Q.

POWERS OF A CORPORATION

REPUBLIC V ACOJE MINING COMPANY, INC.

Acoje mining wrote the Director of Posts requesting the opening of a post, telegraphy and money order
offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living
in the said camp. The Director replied stating its requirement that the company shall provide for a
responsible employee who shall perform the duties of the postmaster. The company signified its willingness
to comply with the requirement.
The Director again wrote a letter to the company stating that: In cases were a post office will be opened
under circumstances similar to the present, it is the policy of this office to have the company assume direct
responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of
dishonesty, carelessness, or negligence on the part of the employee of the company assigned to take charge of
the post office.
The company informed the Director that the Board has passed a resolution stating that the company shall
assume full responsibility for all cash received.
The post office branch was opened at the camp. Hilario M. Sanchez was assigned by the company as post
master. On May 11, 1954, the post master went on leave but never returned. The company informed the
officials of the Manila Post office. Upon auditing the account of the Hilario Sanchez, a shortage was found in
the amount of 13,867.
Demands were made upon the company for payment of the shortage in line with liability it has assumed. The
government commenced an action against the company. The company denies liability contending that the
resolution of the board wherein it assumed full responsibility for the act of the postmaster is ultra vires.
Issue: Whether the board resolution be considered ultra vires
Held: While as a rule ultra vires act is committed outside the object for which the corporation is created,
there are however certain acts that may be performed outside of the scope of the powers expressly conferred
if they are necessary to promote the interest or welfare of the corporation such as the establishment of a local
post office in a mining camp which is far removed from the postal facilities. The distinction between ultra
vires act and illegal act is: the first is merely voidable and can be enforced by performance, ratification or
estoppel, or on equitable grounds, while the latter is void and cannot be validated. The validity of a resolution
of the board of directors accepting full responsibility in connection with funds to be received by its
postmaster should be upheld on the ground of estoppel.
The contention that the resolution adopted by the company dated August 31, 1949 is ultra vires in the sense
that it has no authority to act on a matter which may render the company liable as a guarantor has no factual
or legal basis. In the first place, it should be noted that the opening of a post office branch at the mining
camp of appellant corporation was undertaken because of a request submitted by it to promote the
convenience and benefit of its employees. The idea did not come from the government, and the Director of
Posts was prevailed upon to agree to the request only after studying the necessity for its establishment and
after imposing upon the company certain requirements intended to safeguard and protect the interest of the
government. Thus, after the company had signified its willingness to comply with the requirement of the
government that it furnish free quarters and all the essential equipment that may be necessary for the
operation of the office including the assignment of an employee who will perform the duties of a postmaster,
the Director of Posts agreed to the opening of the post office stating that "In cases where a post office will be
opened under circumstances similar to the present, it is the policy of this office to have the company assume
direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act
of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take
charge of the post office," and accepting this condition, the company, thru its board of directors, adopted

forthwith a resolution of the following tenor: "That the requirement of the Bureau of Posts that the company
should accept full responsibility for all cash received by the Postmaster, be complied with, and that a copy of
this resolution be forwarded to the Bureau of Posts." On the basis of the foregoing facts, it is evident that the
company cannot now be heard to complain that it is not liable for the irregularity committed by its employee
upon the technical plea that the resolution approved by its board of directors is ultra vires. The least that can
be said is that it cannot now go back on its plighted word on the ground of estoppel.

