Anthony S. Yu, et.al. vs. Joseph S. Yukayguan, et.al.

FACTS: The families Yu and Yukayguan were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation engaged in the operation of a general hardware and industrial supply and equipment business. Anthony Yu is the older half-brother of Joseph Yukayguan. The Yukayguan family accused the Yu family of misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging their personal and family expenses to the said corporation, and withdrawing stocks for their personal use without paying for the same. For this reason, the Yukayguan family filed a complaint for Accounting, Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts against the Yu family. The said complaint was filed by the former in their own behalf and as a derivative suit on behalf of Winchester, Inc. The trial court dismissed the complaint filed by the Yukayguan family for failure to show that they had complied with the essential requisites for filing a derivative suit. The ruling of the trial court was upheld by the Court of Appeals but was later reversed by the appellate court. ISSUE: Whether or not the derivative suit filed by the Yukayguan family is meritorious. RULING: No. The general rule is that where a corporation is an injured party, its power to sue with its board of directors or trustees. Nonetheless, an individual stockholder is to institute a derivative suit on behalf of the corporation wherein he holds stocks to protect or vindicate corporate rights, whenever the officials of the corporation sue, or are the ones to be sued, or hold the control of the corporation. However, stockholders suit cannot prosper without first complying with the legal requisites institution. In this case, the complaint filed by the Yukayguan family did not comply with the requisites filing a derivative suit. Section 1, Rule 8 of the Interim Rules of Procedure Governing Corporate Controversies, provides: Sec. 1. Derivative action. A stockholder or member may bring an action in a corporation or association, as the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity the complaint, to exhaust all remedies available under the articles of incorporation, by- laws, laws or rules governing the corporation or partnership to obtain he desires; (3) No appraisal rights are available for the act or acts complained of; (4) The suit is not a nuisance or harassment suit. The complaint of the Yukayguan family did not allege with particularly that they exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire. With respect to the third and fourth requirements of the above-mentioned provision, the Yukayguans Complaint also failed to allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit. Therefore, the derivative suit filed by the Yukayguan family should be dismissed. The fact that Winchester, Inc. is a family corporation should not in a way exempt the Yukayguan family from complying with the clear requirements and formalities of the rules for filing a derivative suit. Evangelista vs. Santos FACTS: This is an action by the minority stockholders of a corporation principal officer for damages resulting from his mismanagement of its affairs and misuse assets. The complaint alleges that plaintiffs are minority stockholders of the Vitali Company, Inc., a Philippine corporation organized for the exploitation of a lumber concession Zamboanga, Philippines; that defendant holds more than 50 per cent of the stocks corporation and also is and always has been the president, manager, and treasurer that defendant, in such triple capacity, through fault, neglect, and abandonment lumber concession to lapse and its properties and assets, among them machineries, warehouses, trucks, etc., to disappear, thus causing the complete ruin of the corporation total depreciation of its stocks. The complaint therefore prays for judgment requiring (1) to render an account of his administration of the corporate affairs and assets: plaintiffs the value of their respective participation in said assets on the basis of the stocks held by each of them; and (3) to pay the costs of suit. Plaintiffs also ask for remedy as may be and equitable. ISSUE: Whether or not plaintiffs have to the right to bring this action for their benefit HELD: No. The stockholders may not directly claim damages for themselves would result in the appropriation by, and the distribution among them of part of the assets before the dissolution of the corporation and the liquidation of its debts and something which cannot be legally done in view of section

16 of the Corporation provides: No shall corporation shall make or declare any stock or bond dividend or whatsoever from the profits arising from its business, or divide or distribute its capital property other than actual profits among its members or stockholders until after the payment debts and the termination of its existence by limitation or lawful dissolution. The injury complained of is thus primarily to the corporation, so that the damages claimed should be by the corporation rather than by the stockholders. But the corporation that the action should pertain in cases of this nature, however, if the the corporation, who are the ones called upon to protect their rights, refuse to sue, demand upon them to file the necessary suit would be futile because they are the very sued or because they hold the controlling interest in the corporation, then in that case the stockholders is allowed to bring suit (3 Fletcher's Cyclopedia of Corporations, pp. 977-980). But in that case it is the corporation itself and not the plaintiff stockholder that is the real property in interest, so that such damages as may be recovered shall pertain to the corporation (Pascual vs. Del Saz Orosco, 19 Phil. 82, 85). In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the real property in interest (13 Fletcher, Cyclopedia of Corporations, p. 295). In the present case, the plaintiff stockholders have brought the action not for the benefit of the corporation but for their own benefit, since they ask that the defendant make good the losses occasioned by his mismanagement and pay to them the value of their respective participation in the corporate assets on the basis of their respective holdings. Clearly, this cannot be done until all corporate debts, if there be any, are paid and the existence of the corporation terminated by the limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation Law. It results that plaintiff's complaint shows no cause of action in their favor so that the lower court did not err in dismissing the complaint on that ground. While plaintiffs ask for remedy to which they are not entitled unless the requirement of section 16 of the Corporation Law be first complied with, we note that the action stated in their complaint is susceptible of being converted into a derivative suit for the benefit of the corporation by a mere change in the prayer. Such amendment, however, is not possible now, since the complaint has been filed in the wrong court, so that the same last to be dismissed.

Lim vs Lim-Yu FACTS: At a special meeting on 7 October 1994, the Board of Directors of Limpan Corporation (LIMPAN) approved a resolution of the following tenor: "RESOLVED that the corporation make a partial payment for the legal services C. Lim in the handling of various cases on behalf of, or involving the corporation in the P1,551,500.00 to be paid in equivalent value in shares of stock of the corporation totaling shares, the same being found to be reasonable, and there being no available funds same. RESOLVED FURTHER, that the Corporate Secretary be authorized, as authorized, to secure and comply with necessary requirements of the law for the issuance shares." On 18 October 1994, the Corporate Secretary Jaime G. Manzano filed a request the Corporate and Legal Affairs Department of the SEC asking for the exemption of shares from the registration requirements of the Revised Securities Act, the request in a Resolution dated 14 November 1994. Due to the issuance of the unsubscribed Gilda C. Lim, all of Limpans authorized capital stock became fully subscribed, with LIM controlling 62.5% of the shares. In July 1996, Patricia Lim Yu, a sister of Lim, filed a complaint against the the Board of Directors of Limpan who approved the aforesaid resolution (Gilda Wilhelmina V. Joven, Ditas A. Lerios, Augusto R. Bundang, Teresita C.Velez Manzano; SEC Case 07-95-5114). Bundang, Velez, and Manzano filed an Answer, affirmative defenses that the complaint failed to state a cause of action against them had no legal capacity to sue and that the issuance of the shares in Lims favor was bona valid pursuant to law and Limpans By-Laws. In turn, Lim, Joven and Lerios filed a Motion to Dismiss on the following grounds First, that Yu had no legal capacity to sue; Second, that the complaint failed to state a cause of action against Joven and Lerios; and Third, that no earnest efforts were exerted towards a compromise, Yu and Lim being siblings. Acting on Lim, et.al., Motion to Dismiss, the Hearing Officer, Atty. Manuel Perea, issued an Order dated 5 January 1996,holding in abeyance the resolution of the motion to dismiss. Yu filed a Motion for Reconsideration dated 8April 1996, which was denied in an Order dated 25 April 1996, on the ground that it was filed beyond the 10-day period allowed for seeking reconsideration. Yu filed a Motion for Leave to Admit Second Motion for Reconsideration dated 2

July 1996 which the Hearing Officer also denied. From the denial of her second motion for reconsideration, Yu filed a petition for certiorari before the SEC En Banc seeking to set aside the Order of 5 January 1994. On 4 February 1994, the SEC En Banc issued an order granting the petition for certiorari, and ordering the Securities Investigation & Clearing Department (SICD) to hear the other grounds of the Motion to Dismiss and to continue the case until its final determination. A motion for reconsideration filed by Lim having been denied, the petition for review was instituted before the Court of Appeals. On 31July 1998, the Court of Appeals in CA-GR SP 46292 dismissed the petition for lack of merit and lifted the preliminary injunction previously issued. Yu's capacity to file the suit was sustained. Lim, et. al. moved for reconsideration but was denied by the appellate court in a resolution dated 25 March 1999. Lim, et. al. filed the petition under Rule 45 of the Rules of Court. ISSUE: Whether Yus suit to enforce her preemptive rights in a corporation is in the nature of a derivative suit. HELD: The suit filed by respondent Yu cannot be characterized as derivative. A derivative suit has been defined as an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of shareholders against abuses by the majority. In a derivative action, the real party in interest is the corporation itself, shareholders who actually instituted it. If the suit filed by Yu was indeed derivative then Yu may not have the capacity to sue. The reason is that she would be representation of the corporation, an act which the TRO enjoins her from doing. Hence, Yu's suit cannot be characterized as derivative, because she was only of the violation of her preemptive right under Section 39 of the Corporation Code. merely praying that she be allowed to subscribe to the additional issuances proportion to her shareholdings to enable her to preserve her percentage of ownership corporation. She was therefore not acting for the benefit of the corporation. Quite she was suing on her own behalf, out of a desire to protect and preserve her preemptive Unquestionably, the TRO did not prevent her from pursuing that action. Gochan, et al V Richard Young, et

al Issues: 1. Whether or not the spouses Uy have the personality to file an action before the SEC against Gochan Realty Corporation. 2. Whether or not the spouses Uy could properly bring a derivative suit in the name of Gochan Realty to redress wrongs allegedly committed against it for which the directors refused to sue. 3. Whether or not the intestate estate of John Young , Sr. is an indispensable party in the SEC case considering that the individual heirs shares are still in the decedent stockholders name. 4. Whether or not the SEC has jurisdiction over the case with the taking into effect of RA 8799. Facts: Gochan Realty was registered with SEC on June 1951 with Felix Gochan, Sr. and 5 others as incorporators. Felix Gochans daughter, Alice and mother of herein respondents inherited 50 shares of stock in Gochan Realty from the former. Alice died in 1955 leaving the 50 shares to her husband John Young, Sr. Having earned dividends, these stocks numbered 179 by September 1979. John Young Sr. Requested Gochan Realty to partition the shares of his late wife by cancelling the stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of herein respondents but on October 17, 1979, respondent Gochan Realty refused , citing as reason, the right of first refusal granted to the remaining stockholders by the Articles of Incorporation. In 1990, John Young, Sr, died, leaving the shares to the respondents. On February 8, 1994, respondents Cecilia Gochan Uy and Miguel Uy filed a complaint with SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of officers and directors and damages against

respondents. A notice of Lis Pendens was annotated as real properties of the corporation. Herein petitioners moved to dismiss the complaint alleging that 1. The SEC had no over the nature of the action, 2. Respondents were not the real party-in-interest capacity to sue, and 3. Respondents causes of action were barred by the Limitations.The motion was opposed by herein respondents. On March 29, 1994, petitioners a Motion for cancellation of Notice of Lis Pendens To which the respondents opposed. On December9, 1994, the SEC through its hearing granted the motion to dismiss and ordered the cancellation of the Notice of Lis annotated upon the titles of the corporate lands. Respondents moved for reconsideration same was denied for being pro-forma. Respondents appealed to SEC en banc, contending among others, that the SEc had over the case. Petitioners, on the other hand, contend that the appeal was 97 days the 30-day period for appeals. On March 3, 1995, the SEC en banc ruled for the holding that the respondents motion for reconsideration did not interrupt the 30-day appeal because said motion was pro-forma. Aggrieved, herein respondents filed a Review with the CA. The CA ruled that the SEC Had no jurisdiction over the case as far as the heirs of Alice Gochan were concerned, they were not yet stockholders of the corporation. On the other hand, it upheld the capacity Spouses Uy and held that the intestate estate of John Young, Sr. is an indispensable CA further ruled that the cancellation of the notice of Lis Pendens on the titles of the real estate was not justified. Moreover, it declared that respondents Motion for Reconsideration before the SEC was not pro-forma; thus its filing tolled the appeal period, hence this Review on Certiorari under Rule 45 of the Rules of Court. Ruling: A court or tribunals jurisdiction over the subject matter is determined allegations in the complaint. The fact that certain persons are not registered stockholders in the books of the corporation will not bar them from filing a derivative if it is evident from the allegations in the complaint that they are bonafide stockholders. view of RA 8799, intr-corporate controversies are now within the jurisdiction courts of general jurisdiction, no longer of the Securities and Exchange Commission. The petition has no merit. In view of the effectivity of RA 8799, however, the be remanded to the proper Regional Trial Court, not to the SEC. In any event, controversy, whether intra-corporate or not, is no longer cognizable by the SEC, , in 8799, which transferred to Regional Trial Courts the formers jurisdiction over cases involving intra-corporate disputes. The spouses Uy have the capacity to file derivative suit in behalf and for the benefit of the corporation. The reason is, as earlier discussed, the allegations of the complaint make them out as stockholders at the time the questioned transaction occurred, as well as at the time the action was filed and during the pendency of the action.

Since all the shares that belonged to Alice are still in the name of John Young, Sr., no final determination can be had without his estate being impleaded in the suit. The estate of John Young, Sr. is thus an indispensable party with respect to the cause of action dealing with the registration of the shares in the names of the heirs of Alice.The Rules of Court allows the annotation of a notice of lis pendens in actions affecting the title or right of possession ofc real property. Thus the CA was correct in reversing the SEC Order for the cancellation of the notice of lis pendens. The fact that respondents are not stockholders of Mactan Realty Development Corporation and the Lapulapu Real Estate Corporation does not make them non-parties to the case. To reiterate, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the Complaint. In this case, it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners, and that the former acquired the properties sought to be reconveyed to FGSRC in violation of the directors-petitioners fiduciary duty to FGSRC. WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED, subject to the modification that the case be remanded to the proper RTC. The DEC. 9, 1994 Order of the SEC hearing officer dismissing the Complaint and directing the cancellation of the notice of lis pendens, as well as the March 3, 1995 Order denying complainants Motion for Reconsideration are REVERSED AND SET ASIDE. Pursuant to AM No. 00-8-10-SC, the Office of the Court Administrator and the SEC are DIRECTED to cause the actual transfer of the records of SEC Case No. 02-94-4674 to the appropriate Regional Trial Court. Francis Chua v. CA [G.R. No. 150793, 19 November 2004] FACTS: Private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit charging Francis Chua and his wife, of four counts of falsification of public documents. It was alleged that the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of Directors of the said Corporation, duly notarized by causing it to appear in said Minutes that one Lydia Hao was present ,when in truth and in fact, as the said accused fully well knew that said Lydia

Hao was never present during the Meeting and neither has participated in the proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed. Respondent Hao claimed that the suit was brought under the concept of a derivative suit. Issue: Whether the criminal complaint was in the nature of a derivative suit Held: No. The court held that a criminal suit, even when it includes the recovery of the civil liability cannot amount to a derivative suit because it does not formally implead the corporation as a party to the action. It is a condition sine qua non that the corporation be impleaded as a party not only as an indispensable party but it is also the present rule that it must be served with due process .Under Section 36 of the Corporation Code, in relation to Section 23, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks 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. Lopez Dee vs sec Facts: Naga Telephone Company, Inc. (Natelco) was organized in 1954, the authorized capital was P100,000.00. In 1974 Natelco decided to increase its authorized capital to P3,000,000.00. As required by the Public Service Act, Natelco filed an application for the approval of the increased authorized capital with the then Board of Communications under BOC Case 74-84. On 8 January 1975, a decision was rendered in said case, approving the said application subject to certain conditions, among which was "That the issuance of the shares of stocks will be for a period of one year from the date hereof, 'after which no further issues will be made without previous authority from this Board." Pursuant to the approval given by the then Board of Communications, Natelco filed its Amended Articles of Incorporation with the Securities and Exchange Commission (SEC). When the amended articles were filed with the SEC, the original authorized capital of P100,000.00 was already paid. Of the increased capital of P2,900,000.00 the subscribers subscribed to P580,000.00 of which P145,000 was fully paid.

The capital stock of Natelco was divided into 213,000 common shares and 87,000 preferred shares, both at a par value of P10.00 per shares. On 12 April 1977, Natelco entered into a contract with Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of telephone equipment. In accordance with this contract, Natelco issued 24,000 shares of common stocks to CSI on the same date as part of the downpayment. On 5 May 1979, another 12,000 shares of common stocks were issued to CSI. In both instances, no prior authorization from the Board of Communications, now the National Telecommunications Commission, was secured pursuant to the conditions imposed by the decision in BOC Case 74-84. On 19 May 1979, the stockholders of the Natelco held their annual stockholders' meeting to elect their seven directors to their Board of Directors, for the year 1979-1980. In this election Pedro Lopez Dee was unseated as Chairman of the Board and President of the Corporation, but was elected as one of the directors, together with his wife, Amelia Lopez Dee. In the election CSI was able to gain control of Natelco when the latter's legal counsel, Atty. Luciano Maggay won a seat in the Board with the help of CSI. In the reorganization Atty. Maggay became president. Dee having been

unseated in the election, filed a petition in the SEC (SEC Case 1748), questioning the validity of the elections of 19 May 1979 upon the main ground that there was no valid list of stockholders through which the right to vote could be determined.

