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G.R. No.

L-40620 May 5, 1979
RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE
LA RAMA, and the HEIRS OF MERCEDES DE LA RAMA-BORROMEO, petitioners,
vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of
Negros Occidental, Branch II, BENJAMIN LOPUE, SR., BENJAMIN LOPUE, JR.,
LEONITO LOPUE, and LUISA U. DACLESrespondents.
CONCEPCION JR., J,:
Petition for certiorari to review the order of the respondent judge, dated January 2, 1975,
denying the petitioners' motion to dismiss the complaint filed in Civil Case No. 10257 of
the Court of First Instance of Negros Occidental, entitled, "Benjamin Lopue Sr., et al.,
plaintiffs, versus Ricardo Gamboa, et al., defendants," as well as the order dated April 4,
1975, denying the motion for the reconsideration of Said order.
In the aforementioned Civil Case No. 10257 of the Court of First Instance of Negros
Occidental, the herein petitioners, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la
Rama, Eduardo de la Rama, and the late Mercedes de la Rama-Borromeo, now
represented by her heirs, as well as Ramon de la Rama, Paz de la Rama-Battistuzzi, and
Enzo Battistuzzi, were sued by the herein private respondents, Benjamin Lopue, Sr.,
Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles to nullify the issuance of 823
shares of stock of the Inocentes de la Rama, Inc. in favor of the said defendants. The gist
of the complaint, filed on April 4, 1972, is that the plaintiffs, with the exception of
Anastacio Dacles who was joined as a formal party, are the owners of 1,328 shares of
stock of the Inocentes de la Rama, Inc., a domestic corporation, with an authorized capital
stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were
subscribed and issued, thus leaving 823 shares unissued; that upon the plaintiffs'
acquisition of the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then
President and Vice-President of the corporation, respectively, the defendants Mercedes R.
Borromeo, Honorio de la Rama, and Ricardo Gamboa, remaining members of the board of
directors of the corporation, in order to forestall the takeover by the plaintiffs of the aforenamed corporation, surreptitiously met and elected Ricardo L. Gamboa and Honorio de la
Rama as president and vice-president of the corporation, respectively, and thereafter
passed a resolution authorizing the sale of the 823 unissued shares of the corporation to
the defendants, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Ramon de la
Rama, Paz R. Battistuzzi Eduardo de la Rama, and Mercedes R. Borromeo, at par value,
after which the defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo
Battistuzzi were elected to the board of directors of the corporation; that the sale of the
unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and preemptive rights and made without the approval of the board of directors representing 2/3
of the outstanding capital stock, and is in disregard of the strictest relation of trust
existing between the defendants, as stockholders thereof; and that the defendants Lydia
de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally elected to
the board of directors of the said corporation and has unlawfully usurped or intruded into
said office to the prejudice of the plaintiffs. Wherefore, they prayed that a writ of
preliminary injunction be issued restraining the defendants from committing, or
continuing the performance of an act tending to prejudice, diminish or otherwise injure
the plaintiffs' rights in the corporate properties and funds of the corporation, and from
disposing, transferring, selling, or otherwise impairing the value of the 823 shares of stock
illegally issued by the defendants; that a receiver be appointed to preserve and

administer the property and funds of the corporation; that defendants Lydia de la RamaGamboa, Honorio de la Rama, and Enzo Battistuzzi be declared as usurpers or intruders
into the office of director in the corporation and, consequently, ousting them therefrom
and declare Luisa U. Dacles as a legally elected director of the corporation; that the sale
of 823 shares of stock of the corporation be declared null and void; and that the
defendants be ordered to pay damages and attorney's fees, as well as the costs of suit . 1
Acting upon the complaint, the respondent judge, after proper hearing, directed the clerk
of court "to issue the corresponding writ of preliminary injunction restraining the
defendants and/or their representatives, agents, or persons acting in their behalf from the
commission or continuance of any act tending in any way to prejudice, diminish or
otherwise injure plaintiffs' rights in the corporate properties and funds of the corporation
Inocentes de la Rama, Inc.' and from disposing, transferring, selling or otherwise impairing
the value of the certificates of stock allegedly issued illegally in their names on February
11, 1972, or at any date thereafter, and ordering them to deposit with the Clerk of Court
the corresponding certificates of stock for the 823 shares issued to said defendants on
February 11, 1972, upon plaintiffs' posting a bond in the sum of P50,000.00, to answer for
any damages and costs that may be sustained by the defendants by reason of the
issuance of the writ, copy of the bond to be furnished to the defendants. " 2 Pursuant
thereto, the defendants deposited with the clerk of court the corporation's certificates of
stock Nos. 80 to 86, inclusive, representing the disputed 823 shares of stock of the
corporation.3
On October 31, 1972, the plaintiffs therein, now private respondents, entered into a
compromise agreement with the defendants Ramon de la Rama, Paz de la Rama
Battistuzzi and Enzo Battistuzzi , 4 whereby the contracting parties withdrew their
respective claims against each other and the aforenamed defendants waived and
transferred their rights and interests over the questioned 823 shares of stock in favor of
the plaintiffs, as follows:
3. That the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi
and Enzo Battistuzzi will waive, cede, transfer or other wise convey, as
they hereby waive, cede, transfer and convey, free from all liens and
encumbrances unto the plaintiffs, in such proportion as the plaintiffs
may among themselves determine, all of the rights, interests,
participations or title that the defendants Ramon L. de la Rama, Paz de
la Rama Battistuzzi Enzo Battistuzzi now have or may have in the eight
hundred twenty-three (823) shares in the capital stock of the
corporation INOCENTES DELA RAMA, INC.' which were issued in the
names of the defendants in the above-entitled case on or about
February 11, 1972, or at any date thereafter and which shares are the
subject-matter of the present suit.
The compromise agreement was approved by the trial court on December 4, 1972, 5 As a
result, the defendants filed a motion to dismiss the complaint, on November 19, 1974,
upon the grounds: (1) that the plaintiffs' cause of action had been waived or abandoned;
and (2) that they were estopped from further prosecuting the case since they have, in
effect, acknowledged the validity of the issuance of the disputed 823 shares of stock. The
motion was denied on January 2, 1975.6

The defendants also filed a motion to declare the defendants Ramon L. de la Rama, Paz de
la Rama Battistuzzi and Enzo Battistuzzi in contempt of court, for having violated the writ
of preliminary injunction when they entered into the aforesaid compromise agreement
with the plaintiffs, but the respondent judge denied the said motion for lack of merit. 7
On February 10, 1975, the defendants filed a motion for the reconsideration of the order
denying their motion to dismiss the complaint' and subsequently, an Addendum thereto,
claiming that the respondent court has no jurisdiction to interfere with the management of
the corporation by the board of directors, and the enactment of a resolution by the
defendants, as members of the board of directors of the corporation, allowing the sale of
the 823 shares of stock to the defendants was purely a management concern which the
courts could not interfere with. When the trial court denied said motion and its addendum,
the defendants filed the instant petition for certiorari for the review of said orders.

An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest. 12 In the case at bar,
however, the plaintiffs are alleging and vindicating their own individual interests or
prejudice, and not that of the corporation. At any rate, it is yet too early in the
proceedings since the issues have not been joined. Besides, misjoinder of parties is not a
ground to dismiss an action. 13
WHEREFORE, the petition should be, as it is hereby DISMISSED for lack of merit. With
costs against the petitioners.
SO ORDERED.

The petition is without merit. The questioned order denying the petitioners' motion to
dismiss the complaint is merely interlocutory and cannot be the subject of a petition for
certiorari. The proper procedure to be followed in such a case is to continue with the trial
of the case on the merits and, if the decision is adverse, to reiterate the issue on appeal.
It would be a breach of orderly procedure to allow a party to come before this Court every
time an order is issued with which he does not agree.
Besides, the order denying the petitioners' motion to dismiss the complaint was not
capriciously, arbitrarily, or whimsically issued, or that the respondent court lacked
jurisdiction over the cause as to warrant the issuance of the writ prayed for. As found by
the respondent judge, the petitioners have not waived their cause of action against the
petitioners by entering into a compromise agreement with the other defendants in view of
the express provision of the compromise agreement that the same "shall not in any way
constitute or be considered a waiver or abandonment of any claim or cause of action
against the other defendants." There is also no estoppel because there is nothing in the
agreement which could be construed as an affirmative admission by the plaintiff of the
validity of the resolution of the defendants which is now sought to be judicially declared
null and void. The foregoing circumstances and the fact that no consideration was
mentioned in the agreement for the transfer of rights to the said shares of stock to the
plaintiffs are sufficient to show that the agreement was merely an admission by the
defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi of the
validity of the claim of the plaintiffs.
The claim of the petitioners, in their Addendum to the motion for reconsideration of the
order denying the motion to dismiss the complaint, questioning the trial court's
jurisdiction on matters affecting the management of the corporation, is without merit. The
well-known rule is that courts cannot undertake to control the discretion of the board of
directors about administrative matters as to which they have legitimate power
of, 10 action and contractsintra vires entered into by the board of directors are binding
upon the corporation and courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to a wanton destruction of the rights of the
minority. 11 In the instant case, the plaintiffs aver that the defendants have concluded a
transaction among themselves as will result to serious injury to the interests of the
plaintiffs, so that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to
institute a derivative suit against the petitioners in the name of the corporation in order to
secure a binding relief after exhausting all the possible remedies available within the
corporation.

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 30,127,047 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 by-laws 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, petitioner 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, petitioner averred that the membership of the Board of
Directors had changed since the authority was given in 1961, there being six (6) new
directors.