NAPOCOR v Honorable Abraham Vera, SEA LION INTERNATIONAL PORT TERMINAL

SERVICES, INC
A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter but has the power to do what is
reasonably necessary or proper to promote the interest or welfare of the corporation. A corporation (NAPOCOR) formed for the
purpose of generating electrical power can undertake stevedoring services to unload coal into its pier to be brought to and fuel its
power plant, since this is reasonably necessary for the operation and maintenance of its power plant.
A complaint for prohibition and mandamus with damages was filed by Sea Lion against NPC. Sea Lion
contends that NPC acted in bad faith and with grave abuse of discretion in not renewing its Contract for
Stevedoring Services for Coal-Handling Operations at NPCs plant, and in taking over its stevedoring
services.
Respondent judge issued restraining order against NPC enjoining the latter from undertaking stevedoring
services at its pier.
NPC filed an urgent motion to dissolve the restraining order asserting that 1) by virtue of presidential decree
1818, respondent judge has no jurisdiction to issue the order, 2) that private respondent Sea Lion whose
contract with NPC has expired prior to the commencement of the suit, failed to establish a cause of action
Respondent judge denied NPCs motion after finding that NPC was not empowered by its Charter, RA 6395,
to engage in stevedoring and arrastre services.
Issue: Whether Napocor can engage in stevedoring and arrastre services although services are not expressly
provided by its charter
Held: YES
A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter but has the
power to do what is reasonably necessary or proper to promote the interest or welfare of the corporation. A
corporation (NAPOCOR) formed for the purpose of generating electrical power can undertake stevedoring
services to unload coal into its pier to be brought to and fuel its power plant, since this is reasonably
necessary for the operation and maintenance of its power plant.
In the instant case, it is an undisputed fact that the pier located at Calaca, Batangas, which is owned by NPC,
receives the various shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal
Power Plant of the NPC for the generation of electric power. The stevedoring services which involve the
unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant are
incidental and indispensable to the operation of the plant The Court holds that NPC is empowered under its
Charter to undertake such services, it being reasonably necessary to the operation and maintenance of the
power plant.

MISSING CASES:
Aurbach vs Sanitary Wares Manufacturing (Pau)
Pena vs CA (Joy)
Lopez Realty vs Fontecha (Joy)
Laureneano Investment and Development Corp vs CA (Joy)

ISLAMIC DIRECTORATE OF THE PHILIPPINES VS. COURT OF APPEALS

Where the only assets of the corporation are two parcels of land, their sale without the approval of atleast two-thirds of the
members is invalid under section 40 of the Corporation Code.
Facts:
Sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar
Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the
primary purpose of which is to establish an Islamic Center in Quezon City for, the construction of a "Mosque
(prayer place, Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the effective
practice of Islamic faith in the area. Towards this end, that is, in the same year, the Libyan government
donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for
the Islamic populace. The land, with an area of 49,652 square meters,
Two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group,
led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. The
SEC, in a suit between these two contending groups, came out with a Decision in SEC Case 2687 declaring
the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void.
Neither group, however, took the necessary steps prescribed by the SEC in its 3 October 1986 Decision, and
no valid election of the members of the Board of Trustees of IDP was ever called. Without having been
properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused to be signed an
alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to the Iglesia ni
Cristo (INC) for a consideration of P22,343,400.00. The 1971 IDP Board of Trustees headed by former
Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC (SEC Case 4012) seeking
to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group
of Engineer Carpizo was not the legitimate Board of Trustees of the IDP.
Issue: Whether the Tandang Sora property was legitimately sold to the INC.
Held: As far back as 3 October 1986, the SEC, in Case 2687, in a suit between the Carpizo Group and the
Abbas Group, 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 thus becomes more
settled than that the IDP-Carpizo Group with whom INC contracted is a fake Board. Premises considered,
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. Article 1318 of the New Civil Code lays down the essential requisites of
contracts, and where all these elements must be present to constitute a valid contract. For, where even one is
absent, the contract is void. Specifically, consent is essential for the existence of a contract, and where it is
wanting, the contract is non-existent. Herein, 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.
This is, therefore, a case not only of vitiated consent, but one where consent on the part of one of the
supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect
whatsoever. 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.