As prayed for in the petition, a restraining order was issued by the SEC placing Dee and the other officers of the 1978-1979 Natelco Board in hold-over capacity. The SEC restraining order was elevated to the Supreme Court in GR 50885 where the enforcement of the SEC restraining order was restrained. Maggay, et. al. replaced the hold-over officers. During the tenure of the Maggay Board, from 22 June 1979 to 10 March 1980, it did not reform the contract of 12 April 1977, and entered into another contract with CSI for the supply and installation of additional equipment but also issued to CSI 113,800 shares of common stock. Subsequently, the Supreme Court dismissed the petition in GR 50885 upon the ground that the same was premature and the Commission should be allowed to conduct its hearing on the controversy. The dismissal of the petition resulted in the unseat ing of the Maggay group from the board of directors of Natelco in a "hold-over" capacity. In the course of the proceedings in SEC Case 1748, SEC Hearing officer Emmanuel Sison issued an order on 23 June 1981, declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote; (2) that unexplained 16,858 shares of Natelco appear to have been issued in excess to CSI which should not be allowed to vote; (3) that 82 shareholders with their corresponding number of shares shall be allowed to vote; and (4) consequently, ordering the holding of special stockholder' meeting to elect the new members of the Board of Directors for Natelco based on the findings made in the order as to who are entitled to vote. From the foregoing order dated 23 June 1981, Dee filed a petition for certiorari/appeal with the SEC en banc (SEC-AC 036). Thereafter, the Commission en banc rendered a decision on 5 April 1982, sustaining the order of the Hearing Officer; dismissing the petition/appeal for lack of merit; and ordering new elections as the Hearing Officer shall set after consultations with Natelco officers, among others. On 21 April 1982, Dee and Natelco filed their respective motions for reconsideration. Pending resolution of the motions for reconsideration, on 4 May 1982, the hearing officer without waiting for the decision of the commission en banc, to become final and executory rendered an order stating that the election for directors would be held on 22 May 1982. On 20 May 1982, the SEC en banc denied the motions for reconsideration.

Meanwhile on 20 May 1982 (GR 63922), Antonio Villasenor filed Civil Case 1507 with the Court of First Instance of Camarines Sur, Naga City, against Luciano Maggay, Nildo I. Ramos, Desirerio Saavedra, Augusto Federis, Ernesto Miguel, Justino de Jesus St., Vicente Tordilla, Pedro Lopez Dee and Julio Lopez Dee, which was raffled to Branch I, presided over by Judge Delfin Vir. Sunga. Villasenor claimed that he was an assignee of an option to repurchase 36,000 shares of common stocks of Natelco under a Deed of Assignment executed in his favor. The Maggay group allegedly refused to allow the repurchase of said stocks when Villasenor offered to CSI the repurchase of said stocks by tendering payment of its price. The complaint therefore, prayed for the allowance to repurchase the aforesaid stocks and that the holding of the 22 May 1982 election of directors and officers of Natelco be enjoined. A restraining order dated 21 May 1982 was issued by the lower court commanding desistance from the scheduled election until further orders. Nevertheless, on 22 May 1982, as scheduled, the controlling

majority of the stockholders of the Natelco defied the restraining order, and proceeded with the elections, under the supervision of the SEC representatives. On 25 May 1982, the SEC recognized the fact that elections were duly held, and proclaimed that the following are the "duly elected directors" of the Natelco for the term 1982-1983: Felipa T. Javalera, Nilda I. Ramos, Luciano Maggay, Augusto Federis, Daniel J. Ilano, Nelin J. Ilano, Sr., and Ernesto A. Miguel. The following are the recognized officers to wit: Luciano Maggay (President), Nilda I. Ramos (Vice-President), Desiderio Saavedra (Secretary), Felipa Javalera (Treasurer), and Daniel Ilano (Auditor). Despite service of the order of 25 May 1982, the Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept insisting no elections were held and refused to vacate their position. On 28 May 1982, the SEC issued another order directing the holdover directors and officers to turn over their respective posts to the newly elected directors and officers and directing the Sheriff of Naga City, with the assistance of PC and INP of Naga City, and other law enforcement agencies of the City or of the Province of Camarines Sur, to enforce the aforesaid order. On 29 May 1982, the Sheriff of Naga City, assisted by law enforcement agencies, installed the newly elected directors and officers of the Natelco, and the hold-over officers peacefully vacated their respective offices and turned-over their functions to the new officers. On 2 June 1982, a charge for contempt was filed by Villasenor alleging that Maggay, et. al. have been claiming in press conferences and over the radio airlanes that they actually held and conducted elections on 22 May 1982 in the City of Naga and that they have a new set of officers, and that such acts of Maggay, et. al. constitute contempt of court. On 7 September 1982, the lower court rendered judgment on the contempt charge, declaring CSI, Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court, and accordingly punished with imprisonment of 6 months and to pay fine of P1,000.00 each: and ordering rNilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, and those now occupying the positions of directors and officers of NATELCO to vacate their respective positions therein, and ordering them to reinstate the hold-over directors and officers of NATELCO, such as Pedro Lopez Dee as President, Justino de Jesus, Sr., as Vice President, Julio Lopez Dee as Treasurer and Vicente Tordilla, Jr. as Secretary, and others referred to as hold-over directors and officers of NATELCO in the order dated 28 May 1982 of SEC Hearing Officer Emmanuel Sison, in SEC Case 1748, by way of RESTITUTION, and consequently, ordering said respondents to turn over all records, property and assets of NATELCO to said hold-over directors and officers.

The trial judge issued an order dated 10 September 1982 directing the respondents in the contempt charge to "comply strictly, under pain of being subjected to imprisonment until they do so." Maggay, et. al. filed on 17 September 1982, a petition for certiorari and prohibition with preliminary injunction or restraining order against the CFI Judge of Camarines Sur, Naga City and de Jesus, Sr., et.a al., with the then Intermediate Appellate Court which issued a resolution ordering de Jesus, Sr., et. al. to comment on the petition, which was complied with, and at the same time temporarily refrained from implementing and or enforcing the questioned judgment and order of the lower court. On 14 April 1983, the then Intermediate Appellate Court, rendered a decision, annuling the judgment dated 7 September 1982 rendered by the trial judge on the contempt charge, and his order dated 10 September 1982, implementing said judgment; ordering the 'hold-over' directors and officers of NATELCO to vacate their respective offices; directing respondents to restore or re-establish Maggay, et. al. who were ejected on 22 May 1982 to their respective offices in the NATELCO; and prohibiting whoever may be the successor of the Judge from interfering with the proceedings of the Securities and Exchange Commission in SEC-AC 036. The order of re-

implementation was issued, and, finally, the Maggay group has been restored as the officers of the Natelco.

Lopez Dee, et. al. filed the petitions for certiorari with preliminary injunction and/or restraining order. In the resolution of the Court En Banc dated 23 August 1983, GR 63922 was consolidated with GR 60502. Issue: Whether the issuance of 113,800 shares of Natelco to CSI, made during the pendency of SEC Case 1748 in the Securities and Exchange Commission was valid. Whether Natelco stockholders have a right of preemption to the 113,800 shares in question; else, whether the Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their right of pre-emption to the unissued shares . Held:

1. The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of SEC Case 1748 in the Securities and Exchange Commission was valid. The findings of the SEC En Banc as to the issuance of the 113,800 shares of stock was stated as follows: "But the issuance of 113,800 shares was pursuant to a Board Resolution and stockholders' approval prior to 19 May 1979 when CSI was not yet in control of the Board or of the voting shares. There is distinction between an order to issue shares on or before 19 May 1979 and actual issuance of the shares after 19 May 1979. The actual issuance, it is true, came during the period when CSI was in control of voting shares and the Board (if they were in fact in control) - but only pursuant to the original Board and stockholders' orders, not on the initiative to the new Board, elected 19 May 1979, which petitioners are questioning. The Commission en banc finds it difficult to see how the one who gave the orders can turn around and impugn the implementation of the orders he had previously given. The reformation of the contract is understandable for Natelco lacked the corporate funds to purchase the CSI equipment.... Appellant had raise the issue whether the issuance of 113,800 shares of stock during the incumbency of the Maggay Board which was allegedly CSI controlled, and while the case was sub judice, amounted to unfair and undue advantage. This does not merit consideration in the absence of additional evidence to support the proposition." In effect, therefore, the stockholders of Natelco approved the issuance of stock to CSI.

2. The issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI.

Spouses Firme vs. Bukal Enterprises and Development Corp. Facts: Spouses Constante and Azucena Firme are the registered owners of a parcel of land located on DahliaAvenue, Fairview Park, Quezon City. Renato de Castro, the vice president of Bukal Enterprises andDevelopment Corporation authorized his friend, Teodoro Aviles, a broker, to negotiate with the SpousesFirme for the purchase of the Property. On 28 March 1995, Bukal Enterprises filed a complaint for specificperformance and damages with the trial court, alleging that the Spouses Firme reneged on their agreement tosell the Property. The complaint asked the trial court to order the Spouses Firme to execute the deed of saleand to deliver the title to the Property to Bukal Enterprises upon payment of the agreed purchase price. On 7August 1998, the trial court rendered judgment against Bukal Enterprises, dismissing the case and orderingBukal Enterprises to pay the Spouses Constante and Azucena Firme (1) the sum of P335,964.90 as and byway of actual and compensatory damages; (2) the sum of P500,000.00 as and by way of moral damages; (3)the sum of P100,000.00 as and by way of attorneys fees; and (4) the costs of the suit. The trial court heldthere was no perfected contract of sale as Bukal Enterprises failed to establish that the Spouses Firme gavetheir consent to the sale of the Property; and that Aviles had no valid authority to bind Bukal Enterprises in thesale transaction. Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the decisionof the trial court. The appellate court ordered the Spouses Firme to execute the Deed of Absolute Saletransferring the ownership of the subject property to Bukal Enterprises immediately upon receipt of thepurchase price of P3,224,000.00 and to perform all such acts necessary and proper to effect the transfer of theproperty covered by TCT 264243 to Bulak Enterprises; and directed Bukal Enterprises to deliver the paymentof the purchase price of the property within 60 days from the finality of the judgment. The Court of Appealsheld that the lack of a board resolution authorizing Aviles to act on behalf of Bukal Enterprises in thepurchase of the Property was cured by ratification; inasmuch as Bukal Enterprises ratified the purchase whenit filed the complaint for the enforcement of the sale. The spouses Firme filed the petition for review oncertiorari before the Supreme Court Issue: Whether there was a perfected contract between the Spouses Firme and Bukal Enterprises, the latter allegedly being represented by Aviles.

Held: There was no consent on the part of the Spouses Firme. Consent is an essential element for the existence of a contract, and where it is wanting, the contract is non-existent. The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of the offer made by the other. The Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the acceptance on the subject matter, consideration and terms of payment as would result in a perfected contract of sale. Further, there was no approval from the Board of Directors of Bukal Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not have the proper authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as Bukal Enterprises vice president, testified that he authorized Aviles to buy the Property. However, there is no Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises. It is the board of directors or trustees

which exercises almost all the corporate powers in a corporation. Under Sections 23 and 36 of the Corporation Code, the power to purchase real property is vested in the board of directors or trustees. While a corporation may appoint agents to negotiate for the purchase of real property needed by the corporation, the final say will have to be with the board, whose approval will finalize the transaction. A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its by-laws. Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises. There is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles made with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds of sale presented to the Spouses Firme. Even De Castro admitted that he had never met the Spouses Firme. Considering all these circumstances, it is highly improbable for Aviles to finalize any contract of sale with the Spouses Firme. Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial court, Aviles signed the verification and certification of non-forum shopping. The verification and certification of non-forum shopping was not accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises. The power of a corporation to sue and be sued is exercised by the board of directors. The physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and that it is filed in good faith. True, this requirement is procedural and not jurisdictional. However, the trial court should have ordered the correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act on behalf of Bukal Enterprises. Islamic Directorate vs Ca FACTS: Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic Quezon City for, the construction of a "Mosque (prayer place, Madrasah (Arabic other religious infrastructures" so as to facilitate the effective practice of Islamic faith In the same year, the Libyan government donated money to the IDP to purchase land Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The by two titles were both registered in the name of IDP. In 1972, after the purchase of the Libyan government in the name of IDP, Martial Law was declared by the late Ferdinand Marcos. Thereafter, two Muslim groups sprung, the Carpizo Group and Group. Both groups claimed to be the legitimate IDP. On 3 October 1986, the SEC, between these two contending groups, came out with a Decision declaring the election the Carpizo Group and the Abbas Group as IDP board members to be null and void. the Carpizo Group attempted to submit a set of by-laws, the SEC found that, those who and adopted the bylaws were not bona fide members of the IDP, thus rendering the the by-laws likewise null and void. On 20 April 1989, without having been properly elected members of the Board of Trustees of IDP, the Carpizo Group signed an alleged Board of the IDP, authorizing the sale of the subject two parcels of land to the Iglesia ni Cristo a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano filed a petition before the SEC (SEC Case 4012) seeking to declare null and void

Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer not the legitimate Board of Trustees of the IDP. ISSUE: WON the Tandang Sora property was legitimately sold to the INC in compliance requisites required in the Corporation Code? NO. HELD: Sale by Board of Trustees of the only corporate property without compliance of Corporation Code requiring ratification of members representing at least two-membership, would make the sale null and void. The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation. The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and INC was intrinsically void ab initio. As far back as October 1986, the SEC, already declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being violative of the Articles of Incorporation. Nothing becomes more settled than that the IDP-Carpizo Group with whom INC contracted is a fake Board. All acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. The IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed

of Absolute Sale executed in favor of INC. Ineluctably, the subject sale is void and produces no effect whatsoever. Loyola Grand Villas Homeowners Association Inc. vs. Court Corporate Facts: LGVHAI was organized on February 8, 1983 as the association of homeowners residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, predecessor of herein respondent HIGC, as the sole homeowners' organization subdivision. It was organized by the developer of the subdivision and its first president Victorio V. Soliven, himself the owner of the developer. For unknown reasons, LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They do so. To the officers' consternation, they discovered that there were two other organizations within the subdivision the North Association and the South Association. According respondents, a non-resident and Soliven himself, respectively headed these associations. In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI automatically dissolved for two reasons. First, it did not submit its by-laws within required by the Corporation Code and, second, there was non-user of corporate because HIGC had not received any report on the association's activities. Apparently, information resulted in the registration of the South Association with the HIGC on July covering Phases West I, East I and East II. It filed its by-laws on July 26, 1989. developments prompted the officers of the LGVHAI to lodge a complaint with the questioned the revocation of LGVHAI's certificate of registration without due notice and concomitantly prayed for the cancellation of the certificates of registration of the South Associations by reason of the earlier issuance of a certificate of registration LGVHAI. They obtained a favorable ruling from the HIGC. The South Association the Appeals Board of the HIGC but was dismissed for lack of merit. Issue: WON the failure of a corporation to file its by-laws within one month from the incorporation, as mandated by Section 46 of the Corporation Code, result in its dissolution. Ruling: No. The records of the deliberations of the Batasang Pambansa No. 68 suggest that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, the law itself provides the answer to the issue propounded by petitioner. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself

(optima statuli interpretatix est ipsum statutum), reveals the legislative intent to attach a directory, and not mandatory, meaning for the word must in the first sentence of Section 46 of the Corporation Code. There can also be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. Loyola Grand Villas H omeowners Association Inc. vs. Court Corporate Facts: LGVHAI was organized on February 8, 1983 as the association of homeowners residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, predecessor of herein respondent HIGC, as the sole homeowners' organization subdivision. It was organized by the developer of the subdivision and its first president Victorio V. Soliven, himself the owner of the developer. For unknown reasons, LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They do so. To the officers' consternation, they discovered that there were two other organizations within the subdivision the North Association and the South Association. According respondents, a non-resident and Soliven himself, respectively headed these associations. In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI automatically dissolved for two reasons. First, it did not submit its by-laws within required by the Corporation Code and, second, there was non-user of corporate because HIGC had not received any report on the association's activities. Apparently, information resulted in the registration of the South Association with the HIGC on July covering Phases West I, East I and East II. It filed its by-laws on July 26, 1989. developments prompted the officers of the LGVHAI to lodge a complaint with the questioned the revocation of LGVHAI's certificate of registration without due notice and concomitantly prayed for the cancellation of the certificates of registration of the South Associations by reason of the earlier issuance of a certificate of registration LGVHAI. They obtained a favorable ruling from the HIGC. The South Association the Appeals Board of the HIGC but was dismissed for lack of merit. Issue:

WON the failure of a corporation to file its by-laws within one month from the incorporation, as mandated by Section 46 of the Corporation Code, result in its dissolution. Ruling: No. The records of the deliberations of the Batasang Pambansa No. 68 suggest that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, the law itself provides the answer to the issue propounded by petitioner. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum), reveals the legislative intent to attach a directory, and not mandatory, meaning for the word must in the first sentence of Section 46 of the Corporation Code. There can also be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. China Banking Corporation vs. Court [GR 117604, 26
China Banking Corporation made a 53% equity investment (P16,227,851.80) in the First CBC Capital a Hongkong subsidiary engaged in financing and investment with deposit-taking function. It was shown that CBC has become insolvent so China Banking wrote-off its investment as worthless and treated it as a bad debt or as an ordinary loss deductible from its gross income. CIR disallowed the deduction on the ground that the investment should not be classified as being worthless. It also held that assuming that the securities were worthless, then they should be classified as a capital loss and not as a bad debt since there was no indebtedness between China Banking and CBC.

Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Inc. (VGCCI), pledged his Stock Certificate 1219 to China Banking Corporation (CBC). September 1974,

CBC wrote VGCCI requesting that the pledge agreement be recorded books. In a letter dated 27 September 1974, VGCCI replied that the deed of pledge Calapatia in CBC's favor was duly noted in its corporate books. On 3 August 1983, obtained a loan of P20,000.00 from CBC, payment of which was secured by agreement still existing between Calapatia and CBC. Due to Calapatia's failure obligation, CBC, on 12 April 1985, filed a petition for extrajudicial foreclosure before Notary Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of stock. On 14 May 1985, CBC informed VGCCI of the foreclosure proceedings and requested the pledged stock be transferred to its name and the same be recorded in the corporate However, on 15 July 1985, VGCCI wrote CBC expressing its inability to accede to CBC's in view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Vera held a public auction on 17 September 1985 and CBC emerged as the highest P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding of sale. On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment overdue account in the amount of P18,783.24. Said notice was followed by a demand 12 December 1985 for the same amount and another notice dated 22 November P23,483.24. On 4 December 1986, VGCCI caused to be published in the newspaper Express a notice of auction sale of a number of its stock certificates, to be held on 10 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination membership due to the sale of his share of stock in the 10 December 1986 auction. 1989, CBC advised VGCCI that it is the new owner of Calapatia's Stock Certificate 1219 of being the highest bidder in the 17 September 1985 auction and requested certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for delinquency" Calapatia's stock was sold at the public auction held on 10 December P25,000.00. On 9 March 1990, CBC protested the sale by VGCCI of the subject share and thereafter filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied CBC's motion for reconsideration. On 20 September 1990, CBC filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main that considering that the said share is delinquent, VGCCI had valid reason not to transfer the share in the name of CBC in the books of VGCCI until liquidation of delinquency. Consequently, the case was dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's motion for reconsideration. CBC appealed to the SEC en banc and on 4 June

1993, the Commission issued an order reversing the decision of its hearing officer; holding that CBC has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another membership certificate in the name of CBC. VGCCI sought reconsideration of the order. However, the SEC denied the same in its resolution dated 7 December 1993. The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently, dismissed CBC's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and dismissing CBCs complaint. CBC moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5 October 1994. CBC filed the petition for review on certiorari. Issue: Whether CBC is bound by VGCCI's by-laws. Held: In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into. Herein, at the time the pledge agreement was executed. VGCCI could have easily informed CBC of its by-laws when it sent notice formally recognizing CBC as pledgee shares registered in Calapatia's name. CBC's belated notice of said by-laws at foreclosure will not suffice. By-laws signifies the rules and regulations or private laws the corporation to regulate, govern and control its own actions, affairs and concerns stockholders or members and directors and officers with relation thereto and among in their relation to it. In other words, by-laws are the relatively permanent and continuing action adopted by the corporation for its own government and that of the individuals and having the direction, management and control of its affairs, in whole or in management and control of its affairs and activities. The purpose of a by-law is to conduct and define the duties of the members towards the corporation and among They are self-imposed and, although adopted pursuant to statutory authority, have public law. Therefore, it is the generally accepted rule that third persons laws, except when they have knowledge of the provisions either actually or constructively. exception to the general accepted rule that third persons are not bound by by-applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI must be acquired at the time the pledge agreement was contracted. Knowledge provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's over the

pledged share. Article 2087 of the Civil Code provides that it is also of the these contracts that when the principal obligation becomes due, the things in which the mortgage consists maybe alienated for the payment to the creditor. Further, VGCCI's that CBC is duty-bound to know its by-laws because of Article 2099 of the Civil stipulates that the creditor must take care of the thing pledged with the diligence of a of a family, fails to convince. CBC was never informed of Calapatia's unpaid accounts restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation provides that "no shares of stock against which the corporation holds any unpaid claim transferable in the books of the corporation" cannot be utilized by VGCCI. The term 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 Herein, the subscription for the share in question has been fully paid as evidenced issuance of Membership Certificate 1219. What Calapatia owed the corporation were monthly dues. Hence, Section 63 does not apply. Western Institute of Technology Inc. vs. Salas [GR 113032, 21 August 1997] Facts: Ricardo T. Salas and other members of his family are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT), a stock corporation. According to the minority stockholders of WIT, sometime on 1986 a Special Board Meeting was held. Prior to said Special Board Meeting, copies of notice thereof, dated 24 May 1986, were distributed to all Board Members.The notice allegedly indicated that the meeting to be held on 1 June 1986 included Item 6 which states that "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation." In said meeting, the Board of Trustees passed Resolution 48, series 1986, granting monthly compensation to Salas, et. al. as corporate officers retroactive 1 June 1985 with ten percentum of the net profits to be distributed equally among the ten members of the Board of Trustees. This amends and supercedes previous resolution. In March 1991, Homero Villasis with other minor stockholders filed an affidavit-complaint against Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a result of which 2 separate criminal informations, one for falsification of a public document and the other for estafa at the RTC. Judge Porfirio Parian rendered acquittal on both counts. Villasis, et. al. filed a Motion for

Reconsideration of the civil aspect of the RTC Decision which was, however, denied. Villasis, et. al. filed the petition for review on certiorari. Significantly on 8 December 1994, a Motion for Intervention, dated 2 December 1994, was filed before this Court by Western Institute of Technology, Inc., disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had no authority whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention was granted.. Issue: Whether the grant of compensation to Salas, et. al. is proscribed under Section 30 of the Corporation Code. Held: Under Section 30 of the Corporation Code, there are only two (2) ways members of the board can be granted compensation apart from reasonable per diems: there is a provision in the by-laws fixing their compensation; and (2) when the representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. Also, the proscription, however, against granting compensation to director/trustees of a corporation is not a sweeping rule. Worthy of note phraseology of Section 30 which state: "[T]he directors shall not receive any compensation, such directors." The phrase as such directors is not without significance for it delimits of the prohibition to compensation given to them for services performed purely in their directors or trustees. The unambiguous implication is that members of the board compensation, in addition to reasonable per diems, when they render services to the in a capacity other than as directors/trustees. The board resolution 48, s. 1986 granted compensation to Salas, et. al. not in their capacity as members of the board, but rather of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Western Institute of Technology. Clearly, the prohibition with respect to granting compensation corporate directors/trustees as such under Section 30 is not violated in this particular Consequently, the last sentence of Section 30 which provides that "In no case shall yearly compensation of directors, as such directors, exceed ten (10%) percent of the before income tax of the corporation during the preceding year" does not likewise find in this case since the compensation is being given to Salas, et. al. in their capacity WIT and not as board members. Western Institute of Technology vs Salas Facts: Private respondents Ricardo T. Salas, et al., are the majority and controlling members of

the Board of Trustees of Western Institute of Technology, Inc., a stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers. A few years later petitioners Villasis, et al. filed an affidavit-complaint for falsification of a public document and for estafa. The respondents are acquitted on both counts. The petitioners filed a motion for reconsideration imposing civil liability against the accused therein. The basis of such is the alleged illegal issuance by private respondents of Resolution No. 48 representing retroactive compensation. Issue: Whether or not the respondents should be held civilly liable. No. Ruling: There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not receive any compensation, as such directors, . . . ." The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation private respondents not in their capacity as members of the board, but rather as officers corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary Institute of Technology. We quote once more Resolution No. 48.

Lee v. CA, 205 SCRA 752 [1992] FACTS: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986. Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to effect proper service upon ALFA. On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers. On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and

control of ALFA became vested upon the DBP. On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated 2, 1989 and declared that service upon the petitioners who were no longer corporate ALFA cannot be considered as proper service of summons on ALFA. On September 18, 1989, a petition for certiorari was belatedly submitted by respondent before the public respondent(COURT OF APPEALS) which, nonetheless, give due course thereto on September 21, 1989. On March 19, 1990, after the petitioners filed their answer to the private respondents' certiorari, the public respondent rendered its decision, the dispositive portion of which WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file within the reglementary period. ISSUE: 1. Whether or not the execution of the voting trust agreement, the petitioners ceased the officers and directors of ALFA, hence, they could no longer receive summons court processes for or on behalf of ALFA. HELD: In resolving the issue of the propriety of the service of summons in the instant case, on the nature of a voting trust agreement and the consequent effects upon its creation of the provisions of the Corporation Code. Under Section 59 of the new Corporation Code which expressly recognizes agreements, a more definitive meaning may be gathered. The said provision partly reads: Sec. 59.Voting Trusts One or more stockholders of a stock corporation may create trust for the purpose of conferring upon a trustee or trustees the right to vote and pertaining to the share for a period rights pertaining to the shares for a period not exceeding (5) years at any one time: Provided, that in the case of a voting trust specifically required condition in a loan agreement, said voting trust may be for a period exceeding (5) years automatically expire upon full payment of the loan. A voting trust agreement must and notarized, and shall specify the terms and conditions thereof. A certified copy agreement shall be filed with the corporation and with the Securities and Exchange otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the

books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA.

The service of summons upon ALFA, through the petitioners, therefore, is not valid. otherwise, as correctly argued by the petitioners, will contravene the general principle corporation can only be bound by such acts which are within the scope of the officer's authority. Grace Christian High School vs. Court of Appeals
Grace Christian High School (GCHS) is an educational institution in Grace Village (QC?). Grace Village Association, Inc. (GVAI)is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. Thereafter, an election was scheduled for the 15 seat in the board. GCHS opposed the election as it insists that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested. ISSUE: Whether or not the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors. HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (nonstock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to the law. GCHS seat in the corporate board is at best merely tolerated by GVAI.

Facts: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election. The association adopted the 1968 by-laws which state that they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until

their successors are duly elected and have qualified. However in 1975 a committee of the board of directors prepared a draft of an amendment to the by-laws which grant petitioners of having the benefit as member of board of director in permanent capacity without the benefit of election. This draft was never presented to the general membership for approval. Until On February 13, 1990, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board," and "it is undemocratic for a person or entity to hold office in perpetuity. For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined. This was contested by the petitioner through a letter of request addressed to the chairman of the election committee but it was denied. The petitioner school brought a suit for mandamus in the Home Insurance Guaranty Corporation which the latter sought the opinion of the SEC on the validity of the provision and again it was decided against their favor. Issue: Whether or not the provision in question, giving petitioner's representative a permanent seat in the board of the association, is contrary to law. Ruling: Yes. Since the provision in question is contrary to law, the fact that for fifteen years been questioned or challenged cannot forestall a later challenge to its validity. Neither attain validity through acquiescence because, if it is contrary to law, it is beyond the members of the association to waive its invalidity. For that matter the members of the may have formally adopted the provision in question, but their action would be because no provision of the by-laws can be adopted if it is contrary to law. Nor can petitioner claim a vested right to sit in the board on the basis of Practice, no matter how long continued, cannot give rise to any vested right if it is Litonjua v. Eternit

Facts: The Eternit Corporation (EC), a corporation duly organized and registered Philippine laws, was engaged in the manufacture of roofing materials and pipe products. eight parcels of land located in Mandaluyong City, which was has a total area of 47,233 meters. Ninety percent of the shares of stocks of EC were owned by Eteroutremer Corporation(ESAC), a corporation organized and registered under the laws of Belgium. Glanville, an Australian citizen, was the General Manager and President of EC, while Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices In 1986, due to the political situation in the Philippines, ESAC wanted operations in the country. Michael Adams, a member of ECs Board of Directors, was to dispose of the eight parcels of land. He then engaged the services of realtor/broker Marquez to offer the properties to prospective buyers. Marquez offered the lots to Eduardo Litonjua, Jr. of the Litonjua & Company, Letter date September 12, 1986, Marquez stated he was authorized to sell the properties P27,000,000.00 and that the terms of the sale were subject to negotiation. Eduardo Litonjua, Jr., together with his brother Antonio, offered to buy the P20,000,000 cash. The offer was immediately relayed to Delsaux in Belgium, but the responded after Glanville telexed him about the proposal. A telex was sent to Glanville final offer based on the Belgian/Swiss decision. After furnishing the Litonjua brothers with the copy of the telex, Eduardo accepted the counterproposal. Marquez conferred with Glanville through a Letter that siblings had accepted the counterproposal and that the confirmation of full payment within 90 days after the execution and preparation of all documents necessary. The brothers deposited of US $1,000,000 with the Security Bank & Trust Company. Glanville, after of the brothers about the sale, informed Delsaux that he had met the buyer and the concerned in incurring expenses if the sale would be prolonged. Meanwhile, with the assumption of Corazon C. Aquino as President of the the Philippines, the political situation in the Philippines had improved. Marquez telephone call from Glanville, advising that the sale would no longer proceed. Glanville up with a Letter dated May 7, 1987, confirming that he had been instructed by his inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties which Eternit Corporation is situated." The Litonjuas, learning of such fact, filed a complaint for specific performance and damages against respondents herein. In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC. The trial court declared that since the authority of the agents/realtors was not in writing,

the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation. When appealed to the Court of Appeals, the court held that Marquez was a special agent within the purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from ECs board of directors to bind such corporation to the sale of its properties. It also ruled that Delsaux was merely a representative of EC therefore he had no capacity to bind the corporation. Dissatisfied with the decision, the petitioner brought the case to the Supreme Court for review. Issue: Whether a clear and written authorization from the Board of directors and stockholders was needed to sell the property. Held: Yes. The property of a corporation may not be sold without express authority from the board of directors. Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.