G.R. No. L-45911 April 11, 1979
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B.
CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION,
EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with prayer for issuance of
writ of preliminary injunction, arose out of two cases filed by petitioner with the Securities
and Exchange Commission, as follows:
SEC CASE NO 1375
On October 22, 1976, petitioner, as stockholder of respondent 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. The petition, entitled "John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M.
Soriano, Enrique Zobel, Antonio Roxas, Emeterio Bunao, Walthrode B. Conde, Miguel
Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18, 1976, individual
respondents amended by bylaws of the corporation, basing their authority to do so on a
resolution of the stockholders adopted on March 13, 1961, when the outstanding capital
stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common

As a fourth cause of action, it was claimed that prior to the questioned amendment,
petitioner had all the qualifications to be a director of respondent corporation, being a
Substantial stockholder thereof; that as a stockholder, petitioner 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, respondents purposely provided
for petitioner's disqualification and deprived him of his vested right as afore-mentioned
hence the amended by-laws are null and void. 1
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) with respondent corporation, which was allowed because the questioned
amendment gave the Board itself the prerogative of determining whether they or other
persons are engaged in competitive or antagonistic business; that the portion of the
amended bylaws which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business and family
relationship, is unreasonable and oppressive and, therefore, void; and that the portion of
the amended by-laws which requires that "all nominations for election of directors ... shall
be submitted in writing to the Board of Directors at least five (5) working days before the
date of the Annual Meeting" is likewise unreasonable and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the
certificate of filing thereof be cancelled, and that individual respondents be made to pay
damages, in specified amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with the Securities
and Exchange Commission an "Urgent Motion for Production and Inspection of
Documents", alleging that the Secretary of respondent corporation refused to allow him to
inspect its records despite request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation had been attempting to
suppress information from its stockholders despite a negative reply by the SEC to its
query regarding their authority to do so. Among the documents requested to be copied
were (a) minutes of the stockholder's meeting field on March 13, 1961, (b) copy of the

1961 and long prior thereto has never been revoked of SMC". as well as the list of salaries. which is to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting. 2. subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law. 1976. 1977. since he failed. San Miguel Corporation on January 14.management contract between San Miguel Corporation and A. Jr. therefore. are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade. expenses of litigation and attorney's fees were presented against petitioner. in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case. Subsequently. that thereafter the Board of Directors amended the by-laws as afore-stated. Soriano. 1976. Provided. Respondents Andres M. that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission. that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting. moral damages.. and thereafter. denying the substantial allegations therein and stating. no inherent right to inspect said documents. to object to other amendments made on the basis of the same 1961 authorization: that the power of the corporation to amend its by-laws is broad.000 shares of stock of respondent corporation.. repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made. Jr. Inc. allowances. as part of their affirmative defenses. therefore. respondents Emigdio Tanjuatco. actual damages. and Andres Soriano from San Miguel International. As counterclaims. that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment. and Eduardo R. received by Andres M. On December 29. modify. in behalf of himself. 1976. which are in the possession. 26. Jr. and/or its successors-ininterest. CFC and Robina. Soriano. that the demand is not based on good faith. and/or its successor-in-interest. that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board.959. that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined. The application for writ of preliminary injunction was likewise on various grounds. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositionsintervention to the petition. a seat in the Board of Directors of SMC".. bonuses. section I of the by-laws and section 22 of the Corporation law. until September 1976 when its total holding amounted to 622. During the pendency of the motion for production. it appearing that the same is material and relevant to the issues involved in the main case. that contrary to petitioner's claim. Inc. respondents San Miguel Corporation. petitioner. prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests. amendments is valid and legal because the power to "amend. not when the Board opts to exercise said delegated power". At this juncture. Soriano filed their opposition to the petition. 1976. by or on behalf of the petitioner-movant. as provided in Article VIII. 3. copying and photographing. however. stating. Soriano Corporation (ANSCOR). the Universal Robina Corporation (Robina). Jr. that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with: That the by-laws. Soriano. that it fails to show good cause and constitutes continued harrasment. as petitioner-movant is not a stockholder of San Miguel International.. if any. petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages. that in August 1972. Inc.987 shares: that in October 1972. Inc. of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13. Sr. exemplary damages. that in the stockholders' meeting of March 18. Inc. that on January 12. Series of 1977. alleging. and that some of the information sought are not part of the records of the corporation and. 1961. the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. petition is premature. Miguel Ortigas and Antonio Prieto filed their answer to the petition. privileged. Accordingly. "the vote requirement for a valid delegation of the power to amend. (c) latest balance sheet of San Miguel International. and has. This was duly opposed by petitioner. In view of the Manifestation of petitioner-movant dated November 29. As to the Balance Sheet of San Miguel International. withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. until its total holdings amounted to P543. who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5. repeal or adopt new By-laws" delegated to said Board on March 13. by way of affirmative defenses that "the action taken by the Board of Directors on September 18. 1976 resulting in the .. a corporation engaged in business competitive to that of respondent corporation. and Jose M. hence the. Enrique Conde. the Petition to produce and inspect the same is hereby DENIED. therefore. (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International. it being understood that the inspection. It was. and (e) lists of salaries. copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents.00 in September 1976. it is hereby ordered: 1. bonuses. a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. and other compensation. as amended. allowances. among others that the motion has no legal basis. Soriano Corporation . denying the material averments thereof and stating. John Gokongwei. at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted. custody and control of the said corporation. compensation and/or remuneration received by respondent Jose M. that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over t I hat of the corporation. began acquiring shares therein. That respondents produce and permit the inspection. the respondents should allow petitionermovant entry in the principal office of the respondent Corporation. and that the petition states no cause of action.

1977. respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. until after the hearing on the merits of the principal issues in the above-entitled case. On February 4. Allegedly despite a subsequent SEC. 1976. On February 10. having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation. the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of record had not yet been resolved. 1423 Petitioner likewise alleges that. Respondent Commission. restraining respondents from holding the special stockholder's meeting as scheduled. the said motion had not yet been scheduled for hearing. to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. a temporary restraining order be issued. Respondents issued notices of the annual stockholders' meeting. 1977. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20. praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment. in violation of section 17 1/2 of the Corporation Law. or after the scheduled annual stockholders' meeting. 4. petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order". on April 28. petitioner moved for its reconsideration. and ratification of the investments thereafter made pursuant thereto. and set the case for hearing on April 29 and May 3.and the renewal and amendments thereof for the reason that he had already obtained the same.. Jr. and Jose M. for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose. 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. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10. motions to dismiss were filed by private respondents. Soriano. 1977. petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. the following: 6. Pending action on the motion. he filed with respondent Commission. On February 14. 1977. petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting. 1977. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17. when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer. 1977. it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation. petitioner was not heard prior to the date of the stockholders' meeting. 1977. no action has been taken up to the date of the filing of the instant petition. while the petition was yet to be heard. With respect to the afore-mentioned SEC cases. 1977. By reason of the foregoing. submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3. 1977. the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International. The motion for summary judgment was opposed by private respondents. respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws". 1977. 1977. the date set for the second hearing of the case on the merits. but this notwithstanding. CASE NO. as well as the respondent corporation declared guilty of such violation. Thereafter. and that respondent are acting oppressively against petitioner. and Manifestation to prod respondent Commission to act. petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction. Finally. petitioner filed an urgent manifestation on May 3. For the purpose of urging the Commission to act. petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. 1977. however. respondents filed a Manifestation with respondent Commission. Likewise. 1977 that he does not come within the disqualifications specified in the amendment to the by-laws. Meanwhile. This Order is immediately executory upon its approval. 1977. By reason thereof. Inc. the commission acted thereon only on April 25. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned. subject matter of SEC Case No. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. This motion was duly opposed by respondents. and ordered to account for such investments and to answer for damages. 1977. on January 20. After receipt of the order of denial. to petitioner's irreparable damage and prejudice. a petition seeking to have private respondents Andres M. Petitioner alleges that up to the time of the filing of the instant petition. respondent Commission issued an order denying the motion for issuance of temporary restraining order. including in the Agenda thereof. . 1375. 2 Dissatisfied with the foregoing Order. Soriano. on December 10. setting such meeting for February 10. 1976. the Commission takes note thereof. in gross derogation of petitioner's rights to property and due process. alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission. Despite the fact that said motions were filed as early as February 4. private respondents admitted the invalidity of the amendments of September 18. requesting that the same be set for hearing on May 3.