HEIRS OF TAN ENG KEE VS. COURT OF APPEALS

Particular partnership distinguished from a joint venture, to wit:
a) A joint venture is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be individually liable thereof.
b) Usually, but necessarily a joint venture is limited to a single transaction, although the business of pursuing to a
successful termination may continue for a number of years; a partnership generally relates to continuing business of
various transacrion of certaion kind.
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as
herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedents brother Tan Eng Lay on
February 19, 1990. The complaint, docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio
City was for accounting, liquidation and winding up of the alleged partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint
impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay.
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their enterprise Benguet Lumber which they
jointly managed until Tan Eng Kees death. Petitioners herein averred that the business prospered due to the
hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership Benguet Lumber into a corporation called Benguet
Lumber Company. The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their
rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership
assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of
Benguet Lumber.
Issue: whether Tan EngKee and Tan Eng Lay were partners in Benguet Lumber
Held: In order to constitute a partnership, it must be established that (1) two or more persons
boundthemselves to contribute money, property, or industry to a common fund, and (2) they intend to
dividethe profits among themselves. The agreement need not be formally reduced into writing, sincestatute
allows the oral constitution of a partnership, save in two instances: (1) when immovableproperty or real rights
are contributed, and (2) when the partnership has a capital of three thousandpesos or more. In both cases, a
public instrument is required. An inventory to be signed by theparties and attached to the public instrument is
also indispensable to the validity of the partnershipwhenever immovable property is contributed to the
partnership. The best evidence would have been the contract of partnership itself, or the articles of
partnership, but there is none.
The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan EngKee has passed away. Only he, aside from Tan Eng Lay, could have
expounded on the precise nature of the business relationship between them. In the absence of evidence, we
cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund
for the purpose of establishing a partnership. We conclude that Tan Eng Kee was only an employee, not a
partner

PILIPINAS LOAN COMPANY INC. VS. SECURITIES AND EXCHANGE COMMISSION

A corporation incorporated to act as lending investors and prohibited from engaging in pawnbroking performs an ultra vires act
when it engages in business as a pawnbroker. When the thrust of the complaint is on the ultra vires act of a corporation, that is,
that the complained act of a corporation is contrary to its declared corporate purposes, the SEC has jurisdiction to entertain the
complaint before it. A declaration by the Central Bank that a corporation violated PD 114 is not a condition precedent before
the SEC can take cognizance of a complaint against a corporation for violation of its primary franchise.
Facts: Private respondent Filipinas Pawnshop, Inc. (private respondent) is a duly organized corporation
registered with the Securities and Exchange Commission (SEC) on February 9, 1959 with its principal place
of business located along Pedro Gil St Paco, Metro Manila. The articles of incorporation of private
respondent states that its primary purpose is to extend loans at legal interest on the security of either personal
properties or on the security of real properties, and to finance installment sales of motor vehicles, home
appliances and other chattels.
Petitioner is a lending corporation duly registered with the SEC on July 27, 1989 with some of its places of
business located along Pedro Gil, Sta. Ana, Manila and Onyx St., cor. Augusto Francisco St., San Andres,
Paco, Manila. Based on its articles of incorporation, the primary purpose of petitioner is:
To act as a lending investor or, otherwise, to engage in the practice of lending money or extending loans on
the security of real or personal, tangible or intangible properties whether as pledge, real or chattel mortgage or
otherwise, xxx without however, engaging in pawnbroking as defined under PD 114.
On September 11, 1990, private respondent filed a complaint against petitioner with the Prosecution and
Enforcement Department (PED) of the SEC docketed as PED CASE No. 90-0737. The complaint alleged
that: (1) petitioner, contrary to the restriction set by the Commission, has been operating and doing business
as a pawnbroker, pawnshop or sanglaan in the same neighborhood where private respondent has had its
own pawnshop for 30 years in violation of its primary purpose and without the imprimatur of the Central
Bank to engage in the pawnshop business thereby causing unjust and unfair competition with private
respondent; and (2) the business name of petitioner, PILIPINAS Loan, bears similarity in spelling and
phonetics with the corporate name of private respondent, FILIPINAS Pawnshop, creating constant
confusion in the minds of the public and the customers of private respondent. In the same complaint,
private respondent urged the SEC to: (1) order petitioner to change its business name, Pilipinas Loan, and
cease from using it in the near future; (2) order Pilipinas Loan to cease and desist from engaging in the
business of pawnbroking as defined under PD No. 114; and (3) impose upon the director, officers, employees
or persons responsible such penalties as may be proper under the law.
SEC en banc rendered a Decision affirming with modification the aforementioned Order. The Decision
ordered petitioner to (1) amend its articles of incorporation by deleting the word pledge in its primary
purpose and the word Pilipinas as part of its corporate name and substituting another word in lieu thereof
within fifteen (15) days from receipt of the decision; and (2) to cease and desist from further engaging in
business as a pawnshop or pawnbroker or sanglaan as defined in Presidential Decree No. 114,
otherwise known as the Pawnshop Regulation Act, until the proper license shall have been secured from the
Central Bank of the Philippines.
While petitioner concedes that the SEC has jurisdiction to determine whether the condition or restriction in
the articles of incorporation of a corporation has been violated, petitioner disputes the authority of the SEC
to determine whether a registered entity is violating PD 114. Petitioner maintains that PD 114 vests this
authority solely in the Central Bank.
In upholding the jurisdiction of the SEC, the Court of Appeals ruled that there is nothing in PD 114 that
grants exclusively to the Central Bank the authority to determine if there has been a violation of said decree.

