purchased all or substantially all of
shares of stock as well as real and personal property of
Insular, selling the shares to certain individuals who
reorganized Insular. The board of the reorganized Insular
then sold its assets to be sold to Pacific for P10000. The writ
of execution was returned, stating that Insular had no
leviable property. Nell Co sued Pacific Farms, on the ground
as a result of the purchase of all or substantially all assets of
Insular, Pacific became the alter ego of Insular Farms.
FACTS:
Petitioner Laguna Transportation Co., Inc. filed with
the Court of First Instance of Laguna petition praying that an
order be issued by the court declaring that it is not bound to
register as a member of respondent Social Security System
and, therefore, not obliged to pay to the latter the
contributions required under the Social Security Act. To this
petition, respondent filed its answer praying for its dismissal
due to petitioner's failure to exhaust administrative
remedies, and for a declaration that petitioner is covered by
said Act, since the latter's business has been in operation
for at least 2 years prior to the enactment of the Social
Security Act.
ISSUE:
WON a corporation who sells or otherwise transfers

all of its assets to another corporation is liable for debts and
liabilities of the transferor.
HELD:
NO. Generally where one corporation sells or
otherwise transfers all of its assets to another corporation,
the latter is not liable for the debts and liabilities of the
transferor, except: (1) where the purchaser expressly or
impliedly agrees to assume such debts; (2) where the
transaction amounts to a consolidation or merger of the
corporations; (3) where the purchasing corporation is merely
a continuation of the selling corporation; and (4) where the
transaction is entered into fraudulently in order to escape
liability for such debts.
ISSUE:
WON a partnership later converted to a corporation,
which continued the same line of business, is still liable to
the debts and liabilities of the partnership.
HELD:
YES. Although, a corporation will be looked upon as a

legal entity as a general rule, and until sufficient reason to
the contrary appears; but, when the motion of legal entity is
used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation
as an association of persons.
However, where a corporation was formed by, and
consisted of members of a partnership whose business and
property was conveyed and transferred to the corporation
for the purpose of continuing its business, in payment for
- 65 -
which corporate capital stock was issued, such corporation

is presumed to have assumed partnership debts, and is
prima facie liable therefore.
Lozano vs. De los Santos
G.R. No. 125221; June 19, 1997
FACTS:
Petitioner was the president of the Kapatirang
Mabalacat-Angeles Jeepney Drivers' Association, Inc.
(KAMAJDA) while private respondent Anda was the president
of the Samahang Angeles-Mabalacat Jeepney Operators' and
Drivers' Association, Inc. (SAMAJODA).
Upon the request of the Sangguniang Bayan of
Mabalacat, Pampanga, petitioner and private respondent
agreed to consolidate their respective associations and form
the Unified Mabalacat-Angeles Jeepney Operators' and
Drivers' Association, Inc. (UMAJODA). Petitioner and private
respondent also agreed to elect one set of officers who shall
be given the sole authority to collect the daily dues from the
members of the consolidated association; elections were
held and both petitioner and private respondent ran for
president; petitioner won; private respondent protested
and, alleging fraud, refused to recognize the results of the
election. Petitioner filed a case for damages against private
respondent in MCTC. The latter moved to dismiss the
complaint for lack of jurisdiction, claiming that jurisdiction
was lodged with the SEC. MCTC denied. Appealed to the
RTC, the latter reversed MCTCs ruling.
ISSUE:
Is there consolidation between petitioner and private
respondent?
When do consolidation becomes effective?
HELD:
NO. There is no intracorporate nor partnership

relation between petitioner and private respondent. The
controversy between them arose out of their plan to

consolidate their respective jeepney drivers' and operators'
associations into a single common association. This unified
association was, however, still a proposal. It had not been
approved by the SEC, neither had its officers and members
submitted their articles of consolidation in accordance with
Sections 78 and 79 of the Corporation Code.
Consolidation becomes effective not upon mere
agreement of the members but only upon issuance of the
certificate of consolidation by the SEC. When the SEC, upon
processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not
inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which
makes the reorganization official. The new consolidated
corporation comes into existence and the constituent
corporations dissolve and cease to exist.
Reyes et. al. vs. Blouse et. al.
G.R. No. L-4420; May 19, 1952
FACTS:
Minority stockholders of the Laguna Tayabas Bus Co.
file an action to enjoin Blouse et. al. from executing its
resolution approved by 99 % of stockholders to
consolidate the properties and franchises of Laguna Tayabas
with Batangas Transport. Blouse believes it is merely an
exchange of properties and not a consolidation.
ISSUE:
WON the real purpose of the resolution is merger or

consolidation, and if so, whether it can be carried out under
the old Corporation Law.
HELD:
The questioned resolution charges the board of
Laguna to consolidate properties and franchises thereof with
that of Batangas Transport. Both corporations have passed
- 66 -
similar resolutions to take steps to effect the consolidation.