Tanjuatco. The instant petition being dated May 4. it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade. when CFC and Robina had accumulated investments. and (5) that. or from Making effective the amended by-laws of respondent corporation. among others that the acts of private respondent sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation. 1977. . Sr. Inc. prayed that the petition be dismissed. (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties. pendente lite the amended by-laws calendared for hearing. allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected. when CFC and Robina had accumulated shares in SMC. until further orders from this Court or until the Securities and Exchange Commission acts on the matters complained of in the instant petition. Further. 1375 and 1423 was due to petitioner's own acts or omissions. and. that in said meeting. (2) Order No. until such time that the Commission has decided the validity of the bylaws in dispute. therefore. 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. such that the discussion. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case. 1375). ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10. warranting the intervention of this Court. or on May 9. respondent Emigdio G. 1977. Further. warranting immediate judicial intervention. 1375). Petitioner filed a reply to the aforesaid comments. 450. petitioner was allowed to run and be voted for as director. 1977. 1977. under the law of self-preservation. 1977. denying petitioner's motion for reconsideration. in compliance with the order of respondent Commission. 1977. On May 17. alleging that after a restraining order had been issued by this Court. 1977. (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury. alleging that the petition is without merit for the following reasons: (1) that the petitioner the interest he represents are engaged in business competitive and antagonistic to that of respondent San Miguel Corporation. It was emphasized that it was only on April 29. 1375 and 1423 on the merits. will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC. and (3) Order No. petitioner filed a Supplemental Petition. 1977. denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment. it has become moot and academic because respondent Commission has acted on the pending incidents. (4) that the delay in the resolution and disposition of SEC Cases Nos. It is petitioner's assertions. this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10.On May 6. such as the instant case. 1977. complained of. which was held on may 10. since he failed to have the petition to suspend. and thereafter to decide SEC Cases No. Series of 1977 (SEC Case No. Soriano. ratified and confirmed. it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation. the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans. respondent SEC. (2) a derivative suit. its stockholders. It was. 451. if allowed to become directors. even assuming that the petition was meritorious was. unfairly and oppresively against petitioner. filed his comment. and Jose M. alleging that the petition has become moot and academic for the reason. and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting. Series of 1977 (SEC Case No. is not rendered academic by the act of a majority of stockholders. Soriano filed their comment. Jr. it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch". with its supplement. which corporations are engaged in business directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order. (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners. and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing . ultimately. voted upon. and it should be allowed a wide latitude in the selection of means to preserve itself. Further. the respondent Commission served upon petitioner copies of the following orders: (1) Order No. that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. 1375). Andres M. (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors. Item 6 of the Agenda was discussed. hence the elevation of these issues before the Supreme Court is premature. On May 21. of the order of the Commission denying in part petitioner's motion for production of documents. and no hearing on the merits has been had. 449. and that in the same meeting. anent the foregoing orders. stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection. 1977 did not render the case moot. and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting. On May 14. and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder. Series of 1977 (SEC Case No.

There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved .. pp. resolved to decide the case on the merits "because public interest demands an early disposition of the case". deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected. finding that the main issue is one of law. is purely a legal question. alleging that the actuations of respondent SEC tended to deprive him of his right to due process. 1977. Gayos. there are facts which cannot be denied. become moot and academic. alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it. and "Commissioner Sulit . 8a Because uniformity may be secured through review by a single Supreme Court. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. otherwise "the time spent and effort exerted by the parties concerned and. that the discussion of Item 6 of the Agenda be deferred. considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid . and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice. second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made .. 450 and 451 in SEC Case No. and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit. 8b In the case at bar." Respondents Andres M. submits the following issues for resolution. II Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable — . that in a special meeting on February 10. in his memorandum. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know. and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10. more importantly. the amended by-laws were ratified by more than 80% of the stockholders of record. instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case." (Reno. leaving nor root or branch to bear the seeds of future litigation. and Jose M. invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies. to decide the case on its merits. was made by the San Miguel Corporation in 1948. allegedly in violation of section 17-1/2 of the Corporation Law. therefore. all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International.1977. Soriano. 1977 which prayed. Central Surety and Insurance Company. ". citing precedent where this Court. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation"... Inc. and in Republic v. took into consideration an urgent manifestation filed with the Commission by petitioner on May 3. City of Davao. In answer to the allegation in the supplemental petition. (1) whether or not the provisions of the amended by-laws of respondent corporation. viz. disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable." Respondent Eduardo R." It was alleged that the main petition has. and the ratification of the investment in a foreign corporation of the corporate funds. citingGayong v. 449.. ". 1375. 927-928. or (b) where public interest demand an early disposition of the case. 6 this Court. or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position. petitioner filed a second supplemental petition with prayer for preliminary injunction. 7 this Court denied remand of the third-party complaint to the trial court for further proceedings. among others. a fully owned subsidiary of San Miguel Corporation. a beer manufacturing company in Hongkong.. 5 this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand of the case. Jr. thru the Solicitor General. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved. in Francisco v. approved the amended by-laws ex-parte and obviously found the same intrinsically valid. Security Credit and Acceptance Corporation. in similar situations resolved to decide the cases on the merits. "... and that in the stockholders' annual meeting held in 1972 and 1977.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law.Respondent Commission. by this Honorable Court. 4 Thus.) Petitioner. would have been for naught because the main question will come back to this Honorable Court for final resolution.. In Republic v. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding. questions of law may appropriately be determined in the first instance by courts. it states that Order No. 1977 held specially for that purpose. 3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder. I Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved — It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies". filed a separate comment. the Commission en banc issued Orders Nos. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation... Visaya submits a similar appeal.. et al. third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner . On September 29. that the foreign investment in the Hongkong Brewery and Distellery. based upon said evidence.

Jr.6% 10. result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. represented sales amounting to more than ?478 million. owning 23. as of May 6. At the meeting of February 10.1% 26. owning more than 30 million shares.139. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation.5% 9..436. which product line represented sales for SMC amounting to more than P275 million. and of corporations in which SMC has substantial investments. a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. or a total of 1. or is in a legal sense unreasonable and therefore unlawful is a question of law. representing 7. 1976. and one upon which reasonable minds must necessarily differ. at the Annual Stockholders' Meeting of March 18.0% Ice Cream 70. (c) CFC Corporation — 658.754 shares in SMC. 1977. 1978. therefore.0% 49.313 shares.480 shareholders.0% 40. instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors.0% 14. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-. in person or by proxy. At the Annual Stockholders' Meeting of May 10. according to respondent SMC.648. considering that being a competitor. 12. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation. 10 This rule is subject. for SMC.0% 57. or more than 90% of the total outstanding shares. Significantly. It is further asserted that in 1977.014 shares.403. the areas of. Soriano. that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation. therefore. representing 1. the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC.801 shares voted for him..005 shares. therefore. by "virtue of powers delegated to it by the stockholders. 11 Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board".0% Instant Coffee 45. while 946 stockholders.349 shareholders. in product sales amounting to more than P95 million. 1977.0% 83.894 stockholders.00. Jr. conclusion of a competitor from the Board is legitimate corporate purpose.0% 13. excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile. in 1976.6% Thus. the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken. 1978. has exercised.0% Woven Fabrics 17. respondents Andres M. or more than 90% of the outstanding shares. 9 Whether the by-law is in conflict with the law of the land. personally or thru two corporations owned or controlled by him. The CFC-Robina group (Robitex. Inc. is represented by 33. Jose M. as of the present date. thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0. opposed the confirmation and ratification. that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise. It is alleged that petitioner. for SMC.283. a subsidiary of SMC. or the promotion of both the interests of petitioner and respondent San Miguel Corporation. 11. Upon the other hand. is the issue — whether or not respondent San Miguel Corporation could. a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders inseparable prejudice. Submitted for resolution.0% 85. the total shares owned or controlled by petitioner represents 4.285 shares. competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28. owning 27.2344% of the total outstanding capital stock of San Miguel Corporation. .257.716 shareholders owning 24. the CFC-Robina group was in direct competition on product lines which. rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC. both of which are allegedly controlled by petitioner and members of his family.6% Layer Pullets 33.0% 24. which may.0% 52.945 shares. 1978 Annual Stockholders' Meeting. these amendments were confirmed and ratified by 5.protection. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation." approved the amendment to ' he by-laws in question. to the limitation that where the reasonableness of a by-law is a mere matter of judgment.0% 10. or more than 90% of the total outstanding shares of SMC. rejected petitioner's candidacy.0% Poultry & Hog Feeds 40. On the May 9. The areas of competition between SMC and CFC-Robina in 1977 represented. petitioner cannot devote an unselfish and undivided Loyalty to the corporation. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation. vis.0% 12. the Board of Directors of SMC. 1978.325 shares.647 shares." On September 18. (b) Universal Robina Corporation — 738.0% Dressed Chicken 35. or more than 80% of the total outstanding shares. voted against petitioner. however. subsidiary of SMC.The validity or reasonableness of a by-law of a corporation in purely a question of law. poultry and hog feeds ice cream. Only 12 shareholders. In addition. disqualify a competitor from nomination and election to its Board of Directors. — 6. product sales of more than P849 million. control over the following shareholdings in San Miguel Corporation. Since the outstanding capital stock of San Miguel Corporation.: (a) John Gokongwei. 9. CFC-Robina was directly competing in the sale of coffee with Filipro.749 shares with a par value of P10. at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. as a measure of self. According to private respondents. Soriano and San Miguel Corporation content that ex. or with the charter of the corporation.

.: "to object thereto in writing and demand payment for his share. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters . And in Cross v. viz. alteration and modification. He cannot utilize his inside information and strategic position for his own preferment. Litton. duties and compensation of directors. 19 "is not a matter of statutory or technical law. It cannot be said. the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. therefore. on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice.. such power of self-government being essential to enable the corporation to accomplish the purposes of its creation. therefore.. preference or advantage of the fiduciary to the exclusion or detriment of the cestuis. . 21 it was said: ." 16 Pursuant to section 18 of the Corporation Law. 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. . Justice Douglas. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it. 13 In this jurisdiction. . and it would simply be going far to deny by mere implication the existence of such a salutary power . For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement. and surrendered it to the will of the majority of his fellow incorporators. and his suppose influence over her. 17 It being settled that the corporation has the power to provide for the qualifications of its directors. It cannot therefore be justly said that the contract. every private corporation has this inherent power as one of its necessary and inseparable legal incidents. 20 emphatically restated the standard of fiduciary obligation of the directors of corporations. R. that petitioner has a vested right to be elected director.. and in this sense the relation is one of trust... without detriment to one of them.. in Pepper v. which shall be held as security for their action.. diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right. and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders.00. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense. . " InGovernment v. officers and employees .. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. He who is in such fiduciary position cannot serve himself first and his cestuis second. "they occupy a fiduciary relation... any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least twothirds of the subscribed capital stock of the corporation If the amendment changes. between the corporation and the stockholders is infringed .. by any act of the former which is authorized by a majority . the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. independent of any specific enabling provision in its charter or in general law. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. & P.It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government..... in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment.000.." 15 To this extent. As agents entrusted with the management of the corporation for the collective benefit of the stockholders. Co. which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director . Miller. No more can a director. 14 the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5. A judge cannot be impartial if personally interested in the cause. West Virginia Cent.. according to Ashaman v. A person cannot serve two hostile and adverse master." 18 "The ordinary trust relationship of directors of a corporation and stockholders". the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder. a corporation may prescribe in its by-laws "the qualifications. the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation. . Their powers are powers in trust... Take whatever statute provision you please giving power to stockholders to choose directors.. under section 21 of the Corporation Law. R. Human nature is too weak -for this. on account of the supposed interest of the wife in her husband's affairs. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *. thus: A director is a fiduciary. " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law." Under section 22 of the same law. there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best . 12 At common law. El Hogar. If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director. directors of a private corporation are not regarded as trustees. express or implied. and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency...