While a corporation may appoint agents to negotiate for the sale of its real properties, final say will have to be with the board of directors through its officers and agents as by a board resolution or by its by-laws. An unauthorized act of an officer of the corporation binding on it unless the latter ratifies the same expressly or impliedly by its board Any sale of real property of a corporation by a person purporting to be an agent without written authority from the corporation is null and void. The declarations of the are generally insufficient to establish the fact or extent of his/her authority. In this case, the petitioners failed to adduce in evidence any resolution of Directors of EC empowering Marquez, Glanville or Delsaux as its agents, to sell the of land owned by the corporation. While Glanville was the President and General Manager of respondent EC, and Delsaux were members of its Board of Directors, the three acted for and respondent ESAC, and not as duly authorized agents of respondent EC; a board evincing the grant of such authority is needed to bind EC to any agreement regarding the subject properties. Such board resolution is not a mere formality but is a condition non to bind respondent EC. Admittedly, respondent ESAC owned 90% of the shares respondent EC; however, the mere fact that a corporation owns a majority of the shares of another, or even all of such shares of stocks, taken alone, will not justify their being one corporation. In addition, the negotiation and various communications sent by petitioners Glanville and Delsaux were never submitted to the Board of Directors for ratification. Gokongwei vs. Securities and Exchange Commission Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the bylaws

of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended bylaws are null and void. As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) the corporation, which was avowed because the questioned amendment gave the Board prerogative of determining whether they or other persons are engaged in competitive antagonistic business; that the portion of the amended by-laws which states that in whether or not a person is engaged in competitive business, the Board may consider factors as business and family relationship, is unreasonable and oppressive and, therefore, and that the portion of the amended by-laws which requires that "all nominations for directors shall be submitted in writing to the Board of Directors at least five (5) working before the date of the Annual Meeting" is likewise unreasonable and oppressive. therefore, prayed that the amended by-laws be declared null and void and the certificate thereof be cancelled, and that Soriano, et. al. be made to pay damages, in specified Gokongwei. On 28 October 1976, in connection with the same case, Gokongwei filed Securities and Exchange Commission an "Urgent Motion for Production and Inspection Documents", alleging that the Secretary of the corporation refused to allow him to records despite request made by Gokongwei for production of certain documents enumerated the request, and that

the corporation had been attempting to suppress information stockholders despite a negative reply by the SEC to its query regarding their authority The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, petition was yet to be heard, the corporation issued a notice of special stockholders' the purpose of "ratification and confirmation of the amendment to the By-laws", meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for judgment insofar as the first cause of action is concerned, for the alleged reason that special stockholders' meeting for the aforesaid purpose, Soriano, et. al. admitted the the amendments of 18 September 1976. The motion for summary judgment was Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion for of a Temporary Restraining Order", praying that pending the determination of application for the issuance of a preliminary injunction and or Gokongwei's motion judgment, a temporary restraining order be issued, restraining Soriano, et. al. from special stockholders' meeting as scheduled. This motion was duly opposed by Soriano, 10 February 1977, Cremation issued an order denying the motion for issuance of restraining order. After receipt of the order of denial, Soriano, et. al. conducted stockholders' meeting wherein the amendments to the by-laws were ratified. On 1977, Gokongwei filed a consolidated motion for contempt and for nullification of stockholders' meeting. A motion for reconsideration of the order denying Gokongwei's summary judgment was filed by Gokongwei before the SEC on 10 March 1977. [SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano, as well as the corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On 4 February 1977, motions to dismiss were filed by Soriano, et. al., to which a consolidated motion to strike and to declare Soriano, et. al. in default and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that said motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April 1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual stockholders' meeting, including in the Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto." By reason of the foregoing, on 28 April 1977,

Gokongwei filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the date set for the second hearing of the case on the merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concerted inability on the part of the SEC to act. Issues: 1. Whether the corporation has the power to provide for the (additional) qualifications of its directors. 2. Whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. 3. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation. 4. Whether the SEC gravely abused its discretion in allowing the stockholders Miguel Corporation to ratify the investment of corporate funds in a foreign corporation. Held: 1. It is recognized by all authorities that "every corporation has the inherent power 'for its internal government, and to regulate the conduct and prescribe the rights of its members towards itself and among themselves in reference to the management affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may in its by-laws "the qualifications, duties and compensation of directors, officers and This must necessarily refer to a qualification in addition to that specified by section Corporation Law, which provides that "every director must own in his right at least the capital stock of the stock corporation of which he is a director." Any person "who in a corporation does so with the knowledge that its affairs are dominated by a majority stockholders and that he impliedly contracts that

the will of the majority shall govern within the limits of the act of incorporation and lawfully enacted bylaws and not law." To this extent, therefore, the stockholder may be considered to have "parted personal right or privilege to regulate the disposition of his property which he has invested capital stock of the corporation, and surrendered it to the will of the majority incorporators. It can not therefore be justly said that the contract, express or implied, corporation and the stockholders is infringed by any act of the former which is authorized majority." Pursuant to section 18 of the Corporation Law, any corporation may amend of incorporation by a vote or written assent of the stockholders representing at least the subscribed capital stock of the corporation. If the amendment changes, diminishes the rights of the existing shareholders, then the dissenting minority has only one right, object thereto in writing and demand payment for his share." Under section 22 of the the owners of the majority of the subscribed capital stock may amend or repeal any adopt new by-laws. It cannot be said, therefore, that Gokongwei has a vested right to director, in the face of the fact that the law at the time such right as stockholder was contained the prescription that the corporate charter and the by-law shall be amendment, alteration and modification. 2. Although in the strict and technical sense, directors of a private corporation are as trustees, there cannot be any doubt that their character is that of a fiduciary insofar corporation and the stockholders as a body are concerned. As agents entrusted management of the corporation for the collective benefit of the stockholders, "they fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship directors of a corporation and stockholders is not a matter of statutory or technical law. from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof." A director is a fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. The doctrine of "corporate

opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tieups with other firms. 3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their 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, a beneficial ownership, or a quasi-ownership. This right is predicated upon the necessity of selfprotection. It is generally held by majority of the courts that where the right 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. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. The "general rule that stockholders are entitled to full information management of the corporation and the manner of expenditure of its funds, and to obtain such information, especially where it appears that the company is being mismanaged that it is being managed for the personal benefit of officers or directors or certain stockholders to the exclusion of others." While the right of a stockholder to examine and records of a corporation for a lawful purpose is a matter of law, the right of such to examine the books and records of a wholly-owned subsidiary of the corporation in a stockholder is a different thing. Stockholders are entitled to inspect the books and corporation in order to investigate the conduct of the management, determine condition of the corporation, and generally take an account of the stewardship of the directors. herein, considering that the foreign subsidiary is wholly owned by Corporation and,

therefore, under Its control, it would be more in accord with equity, and fair dealing to construe the statutory right of petitioner as stockholder to inspect and records of the corporation as extending to books and records of such wholly subsidiary which are in the corporation's possession and control. 4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds corporation or business or for any purpose other than the main purpose for which organized" provided that its Board of Directors has been so authorized by the affirmative stockholders holding shares entitling them to exercise at least two-thirds of the voting the investment is made in pursuance of the corporate purpose, it does not need the the stockholders. It is only when the purchase of shares is done solely for investment accomplish the purpose of its incorporation that the vote of approval of the stockholders shares entitling them to exercise at least two-thirds of the voting power is necessary. the corporation, the purchase of beer manufacturing facilities by SMC was an investment same business stated as its main purpose in its Articles of Incorporation, which is to and market beer. It appears that the original investment was made in 19471948, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring the investment was made in 1970-1971 thru the organization of SMI in Bermuda as reorganization. Assuming arguendo that the Board of Directors of SMC had no authority the assailed investment, there is no question that a corporation, like an individual, may thereby render binding upon it the originally unauthorized acts of its officers or other is true because the questioned investment is neither contrary to law, morals, public public policy. It is a corporate transaction or contract which is within the corporate which is defective from a purported failure to observe in its execution the requirement that the investment must be authorized by the affirmative vote of the stockholders holding twothirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that the corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of 10 May 1977 cannot be construed as an admission that the corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the ratification of their stockholders the acts of their directors, officers and managers. Prime White Cement Corp. FACTS: ,The plaintiff ( Mr. Te) and defendant corporation thru its President, Mr. Zosimo Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement whereby said plaintiff was obligated to act as

the exclusive dealer and/or distributor defendant corporation of its cement products in the entire Mindanao area for a term years. Including in the business agreement are the following: a. The corporation shall, commencing September, 1970, and supply the plaintiff, as dealer with 20,000 bags of white cement per month; b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB Cagayan de Oro ports; c. The plaintiff shall, every time the defendant corporation ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable credit in favor of the corporation and that upon certification the boat captain on the bill of lading that the goods have loaded on boat on board the vessel bound for Davao bank or banking institution shall release the corresponding amount as payment of the goods so shipped. After have the business agreement with the respondent corporation, Mr. Te, the plaintiff made business contract also with several hardwares in Mindanao in the selling of white cement priced at 13.50 per bag subject to readjustment unilaterally in favor of Mr. Te. Since there was a delay in the delivery of the items. Mr Te, compelled the corporation for the delivery. However in reply to such demand the defendant corporation through its corporate secretary, replied that the board of directors had come up with a different terms of the contract. Several demands to comply with the dealership agreement were made by the plaintiff to the defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement. Thus the plaintiff initiated legal action which was favored by the lower court. ISSUE: 1. Whether or not the act of the president and the chairman of the Board is valid under the Corporation Code? 2. Wether or not a member of the Board of the corporation is imposed with fiduciary duties? HELD:

All corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation. A director of a corporation holds a position of trust and as such, he 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. As corporate managers, directors are committed seek the maximum amount of profits for the corporation. This trust relationship "is not statutory or technical law. It springs from the fact that directors have the control and corporate affairs and property and hence of the property interests of the stockholders. AF Realty & Development Inc. vs. Dieselman Freight Services Co. FACTS: Dieselman Freight Service Co. (Dieselman) is a registered owner of a parcel of commercial lot located in Pasig City. Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter authorizing Cristeta N. Polintan, a real estate broker, "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter. Cruz, Jr. has no written authority from Dieselman to sell the lot. In turn, Polintan, through a letter, authorized Felicisima Noble to sell the same lot and the latter then offered the property to AF Realty & Development, Inc. at P2,500.00 per square meter. Zenaida Ranullo, board member and vice-president of AF Realty,

accepted the offer and issued a check in the amount of P300,000.00. Ranullo asked Polintan for the board resolution of Dieselman authorizing the sale but the latter could only give the former the original copy of lands transfer certificate title, the tax declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter. Despite AF Realtys willingness to pay the balance, Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot. Claiming that there was a perfected contract of sale between them, AF Realty filed a complaint for specific performance against Dieselman and Cruz, Jr. praying that Dieselman be ordered to execute and deliver a final deed of sale in its favor. In its answer, Dieselman alleged that it did not authorize any person to enter into such transaction on its behalf. Meanwhile, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale of the same property. The trial court ruled that the acts of Cruz Jr. bound Dieselman in the sale of the lot to AF Realty. The Court of Appeals reversing the trial courts ruling, held that Cruz, Jr. was not authorized in writing by Dieselman to sell the property to AF Realty, thus the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no bad part of the latter. ISSUE: Whether or not there was a perfected contract of sale involving the Dieselman property in favor of AF Realty. RULING: No. Contracts or acts of a corporation must be made either by the board of directors corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that, the declarations of an individual director relating to the affairs of corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation. In this case, it is undisputed that Cruz, Jr. has no written authority from the board of directors Dieselman to sell or to negotiate the sale of the lot, much less to appoint other persons same purpose. Cruz, Jr.'s lack

of such authority precludes him from conferring any authority Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of Cruz, Jr., Polintan and Noble cannot bind Dieselman purported contract of sale. Queensland-Tokyo Commodities, Inc., et al. vs. George FACTS Queensland-Tokyo Commodities, Inc. (QTCI) is a duly licensed broker engaged in the trading of commodity futures with Romeo Y. Lau (Lau), and Charlie Collado (Collado) as President and Company Consultant respectively. In 1995, Guillermo Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with Thomas George (George), encouraging the latter to invest with QTCI. On July 7, 1995, George invested with QTCI. On the same day, Collado, in behalf of QTCI, and George signed the Customers Agreement. Forming part of the agreement was the Special Power of Attorney appointing Mendoza as his attorney-in-fact with full authority to trade and manage his account. However, on June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by the issuance of the CDO, George demanded from QTCI the return of his investment, but it was not heeded. He then sought legal assistance, and discovered that Mendoza and Lontoc were not licensed commodity futures salesmen. On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages with the SEC against QTCI, Lau, and Collado (its officers), and against the unlicensed salesmen, Mendoza and Lontoc. However, Lau and Collado posit that the losses suffered by respondent were due to circumstances beyond their control and could not be attributed to them. Georges remedy, they added, should be against the unlicensed brokers who account. After due proceedings, the SEC Hearing Officer rendered a decision in favor and held Lau and Collado jointly and severally liable to pay George. Lau and Collado to the CA The CA thus proceeded to decide the merits of the case, affirming in toto of the SEC Hearing Officer. Hence this petition. ISSUE

Whether or not Lau and Collado (Board of Directors) is jointly and severally liable company. HELD Yes, Lau and Collado are jointly and severally liable. Doctrine dictates that a is invested by law with a personality separate and distinct from those of the persons it, such that, save for certain exceptions, corporate officers who entered into contracts the corporation cannot be held personally liable for the liabilities of the latter. Personal a corporate director, trustee, or officer, along (although not necessarily) with the corporation, validly attach, as a rule, only when (1) he assents to a patently unlawful act of the or when he is guilty of bad faith or gross negligence in directing its affairs, or when conflict of interest resulting in damages to the corporation, its stockholders, or other (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, not forthwith file with the corporate secretary his written objection thereto; (3) he agrees himself personally and solidarily liable with the corporation; or (4) he is made by provision of law personally answerable for his corporate action. It is taken that Mendozas participation in the trading of Georges account is within the knowledge of Collado. Mendoza, and Collados participation in the unlawful execution of orders under the Georges account clearly established the fact that the management of QTCI failed to implement the rules and regulations against the hiring of, and associating with, unlicensed consultants or traders. How these unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent [the] management was. Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of these unlawful activities within the company,being the chief operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in supervising the operations of QTCI, he could have detected and prevented the unlawful acts of Collado and Mendoza. Lau is deemed to have been grossly negligence in directing the affairs of QTCI. Eduardo Litonjua, Jr. and Antonio Litonjua v. Eternit Corp. (now Eterton Multi-ResourcesCorp.), Eteroutremer, S.A. and Far East Bank & Trust Co. G.R. No. 144805 June 8, 2006Callejo, Sr. FACTS:

Eternit Corp. is engaged in the manufacture of roofing materials and pipe products. Itsmanufacturing operations were conducted on 8 parcels of land located in Mandaluyong City, coveredby TCTs with Far East Bank & Trust Company, as trustee. 90% of the shares of stocks of Eternit Corp.were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered underthe laws of

Belgium. Jack Glanville, an Australian citizen, was the General Manager and President of Eternit Corp., while Claude Frederick Delsaux was the Regional Director for Asia of ESAC.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines andwanted to stop its operations in the country. The Committee for Asia of ESAC instructed MichaelAdams, a member of Eternit Corp.s Board of Directors, to dispose of the eight parcels of land.Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties could beoffered for sale to prospective buyers.

Marquez offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of theLitonjua & Company, Inc. Marquez declared that he was authorized to sell the properties forP27,000,000.00 and that the terms of the sale were subject to negotiation.

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr.,and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property forP20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed the sameto Delsaux in Belgium, but the latter did not respond. Glanville telexed Delsaux in Belgium, inquiringon his position/ counterproposal to the offer of the Litonjua siblings. Delsaux sent a telex to Glanvillestating that, based on the Belgian/Swiss decision, the final offer was US$1,000,000.00 andP2,500,000.00 to cover all existing obligations prior to final liquidation.

Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, andconfirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also statedthat the Litonjua siblings would confirm full payment within 90 days after execution and preparationof all documents of sale, together with the necessary governmental clearances.

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & TrustCompany, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.

With the assumption of Corazon Aquino as President of RP, the political situation in the Philippineshad improved. Marquez received a telephone call from Glanville, advising that the sale would nolonger proceed. Glanville followed it up with a letter, confirming that he had been instructed by hisprincipal to inform Marquez that the decision has been taken at a Board Meeting not to sell theproperties on which Eternit Corp. is situated.

When apprised of this development, the Litonjuas, through counsel, wrote Eternit Corp., demandingpayment for damages they had suffered on account of the aborted sale. EC, however, rejected theirdemand. ISSUE: WON Marquez, Glanville, and Delsaux were authorized by respondent Eternit Corp. to act as itsagents relative to the sale of the properties of Eternit Corp., and if so, what are the boundaries of theirauthority as agents HELD: No.

A corporation is a juridical person separate and distinct from its members or stockholders and is notaffected by the personal rights, obligations and transactions of the latter. It may act only through itsboard of directors or, when authorized either by its by-laws or by its board resolution, through itsofficers or agents in the normal course of business. The general principles of agency govern therelation between the corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.

The property of a corporation is not the property of the stockholders or members, and as such, maynot be sold without express authority from the board of directors. Physical acts, like the offering of theproperties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by thecorporation only by officers or agents duly authorized for the purpose by corporate by-laws or byspecific acts of the board of directors. Absent such valid delegation/authorization, the rule is that thedeclarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on thecorporation.

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say willhave to be with the board of directors through its officers and agents as authorized by a boardresolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on itunless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of realproperty of a corporation by a person purporting to be an agent thereof but without written authorityfrom the corporation is null and void.

An agency may be expressed or implied from the act of the principal, from his silence or lack of action,or his failure to repudiate the agency knowing that another person is acting on his behalf withoutauthority. Acceptance by the agent may be expressed, or implied from his acts which carry out theagency, or from his silence or inaction according to the circumstances. Agency may be oral unless thelaw requires a specific form. However, to create or convey real rights over immovable property, aspecial power of attorney is necessary.

The Litonjuas failed to adduce in evidence any resolution of the Board of Directors of Eternit Corp.empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in itsbehalf, the 8 parcels of land owned by Eternit Corp. including the improvements thereon. The bare factthat Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESACcannot be used as basis for Litonjuas claim that he had likewise been authorized by Eternit Corp. tosell the parcels of land.