It is apparent that the purpose of the resolution is not to
dissolve but to merely transfer its assets to a new
corporation in exchange for its shares. This comes within
the purview of the old corporation law, which provides that
a corporation may sell, exchange, lease or otherwise
dispose of all its property and assets when authorized by
affirmative vote of 2/3 of stockholders. The words "or other
wise disposed of" is very broad and in a sense covers a
merger or consolidation. However, the transaction in this
case cannot be considered as a merger or consolidation
because a merger implies the termination or cessation of
the merged corporations and not merely a merger of assets
and properties. The two companies will not lose their
corporate existence but will continue to exist even after the
consolidation. What is intended by the resolution is merely a
consolidation of properties and assets, to be managed and
operated by a new corporation, and not a merger of the
corporations themselves.
XIX. DISSOLUTION
National Abaca vs. Pore
G.R. No. L-16779; August 16, 1961
FACTS:
Plaintiff National Abaca Corporation filed a complaint
against Pore for the recovery of a sum of money advanced
to her for the purchase of hemp. She moved to dismiss the
complaint by citing the fact that National Abaca had been
abolished by EO 372 dated Nov. 24, 1950. Plaintiff objected
to such by saying that it shall nevertheless be continued as
a corporate body for a period of 3 years from the effective
date of said order for the purpose of prosecuting and
defending suits by or against it and to enable the Board of
Liquidators to close its affairs.
Can an action commenced within 3 years after the

abolition of plaintiff corporation be continued by the same
after the expiration of said period?
HELD:
The Corporation Law allows a corporation to continue

as a body for 3 years after the time when it would have
been dissolved for the purposes of prosecuting and
defending suits by or against it. But at any time during the 3
years, the corporation should convey all its property to
trustees so that the latter may be the ones to continue on
with such prosecution, with no time limit on its hands.
Since the case against Pore was strong, the corporations
amended complaint was admitted and the case was
remanded to the lower court.
Clemente vs. CA
G.R. No. 82407; March 27, 1995
FACTS:
Plaintiffs sought to be declared owners of a parcel of
land owned by Sociedad Popular Calambena, a Sociedad
Anonima. Plaintiffs are stockholders of the latter
corporation. However, there was no proof that taxes were
paid by the Sociedad and neither were there efforts exerted
by the latter to consolidate title over the property. No
explanation was offered as to how and when the property
came into the possession of the defendants. Plaintiffs were
not able to come up with any evidence to substantiate their
claim of ownership of the assets.
The trial court dismissed the complaint not merely on
what it apparently perceived to be an insufficiency of the
evidence that firmly could establish plaintiffs' claim of
ownership over the property in dispute but also on its thesis
that, absent a corporate liquidation, it is the corporation, not
the stockholders, which can assert, if at all, any title to the
corporate assets. The court, even then, expressed some
ISSUE:
- 67 -
reservations on the corporation's being able to still validly

pursue such a claim.
ISSUE:
Effect of Dissolution.
HELD:
The corporation continues to be a body corporate for
three (3) years after its dissolution for purposes of
prosecuting and defending suits by and against it and for
enabling it to settle and close its affairs, culminating in the
disposition and distribution of its remaining assets. It may,
during the three-year term, appoint a trustee or a receiver
who may act beyond that period. The termination of the life
of a juridical entity does not by itself cause the extinction or
diminution of the right and liabilities of such entity nor those
of its owners and creditors.
If the 3-year extended life has expired without a
trustee or receiver having been expressly designated by the
corporation itself within that period, the board of directors or
trustees itself may be permitted to so continue as "trustees"
by legal implication to complete the corporate liquidation.
In the absence of a board of directors or trustees, those
having any pecuniary interest in the assets, including not
only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper
representations with the SEC, which has primary and
sufficiently broad jurisdiction in matters of this nature, for
working out a final settlement of the corporate concerns.
XX. LIQUIDATION
China Banking vs. Michelin
58 Phil. 261
FACTS:
George OFarrel & Cie Inc. is a domestic corporation
acting as agent and representative of the Michelin & Cie, a
foreign corporation engaged in the sale and distribution of
Michelin tires. Michelin decided to discontinue their business