." An exception exists in New Jersey. (4) A director shall be of good moral character as an essential qualification to holding office. . 30 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. the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products. availability of personnel. if he were to discharge effectively his duty. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. or if elected. for the benefit of the corporation. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation. Thus. or association which competes with the subject corporation. where two corporations are competitive in a substantial sense. 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. In McKee the Court further listed qualificational by-laws upheld by the courts. in McKee.. agents. HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. but must betray one or the other. company. Chief Judge Parker. v. IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION. First National Bank of San Diego. 28 The doctrine of "corporate opportunity" 29 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. explained the reasons of the court. it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer. company. employee. where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed. that the questioned amendment of the by-laws was made. he cannot serve both."24 This is based upon the principle that where the director is so employed in the service of a rival company. it would seem improbable. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. employee. Such an amendment "advances the benefit of the corporation and is good. for the director.. A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank. and it was reasonable and prudent to enlarge this minimum disqualification to include any director. 23 AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR. as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. in McKee & Co. or association which competes with the subject corporation. or association which compete with the subject corporation. there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. or attorney of any other bank in California.. who is also the officer or owner of a competing corporation. in particular circumstances. affiliate or subsidiary thereof. officer. and therefore the corporation was not empowered to add additional qualifications. in addition to the direct conflict or potential conflict of interest. from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders. such as: (a) marketing strategies and pricing structure. Thus. 22 These principles have been applied by this Court in previous cases. Certainly." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products. agent. as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm. proposals of mergers or tie-ups with other firms. attorney. (2) A director shall not be the immediate member of the family of any stockholder in any other firm. therefore. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore. the court held that equity would regard the new contract as an offshoot of the old contract and. . company. agent. under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid. supra. and (d) sources of funding. employees. or trustee in any other firm. 26 It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests. thus: . according to Fletcher. and after establishing a rival business. to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. officers. . if not impossible. supra the court sustained as valid and reasonable an amendment to the by-laws of a bank. (b) budget for expansion and diversification. (3) A director shall not be an officer. . (A)n amendment which renders ineligible. subjects to removal. nominee..interest of the corporation until tried and tested. With respect to attorneys or persons associated with a firm which is attorney for another bank. (c) research and development. This doctrine rests fundamentally on the unfairness. The Ashkins case.. nominees or attorneys of any other banking corporation. that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. requiring that its directors should not be directors. specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection.

It would seem manifest that in such situations. assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce. shall be imposed upon: The terms "monopoly". it must be considered that the Idea of monopoly is now understood to include a condition produced by the mere act of individuals. 7. being a manufacturer. section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. . in restraint of trade or commerce or to prevent by artificial means free competition in the market. it is the concentration of business in the hands of a few. it would be inconsistent with petitioner's primary motive in running for board membership — which is to protect his investments in San Miguel Corporation. processing. There are other legislation in this jurisdiction. without active and conscientious participation in the managerial functions of the company. or of increasing the market price in any part of the Philippines. the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director.(5) No person who is an attorney against the corporation in a law suit is eligible for service on the board." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. wholesale or retailer. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense. As directors. 37 In short. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or From the foregoing definitions. prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. Any person who shag monopolize any merchandise or object of trade or commerce. processed.) These are not based on theorical abstractions but on human experience — that a person cannot serve two hostile masters without detriment to one of them. The election of petitioner to the Board of respondent Corporation can Article 186 of the Revised Penal Code also provides: . access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor. 36 Art. either as principal or agent. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation. 2. producer. Indeed. Any person who. for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources. It is. or any such merchandise or object of commerce manufactured. Thus. assembled in or imported into the Philippines.. for the policy of the law is to encourage and enforce responsible corporate management. it is apparent that the contentions of petitioner are not in accord with reality. or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market. produced. The material consideration in determining its existence is not that prices are raised and competition actually excluded. (At p. Monopolies and combinations in restraint of trade. these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. Apart from the impractical results that would ensue from such arrangement. or both. 35 The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that. production. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. 3. or the suppression of competition by the qualification of interest or management. but that power exists to raise prices or exclude competition when desired. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation." otherwise. Its dominant thought is the notion of exclusiveness or unity. shall combine. More important. or of any article in the manufacture of which such manufactured. conspire or agree in any manner with any person likewise engaged in the manufacture. by reason of the inherent nature of the contemplated acts. 33 Basically. or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country. would not detract from the validity and reasonableness of the by-laws here involved. he would absent himself from meetings at which confidential matters would be discussed. These laws are designed to preserve free and unfettered competition as the rule of trade.. 32 There is another important consideration in determining whether or not the amended bylaws are reasonable." 34 they operate to forestall concentration of economic power. "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. processed. 38Further. which prohibit monopolies and combinations in restraint of trade. produced. or to control prices to the detriment of the public. such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation.. As explained by Oleck: 31 "The law win not tolerate the passive attitude of directors . —The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos.. 186. or imported merchandise or object of commerce is used. 39 1. unified tactics with regard to prices. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. or it may be thru agreement and concert of action. No combinations in restraint of trade or unfair competition shall be snowed. in brief. the lowest prices and the highest quality .

Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations. if a director.bring about an illegal situation. CFC-Robina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment." Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. Thus. It is. Indeed. orders. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations . 40 It is enough that a concert of action is contemplated and that the defendants conformed to the arrangements. "Competition" implies a struggle for advantage between two or more forces. As respondent SMC aptly observes. by its terms. and thus eliminate competition. engaged in agriculture. a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make bylaws and who have expressed their authority. For instance. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices. is subject to certain well established limitations. Obviously. While We here sustain the validity of the amended by-laws. the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated. Certainly. in substantially similar if not Identical degree. thereby stifling competition. 44 Shared information on cost accounting may lead to price fixing. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to secure trade. S. and upon which reasonable minds must necessarily differ. support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. This situation has been aptly explained by Travers. wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. . to a certain extent. each possessing. then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. In the absence of any legal prohibition or overriding public policy. is to be faithful to both corporations. Said section provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of incorporations . Suppose X is a director of both Corporation A and Corporation B. capacity and inventories may lead to control of production for the purpose of controlling prices. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. before petitioner can be declared ineligible to run for director. This power. If the firms really do compete — in the sense of vying for economic advantage at the expense of the other — there can hardly be any reason for an interlock between competitors other than the suppression of competition. therefore. As trustees of the corporation and of the stockholders. not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or noncharacteristics activity. 46 The test must be whether the business does in fact compete. if such corporations are. A common director of two or more competing corporations would have access to confidential sales. The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers.) According to the Report of the House Judiciary Committee of the U. but is very nature. Besides. This is because an express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. "where the reasonableness of a by-law is a mere matter of judgment. 43 (Emphasis supplied. Identity of products and area of competition should be taken into consideration. there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. One of these is inherent in the very convert and definition of the terms "competition" and "competitor". it does not follow as a necessary consequence that petitioner is ipso facto disqualified. X could hardly vote for a policy by A that would injure B without violating his duty of loyalty to B at the same time he could hardly abstain from voting without depriving A of his best judgment. competitors so that the elimination of competition between them would constitute violation of any provision of the anti-trust laws. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. If the by-law were to be applied in the case of one stockholder but waived in the case of another. if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation. shared information on production. the by law. therefore. pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another. shipments.. therefore. 41 and what is to be considered is what the parties actually did and not the words they used. Finally. Congress on section 9 of the Clayton Act. necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. Consonant with the requirement of due process. applies to all stockholders. to the detriment of the small ones dependent upon them and to the injury of the public. to seek out ways of compromising opposing interests. However. by virtue of their business and location of operation. for example. knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. . certain characteristics essential to the business sought. some accommodation must result.. considering that both Robina and SMC are. obvious that not every person or entity engaged in business of the same kind is a competitor.. thus: The argument for prohibiting competing corporations from sharing even one director is that theinterlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations. 45 Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. 47 It is. then it could be reasonably claimed that the by-law was being applied in a discriminatory manner. Sound principles of public policy and management.. Such factors as quantum and place of business. there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification.