While Glanville was the President and General Manager of Eternit Corp., and Adams and Delsaux weremembers of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not asduly authorized agents of Eternit Corp.; a board resolution evincing the grant of such authority isneeded to bind Eternit Corp. to any agreement regarding the sale of the subject properties. Such boardresolution is not a mere formality but is a condition sine qua non to bind Eternit Corp.Requisites of an agency by estoppels: (1) the principal manifested a representation of the agentsauthority or knowingly allowed the agent to assume such authority; (2) the third person, in good faith,relied upon such representation; (3) relying upon such representation, such third person has changedhis position to his detriment. Wensha Spa Center vs Yung

Facts: Loreta recounted that on August 10, 2004, she was asked to leave her office because Xu and a Feng Shui master were exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month. She did so and returned on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the Feng Shui master, her aura did not match that of Xu. Loreta refused but was informed that she could no longer continue working at Wensha. That same afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against Xu and Wensha. Issue: WON Xu and Wensha are jointly and severally liable Ruling:

Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it and from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. In the subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally liable to Loreta.[37] We have read the decision in its entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There is, therefore, no justification for such a ruling. To sustain such a finding, there should be an evidence on record that an officer or director acted maliciously or in bad faith in terminating the services of an employee.[38] Moreover, the finding or indication that the dismissal was effected with malice or bad faith should be stated in the decision itself. Sanchez vs. RepublicOctober 9, 2009 Facts: In July 1980, First Lady Imelda R. Marcos and othersorganized the University of Life Foundation, Inc. (ULFI), aprivate non-stock, non-profit corporation devoted to non-formal education.On June 15, 1998 the DECS filed a complaint

before theRTC of Pasig City in Civil Case 66852 for collection of the P22,559,215.14 in unremitted rents and damages

against Henri Kahn, ULFI s President, and petitionerManuel Luis S. Sanchez, its Executive VicePresident, basedon their personal liability under Section 31 of theCorporation Code. The latter two were Managing Directorand Finance Director, respectively, of the corporation.The complaint alleged that Kahn and petitioner Sanchez,as key ULFI officers, were remiss in safekeeping ULFI scorporate incomes and in accounting for them.

Theyneither placed the incomes derived from the Complex inULFI s deposit account nor submitted the requiredfinancial statements detailing their transactions. Theunderlying theory of the case is that Kahn and Sanchez"operated ULFI as if it were their own property, handledthe collections and spent the money as if it were their personal belonging."

The DECS asked the RTC to orderKahn and Sanchez personally to pay it the P22,559,215.14

in rents due from ULFI with legal interest, exemplarydamages of P1,000,000.00, attorney P500,000.00,

s fees of

and costs. Issue: Whether or not petitioner Sanchez, a director and chief executive officer of ULFI, can be held liable in damagesunder Section 31 of the Corporation Code for gross neglector bad faith in directing the corporation s affairs. Held: Yes. The Court of Appeals found that from January 1992 toJanuary 1996, after ULFI s authority to manage theComplex expired and despite the ejectment suit that theDECS filed against it, petitioner Sanchez and Kahn stillcontinued to lease spaces in those facilities to thirdpersons. And they collected and kept all the rents althoughthey knew that these primarily belonged to the DECS. ULFIhad merely managed the facilities and collected earningsfrom them for the DECS. What is more, Sanchez and Kahnwere aware that they had to submit written accounts of those rents and remit the net earnings from them to theBureau of Treasury, through the DECS, at the end of theyear. Yet, Sanchez and Kahn, acting in bad faith or withgross neglect did not turn over even one centavo of rent tothe DECS nor render an accounting of their collections. Nordid they account for the money they collected bysubmitting to the Securities and Exchange Commission therequired financial statements covering such collections.Section 31 lays down the "doctrine of corporateopportunity" and holds personally liable corporatedirectors found guilty of gross negligence or bad faith indirecting the affairs of the corporation, which results indamage or injury to the corporation, its stockholders ormembers, and other persons. The ejectment suit that heldonly ULFI liable to the DECS for unpaid rents does notconstitute res judicata to the issue of personal liabilities of Kahn and petitioner Sanchez under the circumstances topay such obligations, given that the unaccounted fundswould have settled the same. Gabriel Singson, et al V Commission on Audit Facts: This case is a petition for certiorari that seeks to set aside COA Resolution dated July 31, 2003, which denied petitioners Motion for Reconsideration and disallowance of petitioners RATA in the total amount of P1,565,000.00 under Disallowance No. 99-001-101 (96-96)dated June 7, 1999. The Phil. International Convention Center, Inc. (PICCI) is a government whose sole stockholder is the Bangko Sentral ng Pilipinas (BSP). Petitioner Araceli was then a member of the PICCI Board of Directors and OIC of PICCI, while co-Gabriel Singson, et al were then members of the PICCI Board of Directors and officials BSP. By virtue of PICCI by-laws, petitioners were authorized to receive P1,000 per diem every meeting attended. Pursuant to Monetary Board No. 15, dated January amended by MB Resolution No. 34, dated January 12, 1994, the BSP MB granted monthly RATA in the amount of

P1,500.00. to each of the petitioners, As members of Directors of PICCI . Consequently, from January 1996 to December 1998, petitioners their corresponding RATA in the total amount of P1,565,000.00. On June 7, 1999, PICCI Corporate Auditor Adelaida Aldovino issued Disallowance No. 99-001-101 (9698) addressed to petitioner Araceli Villanueva (OIC Susan M. Galang of the Accounting Division of PICCI, disallowing in audit the petitioners RATA in the total amount of P1,565,000.00 and directing them to settle immediately the said disallowances ffolowing reasons: As to petitioner Araceli Villanueva, there was double payment of as member of the Board and OIC of PICCI.And, as to petitioners Gabriel Singson, was double payment of RATA to them as members of the PICCI Board and as officers of which is in violation of Section 8, Art. IX-B of the 1987 Constitution and the PICCI petitioners sought reconsideration of the Notice of Disallowance, which the PICCI Auditor denied in her letter to the petitioners dated February 18, 2012. On appeal, the the Corporate Audit Office, Cresencio Sunico affirmed the disallowance of the RATA the petitioners, on June 1, 2000. He stated that except for per diems, Section 8, Art. III of the PICCI by-laws prohibits the payment of salary to directors in the form of compensation or reimbursement of expenses based on the principle of expression unius est exclusion alterius (the express mention of one thing in a law means the exclusion of others not expressly mentioned).Neither can the payment of RATA be legally founded in Section 30 of the Corporation Code which states that in the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation as such directors, except for reasonable per diems, provided however that any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least majority of the capital stock at a regular or special stockholders meeting . The power to fix the compensation which the directors shall receive, if any, is left to the corporation, to be determined by the by-laws or by the vote of stockholders. Issue: Whether or not the grant of RATA to PICC Board of Directors who are at the officers of the Banko Sentral ng Pilipinas violates the provisions of the Corporation Code.

Ruling: The Court upholds the findings of respondent that petitioners right to compensation as members of the PICCI Board of Directors is limited only to per diem of P1,000.00 for every

meeting attended, by virtue of the PICCI by-laws. In the same vein, we also clarify that there has been no double compensation despite the fact that, apart from the RATA they have been receiving from the BSP, petitioners have been granted the RATA of P1,500.00 for every board meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to MB Circular No. 15 as amended by MB Resolution No. 34 of the BSP. In this regard, we take into consideration the good faith of petitioners. As petitioners believed in good faith that they are entitled to the RATA of P1,500.0 for every meeting they attended, pursuant to BSP MB Circular and MB Resolution amending the same, the Court sees no need for them to refund their RATA, in the total amount of P1,565,000.00, covering the period from 1996 to 1998. WHEREFORE, the petition is DISMISSED. The decision of the COA in its Resolution No. 2003- 115, dated July 31,2003, which denied petitioners motion for reconsideration thereof and upheld the disallowance of petitioners RATA in the total amount of P1,565,000.00 under notice of disallowance No. 99-001-101 (96-96), dated June 7,1999 are AFFIRMED with MODIFICATION. Petitioners need not refund the RATA the received pursuant to MB Resolution No. 15, as amended by MB Resolution No. 34, dated January 12, 1994, of the BSP, in the total amount of P1,565,000.00 covering the period from 11996-1998. Valle Verde vs. AfricaSeptember 4, 2009 Facts: February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan(Dinglasan), Eduardo Makalintal (Makalintal), FranciscoOrtigas III, Victor Salta, Amado M. Santiago, Jr., FortunatoDee, Augusto Sunico, and Ray Gamboa were elected asBOD during the Annual Stockholders Meetingof petitioner Valle Verde Country Club, Inc. (VVCC)1997- 2001: Requisite quorum could not be obtained sothey continued in a hold-over capacitySeptember 1, 1998: Dinglasan resigned, BOD stillconstituting a quorom elected Eric Roxas (Roxas)November 10, 1998: Makalintal resignedOn March 6, 2001: Jose Ramirez (Ramirez) was elected bythe remaining BODRespondent Africa (Africa), a member of VVCC, questionedthe election of Roxas and Ramirez as members of theVVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC) ascontrary to Sec 23 and Sec 29 of Corporation Law.Makalintal's term should have expired after 1996 therebeing no unexpired term. The vacancy should have beenfilled by the stockholders in a regular or special meetingcalled for that purpose.RTC: Favored Africa - Ramirez as Makalintal's replacement= null and voidSEC:

Roxas as Vice hold-over director of Dinglasan = nulland voidVVCC appealed in SC for certiorari being partially contraryto law and jurisprudence Issue: Whether or not there is an unexpired term. Held: No. Term time during which the officer may claim tohold the office as of right. It is not affected by theholdover. It is fixed by statute and it does not changesimply because the office may have become vacant, norbecause the incumbent holds over in office beyond theend of the term due to the fact that a successor has notbeen elected and has failed to qualify. Tenure termduring which the incumbent actually holds office.Section 23 of the Corporation Code: term of BOD only 1year - fixed and has expired (1 yr after 1996 Seeres vs. COMELEC and Robles Facts In 1999, private respondent Robles was elected president and chairperson of BUHAY, a party-list group duly registered with COMELEC.[3] The constitution of BUHAY provides for a three-year term for all its party officers, without re-election.[4] BUHAY participated in the 2001 and 2004 elections, with Robles as its president. All the required Manifestations of Desire to Participate in the said electoral exercises, including the Certificates of Nomination of representatives, carried the signature of Robles as president of BUHAY.[5] On January 26, 2007, in connection with the May 2007 elections, BUHAY again filed a Manifestation of its Desire to Participate in the PartyList System of Representation.[6] As in the past two elections, the manifestation to participate bore the signature of Robles as BUHAY president. On March 29, 2007, Robles signed and filed a Certificate of Nomination of BUHAYs nominees for the 2007 elections containing the following names: (i) Rene M. Velarde, (ii) Ma. Carissa Coscolluela, (iii) William Irwin C. Tieng, (iv) Melchor R. Monsod, and (v) Teresita B. Villarama. Earlier, however, or on March 27, 2007, petitioner Hans Christian Seeres, holding himself up as acting president and secretary-general of BUHAY, also filed a Certificate of Nomination with the COMELEC, nominating: (i) himself, (ii) Hermenegildo C. Dumlao, (iii) Antonio R. Bautista, (iv) Victor Pablo C. Trinidad, and (v) Eduardo C. Solangon, Jr.[7]

Consequently, on April 17, 2007, Seeres filed with the COMELEC a Petition to Deny Due Course to Certificates of Nomination.[8] In it, petitioner Seeres alleged that he was the acting president and secretary-general of BUHAY, having assumed that position since August 17, 2004 when Robles vacated the position. Pushing the point, Seeres would claim that the nominations made by Robles were, for lack of authority, null and void owing to the expiration of the latters term as party president. Furthermore, Seeres asserted that Robles was, under the Constitution,[9] disqualified from being an officer of any political party, the latter being the Acting Administrator of the Light Railway Transport Authority (LRTA), a government-controlled corporation. Robles, so Seeres would charge, was into a partisan political activity which civil service members, like the former, were enjoined from engaging in. On May 10, 2007, the National Council of BUHAY adopted a resolution[10] expelling party member for his act of submitting a Certificate of Nomination for the party. Later developments saw Robles filing a petition praying for the recognition of Jose D. as the new representative of BUHAY in the House of Representatives for the remaining June 30, 2007.[12] Attached to the petition was a copy of the expelling resolution to. Additionally, Robles also filed on the same day an Urgent Motion to Declare Null the Certificate of Nomination and Certificates of Acceptance filed by Hans Christian HermenegildoDumlao, Antonio R. Bautista, Victor Pablo Trinidad and Eduardo Solangon, On July 9 and July 18, 2007, respectively, the COMELEC issued two resolutions BUHAY as a winning party-list organization for the May 2007 elections entitled to three seats.[14] This was followed by the issuance on July 19, 2007 by the en banc COMELEC of E.M. No. 07-043 recognizing and declaring Robles as the president of BUHAY and, as the one duly authorized to sign documents in behalf of the party particularly the Manifestation participate in the party-list system of representation and the Certification of Nomination nominees.[15] Explaining its action, COMELEC stated that since no party election replace Robles as party president, then he was holding the position in a hold-over capacity.[The COMELEC disposed of the partisan political activity issue with the terse observation Seeres arguments on the applicability to Robles of the prohibition on partisan political were unconvincing. On July 20, 2007, the first three (3) listed nominees of BUHAY for the May 2007 elections, the Certificate of Nomination filed by Robles, namely Rene M. Velarde, Ma. Carissa and William Irwin C. Tieng, took their oaths of office as BUHAY party-list representatives current Congress.[19] Accordingly, on September 3, 2007, the COMELEC, sitting Board of Canvassers, issued a Certificate of Proclamation to BUHAY and its nominees representatives to the House of Representatives.[20] Aggrieved, petitioner filed the instant petition.

The Issue Whether or not the Principle of Hold Over Applies in cases of Party Lists. Held: Yes Ruling The petition should be dismissed for lack of merit. Hold-Over Principle Applies Petitioner Seeres further maintains that at the time the Certificate of Nomination was submitted, Robles term as President of BUHAY had already expired, thus effectively nullifying the Certificate of Nomination and the nomination process. Again, petitioners contention is untenable. As a general rule, officers and directors of a corporation hold over after the expiration of their terms until such time as their successors are elected or appointed. Sec. 23 of the Corporation Code contains a provision to this effect, thus: Section 23. The board of directors or trustees.Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified. The holdover doctrine has, to be sure, a purpose which is at once legal as it is practical. It accords validity to what would otherwise be deemed as dubious corporate acts and gives continuity to a corporate enterprise in its relation to outsiders.[34] This is the analogical situation obtaining in the present case. The voting members of BUHAY duly elected Robles as party President in October 1999. And although his regular term as such President expired in October 2002,[35] no election was held to replace him and the other original set of officers.[36] Further, the constitution and by-laws of BUHAY do not expressly or impliedly prohibit a hold-over situation. As

such, since no successor was ever elected or qualified, Robles remained the President of BUHAY in a hold-over capacity. Authorities are almost unanimous that one who continues with the discharge of the functions of an office after the expiration of his or her legal termno successor having, in the meantime, been appointed or chosenis commonly regarded as a de facto officer, even where is made by law for his holding over and there is nothing to indicate the contrary.[37] law, the acts of such de facto officer are considered valid and effective.[38] So it must be for the acts of Robles while serving as a hold-over Buhay President. Among acts was the submission of the nomination certificate for the May 14, 2007 elections. As a final consideration, it bears to state that petitioner is estopped from questioning of Robles as President of BUHAY. As a principle of equity rooted on natural justice, estoppel precludes a person from going back on his own acts and representations prejudice of another whom he has led to rely upon them. Again, it cannot be denied that Robles, as BUHAY President, signed all manifestations partys desire to participate in the 2001 and 2004 elections, as well as all Certificates Nomination.[40] In fact, the corresponding certificate for the 2004 elections included one of the nominees. During this time, Robles term as President had already expired, petitioner never questioned Robles authority to sign the Certificate of Nomination. As fact, petitioner even benefited from the nomination, because he earned a seat in the Representatives as a result of the partys success.[41] Clearly, petitioner cannot now argue that Robles term as president of BUHAY has lon g since expired, and that submitting the Certificate of Nomination and the manifestation to participate in the 2007 is null and void. He is already precluded from doing so. 187 Facilities Management Corporation vs. De La Rosa and CIR G.R. No. L-38649 March 26, 1979

Facts: Facilities Management is a corporation domiciled in Wake Island. The corporation employed Leonardo De La Rosa in Manila as painter, houseboy and cashier in different periods. De La Rosa alleged that he rendered overtime services daily and he was also assigned to swing and graveyard shifts but he was not paid both overtime and night shift premiums despite his repeated demands. He filed a petition before the CIR seeking his reinstatement, with full backwages, as well as the recovery of his overtime compensation, swing shift and graveyard shift differentials. Facilities Management Corporation contended that because it was domiciled outside and not doing business in Philippines, it could not be sued in the country.