relations, and it was discovered that OFarrel failed to
account for an amount representing the price of tires sold
by the latter. Michelin claims the money was disposed by
OFarrel for its own use and benefit and without the
authority or consent of Michelin. Gaston OFarrel (the
person) and Sanchez executed a mortgage on the house of
OFarrel and shares owned by both to guarantee payment of
the amount to the Michelin, but left a balance which the
latter seeks to recover. The board of OFarrel filed a petition
for its dissolution and sought the appointment of Gaston as
receiver and liquidator, which was granted by TC. Michelin
filed its claim against OFarrel Corp with a prayer that its
claim be allowed as a preferred one against the latter. TC
grants motion of Michelin. Nobody except Michelin and
Gaston was notified of the order. China Bank intervened and
moved that Michelins claim be allowed as an ordinary one
under the Insolvency Law and sought the nullification of the
TC orders.
ISSUE:
Liquidation.
HELD:
The appointment of a receiver by the court to wind
up the affairs of the corporation upon petition of voluntary
dissolution does not empower the court to hear and pass on
the claims of the creditors of the corporation at first hand.
In such cases, the receiver does not act as a receiver of an
insolvent corporation. Since "liquidation" as applied to the
settlement of the affairs of a corporation consists of
adjusting the debts and claims, that is, of collecting all that
is due the corporation, the settlement and adjustment of
claims against it and the payment of its just debts, all claims
must be presented for allowance to the receiver or trustees
or other proper persons during the winding-up proceedings
within the 3 years provided by the Corporation Law as the
term for the corporate existence of the corporation, and if a
claim is disputed so that the receiver cannot safely allow the
- 68 -
same, it should be transferred to the proper court for trial

and allowance, and the amount so allowed then presented
to the receiver or trustee for payment. The rulings of the
receiver on the validity of claims submitted are subject to
review by the court appointing such receiver though no
appeal is taken to the latter ruling, and during the windingup proceedings after dissolution, no creditor will be
permitted by legal process or otherwise to acquire priority,
or to enforce his claim against the property held for
distribution as against the rights of other creditors.
NOTE: Under the Corporation Code, it is the SEC which
may appoint the receiver.
the 1st assessment was given before dissolution, while the

2nd and 3rd assessments were given just 6 months after
dissolution (within the 3-year rule). Such facts definitely
established that the Government was a creditor of the
corporation for whom the liquidator was supposed to hold
assets of the corporation.
NOTE: Code provides for a 3-year period for continuation of
the corporate existence for purposes of liquidation, BUT
there is nothing in the provision which bars an action for
recovery of debts of the corporation against the liquidator
himself, after the lapse of the 3-year period.
Republic of the Philippines vs. Marsman Development Corp.

G.R. No. L-18956; April 27, 1972
FACTS:
Defendant corporation was a timber license holder
with concessions in Camarines Norte. Investigations led to
the discovery that certain taxes were due on it. BIR
assessed Marsman 3 times for unpaid taxes. Atty. Moya, in
behalf of the corporation, received the first 2 assessments.
He requested for reinvestigations. As a result, corporation
failed to pay within the prescribed period. Numerous BIR
warnings were given. After 3 years of futile notifications,
BIR sued the corporation.
ISSUE:
WON present action is barred by prescription, in light

of the fact that the corporation law allows corporations to
continue only for 3 years after its dissolution, for the
purpose of presenting or defending suits by or against it,
and to settle its affairs.
HELD:
NO. Although Marsman was extra-judicially dissolved,
with the 3-year rule, nothing however bars an action for
recovery of corporate debts against the liquidators. In fact,
Tan Tiong Bio vs. CIR