while others do not. 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the right to . 1975. or will result in waste. and not to gratify curiosity. it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. 61 mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. 1975. to all incontents and purposes. or is against public policy. 62 On the other hand. SMI did not declare cash or stock dividends. inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of "persons having an interest. for specific and honest purpose. the records of the parent even though subsidiary was not named as a party. 54 In Grey v. The weight of judicial opinion appears to be. all earnings having been used in line with a program for the setting up of breweries by SMI These averments are supported by the affidavit of the Corporate Secretary. Further. 58 It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds. the legal fiction of distinct corporate entities may be disregarded and the books. Some state courts recognize the right under certain conditions. 1975.. incorporated in Bermuda and wholly owned by SMC." 64 In the Nash case. it was averred that upon request. therefore. with deletions of sensitive data. the inspection has to be germane to the petitioner's interest as a stockholder. 60 and that a writ of mandamus. 53 In other words. It is. papers and documents of all the corporations may be required to be produced for examination. 63 Likewise. having started in 1948 with an initial outlay of ?500. "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director.000. allowances. which deletions were not objected to by petitioner. petitioner was informed in writing on September 18. any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. Thus. and is not legally subject to the control of the parent company. the estimated value of SMI would amount to almost P400 million (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US $ 9. (5) a listing of the salaries. that on application for mandamus to enforce the right. an incident of ownership of the corporate property. a beneficial ownership. petitioner had been furnished numerous documents and information. dissipation or misapplication of the corporation assets.00. 56 Thus. Inc. mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction. it is a settled principle that where the action of a Board of Directors is an abuse of discretion. 49 Indeed." to wit: (1) a complete list of stockholders and their stockholdings. 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. or for speculative or vexatious purposes. it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company. Andres Soriano. and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power. whether this ownership or interest be termed an equitable ownership. and to inspection to obtain such information. a court of equity has the power to grant appropriate relief. as the records of the subsidiary were. a fully owned subsidiary of San Miguel Corporation — Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that. (3) a copy of the minutes of the stockholders' meeting of March 18. member or stockholder of the corporation at reasonable hours. it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation. (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18.1976. Insular Lumber." 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. (2) that as of December 31." 57 But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC. In other words. bonuses and other compensation or remunerations received by the directors and corporate officers of SMC.4 million. or is a fraud upon minority stockholders or creditors. the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.it is the responsibility of directors to act with fairness to the stockholders. (4) a breakdown of SMC's P186. this was SMC's first venture abroad. or forbidden by statute. 52This right is predicated upon the necessity of self-protection. 51 Pursuant to the second paragraph of section 51 of the Corporation Law. 55 this Court held that "the right to examine the books of the corporation must be exercised in good faith. augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President. 50 III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc. over a specific period. enclosing photocopies of the afore-mentioned documents.6 million investment in associated companies and other companies as of December 31. or for specific and honest purpose. 1976. and not to gratify curiosity. or is ultra vires. although it owned a vast majority of the stock of the subsidiary. especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." 59 While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law.. and (4) that from 1972-1975. may be granted. It is generally held by majority of the courts that where the right is granted by statute to the stockholder. (1) that SMC's foreign investments are handled by San Miguel International. the late Col. and has to be proper and lawful in character and not inimical to the interest of the corporation. or a ownership.

does not need the approval of stockholders. then San Miguel Brewery. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders. the purchase of such shares or securities must be subject to the limitations established by the Corporations law. one of the issues was the legality of an investment made by Manao Sugar Central Co. in order to accomplish is purpose as stated in its articles of incorporation.. securities. — A private corporation.. bonds. and subject to the limitations imposed by the Corporation Law. The lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose. a company engaged in the manufacture of sugar bags. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 1967 Ed. instead of allowing ratification of the investment by the stockholders. respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation.. and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce of combination in restraint of trade. If the investment is made in pursuance of the corporate purpose. Guevara." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management. hold. supra." This Court affirmed the ruling of the court a quo on the matter and. Power to acquire or dispose of shares or securities. good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control. 258-259). petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner."" (Id. is entitled to copies of some documents which for some reason or another. thus violating section 17-1/2 of the Corporation Law. considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and. p. or for any purpose other than the main purpose for which it was organized.. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization.. purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery. 89) (Emphasis supplied.) 40. the vote of approval of the stockholders is necessary. Inc. provide that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a propose at a stockholders' meeting called for that purpose. without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power. . Inc. Manao Sugar Central Co.. which is to manufacture and market beer." In the Bailey case.) for the manufacture and marketing of San Miguel beer thereat.' and provided further. the ruling in De la Rama v. p. Power to invest corporate funds. Such an act.) (pp. Sulpicio S. said: "j. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation the approval of the stockholders is not necessary.inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York. under its control.. and other evidence of indebtedness of any domestic or foreign corporation. if done in pursuance of the corporate purpose. and generally take an account of the stewardship of the officers and directors. when SMC. namely. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least twothirds of the voting power. Guevara. in the Philippine Fiber Processing Co. to require authority of the stockholders would be to unduly curtail the power of the Board of Directors.. and alleges that respondent SEC should have investigated the charge. Under these circumstances. 69 As stated by respondent corporation. In said case. it would be more in accord with equity." The Philippine Corporation Law by Sulpicio S. the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation. Inc. 108) (Emphasis ours. quoting Prof. appears relevant. Ltd. In any case.. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. — A private corporation has the power to invest its corporate funds "in any other corporation or business. but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation. "as stockholder of respondent corporation. (a) that no agricultural or mining corporation shall be restricted to own not more than 15% of the voting stock of nay agricultural or mining corporation. determine the financial condition of the corporation. being a statutory offense. therefore. IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. has the power to acquire. 68 In the case at bar. pledge or dispose of shares. that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors. It appears that the original investment was made in 1947-1948. Inc. it does not need the approval of the stockholders. mortgage.

the primary purpose of . pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. PEREA and SECURITIES & EXCHANGE COMMISSION. to run and if elected to sit as director of respondent San Miguel Corporation being decided. as specified in the petition. judgment is hereby rendered as follows: The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International.: The subject of this petition for review is the Decision of the public respondent Court of Appeals. officers and managers. after a new and proper hearing by the Board of Directors of said corporation. are merely voidable and may become binding and enforceable when ratified by the stockholders. ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. is hereby DISMISSED. 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). may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. namely. setting aside the portion of the Decision of the Securities and Exchange Commission (SEC. Makasiar. concur.. 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. Aquino. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. petitioners. The stockholders for whose benefit the requirement was enacted may. 71 "or those which are not illegal and void ab initio. 1 dated October 28. insofar as it assails the validity of the amended by. for lack of necessary votes. (IDP. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. Carpizo Group. J. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation.. considering the common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors. Justices Barredo. vs. Unless disqualified in the manner herein provided. for short) and the Islamic Directorate of the Philippines. for short) in SEC Case No. Inc. Besides. "Mere ultra vires acts".. Concepcion. No. No costs. Inc. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6. but are not merely within the scope of the articles of incorporation. The afore-mentioned six (6) Justices. 1994. 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws. morals. six (6) Justices. Inc. therefore. Santos. Fernandez and Guerrero filed a separate opinion. there is no question that a corporation. namely.. as specified by him. Abad Santos and De Castro. whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. together with Justice Fernando. 117897 May 14.. JJ. took no part. The petition. The following facts appear of record. subject to the qualifications aforestated judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International. MANUEL F.R. Four (4) Justices. Makasiar. like an individual. It is a corporate transaction or contract which is within the corporate powers.. JR. voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei. Jr. Jr. Santos Abad Santos and De Castro. said this Court in Pirovano. the prohibition in the afore-mentioned amended by-laws shall not apply to petitioner. G. Antonio. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10. wherein they voted against the validity of the questioned amended bylaws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction.laws and the ratification of the foreign investment of respondent corporation. respondents.Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni Cristo (INC. voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. This requirement is for the benefit of the stockholders. Petitioner IDP-Tamano Group alleges that sometime in 1971. the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. but which is defective from a supported failure to observe in its execution the. public order or public policy. 70 This is true because the questioned investment is neither contrary to law. COURT OF APPEALS and IGLESIA NI CRISTO. In resume. and Melencio Herrera JJ. for short). WHEREFORE. HERMOSISIMA. 1997 ISLAMIC DIRECTORATE OF THE PHILIPPINES. Justices Teehankee.