Issue: Whether or not petitioner has been doing business in the Philippines so that the service of summons upon its agent vested jurisdiction with the CFI Manila

Held: Yes, the object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts.

Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines.

188 The Mentholatum Co. Inc. vs. Mangaliman GR 47701, 27 June 1941

Facts: The Mentholatum Co., Inc., is a Kansas corporation which manufactures "Mentholatum," a medicament and salve for external ailments. It registered the word Mentholatum with the Bureau of Commerce as trade mark for its products. The Mangaliman brothers prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a container of the same size, color and shape as "Mentholatum." The Mentholatum Co., Inc., and the Philippine-American Drug, Co., Inc. as its exclusive distributing agent in the Philippines, instituted an action in the CFI for infringement of trade mark and unfair competition.

Issue: Whether or not the petitioners could prosecute the instant action without having secured the license required in section 69 of the Corporation Law

Held: No. The true test to determine whether a foreign corporation is doing business in the Philippines seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized. it is undeniable that the Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has been doing business in the Philippines by selling its products here since the year 1929, at least. It follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign corporation doing business in the Philippines without the license required by section

68 of the Corporation Law, it may not prosecute this action for violation of trade mark and unfair competition. Neither may the Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing features of the agent being his representative character and derivative authority it cannot now, to the advantage of its principal, claim an independent standing in court.

189 ERIKS PTE. LTD vs. COURT OF APPEALS G.R. No. 118843 February 6, 1997

Facts: Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial uses. On various dates covering the period January 17 August 16, 1989, Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from Eriks Pte. Ltd. various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The transfers of goods were perfected in Singapore, for Enriquez's account, F.O.B. Singapore, with a 90day credit term.

Subsequently, demands were made by Eriks upon Enriquez to settle his account, but the latter failed/refused to do so. On 28 August 1991, Eriks filed with the RTC a civil case for recovery of $41,939.63 plus interest thereon and damages. Enriquez contended that Eriks had no legal capacity to sue.

Issue: Whether Eriks Pte. has legal capacity to maintain an action to collect payment

Yes. Section 133 of the Corporation Code provides that no foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in Philippine courts.

In this case, a clear and unmistakable intention on the part of Eriks to continue the body of its business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by Eriks of the items covered by the receipts, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business, pure and simple. Further, its grant and extension of 90-day credit terms to Enriquez for every

purchase made, unarguably shows an intention to continue transacting with Enriquez, since in the usual course of commercial transactions, credit is extended only to customers in good standing or to those on whom there is an intention to maintain long-term relationship. The series of transactions in question could not have been isolated or casual transactions. What is determinative of "doing business" is the intention of an entity to continue the body of its business in the country. Accordingly Eriks must be held to be incapacitated to maintain the action a quo against Enriquez.

190 MR Holdings Ltd. vs. Sheriff Bajar G.R. No. 138104

Asian Development Bank extended a loan to Marcopper Mining Corporation in the amount of $40M to finance the latters mining project. ADB and Placer Dome, Inc., a foreign corporation which owned 40% of Marcopper, executed a Support and Standby Credit Agreement whereby the latter agreed to provide Marcopper with cash flow support for the payment of its loans. To secure the loan, Marcopper mortgaged all of it properties in Marinduque in favor of ADB.

When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in fulfillment of its undertaking under the Support and Standby Credit Agreement, agreed to have its subsidiary corporation, MR Holdings, Ltd., assume Marcoppers obligation to ADB. Consequently, in an Assignment Agreement ADB assigned to petitioner all its rights, interests and obligations under the Deed of Real Estate and Chattel Mortgage, and Support and Standby Credit Agreement. Marcopper likewise executed a Deed of Assignment in favor of petitioner covering all of its properties, equipments and facilities.

Meanwhile, another creditor of Marcopper, Solidbank Corporation, won a case against Marcopper. The court then issued a writ of execution directing Sheriff Carlos Bajar to levy Marcoppers assets. MR Holdings then filed an opposition asserting that it is now the owner of Marcoppers assets hence, Bajar cannot levy them.

ISSUE: Whether or not MR Holdings Inc. as a nonresident foreign corporation has a legal capacity to sue

Yes. As a general rule, if a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction.

In the case at bar, the mere fact that a foreign corporation participated under an Assignment of Agreement, but acquired the mining properties, facilities and equipment, of a local company, does not by itself prove that it has engaged in business in the Philippines. At this early stage and with petitioners acts or transactions limited to the assignment contracts, it cannot be said that it had performed acts intended to continue the business for which it was organized. It may not be amiss to point out that the purpose or business for which petitioner was organized is not discernible in the records. Thus, whether the assignment contracts were incidental to petitioners business or were continuation thereof is beyond determination.

Therefore, since it is not doing business here, it can sue without any license before Philippine courts on an isolated transaction.

191 Hutchison Ports Philippines Limited vs. SBMA GR 131367, 31 August 2000

In 1996, Hutchison Ports Philippines Limited (HPPL)won a public bidding made by the Subic Bay Metropolitan Authority (SBMA). The project was to develop and operate a modern marine container terminal within the Subic Bay Freeport Zone. The SBMA Board of Directors already declared HPPL as the winner but later on, the Office of the President reversed the decision of the Board and ordered a rebidding. In the rebidding however, HPPL was no longer among the qualified bidders. Eventually, HPPL filed a petition for injunction to enjoin SBMA from conducting the rebidding.

ISSUE: Whether or not Hutchison has the right to file an injunction case against SBMA.

No. HPPL cannot sue in the Philippines. It is a foreign corporation registered under the laws of the British Virgin Islands. It did not register here in the Philippines. HPPL cannot invoke that it was suing only on an isolated transaction. The conduct of bidding is not an isolated transaction. It is doing business here in the Philippines. The Supreme Court emphasized that as a general rule, doing or engaging in or transacting business in the Philippines is a case to case basis. It has often been held that a single act or transaction may be considered as doing business when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do business.

Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or existence. Therefore, HPPL has done busi ness here without license. It cannot now sue in the Philippines without license because its participation in the bidding is not merely an isolated transaction.

192 Agilent Technologies Singapore vs. Integrated Silicon G.R. 154618, 14 April 2004

Petitioner Agilent, a foreign corporation not licensed to transact business in the Philippines, engaged the services of the defendant Silicon Tech by a 5-year Value Added Assembly Services Agreement ("VAASA"). Integrated Silicon was to locally manufacture and assemble fiber optics for export to Hewlett-Packard Singapore. The latter, for its part, was to consign raw materials to Integrated Silicon, transport machinery to the plant of Integrated Silicon, and pay Integrated Silicon the purchase price of the finished products. The VAASA had a five-year term, with a provision for annual renewal by mutual written consent. With the consent of Integrated Silicon, HP-Singapore assigned all its rights and obligations in the VAASA to Agilent. Integrated Silicon filed a complaint for -Specific Performance and damages against Agilent and its officers for breach of oral agreement to extend the VAASA.

Issue: Whether or not Agilent has legal capacity to sue

Yes. A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine courts. A license is necessary only if a foreign corporation is transacting or doing business in the country. In the case at bar, Agilents activities in the Philippines were confined to maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon and consignment of equipment with Integrated Silicon to be used in the processing of products for export. Agilent cannot be deemed to be doing business in the Philippines. As a foreign corporation not doing business in the Philippines, it needed no license before it can sue before our courts.

193 Antam Consolidated vs. Court of Appeals

GR L-61523 July 31, 1986 Respondent Stokely Van Camp, Inc. entered into a contract with Capital City and Coconut Oil Manufacturing Phils. Inc. through Rothschild Brokerage Company, for the sale and delivery of coconut oil. When Comphil failed to deliver the coconut oil, the parties entered into a second contract wherein Comphil undertook to buy and Capital City agreed to sell 500 long tons of coconut crude oil at an increased price to cover the losses sustained by Stokely. When Comphil again failed to pay said amount, Stokely again entered into a third contract. After repeated demands, the Tambuntings as officers and directors of Comphil were replaced by new officers and the corporate name was changed to Banahaw Milling Corporation. Its assets were sold to United Coconut Oil Mills, Inc. Stokely filed a complaint against Banahaw Milling, Antam Consolidated, Tambunting Trading and Unicom for collection of sum of money. The petitioners filed a motion to dismiss the complaint on the ground that the respondent, being a foreign corporation not licensed to do business in the Philippines, has no personality to maintain the instant suit. Issue: Whether or not Stokeley has legal capacity to sue in Philippine courts Yes. If a foreign corporation is not doing business in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction. In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business." The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines. Thus, the trial court, and the appellate court did not err in denying the petitioners' motion to dismiss because the respondent, being a foreign corporation not doing business in the Philippines, does not need to obtain a license to do business in order to have the capacity to sue. 194 Merrill Lynch Futures vs. Court of Appeals GR 97816, 24 July 1992

Merrill Lynch Futures, Inc., a non-resident foreign corporation, entered into Customer Agreement with spouses Pedro and Elisa Lara. The corporation agreed to be the spouses broker for the purchase and sale of futures contracts in the U.S. through its resident agent, Merrill Lynch Philippines. From the outset, the Lara Spouses were duly advised that Merrill Lynch Philippines, Inc. was not a licensed commodity and/or financial futures broker. However, they traded in futures contracts, including "stock index futures" for years until three of their transactions incurred losses and they became indebted to ML Futures. The spouses refused to pay this balance. The petitioner filed an action before

the RTC. The spouses filed a motion to dismiss alleging that the transactions were null and void since the corporation has done business without obtaining the proper license.

Issue: Whether or not Merrill Lynch Futures, Inc. has capacity to sue the Lara spouses

Yes. As a general rule, if a foreign corporation does business in the Philippines without a license, it cannot sue before the Philippine courts. However, if local investors knew that the foreign corporation had no license to do business in the Philippines, then they are estopped from using the lack of license to avoid their obligations. In this case, the Laras received benefits generated by their business relations with ML Futures for a period spanning seven years. Assuming that the Lara Spouses were aware from the outset that ML had no license to do business in this country and MLPI has no authority to act as broker for it, it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML Futures. Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable to ML Futures and, if so, in what amount, and whether they were so far aware of the absence of the requisite licenses on the part of ML Futures and its Philippine correspondent, MLPI, as to be estopped from alleging that fact as a defense to such liability, should be ventilated and adjudicated on the merits by the proper trial court. 155 Officers Leslie Okol vs. Slimmers World International, et al.,

The Facts

While petitioner was Director and Vice President of Slimmers World International, Inc., the Bureau of Customs seized seven Precor elliptical machines and seven Precor treadmills consigned to Slimmers World. The shipment of the equipment was placed under the names of Okol and two customs brokers for a value less than US$500. For being undervalued, the equipments were seized. Respondent corporation preventively suspended Okol and required her explanation. Finding her explanation to be unsatisfactory, Slimmers World terminated Okols employment. Okol filed a complaint against respondent for illegal suspension, illegal dismissal, unpaid commissions, damages and attorneys fees, with prayer for reinstatement and payment of backwages.

The Issue

The issue is whether or not Okol is a corporate officer The Courts Ruling A corporate officers dismissal is always a corporate act, or an intra-corporate controversy subject to the jurisdiction of the regular courts.

Section 25 of the Corporation Code enumerates corporate officers as the president, secretary, treasurer and such other officers as may be provided for in the by-laws. In Tabang v. NLRC, the Supreme Court held that an office is created by the charter of the corporation and the officer is elected by the directors or stockholders. Under the by-laws of Slimmers World, petitioner is a stockholder and director, an elected corporate officer. The charges of illegal suspension, illegal dismissal, unpaid commissions, reinstatement and back wages imputed by petitioner against respondents fall squarely within the ambit of intra-corporate disputes. In a number of cases, we have held that a corporate officers dismissal is always a corporate act, or an intra-corporate controversy which arises between a stockholder and a corporation. The question of remuneration involving a stockholder and officer, not a mere employee, is not a simple labor problem but a matter that comes within the area of corporate affairs and management and is a corporate controversy in contemplation of the Corporation Code.

Thus, the regular courts have jurisdiction over the present case.

156 Liability of Officers Shrimp Specialist, Inc., vs. Fuji-Triumph Agri-Industrial Corporation

The Facts

Petitioner Shrimp Specialist, Inc., entered into a Distributorship Agreement with respondent FujiTriumph Agri-Industrial Corporation. Petitioner purchased prawn feeds from respondent and issued nine postdated checks as payment. However, it discovered that the earlier deliveries were allegedly contaminated with aflatoxin. Hence, it issued a stop-payment order for the checks. Fuji denies that the feeds were contaminated. And when the checks were presented for payment, the drawee bank dishonored all the checks due to a stop-payment order.

After a meeting between its officers, the parties agreed that Shrimp Specialists would issue another set of checks to cover the ones issued earlier. However, upon presentment of the replacement checks, these were again dishonored. Shrimp Specialists argues that Fuji deposited the checks without first replacing the defective feeds or at least informing Shrimp Specialists in advance that it would not replace the defective feeds. Thus, Shrimp Specialists contends that it was constrained to issue another stoppayment order for these checks. Fuji filed a civil complaint for sum of money against Shrimp Specialists and its president, Eugene Lim, as he was the one who solicited and negotiated with Fuji for the purchase of prawn feeds.

The Issue: Whether or not Eugene Lim, as President, is solidarily liable with Shrimp Specialists.

The Ruling of the Court

No. A corporation is vested by law with a personality separate and distinct from the people comprising it. As a general rule, obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. However, solidary liability may be incurred under exceptional circumstances provided by law.

In the present case, the trial court failed to provide a clear ground why Eugene Lim was held solidarily liable with Shrimp Specialists. The trial court merely stated that Eugene Lim signed on behalf of the Shrimp Specialists as President without explaining the need to disregard the separate corporate personality. The CA correctly ruled that the evidence to hold Eugene Lim solidarily liable should be more than just signing on behalf of the corporation because artificial entities can only act through natural persons. Thus, the case against Eugene Lim should be dismissed.

157

Officers Nacpil vs. International Broadcasting Corporation

The Facts When Emiliano Templo was appointed IBC President, he allegedly harassed, insulted, humiliated and pressured Nacpil, General manager for finance/administration and comptroller of IBC into resigning until the latter was forced to retire. However, Templo refused to pay him his retirement benefits, allegedly because he had not yet secured the clearances from the CGG and the COA. Furthermore, Templo allegedly refused to recognize petitioners employment, claiming that petitioner was not the Assistant General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of benefits.

IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case. IBC contended that petitioner was a corporate officer who was duly elected by the BOD of IBC; hence, the case qualifies as an intra-corporate dispute falling within the jurisdiction of the SEC.

The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal dismissal and non-payment of benefits filed by petitioner.

The Courts Ruling The Labor Arbiter had no jurisdiction. Dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the SEC, not to the NLRC.

An office has been defined as a creation of the charter of a corporation, while an officer as a person elected by the directors or stockholders. On the other hand, an employee occup ies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

Under Section 25 of the Corporation Code and the By-laws of the IBC, BODis empowered to appoint such other officers as it may deem necessary. In the present case, petitioners appointment as comptroller required the approval and formal action of the IBCs BOD to become valid. Since

complainants appointment was approved unanimously by the BOD of the corporation, he is therefore considered a corporate officer.

Therefore, his claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by Section 5 of P.D. 902-A. 158 Officers People's Aircargo vs. Court of Appeals

The Facts Petitioner is a domestic corporation organized in 1986 to operate a customs bonded warehouse at the old Manila International Airport (MIA). To obtain a license from the Bureau of Customs, Antonio Punsalan, Jr., the corporation president, contracted the services of Stefano Sano for the preparation of a feasibility study in the amount of P350,000.00. Subsequently, private respondent sent petitioner another letterproposal (Second Contract) which offers the same service already at P400,000.00. Petitioner, through its vice-president, received the said operations manual which was submitted to the Bureau of Customs and obtained a license to operate. Private respondent also conducted a three-day training seminar for the petitioners employees. However, petitioner refused to pay Sano for his services alleging that the letteragreement was signed by Punsalan without authority by its board of directors and as such unenforceable. Private respondent filed a collection suit against petitioner.

The Issue Whether or not the Second Contract signed by Punsalan is enforceable and binding against petitioner. The Courts Ruling

Yes. If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority. Apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract. Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the president, petitioners ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratifie d by the acceptance of benefits under them under Article 1405.