G.R. No. L-15778; April 23, 1962
FACTS:
Tan Tiong Bio et. al. are incorporators and directors of
the Central Syndicate. The company realized a net profit of
close to P300K, and sale of goods was the only transaction
undertaken by it. BIR sues the Tan Tiong et. al. for deficiency
sales taxes and surcharges on surplus goods purchased by
the corporation from the Foreign Liquidation Commission.
Corporation was dissolved, and Tan Tiong and company
substituted themselves as parties, thereby becoming
successors-in-interests in the corporate assets after
liquidation. TC rules in favor of BIR, and Tan Tiong et. al.
appeals, claiming that they cannot be held liable for tax
liability there being no law authorizing the government to
proceed against stockholders of a defunct corporation as
transferees of the corporate assets upon liquidation. If they
were liable, it is only to the extent of the benefits derived by
them, and that the action is barred by prescription due to
the 3-year limit in the corporation law.
- 69 -
ISSUE:
WON the sales tax can be enforced against the

corporations successors-in-interest, even if corporation has
been dissolved by expiration of corporate existence.
HELD:
The creditor of a dissolved corporation may follow its
assets, as in the nature of a trust fund, once they pass into
the hands of the stockholders. The dissolution of a
corporation does not extinguish the debts due or owing to
it.
An indebtedness of a corporation to the government
for income and excess profit taxes is not extinguished by
the dissolution of the corporation. The hands of government
cannot, of course, collect taxes from a defunct corporation,
it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from
persons, who by reason of transactions with the corporation
hold property against which the tax can be enforced and
that the legal death of the corporation no more prevents
such action than would the physical death of an individual
prevent the government from assessing taxes against him
and collecting them from his administrator, who holds the
property which the decedent had formerly possessed. Thus,
petitioners can be held personally liable for the
corporation's taxes, being successors-in-interest of the
defunct corporation.
XXII. SECURITIES REGULATION CODE
CEMCO vs. National Life Insurance Co.
G.R. No. 171815; August 7, 2007
FACTS:
Union Cement Corporation (UCC), a publicly listed
company, has two principal stockholders UCHC, a non
listed company, and petitioner CEMCO. A majority of UCHCs
stocks were owned by Bacnotan Consolidated Industries
(BCI) and Atlas Cement Corporations (ACC). CEMCO holds

9% of UCHCs stocks. BCI informed the Philippine Stock
Exchange that its subsidiary ACC had passed resolutions to
sell to CEMCO all their stocks in UCHC. PSE sent a letter to
SEC to inquire as to whether the Tender Offer Rule under the
Securities Regulation Code would apply. The SEC replied
that the transaction is not covered by the tender offer rule.
On August 12, 2004, the sale of the stocks was
consummated and closed. National Life Insurance Co. of the
Philippines, a minority stockholder in UCC filed a complaint
with the SEC asking the latter to declare the purchase
agreement void for being violative of the tender offer rule.
CEMCO filed a comment to the complaint. The SEC ruled in
favor of National Life Insurance and declared the transaction
to be void for being in violation of the tender offer rule.
CEMCO filed a petition with the Court of Appeals challenging
the SECs jurisdiction on the ground that the SECs authority
is purely administrative and does not extend to
adjudication. The CA upheld the SECs ruling. It ruled that
CEMCO is estopped in questioning the jurisdiction of the
SEC. Hence, this present petition.
ISSUE:
(1) WON SEC has jurisdiction.

(2) WON mandatory tender offer rule applies only to
direct acquisition of shares in the public company.
HELD:
(1) YES. SEC was acting pursuant to Rule 19(13) of
the Amended Implementing Rules and Regulations of the
Securities Regulation Code. The foregoing rule emanates
from the SECs power and authority to regulate, investigate
or supervise the activities of persons to ensure compliance
with the Securities Regulation Code, more specifically the
provision on mandatory tender offer under Section 19
thereof.
(2) NO. Tender offer is a publicly announced
intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company. A
public company is defined as a corporation which is listed
- 70 -
on an exchange, or a corporation with assets exceeding

P50,000,000.00 and with 200 or more stockholders, at least
200 of them holding not less than 100 shares of such
company. Stated differently, a tender offer is an offer by the
acquiring person to stockholders of a public company for
them to tender their shares therein on the terms specified in
the offer.
Under existing SEC Rules, the 15% and 30%
threshold acquisition of shares under the foregoing provision
was increased to thirty-five percent (35%). It is further
provided therein that mandatory tender offer is still
applicable even if the acquisition is less than 35% when the
purchase would result in ownership of over 51% of the total
outstanding equity securities of the public company.
The SEC and the Court of Appeals ruled that the
indirect acquisition by petitioner of 36% of UCC shares
through the acquisition of the non-listed UCHC shares is
covered by the mandatory tender offer rule. It accurately
pointed out that the coverage of the mandatory tender offer
rule covers not only direct acquisition but also indirect
acquisition or any type of acquisition.
Philippine Veterans Bank vs. Callangan
G.R. No. 191995; August 3, 2011
FACTS:
Respondent
Callangan,
the
Director
of
the
Corporation Finance Department of the SEC, sent the Bank a
letter, informing it that it qualifies as a "public company"
under Section 17.2 of the Securities Regulation Code (SRC)
in relation with Rule 3(1)(m) of the Amended Implementing
Rules and Regulations of the SRC. The Bank is thus required