Petitioner insists that this interpretation is erroneous on the ground that it runs counter to the time-honored
maxim of expressio unius est exclusio alterius.
Issues: Whether or not the Court gravely erred in not holding that the determination by the Central Bank of
alleged violation of PD No. 114 is a condition precedent to the exercise by respondent Securities and
Exchange Commission of its regulatory power over petitioner.
Held: A corporation incorporated to act as lending investors and prohibited from engaging in pawnbroking
performs an ultra vires act when it engages in business as a pawnbroker. When the thrust of the complaint is
on the ultra vires act of a corporation, that is, that the complained act of a corporation is contrary to its
declared corporate purposes, the SEC has jurisdiction to entertain the complaint before it. A declaration by
the Central Bank that a corporation violated PD 114 is not a condition precedent before the SEC can take
cognizance of a complaint against a corporation for violation of its primary franchise.

HEIRS OF ANTONIO PAEL and ANDREA ALCANTARA and CRISANTO PAEL, petitioners,
vs. COURT OF APPEALS, JORGE H. CHIN and RENATO B. MALLARI, respondents
G.R. No. 133547 December 7, 2001 (RESOLUTION)
A mining corporation has no valid grounds to engage in the highly speculative business of urban real estate development. Such
corporation should not have validly acquired real estate property that it claims to have been assigned to it by its owner.
FACTS: (copied from the Feb 10, 2000 Decision)
In her complaint, Maria Destura averred that on May 22, 1979, she and Pedro Destura purchased from
Crisanto Pael, through attorney-in-fact Lutgarda Marilao, a tract of land covered by TCT in the name of
"Antonio Pael y Andria Alcantara, conyuges, y Crisanto Pael, hijo." The owner's duplicate of title and
approved survey plan were allegedly delivered to Pedro but he misplaced them, and he suspected that they
were taken from his office by a certain Luis Menor. Pedro caused the execution of an extrajudicial settlement
of the estate of the deceased spouses Pael with sale of real property, as well as an affidavit of selfadjudication.
Thereafter, with the intention of disposing of the property, Pedro allegedly executed an SPA to sell in favor
of Renato Mallari and Jorge Chin. The latter failed to sell the property, whereupon Pedro executed a deed of
conditional sale in favor of Chin, but the sale was allegedly not consummated due to Chin's non-compliance
with certain conditions. Pedro thereafter went to Canada and, when he returned, he allegedly discovered that
the title to the property had been transferred in the names of Chin and Mallari.
When Pedro was about to prosecute Chin and Mallari, the latter allegedly offered to settle their dispute. This
resulted in the execution of the MOA sought to be nullified in both the complaints of Pedro and Maria. The
MOA dated March 26, 1992 was among Chin and Mallari, as first parties; Pedro Destura, as second party; and
a certain Jaime B. Lumasag, Jr., as third party, whereby the parties agreed to sell the property subject of this
petition to an interested buyer and to share in the proceeds, with Lumasag acting as broker of the sale.
However, the prospective buyer of Lumasag backed out and the sale did not materialize.
RTC rendered nullifying the MOA. The trial court did not award any affirmative relief of the plaintiff therein,
Maria Destura. Instead, the trial court ordered the reinstatement of TCT in the names of the Paels, who were
non-parties in the case.
CA not only declared the MOA as valid, it also upheld the titles of Chin and Mallari by expressly declaring
that they have a better title to the property. This decision has long been final and executory per entry of
judgment.
While the petition for annulment was pending before the Court of Appeals, or on January 28, 1998, a certain
corporation called PFINA Properties, Inc. (PFINA, for brevity) filed a motion for leave of court to
intervene and to admit petition-in-intervention. It alleged that PFINA acquired the property subject of the
litigation for substantial and valuable consideration from Roberto A. Pael and the Heirs of Antonio Pael,
Andrea Alcantara and Crisanto Pael, by virtue of a deed of assignment dated January 25, 1983, and that the
title was issued in its name by the Register of Deeds of QC. This motion was opposed by private
respondents. They cite the fact that the alleged acquisition of the property by PFINA supposedly occurred as
early as January 25, 1983, and for fifteen (15) years, inspite of numerous proceedings before different courts
and agencies involving the disputed property, both the Paels and PFINA were silent about the alleged change
of ownership. No steps to register the sale or secure transfer titles were undertaken during this period.
The SC ruled to cancel TCT in the name of PFINA Properties, Inc., and RESTORE to private respondents
(Chin and Mallari). The Paels, having no longer any right over the subject property, had nothing to sell to
PFINA. Therefore, the title obtained by PFINA allegedly by virtue of the deed of assignment executed by the