159 Officer Liability for Illegal Dismissal M+W Zander Philippines, Inc. vs. Enriquez

The Facts

Petitioner is a multi-national corporation engaged in construction and facilities management. Respondent was the Administration Manager and Executive Assistant to the General Manager of petitioner. When Rolf Wiltschek was appointed as Acting General Manager, petitioners employees filed a Letter of Appeal opposing the appointment. A day after the Letter of Appeal was released, a number of employees did not report to work. Petitioners allege that respondent actively solicited signatures for a letter opposing the appointment of Wiltschek. They claimed that Enriquez used her influence and moral ascendancy to coerce several employees into signing the letter of appeal and to stage a no work day. Petitioner terminated the respondent for willful breach of trust and confidence.

The Issue

The issue in this case is whether or not Wiltschek should be personally liable for respondents dismissal together with M+W Zander.

The Ruling

No. The general manager of a corporation should not be made personally answerable for the payment of an illegally dismissed employee's monetary claims arising from the dismissal unless he had acted maliciously or in bad faith in terminating the services of the employee.

It is well settled that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

The exception noted is where the official "had acted maliciously or in bad faith," in which event he may be made personally liable for his own act. That exception is not applicable in the case at bar, because it has not been proven that Wiltschek was impleaded in his capacity as General Manager of petitioner corporation and there appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of respondent. His act, therefore, was within the scope of his authority and was a corporate act for which he should not be held personally liable for.

160 Liability of Officers for Debts of Corporation David vs. National Federation of Labor Union

The Facts

Mariveles Apparel Corporation hired David as IMPEX and Treasury Manager in 1988. David began serving as MACs President in May 1990. David served as President in the nature of a nominee as he did not own any of MACs shares. He resigned from MAC 15 October 1993. Subsequently, the company closed down. National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) filed a complaint for illegal dismissal. They alleged that MAC ceased employees who had rendered one to two weeks work were not paid their corresponding salaries.

Labor Arbiter Ortiguerra immediately summoned the parties for settlement of the case. However, MAC failed to appear before Arbiter Ortiguerra. Subsequently, MACLU and NAFLU impleaded Carag and David to guarantee satisfaction of any judgment award in MACLU and NAFLUs favor.

The issue in this case is whether or not petitioner is jointly and severally liable with MAC for the unpaid wages of the latters employees. Ruling David is not liable for the money claims of MACs employees. Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation because Section 31 of the Corporation Code is still the governing law on personal liability of officers for the debts of the corporation. Under Section 31 of the Corporation Code, directors, trustees or officers shall be held liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons when they willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty. In the present case, there was no showing of David willingly and knowingly voting for or assenting to patently unlawful acts of the corporation, or that David was guilty of gross negligence or bad faith. Therefore, he cannot be held liable for the unpaid wages of employees after the closure of the corporation. Inter-Asia Investments Industries vs. Court of Appeals [GR 125778, 10 June 2003]

Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J.

Vergara, presidents of Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and representations. The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978, and to the mode of payment of the purchase price. The Agreement, as amended, provided that pending submission by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited financial statements.

Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28 November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on its promise.

Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari.

Issue: Whether the 24 January 1980 letter signed by Inter-Asias president is valid and binding.

Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence." Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines. Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz: "A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the officer or agent to believe that it has conferred.... [A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation." Hence, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein. Rural bank of Milaor vs Ocfemia FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of the respondents grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate Mortgage and the Promissory Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the respondents, were not able to redeem the mortgaged properties consisting of seven parcels of land and so the mortgage was foreclosed and thereafter ownership was transferred to the petitioner bank. Out of the seven parcels of land that were foreclosed, five of them are in the possession of the respondents because these five parcels of land were sold by the petitioner bank to the respondents as evidenced by a Deed of Sale. However, the five parcels of land cannot be transferred in the name of the parents of Merife Nino, one of the respondents, because there is a need to have the document of sale registered. The Register of deeds,

however, said that the document of sale cannot be registered without the board resolution of the petitioner bank confirming both the Deed of sale and the authority of the bank manager, Fe S. Tena, to enter such transaction.

The petitioner bank refused her request for a board resolution and made many alibis. Respondents initiated the present proceedings so that they could transfer to their names the subject five parcel of land and subsequently mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother.

ISSUE: May the Board of Directors of a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation?

HELD: YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes. If the bank management believed that it had title to the property, it should have taken measured to prevent the infringement and invasion of title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena even though such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter into contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority.

Facts: Agents De Jemil and Kawada attested to conducting surveillance of Omni in the months of March and April 2004 and doing a test-buy on April 15, 2004. They brought eight branded LPG cylinders of Shellane, Petron Gasul, Totalgaz, and Superkalan Gaz to Omni for refilling. The branded LPG cylinders

were refilled, for which the National Bureau of Investigation (NBI) agents paid PhP 1,582 as evidenced by Sales Invoice No. 90040[13] issued by Omni on April 15, 2004. The refilled LPG cylinders were without LPG valve seals and one of the cylinders was actually underfilled, as found by LPG Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry Association (LPGIA) who inspected the eight branded LPG cylinders on April 23, 2004 which were properly marked by the NBI after the test-buy.

The NBIs test-buy yielded positive results for violations of BP 33, Section 2(a) in relation to Secs. 3(c) and 4, i.e., refilling branded LPG cylinders without authority; and Sec. 2(c) in relation to Sec. 4, i.e., underdelivery or underfilling of LPG cylinders. Thus, on April 28, 2004, Agent De Jemil filed an Application for Search Warrant (With Request for Temporary Custody of the Seized Items)[14] before the Regional Trial Court (RTC) in Pasig City, attaching, among others, his affidavit[15] and the affidavit of Edgardo C. Kawada,[16] an NBI confidential agent. Issue: WHETHER OR NOT PETITIONERS CAN BE HELD LIABLE UNDER BATAS PAMBANSA BLG. 33, AS AMENDED, FOR BEING MERE DIRECTORS, NOT ACTUALLY IN CHARGE OF THE MANAGEMENT OF THE BUSINESS AFFAIRS OF THE CORPORATION. Ruling: Petitioner Arnel, as President, who manages the business affairs of Omni, can be held liable for probable violations by Omni of BP 33, as amended. The fact that petitioner Arnel is ostensibly the operations manager of Multi-Gas Corporation, a family owned business, does not deter him from managing Omni as well. It is well-settled that where the language of the law is clear and unequivocal, it must be taken to mean exactly what it says.[75] As to the other petitioners, unless otherwise shown that they are situated under the catch-all such other officer charged with the management of the business affairs, they may not be held liable under BP 33, as amended, for probable violations. Consequently, with the exception of petitioner Arnel, the charges against other petitioners must perforce be dismissed or dropped. Harpoon Marine vs Francisco Facts: Petitioner Harpoon, a company engaged in ship building and ship repair, with petitioner Rosit as its President and Chief Executive Officer (CEO), originally hired respondent in 1992 as its Yard Supervisor tasked to oversee and supervise all projects of the company. In 1998, respondent left for employment elsewhere but was rehired by petitioner Harpoon and assumed his previous position a year after.

On June 15, 2001, respondent averred that he was unceremoniously dismissed by petitioner Rosit. He was informed that the company could no longer afford his salary and that he would be paid his separation pay and accrued commissions. Respondent nonetheless continued to report for work.

Issue: WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS BAD FAITH ON THE PART OF PETITIONER ROSIT EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS PRESENTED TO PROVE THIS AND CORRELATIVELY, WHETHER PETITIONER ROSIT CAN BE HELD SOLIDARILY LIABLE WITH PETITIONER HARPOON. Ruling: Although we find no error on the part of the NLRC and the CA in declaring the dismissal of respondent illegal, we, however, are not in accord with the ruling that petitioner Rosit should be held solidarily liable with petitioner Harpoon for the payment of respondent's backwages and separation pay.

As held in the case of MAM Realty Development Corporation v. National Labor Relations Commission,[33] "obligations incurred by [corporate officers], acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent."[34] As such, they should not be generally held jointly and solidarily liable with the corporation. In the case at bench, the CA's basis for petitioner Rosit's liability was that he acted in bad faith when he approached respondent and told him that the company could no longer afford his salary and that he will be paid instead his separation pay and accrued commissions. This finding, however, could not substantially justify the holding of any personal liability against petitioner Rosit. The records are bereft of any other satisfactory evidence that petitioner Rosit acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. Indeed, petitioner Rosit informed respondent that the company wishes to terminate his services since it could no longer afford his salary. Moreover, the promise of separation pay, according to petitioners, was out of goodwill and magnanimity. At the most, petitioner Rosit's actuations only show the illegality of the manner of effecting respondent's termination from service due to absence of just or valid cause and non-observance of procedural due process but do not point to any malice or bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if the officer has assented to patently unlawful acts of the corporation. SHS Perforated Materials Vs Diaz Corporate directors and officers are not solidarily and personally liable in absence faith and malice in terminating employees. FACTS 1. SHS Perforated Materials, Inc. (SHS) is a start-up corporation organized under domestic laws and registered under the Philippines Economic Zone Winfired Hartmannshenn (Hartmannshenn) and Hinrich Schumacher (Schumacher) the President and the Treasurer respectively and are members of the Board 2. SHS hired Manuel Diaz (Diaz) as Manager for Business Development with salary of P100,000.00. Aside from his general and daily duties, he is also Hartmannshenn to observe technical processes

involved in the manufacturing materials which Diaz was to market and sell. Hartmannshenn also gives instructions Diaz for meet ups and meetings whenever the former is in the Philippines. 3. However, on one of the meetings, Hartmannshenn expressed his dissatisfaction Diaz poor performance, failure to make any business proposals or implement measure to improve the productivity of the SHS and only abled to deliver meager P2,500.00 for a sample product. 4. On Nov. 29, 2005, Hartmannshenn instructed Taguiang, Accounting Services to release the salary of Diaz for having failed to explain about his poor performance behavior. 5. Thereafter, Diaz filed a resignation letter and filed a complaint with the L.dismissal. 6. L.A. ruled in favor of Diaz which was reversed by the NLRC. However, the C.the NLRCs decision and reinstated the L.As ruling. Hence this petition. ISSUE Whether or not Hartmannshenn and Schumacher be held solidarily and personally with SHS for the payment of monetary award to Diaz. HELD No, Hartmannshenn and Schumacher cannot be held solidarily and personally liable with SHS absent of bad faith and malice in the exercise of company discretion as the President and as the Treasurer. There was no dishonest purpose or ill will involved as they believed that there was a justifiable reason to withhold his salary. Thus, although they unlawfully withheld respondents salary, it cannot be concluded that such was made in bad faith. Further, the SC held that corporate directors and officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected with malice or in bad faith. Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest or ill will; it partakes of the nature of fraud. To sustain such a finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in terminating the employee. Gloria vs. PNOC November 27, 2009

Facts: Petitioner Gloria V. Gomez used to work as Manager of the Legal Department of Petron Corporation, then a government-owned corporation. With Petrons privatization, she availed of the companys early retirement program and left that organization on April 30,1994. On the following day, May 1, 1994, however, Fil oil Refinery Corporation (Filoil), also a government-owned corporation, appointed her its corporate secretary and legal counsel, with the same managerial rank, compensation, and benefits that she used to enjoy at P etron. However, the privatization did not materialize so Gomez continued to serve as corporate secretary of respondent PDMC. On September 23, 1996 its president re-hired her as administrator and legal counsel of the company. On March 29, 1999 the new board of directors of respondent PDMC removed petitioner Gomez as corporate secretary. Further, at the boards meeting on October 21, 1999 the board questioned her continued employment as administrator. In answer, she presented the former presidents May 24, 1998 letter that extended her term. Dissatisfied with this, the board sought the advice of its legal department, which expressed the view that Gomez s term extension was an ultra vires act of the former president. It reasoned that, since her position was functionally that of a vice-president or general manager, her term could be extended under the company s by-laws only with the approval of the board. The legal department held that her de facto tenure could be legally put to an end. Petitioner Gomez for her part conceded that as corporate secretary, she served only as a corporate officer. But, when they named her administrator, she became a regular managerial employee. Consequently, the respondent PDMC s board did not have to approve either her appointment as such or the extension of her term in 1998. Issue: Is Gomez an ordinary employee whose complaint is within the jurisdiction of the NLRC? Held: Yes. The relationship of a person to a corporation, whether as officer or agent or employee, is not determined by the nature of the services he performs but by the incidents of his relationship with the corporation as they actually exist. That the employee served concurrently as corporate secretary for a time is immaterial. A corporation is not prohibited from hiring a corporate officer to perform services under circumstances which will make him an employee. Indeed, it is possible for one to have a dual role of officer and employee. NLRC has jurisdiction over a complaint filed by one who served both as corporate officer and employee, when the money claims were made as an employee and not as a corporate officer. Torres vs CA 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 in the principal place of business and makes proper and necessary entries therein. Facts

In this case, the late Judge Manuel A. Torres, Jr. 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. In 1984, Judge Torres, in order to make substantial savings in taxes, adopted an estate planning scheme under which he assigned to Tormil various real properties he owned and his shares of stock in other corporations in exchange for 225,972 Tormil Realty shares. At the time of the assignments and exchange, however, only 225,000 Tormil Realty shares remained unsubscribed, all of which were duly issued to and received by Judge Torres. Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal of private respondents to approve the needed increase in the corporations authorized capital stock (to cover the shortage of 972 shares due to Judge Torres under the estate planning scheme), Judge Torres revoked the two deeds of assignment covering two real estate properties. Consequently, before the election of the 1987 corporate board of directors, Judge Torres assigned from his own shares, one 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. Thereafter, the petitioners were elected the corporate board of directors but private respondents instituted a complaint with the SEC praying that the election of the petitioners to said board be annulled. Private respondents alleged that the petitioners-nominees were not legitimate stockholders of Tormil because the assignment of shares to them violated stockholders right of pre-emption as provided in the corporations articles and by-laws. The SEC rendered a decision in favor of private respondents and subsequently dismissed petitioners appeal. The Court of Appeals likewise upheld the SECs decision petition for review on certiorari under Rule 45. Issue

Whether or not the SEC erred in invalidating the entries in the stock and transfer the assignment of qualifying shares to petitioners-nominees simply because Judge made the entries himself as the said book was in his possession. Ruling Section 74 of the Corporation Code provides that the stock and transfer book kept in the principal office of the corporation. In the absence of any provision to the corporate secretary is the custodian of corporate records. Corollarily, he keeps the transfer book and makes proper and necessary entries therein. Contrary to the generally accepted corporate practice, the stock and transfer TORMIL was not kept by the corporate secretary but by respondent Torres, the President Chairman of the Board of Directors of TORMIL. In contravention to the above cited provision, stock and transfer book was not kept at the principal office of the corporation either place of respondent Torres. Sy Tiong vs Sy Chim Sy Tiong Shiou Accordingly, where the corporation denies inspection on the ground of improper or purpose, the burden of proof is taken from the shareholder and placed corporation. However, where no such improper motive or purpose is alleged, and even alleged, it is not proved by the corporation, then there is no valid reason to deny the inspection. Facts In this case, Sy Chim and Felicidad Chan Sy (Spouses Sy) filed four criminal against Sy Tiong Shiou, Juanita Tan Sy, Jolie Ross Tan, Romer Tan, Charlie Tan James Tan (Sy Tiong Shiou, et al.) before the City Prosecutors Office of Manila. Among filed, two of the complaints were for alleged violation of Section 74 in relation to Section the Corporation Code. In these complaints, the Spouses Sy averred that they are and directors of Sy Siy Ho & Sons, Inc. (the corporation) who asked Sy Tiong Shiou, officers of the corporation, to allow them to inspect the books and records of the three occasions to no avail. In a letter, Sy Tiong Shiou, et al. denied the request, citing intra-corporate cases pending in court. They argued that the Spouses Sys request for was premature as the latters concern may be properly addressed once an answer civil case. The investigating prosecutor issued a resolution recommending the suspension criminal complaints for violation of the Corporation Code which was approved by the prosecutor. A petition for review with the Department of Justice was also subsequently This prompted the Spouses Sy to elevate the DOJ resolutions to the Court of Appeals granted such petition. Sy Tiong Shiou, et al. sought reconsideration of the Court decision but their motion was denied, hence this petition for review. Issue Whether or not the right of any director, trustee, stockholder or member of the corporation to examine or inspect the corporate books/records as provided under Section 74 of the Corporation Code is suspended during the pendency of civil and intra-corporate cases