that is. through false schemes and machinations. private respondent INC. the approved bylaws which they certified to this Commission as members of the Board of Trustees must necessarily be likewise declared null and void. Mrs. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. Firdaussi Abbas. Musib Buat. succeeded in executing the Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the subject of the case at bar. before any election of the members of the Board of Trustees could be conducted. led by Mrs. 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. 1986. 4 both registered in the name of IDP. authorizing the sale of the subject two parcels of land to the private respondent INC for a consideration of P22. pursuant to the Deed of Absolute Sale executed in its favor. RT-26521 and RT-26520 covering the aforementioned two parcels of land. came out with a Decision in SEC Case No. the Libyan government donated money to the IDP to purchase land at Culiat. The land. 1989. Ahmad Alonto. SO ORDERED. the members of the petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the Commission. Meanwhile. 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. With the nullification of the election of the respondents. Carpizo Group. Likewise. which sale was evidenced by a Deed of Absolute Sale 12 dated April 20. Tandang Sora.343. no valid election of the members of the Board of Trustees of IDP was ever called.. with an area of 49.which is to establish an Islamic Center in Quezon City for the construction of a "Mosque (prayer place). in 1972. Quezon City. on October 3. two Muslim groups sprung. 9 Neither group. the SEC found that. 4012. Salipada Pendatun. On May 30. took the necessary steps prescribed by the SEC in its October 3. on June 11. who. hence. aside from Engineer Farouk Carpizo and Atty. the main issue of which is whether or not the aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void. the SEC. Q-90-6937. judgment is hereby rendered declaring the elections of both the petitioners 7 and respondents 8 as null and void for being violative of the Articles of Incorporation of petitioner corporation. so that the sale in INC's favor may be registered and new titles issued in the name of INC. to be used as a Center for the Islamic populace. Thereafter. the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano. the Carpizo Group. without having been properly elected as new members of the Board of Trustee of IDP.400. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R. and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution. an election of the members of the Board of Trustees shall immediately be called pursuant to the approved by-laws. 04012. sought to intervene in Civil Case No. the Carpizo Group caused to be signed an alleged Board Resolution 11 of the IDP. Madrasah (Arabic School). thus rendering the adoption of the by-laws likewise null and void.T. Farouk Carpizo. 1991. there must be an approved by-laws to govern the internal government of the association including the conduct of election. or the Tamano Group. On April 20. To remedy this unfortunate situation that the association has found itself in. al.00. Intervenor's legal interest in the instant case. Once approved. The IDP-Tamano Group. 1989. after the purchase of the land by the Libyan government in the name of IDP. It appears that in 1971. the Board of Trustees of the IDP was composed of the following per Article 6 of its Articles of Incorporation: Senator Mamintal Tamano 5 Congressman Ali Dimaporo Congressman Salipada Pendatun Dean Cesar Adib Majul Sultan Harun Al-Rashid Lucman Delegate Ahmad Alonto Commissioner Datu Mama Sinsuat Mayor Aminkadra Abubakar 6 According to the petitioner. however. a vacuum is created as to who should adopt the by-laws and certify its adoption. et. Although the Carpizo Group 10 attempted to submit a set of by-laws. those who prepared and adopted the by-laws were not bona fide members of the IDP. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano. and. Leticia P. to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. . was covered by two titles: Transfer Certificate of Title Nos. However. Martial Law was declared by the late President Ferdinand Marcos. docketed as SEC Case No. A copy of the said case is hereto attached as Annex "A". inter alia: xxx xxx xxx 2. and other religious infrastructures" so as to facilitate the effective practice of Islamic faith in the area. Both groups claimed to be the legitimate IDP. before Branch 81 of the Regional Trial Court of Quezon City. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. Q-90-6937 averring.652 square meters. Zorayda Tamano and Atty. RT-26520 (176616) 3 and RT-26521 (170567). Significantly. 3. And since the election of both petitioners and respondents have been declared null and void. and the Abbas Group. in the same year. thus. headed by Engineer Farouk Carpizo. filed an action for Specific Performance with Damages against the vendor. 1986 Decision. in a suit between these two contending groups. INC filed a motion in the same case to compel one Mrs. docketed as Civil Case No. That the said case before the SEC is docketed as Case No. The dispositive portion of the SEC Decision reads: WHEREFORE. filed a petition before the SEC. 2 Towards this end. Ligon to produce and surrender to the Register of Deeds of Quezon City the owner's duplicate copy of TCT Nos. 1991.

SP-27973. 1991. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the Philippines. the court a quo promulgated a Decision in CA-G. SO ORDERED. 18 On April 6. the IDP-Tamano Group brought the instant petition for review. on September 12.R. from 1986 to 1991 as null and void. rendered Partial Judgment in Civil Case No. on July 5. 14 Judge Celia Lipana-Reyes of Branch 81. 21 as 2. Leticia P." promulgated on June 1. 24 Private respondent INC filed a Motion for Intervention. 1992. Judge Reyes in another Order. SP No. Declaring the acceptance of the respondents. 107751 on the petition filed by Mrs." 19 Mortgagee Ligon went to the Court of Appeals.R. the requisites orres judicata do not obtain in the case at bench. Q-90-6937. 20 Undaunted. xxx xxx xxx 13 Private respondent INC opposed the motion arguing. 1995. 1994. no appeal having been taken therefrom. Before we rule upon the main issue posited in this petition. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of March 2. and hence. No. submitting that the Court of Appeals gravely erred in: 1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said case. 4012. and 3) Not applying the principles of estoppel and laches. pertaining also to Civil Case No. The portion of the SEC Decision in SEC Case No. 2) Encouraging multiplicity of suits. Ligon. That.R. Inc. furthermore. the SEC. we would like to point out that our disposition in G. dated September 7. thru a petition for certiorari. 26 While the above petition was pending. 1994. On October 28. Leticia P. 1993. No. dated June 1. dated December 21. 22 null and void. Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC. 33295. . 1992. SO ORDERED. Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic Directorate of the Philippines.R SP No. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INC's favor may be properly registered. "Ligon v. No. docketed as CA-G. No pronouncement as to cost. 23 of the corporation 4.4. SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owner's duplicate copies of TCT Nos. Regional Trial Court of Quezon City.R. 33295 granting INC's petition. that the issue sought to be litigated by way of intervention is an intra-corporate dispute which falls under the jurisdiction of the SEC. Ligon is hereby ordered to produce and/or surrender to plaintiff 17 the owner's copy of RT-26521 (170567) and RT26520 (176616) in open court for the registration of the Deed of Absolute Sale in the latter's name and the annotation of the mortgage executed in her favor by herein defendant Islamic Directorate of the Philippines on the new transfer certificate of title to be issued to plaintiff. denied the Ligon petition and affirmed the October 28. In the meantime. 25 INC elevated SEC Case No. Ligon filed a petition for review before the Supreme Court which was docketed as G. null and void. 15 Apprised of the pendency of SEC Case No. 107751. Court of Appeals. in SEC Case No. 1995.R No. Declaring the by-laws submitted by the respondents unauthorized. the above Order was amended by Judge Reyes directing Ligon "to deliver the owner's duplicate copies of TCT Nos. 16 Thereupon.R. jurisdiction thereto properly pertaining to the SEC. inter alia. assailing the foregoing Orders of Judge Reyes. The appellate court dismissed her petition on October 28. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals. in no wise constitutes res judicatasuch that the petition under consideration would be barred if it were the ease. 1992 Decision of the Court of Appeals in CA-G. 1992. Thus. docketed as CA-G. but the same was denied on account of the fact that the decision of the case had become final and executory. except Farouk Carpizo and Musnib Buat. as members of the IDP null and void. 4012 in this wise: 1. No. Quite the contrary. Judge Reyes. 1992. 107751 entitled. Declaring the election of the Board of Directors. 1993. dated March 2. denied petitioner's motion to intervene on the ground of lack of juridical personality of the IDPTamano Group and that the issues being raised by way of intervention are intra-corporate in nature. treated INC as the rightful owner of the real properties and disposed as follows: WHEREFORE. 4012 to the public respondent Court of Appeals by way of a special civil action forcertiorari. however. finally came out with a Decision in SEC Case No. The Decision. the Supreme Court rendered judgment in G. 3.

where the IDP-Tamano Group became a principal party. and the second case where such judgment is invoked. In any case.R.R. the IDP-Tamano Group cannot be considered a principal party in G. Q-90-6937. there is only identity of parties but there is no identity of cause of action." There is "bar by former judgment" when. was only made an ancillary party in G. which gave rise to G. accessory.R. As a necessary consequence. as private respondent.R. actually. between the first case where the judgment was rendered. Clearly.Section 49. there is identity of parties. Q-90-6937." 31 the IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly represented by a legitimate Board of Trustees in that case. 4012 which declared the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and private respondent INC null and void? We rule in the affirmative. a mere action in personam. for want of legitimate representation. and not as to matters merely involved therein. No." whereas. 32 Elsewise put. When the three identities are present. While there may be identity of subject matter (IDP property) in both cases. 107751 as intervenor. 902-A: Sec. only as to those matters actually and directly controverted and determined. the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action.R. as petitioner. 107751 is the surrender of the owner's duplicate copy of the transfer certificates of title to the rightful possessor thereof.R. Ligon. did not become final and executory insofar as the true IDP is concerned since petitioner corporation. 107751 were mortgagee Leticia P. Matters adjudged in a cause do not prejudice those who were not parties to it. Defendant. whereas the cause of action in the present case is the validity of the Carpizo Group-INC Deed of Absolute Sale. No. was effectively deprived of its day in court in said case. The cause of action in G. or ancillary to the principal action. No. to wit: Effect of judgment. Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that any mention at all in Ligon as to the validity of the disputed Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC has the better right of possession over the owner's duplicate copy of the TCTs covering the IDP property? G. thru a legitimate Board of Trustees. there is no identity of parties. No. Plaintiff v. It must be noted that intervention is not an independent action. or which was actually and necessarily included therein or necessary thereto. as private respondent. Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment. with the Iglesia Ni Cristo. 107751. conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding. The principal parties in G. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked. Civil Case No. may be as follows: xxx xxx xxx (b) In other cases the judgment or order is. while it is true that the principle of res judicata is a fundamental component of our judicial system. who are the . 107751 for purposes of applying the principle of res judicata since the contrary goes against the true import of the action of intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere subordinate party in the main case whose right may be said to be only in aid of the right of the original party. It is just an interlocutory proceeding dependent on or subsidiary to the case between the original parties. 3. There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of Presidential Decree No. that IDP may be considered a principal party in Ligon. there is no identity of parties in both cases. Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam. res judicata as a "bar by former judgment" will still not set in on the ground that the cause of action in the two cases are different. a case for Specific Performance with Damages. it should be disregarded if its rigid application would involve the sacrifice of justice to technicality. The Commission shall have absolute jurisdiction. as petitioner. but is merely collateral. although it is true that Civil Case No. 29 Indeed. was entitled. No. Section 49(c) is referred to as "conclusiveness of judgment. No. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not the principal thrust of Ligon. as represented by the 1971 Board of Trustees or the Tamano Group. no person (natural or juridical) shall be affected by a proceeding to which he is a stranger. subject matter and cause of action. — The effect of a judgment or final order rendered by a court or judge of the Philippines. supervision and control over all corporations. 30 It is only in the present case. (c) In any other litigation between the same parties or their successors in interest. having jurisdiction to pronounce the judgment or order. litigating for the same thing and under the same title and in the same capacity. with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto. The IDP. that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged. In this connection. 28 It was never originally a principal party thereto. Islamic Directorate of the Philippines. Res inter alios judicatae nullum allis praejudicium faciunt. partnership or associations. 34 The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SEC's Decision in SEC Case No. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the sale. "Iglesia Ni Kristo. This is what is termed "conclusiveness of judgment. the judgment is conclusive in the second case." 27 Neither of these concepts of res judicata find relevant application in the case at bench. 33 Granting arguendo. and the Iglesia Ni Cristo.