Paels in its favor is a nullity. Worse, the Register of Deeds of QC connived and conspired with PFINA when
the former registered the deed of assignment on the basis of fake and spurious documents.
The Court of Appeals also found it unbelievable for PFINA to acquire extremely valuable real estate in
Quezon City for only P30.00 per square meter. In 1983, PFINA Mining and Exploration, Inc. was a
mining company. It changed its corporate name to PFINA Properties, Inc., only on January 22, 1998, six (6)
days before filing its petition-in-intervention with the CA. In its petition, PFINA claimed to have bought
urban real estate in 1983, notwithstanding that at the time it was still a mining company which had no
business dabbling in the highly speculative urban real estate trade.
For resolution are the Motions for Reconsideration filed by petitioners Heirs of Antonio Pael, Andrea Alcantara and Crisanto
Pael, and petitioner Maria Destura.
HELD:
The title of PFINA Properties, Inc., TCT No. 186662, was irregularly and illegally issued. As such, the
reinstatement of the titles of private respondents was proper and did not constitute a collateral attack on the
title of PFINA. It should be recalled that the transfer of title from the Heirs of Pael in favor of PFINA was
replete with badges of fraud and irregularities which rendered nugatory and inoperative the existing doctrines
on land registration and land titles. More important, the Heirs of Pael had earlier disposed of their rights.
There was nothing to transfer to PFINA. The transfer was not only fictitious, it was void.
PFINA claims that it acquired the properties from the Heirs of Pael by virtue of a deed of assignment dated
January 25, 1983, hence, it filed a motion to intervene before the Court of Appeals. It is worthy to note,
however, that before it filed its motion for intervention, or for a long period of fifteen (15) years, PFINA and
the Heirs of Pael were totally silent about the alleged deed of assignment. No steps were taken by either of
them to register the deed or secure transfer certificate of title evidencing the change of ownership during this
long period of time.
Furthermore, at the time PFINA acquired the disputed properties in 1983, its corporate name was PFINA
Mining and Exploration, Inc., a mining company which had no valid grounds to engage in the highly
speculative business of urban real estate development.
Both the decisions of the Court of Appeals and this Court show that the alleged transfer in 1983 was not only
dubious and fabricated; it could produce no legal effect. As stated above, the Paels were no longer owners of
the land they allegedly assigned.

R. PRE-EMPTIVE RIGHT
The issuance of shares referred to in Benito vs. SEC which was cited in the case of Dee vs SEC (where SC
ruled that stockholders are not entitled to pre-emptive right to additional shares to be issued from existing
authorized capital stock before offering them to third parties) occurred under the old Corporation Law (Act
No. 1459, as amended) where the pre-emptive right of existing stockholders to subscribe to new issuances is
not expressly provided. In the present law, the Corporation Code (BP Blg 68) the grant of pre-emptive right
is made mandatory except those situations falling under the exceptions enumerated therein. Unless denied in
the articles of incorporation or except in cases where the issuance falls under any of the exceptions
enumerated in the above cited provisions, all issuances or disposition of share by a corporation after the
effectivity of the Corporation Code shall be subject to Sec 39 of the Corporation Code. SEC LetterOpinion Dated March 10, 2000