pending in court. Ruling In a criminal complaint for violation of Section 74 of the Corporation Code, the defense of improper use or motive is in the nature of a justifying circumstance that would exonerate those who raise and are able to prove the same. Accordingly, where the corporation denies inspection on the ground of improper motive or purpose, the burden of proof is taken from the shareholder and placed on the corporation. However, where no such improper motive or purpose is alleged, and even though so alleged, it is not proved by the corporation, then there is no valid reason to deny the requested inspection. In the instant case, however, the Court finds that the denial of inspection was predicated on the pending civil case against the Spouses Sy. Even in their Joint Counter-Affidavit, Sy Tiong Shiou, et al. did not make any allegation that the person demanding to examine and copy excerpts from the corporations records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand. Instead, they merely reiterated the pendency of the civil case. There being no allegation of improper motive, and it being undisputed that Sy Tiong Shiou, et al. denied Sy Chim and Felicidad Chan Sys request for inspection, the Supreme Court held that the DOJ erred in dismissing the criminal charge for violation of Section 74 in relation to Section 144 of the Corporation Code. Gonzales vs PNB Facts: Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance a special civil action for mandamus against the herein respondent praying that ordered to allow him to look into the books and records of the respondent bank in order himself as to the truth of the published reports that the respondent has guaranteed the of Southern Negros Development Corporation in the purchase of a US$ 23 million be financed by Japanese suppliers and financiers; that the respondent is financing construction of the P 21 million Cebu-Mactan Bridge to be constructed by V.C. Ponce, the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well into the

validity of its transactions. The petitioner has alleged that his written request examination was denied by the respondent. The trial court having dismissed the mandamus, the instant appeal to review the said dismissal was filed. Issue Whether or not the lower court gravely abused its discretion in denying Gonzales request for an inspection of the books and records of the respondent bank Sec 51 of the former Corporation Law (Act No. 1459). Ruling The Supreme Court held that petitioner may no longer insist on Section 51 1459 as the former Corporation Law has been replaced by the Corporation Code Philippines wherein among the changes introduced in the new Code with respect to inspection granted to a stockholder are the following: the records must be kept at the principal office of the corporation; the inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information through a prior examination, and that the person asking for such examination must be "acting in good faith and for a legitimate purpose in making his demand." Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the respondent

bank for acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder. In addition, the Supreme Court upheld the respondent banks contention that the inspection sought to be exercised by the petitioner would be violative of the provisions of its charter. The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines but by the special law or charter creating them or applicable to them. The provision of Section 74 of the Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the respondent bank. Hence, the Supreme Court upheld the lower courts decision in denying the petition of Gonzales. IEMELIF vs Juane Facts: Due to [Juane]s unwarranted failure and unjust refusal to vacate the premises, [IEMELIF] is left without recourse but to file legal action to enforce its right to have physical possession of the Cathedral premises and, thus, for such purpose, is constrained to engage the services of undersigned counsel for an agreed engagement fee of P40,000.00 plus P2,000.00 per appearance fee and to incur other expenses incidental to the instant litigation. Juane pursued his argument that the transformation of IEMELIF from a corporation sole to a corporation aggregate was legally defective and, therefore, IEMELIF had no personality to eject Juane from the subject property. Issue: WON Juane is correct Ruling: As held by the Court of Appeals, even if the transformation of IEMELIF from a corporation sole to a corporation aggregate was legally defective, its head or governing body, i.e., Bishop Lazaro, whose acts were approved by the Highest Consistory of Elders, still did not change. A corporation sole is one

formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church.[8] As opposed to a corporation aggregate, a corporation sole consists of a single member, while a corporation aggregate consists of two or more persons. If the transformation did not materialize, the corporation sole would still be Bishop Lazaro, who himself performed the questioned acts of removing Juane as Resident Pastor of the Tondo Congregation. If the transformation did materialize, the corporation aggregate would be composed of the Highest Consistory of Elders, which nevertheless approved the very same acts. As either Bishop Lazaro or the Highest Consistory of Elders had the authority to appoint Juane as Resident Pastor of the IEMELIF Tondo Congregation, it also had the power to remove him as such or transfer him to another congregation. Associated Bank vs. Court of Appeals [GR 123793, 29 June 1998]First Division, Panganiban (J): 4 concur Facts: On or about 16 September 1975 Associated Banking Corporation and Citizens Bank and TrustCompany merged to form just one banking corporation known as Associated Citizens Bank, the survivingbank. The 16 September 1975 Agreement of Merger, which Associated Banking Corporation (ABC) andCitizens Bank and Trust Company (CBTC) entered into, provided that its effectivity "shall, for all intents andpurposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by theSecurities and Exchange Commission." As to the transfer of the properties of CBTC to ABC, the agreementprovides that "Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assetsand property of [CBTC], whether real, personal or mixed, and including [CBTC's] goodwill and tradename,and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of theeffective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further actor deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in whichcase such document or deed shall be executed accordingly; and all property, rights, privileges, powers,immunities, franchises and all appointments, designations and nominations, and all other rights and interestsof [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee,receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title toany real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired byreason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shallbe preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC],whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC]which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debtsliabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject,however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have andwhich shall pertain to [ABC]. On or about 10 March 1981, the Associated Citizens Bank changed itscorporate name to Associated Bank by virtue of the Amended

Articles of Incorporation. On 7 September 1977, Lorenzo Sarmiento Jr. executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before 6 March 1978. As per saidpromissory note, Sarmiento agreed to pay interest at 14% per annum, 3% per annum in the form of liquidateddamages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due.Sarmiento, to date, still owed Associated Bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. Sarmiento denied the charges.On 22 May 1986, Sarmiento was declared as if in default for failure to appear at the Pre-Trial Conferencedespite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated 22 May 1986was filed by Sarmiento's counsel which was denied by the Court in an order dated 16 September 1986 andAssociated Bank was allowed to present its evidence before the Court ex-parte on 16 October 1986. Based onthe evidence presented by the bank, the trial court ordered Sarmiento to pay the bank his remaining balanceplus interests and attorney's fees. Sarmiento appealed. The Court of Appeals (in CA-GR CV 26465)promulgated on 30 January 1996 a decision which reversed and set aside the 17 October 1986 Decision inCivil Case 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48; and thus dismissing thecomplaint. The bank filed the petition for review. Issue: Whether In a merger, the surviving corporation have a right to enforce a contract entered into by theabsorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission. Held: Ordinarily, in the merger of two or more existing corporations, one of the combining corporationssurvives and continues the combined business, while the rest are dissolved and all their rights, properties andliabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbedcorporations, there is no winding up of their affairs or liquidation of their assets, because the survivingcorporation automatically acquires all their rights, privileges and powers, as well as their liabilities. Themerger, however, does not become effective upon the mere agreement of the constituent corporations. Theprocedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires theapproval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. Thesame provision further states that the merger shall be effective only upon the issuance by the SEC of acertificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on tothe surviving corporation. The agreement, as a clause, provided that "Upon the effective date of the [m]erger,all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if suchreferences were direct references to [ABC]." The fact that the promissory note was executed after theeffectivity date of the merger does not militate against the bank. The agreement itself clearly provides that allcontracts irrespective of the date of execution entered into in the name of CBTC shall be understood aspertaining to the surviving bank, Associated Bank. Since, in contrast to the earlier aforequoted provision, thelatter

clause no longer specifically refers only to contracts existing at the time of the merger, no distinctionshould be made. The clause must have been deliberately included in the agreement in order to protect theinterests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretationaimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC asthe payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to Associated Bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes." Babst vs. Court of Appeals [GR 99398, 26 January 2001]; also Elizalde Steel Consolidated Inc. vs. Court of Appeals [GR 104625] First Division, Ynares Santiago (J): 4 concur Facts: On 8 June 1973, ELISCON obtained from Commercial Bank and Trust Company (CBTC) a loan in theamount of P8,015,900.84, with interest at the rate of 14% per annum, evidenced by a promissory note.Elizalde Steel Consolidated, Inc. (ELISCON) defaulted in its payments, leaving an outstanding indebtednessin the amount of P2,795,240.67 as of 31 October 1982. The letters of credit, on the other hand, were openedfor ELISCON by CBTC using the credit facilities of Pacific Multi-Commercial Corporation (MULTI) withthe said bank, pursuant to the Resolution of the Board of Directors of MULTI adopted on 31 August 1977.Subsequently, on 26 September 1978, Antonio Roxas Chua and Chester G. Babst executed a ContinuingSuretyship, whereby they bound themselves jointly and severally liable to pay any existing indebtedness of MULTI to CBTC to the extent of P8,000,000.00 each. Sometime in October 1978, CBTC opened for ELISCON in favor of National Steel Corporation (NSC) 3 domestic letters of credit in the amounts of P1,946,805.73, P1,702,869.32 and P200,307.72, respectively, which ELISCON used to purchase tin black plates from NSC. ELISCON defaulted in its obligation to pay the amounts of the letters of credit, leaving anoutstanding account, as of 31 October 1982, in the total amount of P3,963,372.08. On 22 December 1980, theBank of the Philippine Islands (BPI) and CBTC entered into a merger, wherein BPI, as the survivingcorporation, acquired all the assets and assumed all the liabilities of CBTC. Meanwhile, ELISCONencountered financial difficulties and became heavily indebted to the Development Bank of the Philippines(DBP). In order to settle its obligations, ELISCON proposed to convey to DBP by way of dacion en pago all its fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of P201,181,833.16.On 28 December 1978, ELISCON and DBP executed a Deed of Cession of Property in Payment of Debt. InJune 1981, ELISCON called its creditors to a meeting to announce the take-over by DBP of its assets. InOctober 1981, DBP formally took over the assets of ELISCON, including its indebtedness to BPI. Thereafter, DBP proposed formulas for the settlement of all of ELISCON's obligations to its creditors, but BPI expresslyrejected the formula submitted to it for not being acceptable. Consequently, on 17 January 1983, BPI, assuccessor-in-interest of CBTC, instituted with the Regional Trial Court of Makati, Branch 147, a complaintfor sum of money against ELISCON, MULTI and Babst (Civil Case 49226). On 20 February 1987, the trialcourt rendered its Decision in favor of BPI. In due time, ELISCON, MULTI and Babst filed their respectivenotices of appeal. On 29 April 1991, the Court of Appeals

rendered a Decision modifying the judgment of thetrial court. ELISCON filed a Motion for Reconsideration of the Decision of the Court of Appeals which was,however, denied in a Resolution dated 9 March 1992. Subsequently, ELISCON filed a petition for review oncertiorari (GR. 104625). Meanwhile, Babst also filed a petition for review with the Court (GR 99398). Issue [1]: Whether the BPI can institute the present case. Held [1]: There was a valid merger between BPI and CBTC. It is settled that in the merger of two existingcorporations, one of the corporations survives and continues the business, while the other is dissolved and allits rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right toinstitute the present case. Issue [2]: Whether BPI, the surviving corporation in a merger with CBTC, consented to the assumption byDBP of the obligations of ELISCON. Held [2]: Due to the failure of BPI to register its objection to the take-over by DBP of ELISCON's assets, atthe creditors' meeting held in June 1981 and thereafter, it is deemed to have consented to the substitution of DBP for ELISCON as debtor. The authority granted by BPI to its account officer to attend the creditors'meeting was an authority to represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for the bank. Even granting arguendo that the said account officer was notso empowered, BPI could have subsequently registered its objection to the substitution, especially after it hadalready learned that DBP had taken over the assets and assumed the liabilities of ELISCON. Its failure to doso can only mean an acquiescence in the assumption by DBP of ELISCON's obligations. As repeatedlypointed out by ELISCON and MULTI, BPI's objection was to the proposed payment formula, not to thesubstitution itself. BPI gives no cogent reason in withholding its consent to the substitution, other than itsdesire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must beremembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to payonly arises upon the principal debtor's failure or refusal to pay. There was no indication that the principaldebtor will default in payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government. More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCON's creditors, andearmarked for that purpose the amount of P4,015,534.54 for payment to BPI. Notwithstanding the fact that areliable institution backed by government funds was offering to pay ELISCON's debts, not as mere surety butas substitute principal debtor, BPI, for reasons known only to itself, insisted in going after the sureties. BPI'sconduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence,there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose causeof action should be directed against DBP as the new debtor.

Vesagas vs. Court of Appeals [GR 142924, 5 December 2001]First Division, Puno (J): 4 concur Facts: Spouses Delfino and Helenda Raniel are members in good standing of the Luz Village Tennis Club,Inc. Teodoro B. Vesagas, who claims to be the club's duly elected president, with Wilfred D. Asis, who, inturn, claims to be its duly elected vice-president and legal counsel, allegedly summarily stripped them of their lawful membership, without due process of law. Thereafter, the spouses filed a Complaint with the Securitiesand Exchange Commission (SEC) on 26 March 1997 against the Vesagas and Asis (SEC Case 03-97-5598).The spouses Raniel asked the Commission to declare as illegal their expulsion from the club as it wasallegedly done in utter disregard of the provisions of its by-laws as well as the requirements of due process.They likewise sought the annulment of the amendments to the bylaws made on 8 December 1996, changingthe annual meeting of the club from the last Sunday of January to November and increasing the number of trustees from nine to fifteen. Finally, they prayed for the issuance of a Temporary Restraining Order and Writof Preliminary Injunction. The application for TRO was denied by SEC Hearing Officer Soller in an Order dated 29 April 1997. Before the hearing officer could start proceeding with the case, however, Vesagas andAsis filed a motion to dismiss on the ground that the SEC lacks jurisdiction over the subject matter of thecase. The motion was denied on 5 August 1997. Their subsequent move to have the ruling reconsidered waslikewise denied. Unperturbed, they filed a petition for certiorari with the SEC En Banc seeking a review of thehearing officer's orders. The petition was again denied for lack of merit, and so was the motion for itsreconsideration in separate orders, dated 14 July 1998 and 17 November 1998, respectively. Dissatisfied withthe verdict, Vesagas and Asis promptly sought relief with the Court of Appeals contesting the ruling of theCommission en banc. The appellate court, however, dismissed the petition for lack of merit in a Decisionpromulgated on 30 July 1999. Then, in a resolution rendered on 16 March 2000, it similarly denied their motion for reconsideration. Vesagas and Asis filed the petition for review on certiorari. Issue: Whether the club has already ceased to be a corporate body. Held: The club, according to the SEC's explicit finding, was duly registered and a certificate of incorporationwas issued in its favor. The question of whether the club was indeed registered and issued a certification or not is one which necessitates a factual inquiry. The finding of the Commission, as the administrative agencytasked with among others the function of registering and administering corporations, is given great weight andaccorded high respect. Moreover, by their own admission contained in the various pleadings which they havefiled in the different stages of this case, Vesagas and Asis themselves have considered the club as acorporation. Otherwise, there is no cogency in spearheading the move for its dissolution. Vesagas and Asiswere therefore well aware of the incorporation of the club and even agreed to get elected and serve as itsresponsible officers before they reconsidered dissolving its corporate form. On the other hand, at the time of the institution of the case with the SEC, the club was not dissolved by virtue of an alleged Board resolution.The Corporation Code establishes the

procedure and other formal requirements a corporation needs to followin case it elects to dissolve and terminate its structure voluntarily and where no rights of creditors maypossibly be prejudiced. Section 118 (Voluntary dissolution where no creditors are affected) of the CorporationCode provides that "If dissolution of a corporation does not prejudice the rights of any creditor having a claimagainst it, the dissolution may be effected by majority vote of the board of directors or trustees and by aresolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of theoutstanding capital stock or at least two-thirds (2/3) of the members at a meeting to be held upon call of thedirectors or trustees after publication of the notice of time, place and object of the meeting for three (3)consecutive weeks in a newspaper published in the place where the principal office of said corporation islocated; and if no newspaper is published in such place, then in a newspaper of general circulation in thePhilippines, after sending such notice to each stockholder or member either by registered mail or by personaldelivery at least 30 days prior to said meeting. A copy of the resolution authorizing the dissolution shall becertified by a majority of the board of directors or trustees and countersigned by the secretary of thecorporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution." Tosubstantiate their claim of dissolution, Vesagas and Asis submitted only two relevant documents: the Minutesof the First Board Meeting held on 5 January 1997, and the board resolution issued on 14 April 1997 whichdeclared "to continue to consider the club as a non-registered or a non-corporate entity and just a socialassociation of respectable and respecting individual members who have associated themselves, since the1970's, for the purpose of playing the sports of tennis." These two documents will not suffice. Therequirements mandated by the Corporation Code should have been strictly complied with by the members of the club. The records reveal that no proof was offered by Vesagas and Asis with regard to the notice and publication requirements. Similarly wanting is the proof of the board members' certification. Lastly, and mostimportant of all, the SEC Order of Dissolution was never submitted as evidence.