. xxx xxx xxx Sec. This is. partnerships or associations. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. and where it is wanting. bonds or other instruments for the payment of money or other property or consideration. in a stockholders' or members' meeting duly called for the purpose. from all indications. mortgage. sell. have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees.. it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx c) Controversies in the selection or appointment of directors. 38 In this case. For the sale to be valid. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. Sale or other disposition of assets. the majority vote of the legitimate Board of Trustees. 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. 2687. This is precisely what the SEC did in SEC Case No. but one where consent on the part of one of the supposed contracting parties is totally wanting. or managers of such corporations. If the SEC can declare who is the legitimate IDP Board. the contract is void. the SEC. xxx xxx xxx The Tandang Sora property. it appears from the records. 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: Sec. or served personally: Provided. the IDP. when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. where even one is absent. not bona fide members of the IDP as they were made to appear to be. . to the disputed Deed of Absolute Sale executed in favor of INC.grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines . owner of the subject parcels of land. Hence. 37 Nothing thus becomes more settled than that the IDP-Carpizo Group with whom private respondent INC contracted is a fake Board. including its goodwill. 4012 when it adjudged the election of the Carpizo Group to the IDP Board of Trustees to be null and void. a case not only of vitiated consent.. by a majority vote of its board of directors or trustees. 36 in a suit between the Carpizo Group and the Abbas Group. 40. by the vote of at least two-thirds (2/3) of the members. (2) Object certain which is the subject matter of the contract. For. there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. allegedly in the name of the IDP. 35 By this ruling. it can also declare who is not the legitimate IDP Board. As far back as October 3. Ineluctably. 39 .. 5. As succinctly put by Tolentino. all acts carried out by the Carpizo Board. 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. upon terms and conditions and for such consideration. exchange. 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. the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the Carpizo Group. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. particularly the sale of the Tandang Sora property. Article 1318 of the New Civil Code lays down the essential requisites of contracts: There is no contract unless the following requisites concur: (1) Consent of the contracting parties. . therefore. never gave its consent. in Case No. Premises considered. officers. It must be noted that SEC Case No. (3) Cause of the obligation which is established. — Subject to the provisions of existing laws on illegal combinations and monopolies. consent is essential for the existence of a contract. trustees. the subject sale is void and produces no effect whatsoever. the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or disposition of ID property. pledge or otherwise dispose of all or substantially all of its property and assets. . Consequently. constitutes the only property of the IDP. then by parity of reasoning. Apparently. the contract is non-existent. or in case of non-stock corporation. All these elements must be present to constitute a valid contract. as its board of directors or trustees may deem expedient. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees. a corporation may. which may be money. lease. 1986. concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. stocks. That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. thru a legitimate Board of Trustees.

quibbling over the issue that it is the regional trial court. inter alia. The Decision of the public respondent Court of Appeals dated October 28. and issue new ones in the name of petitioner Islamic Directorate of the Philippines. No. The Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the name of respondent Iglesia Ni Cristo. if one has already been made. Petitioner corporation is ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest. a case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. the Court observes that the INC bought the questioned property from the Carpizo Group without even seeing the owner's duplicate copy of the titles covering the property. SP No. wanting to acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the civil suit. Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction. 4012 is REINSTATED. and that under the Torrens System of Registration. 33295 is SET ASIDE. the petition is GRANTED. the Register of Deeds is hereby ordered to cancel the same. The legitimate IDP Board could have been granted ample opportunity before the regional trial court to shed light on the true status of the Carpizo Board and settled the matter as to the validity of the sale then and there. would result in a failure of justice. It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case. . When the Decision in SEC Case No. 4012 came out nullifying the sale. This is very strange considering that the subject lot is a large piece of real property in Quezon City worth millions. argued for the denial of the motion averring. The unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being presented with the owner's copy of the titles casts very serious doubt on the rightfulness of its position as vendee in the transaction. The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP. Q-90-6937. if countenanced. that the issue sought to be litigated by the movant is intra-corporate in nature and outside the jurisdiction of the regional trial court. INC came forward. 41 The private respondent. the motion for intervention was denied. 1994 in CA-G.All told. No end of substantial justice will be served if we reverse the SEC's conclusion on the matter. which has jurisdiction to rule on the validity of the sale. 40 As a result. But INC. 1993 in SEC Case No. Furthermore. If new titles have been issued in the name of Iglesia Ni Cristo. SO ORDERED. did not take heed of this and nevertheless went through with the sale with undue haste. owner of the subject property. the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio. INC is here trifling with the courts. INC may run after Engineer Farouk Carpizo and his group for the amount of money paid. and not the SEC. the same not being an intra-corporate dispute. The Decision of the Securities and Exchange Commission dated July 5. presumably knowledgeable on the aforesaid workings of the Torrens System. and remand the case to the regular courts for further litigation over an issue which is already determinable based on what we have in the records.R. the minimum requirement for one to be a good faith buyer for value is that the vendee at least sees the owner's duplicate copy of the title and relies upon the same. this time. Otherwise. We cannot put a premium on this clever legal maneuverings of private respondent which. if the same was actually received by IDP. WHEREFORE.

Treasurer. Ramirez described his function in such transactions as that of a commission agent and stated that he would see to the prompt shipment of the films. as an individual. Jose Ramirez. certain of the directors of the Orientalist Company. 1913. stating detail the terms upon which the plaintiff would undertake to supply from Paris the aforesaid films. J. became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks of films. J. according to the tenor of the . buy. Sanz. placed in the hands of Ramon J. In this enterprise the plaintiff was represented in the city of Manila by his son. Jose Ramirez. and as only about for the Orientalist Company to act on the matter speedily. as agent of the plaintiff. one of the directors of the Orientalist Company and also its treasure. in the capacity of treasurer: THE ORIENTALIST COMPANY. Fernandez to Jose Ramirez is in the following terms: We willingly accepted the officer under the terms communicated by your father in his letter dated at Paris on July 4th of the present year. STREET. Near the end of July of the year aforesaid. J. R. No. the time of the occurrences which gave rise to this lawsuit. 11897 September 24. In the month of July. vs. there engaged in the production or distribution of cinematographic material. in which it will be noted the separate signature of R. A few days later.. Jose Moreno Lacalle for appellant Fernandez. J. transportation and other incidentals were to be at the cost of the purchaser. F. G. in Manila." and negotiations were begun with said officials of the Orientalist Company by Jose Ramirez. if it desired to take advantage of said offer. Fernandez. Ramon J. the "Eclair Films" and the "Milano Films. was chiefly active in this matter. J. Fernandez. Opisso & Luzuriaga for appellant "The Orientalist Co. and in 1913 and 1914. was engaged in the business of maintaining and conducting a theatre in the city of Manila for the exhibition of cinematographic films. and take care that the films were insured — his commission for such services being fixed at 5 per cent. There was added a clause in which J. to the effect that the securing of the said films was necessary to the success of the corporation. plaintiff-appellee. being moved by the suggestions and representations of Vicente Ocampo. at the same time. Both of these letters also contained a request that Jose Ramirez should at once telegraph to his father in Paris that his offer had been accepted by the Orientalist Company and instruct him to make a contract with the film companies. Under the articles of incorporation the company is authorized to manufacture. F." No appearance for appellee. These communications were signed in the following form. for the purpose of placing the exclusive agency of these films in the The memorandum offer contained a statement of the price at which the films would be sold. FERNANDEZ. 1913. in Manila.: The Orientalist Company is a corporation. Fernandez an offer. would pay the manufacturer. manage of the Oriental Theater. RAMIREZ. What we consider to be the most portion of the two letters of acceptance written by R. the quantity which the representative of each was required to take and information concerning the manner and intervals of time for the respective shipments. duly organized under the laws of the Philippine Islands. and was engaged in the business of marketing films for a manufacturer or manufacturers. The expenses of packing. namely. defendants-appellants. likewise accepting the office of the exclusive agency for the Milano Films. and RAMON J. Fernandez. accepting the offer contained in the memorandum of July 4th for the exclusive agency of the Eclair films. Fernandez.R. Ramirez was. on July 30. The defendant Ramon J. 1918 J. had an informal conference with all the members of the company's board of directors except one. addressed a letter to Jose Ramirez. a resident of the city of Paris. dated July 4.hands of the Orientalist Company. FERNANDEZ. he addressed another letter couched in the same terms. on August 5. as representative of his father. J. The plaintiff J. F. By R. is placed somewhat below and to the left of the signature of the Orientalist Company as singed by R. and with approval of those with whom he had communicated. FERNANDEZ. Accordingly. France. This officer was declared to be good until the end of July. or otherwise obtain all accessories necessary for conducting such a business. THE ORIENTALIST CO.