S. DIVIDENDS

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
G.R. No. L-21601

December 28, 1968

But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation
Facts:
A management contract was entered into between Nielson and Lepanto, whereby Lepanto will pay Nielson
P2,500.00 per month and 10% of the net profits from the operation of the business, for operating and
managing the mining business of Lepanto. The said contract was the basis of the SC ruling in a previous case
between the parties, declaring that Nielson would receive 10% of any dividends declared and paid by
Lepanto, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during
the period of extension of the contract. Lepanto filed a motion for reconsideration of the said decision,
contending that the court erred in such order because it is a violation of the Corporation Law, Section 16, and
that it was not, and it could not be, the intention of Lepanto and Nielson as contracting parties that the
services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto.
Issue: W/N a corporation may issue to a non-stockholder stock dividends in payment for services rendered
by the latter.
Held:
No. Nielson is not entitled to a share in the stock dividends since he is not a stockholder. However, it must
still be paid his 10% fee using as the basis for computation the cash value of the stock dividends declared.
As stated in the Corporation Code, the consideration for which shares of stock may be issued are: (1) cash;
(2) property; and (3) undistributed profits. Shares of stock are given the special name "stock dividends" only
if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property
then those shares do not fall under the category of "stock dividends". A corporation may legally issue shares
of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its
indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange
of property, because services is equivalent to property. Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be
part of the original capital stock of the corporation upon its organization, or part of the stocks issued when
the increase of the capitalization of a corporation is properly authorized. In other words, it is the shares of
stock that are originally issued by the corporation and forming part of the capital that can be
exchanged for cash or services rendered, or property; that is, if the corporation has original shares of
stock unsold or unsubscribed, either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person
already a stockholder in exchange for services rendered or for cash or property. But a share of stock
coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.

A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such
dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the
stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of
cash, and is properly payable only out of surplus profits. 15 So, a stock dividend is actually two things: (1) a
dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at par.16
When a corporation issues stock dividends, it shows that the corporation's accumulated profits have been
capitalized instead of distributed to the stockholders or retained as surplus available for distribution, in money
or kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends rather
to postpone said realization, in that the fund represented by the new stock has been transferred from surplus
to assets and no longer available for actual distribution. Thus, it is apparent that stock dividends are issued
only to stockholders. This is so because only stockholders are entitled to dividends. They are the only ones
who have a right to a proportional share in that part of the surplus which is declared as dividends. A stock
dividend really adds nothing to the interest of the stockholder; the proportional interest of each stockholder
remains the same.18If a stockholder is deprived of his stock dividends and this happens if the shares of
stock forming part of the stock dividends are issued to a non-stockholder then the proportion of the
stockholder's interest changes radically. Stock dividends are civil fruits of the original investment, and to the
owners of the shares belong the civil fruits.

MADRIGAL & COMPANY, INC., petitioner, vs. HON. RONALDO B. ZAMORA,

PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR,
and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents.
G.R. No. L-48237. June 30, 1987
Cash dividends received by a corporation arising from corporate investments in other companies are corporate earnings. As such
shareholder, the dividends paid to it were its own money which may then be available for wage increments. It is not a case of the
corporation distributing dividends in favor of stockholders in which case, such dividends would be the absolute property of the
shareholders and hence, out of reach by the creditors of the corporation.
Petitioner Madrigal &Company was engaged, among several other corporate objectives, in the management
of its sister company, Rizal Cement Co., Inc. Both are owned by the same or practically the same
stockholders. The respondent, the Madrigal Central Office Employees Union, (UNION) sought for the
renewal of its collective bargaining agreement with petitioner asking for a wage increase and for other
economic benefits.
By an alleged resolution of its stockholders, petitioner reduced its capital stock on two occasions: from
765,000 shares to 267,366 shares, and later on from the latter shares down to 110, 085 shares to avert
business losses. This was effected through the distribution of the marketable securities owned by the
petitioner to its stockholders in exchange for their shares in an equivalent amount in the corporation. After
reducing its capital stock, petitioner implemented a retrenchment program resulting in the termination of its
employees. The terminated employees filed a complaint for unfair labor practice which the labor arbiter
resolved in their favor. Petitioner contested the award of salary increases and economic benefits claiming that
the corporation is financially incapable of absorbing such award of benefit considering that it had virtually
ceased operations after having twice decreased its capital stock. In support of such assertion, the company
points that the profits reflected in its yearly Statement of Income and Expenses are dividends from security
holdings which belong exclusively to its stockholders.
ISSUE: Whether dividends received by the company are corporate earnings which can be the subject of
claims of corporate creditors
HELD: We reject as puerile its suggestion to dissociate the dividends it received from security holdings on
the pretext that they belong exclusively to its stockholders. The dividends received by the company are
corporate earnings arising from corporate investment which no doubt are attended to by the employees
involved in this proceedings. Otherwise, it would not have been reflected as part of profits in the company's
yearly financial statements.
What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business
operations but confronted with the demand of the union for wage increases, decided to evade its
responsibility towards the employees by a devised capital reduction. While the reduction in capital stock
created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union
members, who, by then, had agitated for wage increases. In the face of the petitioner company's piling profits,
the unionists had the right to demand for such salary adjustments.