to comply with the reportorial requirements set forth in
Section 17.1 of the SRC. The Bank responded by explaining
that it should not be considered a "public company"
because it is a private company whose shares of stock are
available only to a limited class or sector, i.e., to World War
II veterans, and not to the general public. Respondent
rejected the Bank's explanation and assessed it a penalty
for failing to comply with the SRC reportorial requirements
from 2001 to 2003. The Bank moved for the reconsideration
of the assessment, but respondent denied the motion. SEC
en banc and CA affirmed the SECs ruling. Hence, this
petition for review on certiorari.
ISSUE:
WON petitioner-bank is a public company under the

provisions of SRC.
HELD:
YES. A public company is defined as a corporation

which is listed on an exchange, or a corporation with assets
exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100
shares of such company.
From these provisions, it is clear that a "public
company," as contemplated by the SRC, is not limited to a
company whose shares of stock are publicly listed; even
companies like the Bank, whose shares are offered only to a
specific group of people, are considered a public company,
provided they meet the requirements enumerated above.
- 71 -

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VI. CLASSES OF CORPORATIONS UNDER THE CORP.

The facts that the capital stock of the respondent

holders of such shares, dividends or allotments of the

It is established doctrine that subscription to the

shares, without a valuable consideration for such release;

WON Marcus can exercise her appraisal right.

Iglesia Evangelica Metodista En Las Islas Filipinas vs. Bishop

WON a corporation sole may be converted into a

True, the Corporation Code provides no specific

Gamboa vs. Teves

Does the term capital in Section 11, Article XII of

[The Court partly granted the petition and held that

Young Auto Supply vs. CA

downpayment of the purchase price in cash while the other

A corporation has no residence in the same sense in

City as the venue. The decision of the Court of Appeals was

WON Standard Philips can be enjoined from using

YES. A corporations right to use its corporate and

to any other name already protected by law or patently

Lyceum of the Phils. vs. CA

entity which is organized and operating as an educational

fabricate ... manufacture ... regarding pipelines, steel frames

WON ARMCO-Philippines had substantially complied

NO. The said amendment in the corporate name of

the registration. The actuations in this respect of petitioner

impose on a bank that changes its corporate name to notify

they were not privies to the contracts signed by Lim and, by

WON failure of the respondents to incorporate

NO. Partnership inter se does not necessarily exist,

Petitioner Balindong is the municipal mayor of

WON a corporation organized under a statute

Hall vs. Piccio

WON the court had jurisdiction to decree the

YES. The court had jurisdiction but Section 19 does

faith to be a corporation when it has not yet obtained its

Manila. The latter rendered judgment absolving the

judicial district where the business was located. Arkansas

Was there colorable compliance enough to give the

WON the sale made by the plaintiff corporation is

NO. The transfer was made almost five months

NO. Neither the hope, the belief, nor the statement

WON plaintiff was unable to prove its corporate

NO. The general rule is that in the absence of fraud a

WON a defectively incorporated association would

NO. Traditionally, two doctrines have been used by

association with the corporate attribute of limited liability.

Salvatierra vs. Garlitos et. al.

WON the president can be personally held liable to

YES. He is liable. The general rule is that a person

WON Aruego can be held personally liable to the

Certain officials of the school were also impleaded to make

claimed that they were engaged in a business with Lim Tong

YES. Having been recognized by the government, it

WON Lim may be regarded as a partner when the

YES. There is partnership. It is clear in the factual

deemed to be part of said association and is covered by the

International Express Travel vs. CA

NO. The basis of CA that RA 3135 Revised Charter of

special law of a general enabling act. These laws merely

with the HIGC. They questioned the revocation of LGVHAIs

No. Failure to file by-laws does not result in the

Manuel Gonzales made a written statement to the

mode of transfer on the corporation books and cannot

balance sheet to be distributed to the directors in proportion