REPUBLIC PLANTERS BANK, Petitioner, vs. HON. ENRIQUE A. AGANA, SR., as Presiding
Judge, Court of First Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY
& DEVELOPMENT CORPORATION and ADALIA F. ROBES, respondents.
G.R. No. 51765. March 3, 1997.
Dividends cannot be declared for preferred shares which were guaranteed a quarterly dividend if there are no unrestricted retained
earnings . xxx "Interest bearing stocks" on which the corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only.
Private respondent Corporation secured a loan from petitioner in the amount of P120,000.00. As part of the
proceeds of the loan, preferred shares of stocks were issued to private respondent Corporation. In other
words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00,
petitioner lent such amount partially in the form of money and partially in the form of stock certificates, each
for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said
certificates of stock bear the following terms and conditions: 1). The Preferred Stock shall have the right to
receive a quarterly dividend of One Per Centum (1%), cumulative and participating; and 2. That such
preferred shares may be redeemed, by the system of drawing lots, at any time after two (2) years from the date
of issue at the option of the Corporation.
Private respondents filed a Complaint anchored on its alleged rights to collect dividends under the preferred
shares in question and to have petitioner redeem the same under the terms and conditions of the stock
certificates. The trial court ordered petitioner to pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full payment. Hence this appeal.
ISSUE: Whether private respondent can collect dividends under the preferred shares in question
HELD:
1. Dividends cannot be declared for preferred shares which were guaranteed a quarterly dividend if
there are no unrestricted retained earnings
The present Corporation Code provides that the board of directors of a stock corporation may declare
dividends only out of unrestricted retained earnings. The declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences granted to
preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make
them creditors of the corporation, the right of the former being always subordinate to the latter.
Shareholders, both common and preferred, are considered risk takers who invest capital in the business and
who can look only to what is left after corporate debts and liabilities are fully paid.
2. "interest bearing stocks", on which the corporation agrees absolutely to pay interest before
dividends are paid to common stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only
Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of
any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions
underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of
consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest
before dividends are paid to common stockholders, is legal only when construed as requiring payment of
interest as dividends from net earnings or surplus only.

NORA A. BITONG, petitioner, vs.

COURT OF APPEALS (FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR.
& MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA,
respondents.
Dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it
belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit
was earned.
Petitioner Nora A. Bitong filed a derivative suit before the Securities and Exchange Commission (SEC) on
behalf of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms.) alleging among others that spouses
Eugenia D. Apostol and Jose A. Apostol entered into transactions and agreements not supported by any
board and/or stockholders' resolution to the prejudice of Mr. & Ms. and its stockholders, including
petitioner. Private respondents claimed that petitioner had no personality to sue being a mere being merely a
holder-in-trust of JAKA shares, and it was the latter as principal stockholder who may file the suit. Petitioner
insisted that she is the owner of the shares because a deed of sale was executed in her favor but the findings
of the court showed that based on several corporate documents, JAKA remained the owners of such shares.
One of the basis that JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of
the dividends.
ISSUE: Whether JAKA is entitled to claim dividends despite allegations on the transfer of its shares
HELD: Dividends are distributed to stockholders pursuant to their right to share in corporate profits. When
a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the
time regardless of when the distribution profit was earned.