it will be necessary to modify the judgment in order to adjust the rights of the defendants in accordance with such finding. in order to save time. and the Orientalist Company. (6 Phil. Thereupon this action was instituted by the plaintiff on May 19. were accepted in the name of the Orientalist Company by its president B. the bank had . with the result that the only contracting parties in this case are J. No sworn answer denying the genuineness and due execution of the contracts in question or questioning the authority of Ramon J. In the discussion which is to follow we shall consider. with interest from May 19. and. and it was finally necessary for the plaintiff himself to take them up as dishonored by non-payment. against the Orientalist Company. In due time the films began to arrive in Manila. In the case of Merchant vs. the question of the liability of the corporation upon the contracts contained in the letters of July 30 and August 5. and it is these shipments which have given occasion for the present action. appointed a receiver who took charge of the films and sold them. Hernandez when they fell due. Hernandez individually. Hernandez. upon the Orientalist Company. From this judgment both of the parties defendant appealed. supposing that the company desired to contest this point. 1913. Fernandez. though it is true Hernandez rented the films to the Orientalist Company and they were exhibited by it in the Oriental Theater under an arrangement which was made between him and the theater's manager. Said section. 314). It was held that buy failing to deny the contract under oath. It therefore becomes necessary for us to consider whether the administration resulting from the failure of the defendant company to deny the execution of the contracts under oath is binding upon it for all purposes of this lawsuit. and all were accepted in the name of B.93. tending to show that Ramon J. and it seemed convenient. in connection with the plaintiff's offer of July 4. At trial judgment was given for the balance due to the plaintiff. unless specifically denied under oath in the answer. As to the liability of the corporation a preliminary point of importance arises upon the pleadings. the court. Fernandez had no such authority. 1913. as already stated. During the period between February 27. F. 1913. As the drafts had thus been paid by B. Fernandez would be academic. Fernandez was declared to be liable subsidiarily as guarantor. a draft for the cost and expenses incident to each shipment being attached to the proper bill of lading. first. based upon his personal signature to the same documents. except the last. In this Court neither of the parties appellant make any question with respect to the right of the plaintiff to recover from somebody the amount awarded by the lower court. The amount realized from this sale was applied to the satisfaction of the plaintiff's claim and was accordingly delivered to him in part payment thereof. Hernandez individually. Hernandez. Ramirez himself procured the films upon his own responsibility. and Ramon J. J. Ramirez with full authority as its attorney-in-fact. As the films which accompanied the dishonored were liable to deteriorate. but each of the defendants insists the other is liable for the whole. It is stated in the brief of the appellant Ramon J. if it desired to question the authority of Fernandez to bind it. Hernandez in the name of the Orientalist Company. and although these drafts. Ramirez of the one part. in the part pertinent to the situation now under consideration. as on former occasions. This evidence consisted of extracts from the minutes of the proceedings of the company's board of directors and also of extracts from the minutes of the proceedings of the company's stockholders. the genuineness and due execution of the instrument shall be deemed admitted. None of the drafts thus accepted were taken up by the drawee or by B. the date of the institution of the action. have been introduced in evidence. upon application of the plaintiff. Fernandez. The action. It results that the real contention upon this appeal is between the two defendants. and were taken up by the latter with his own funds. F. and both of the letters mentioned are copied into the complaint as the foundation of the action. This idea was never given effect. Rep. It will be noted that the action is primarily founded upon the liability created by the letters dated July 30th and August 5. The proper solution of this problem makes it necessary to consider carefully the principle underlying the provision above quoted. namely P6. In the judgment of the trial court the Orientalist Company was declared to be a principal debtor and Ramon J. secondly the question of the liability of Ramon J. Fernandez and the statement is not challenged by the Orientalist Company that the judgment has already been executed as against the company is exclusively and primarily liable the entire indebtedness. the question as to the liability of Ramon J. and they in fact never came into the actual possession of the Orientalist Company as owner at all. to deny the due execution of said contracts under oath. That the situation was one in which an answer under oath denying the authority of the agent should have been interposed. International Banking Corporation. 1914. and April 30. reads as follows: When an action is brought upon a written instrument and the complaint contains or has annexed or has annexed a copy of such instrument. Fernandez to bind the Orientalist Company was filed in this case.offer. and in the capacity of attorney-in-fact for the Orientalist Company.. 1914. 1914. that the Orientalist Company should clothed J. It appears that the Orientalist Company was without funds to meet these obligations and the first few drafts were dealt with in the following manner: The drafts. or whether such failure should be considered a mere irregularity of procedure which was waived when the evidence referred to was admitted without objection from the plaintiff. It was therefore incumbent upon the corporation. Fernandez of the other. and copies of the documents are set out in the complaint. is not open to question. the films which had been procured by he payment of said drafts were treated by him as his own property. and apparently without opposition on the part of the defendants. The idea behind the latter suggestion apparently was that the contract for the films would have to be made directly between the film-producing companies and the Orientalist Company. But if the latter is liable as principal obligor for the whole or any part of the debt. is based upon documents purporting to be signed by the Orientalist Company. as he indicated in the officer of July 4 that he would do. All of the drafts accompanying these films were drawn. there arrived in the city of Manila several remittances of films from Paris. showing that the making of this contract had been under consideration in both bodies and that the authority to make the same had been withheld by the stockholders. F. which was accepted by B. it appeared that one Brown has signed the name of the defendant bank as guarantor of a promissory note. which was accepted by B. The bank was sued upon this guaranty and at the hearing attempted to prove that Brown had no authority to bind the bank by such contract. upon presented through the bank. with Ramon J. Hernandez. The action is not based upon the dishonored drafts which were accepted by B.018. as well as the last draft. 1914. and so far as the record shows. as prescribed in section 103 of the Code of Civil procedure. but evidence was admitted without objection from the plaintiff. this was evidently done for the purpose of proving the amount of damages which the plaintiff was entitled to recover.

Y. and upon which they are sued. (Secs. (Smith vs. or had acquiesced in a contract and retained the benefit supposed to have been conferred by it. Upon this we observe that the statute manifestly refers to the legal effect of the signature.. an action was brought upon a promissory note purporting to have been given by on A. as will be seen by reference to the following.. if the principal would deny the authority of the agent. although the signature must be denied under oath. This question arises from the circumstance that the answer of the corporation does not in any was challenge the authority of Ramon J.. and that this admission extended not only to the authenticity of the signature of Brown but also to his authority. Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very few. though it appears to have been taken immediately from the statutes of that State.. be readily appreciated. was not authorized to make it. not having notice of want of authority. upon which he is sued. (Opus citat. any person. the corporation will be bound. it was said: Though the power of the officers of a business corporation to issue negotiable paper in its name is not presumed." It should be noted that the provision contained in section 103 of our Code of Civil Procedure is embodied in some form or other in the statutes of probably all of the American States. 254. (Songco vs. If the name of the obligor. we think. may usually rely upon those appearances.. among other authorities: The case of Barrett Mining Co. Therefore. the authority of the agent need not be. and when the name is signed by one thereunto authorized. Said Justice Willard: "The failure of the defendant to deny the genuineness and due execution of this guaranty under oath was an admission not only of the signature of Brown. the effect is the same as if his name should be signed with his own hand. If the person who signed this note for the company. in a bond. Consumers' Coal Co. But is should not here escape observation that section 103 also requires — in denial contemplated in that section shall be specific. as a special defense. any such lack of authority in him. Said the court: "Under the Judiciary Act of 1799. California Code of Civil Procedure. Quit facit per aliam facit per se. and under such circumstances we do not doubt that the obligor must deny his signature under oath. as the validity of the signature is thereby directly attacked. even though the answer is under oath. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. 7631. had in the particular instance exceeded that authority. The rule thus stated is in entire accord with the doctrine prevailing in the United States. sec. If a man is found acting for a corporation with the external indicia of authority. it is as much as the signature of the principal as if written with his own hand.. as the treasurer of the defendant company. (Thompson on Corporations.. 37 Phil. 107). 1st ed. the plea in this case should have been verified.) In Simon vs. Reid (26 Ga. it must plead non est factum. in order to put the obligee to proof of the fact. vs. In Union Dry Company vs. Sellner. Upon well-established principles of pleading lack of authority in an officer of a corporation to bind it by a contract executed by him in its name is a defense which should be specially pleaded — and this quite apart from the requirement. requiring the defendant to deny on oath an instrument of writing.. Fernandez to bind it by the contracts in question and does not set forth. sec. 447. The rule has been applied where the question was whether corporate officer. This principle applies equally where the defendant intends to challenge the power of its officer or agent to execute in its behalf the contract upon which the action brought and where it intends to defend on the ground of total want of power in the corporation to make such a contract. rather than the manual act of singing. and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation. 6 Cal. the denial must be under oath. is subscribed by one in his presence. 1. and the onus is then on the plaintiff to overcome the plea. notwithstanding the actual authority may never have been granted. 216). The name of the company had been affixed to the obligation by an agent.) There is really a broader question here involved than that which relates merely to the formality of verifying the answer with an affidavit. contained in section 103. Calfee (80 Ark. 114 N. that the answer setting up such defense should be verified by oath. and no sufficient affidavit was filed by the corporation questioning its signature or the authority of the agent to bind the company. 65). 124) was an action against a mining corporation upon an appeal bond.admitted the genuineness and due execution thereof. but also his authority to make the contract in behalf of the defendant and of the power the contract in behalf of the defendant and of the power of the defendant to enter into such a contract. and by his direction. Rep. The public is not supposed nor required to know the transactions which happen around the table where the corporate board of directors or the stockholders are from time to time convoked. unless it pleads that defense. and it has been held that where the answer in a suit against a corporation on its note relies simply on the want of power of the corporation to issue notes.. such corporation can not avail itself of a want of power in its officers to bind it unless the defense was made on such ground. Tappan (2 Colo. and it is not by any means peculiar to the laws of California.) Again. the defendant can not afterwards object that the plaintiff has not shown that the officer executing the note were empowered to do so. 7619. having admitted power to make a contract. let them say so upon oath. 448. says the same author: A corporation can not avail itself of the defense that it had no power to enter into the obligation to enforce which the suit is brought. (Merill vs. 6. An attack on the instrument in general terms is insufficient. Eureka Flour Mills Co. if it desires to set up the defense that the contract was executed by one not authorized as its agent.) The reason for the rule enunciated in the foregoing authorities will.. and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate . It was held that the plaintiff did not have to prove the due execution of the bond and that the corporation as to be taken as admitting the authority of the agent to make the signature. B. vol. Among other things the court said: "But it is said that the authority of Barrett to execute the bond is distinguishable from the signing and.) In the first edition of a well-known treatise on the laws of corporations we find the following proposition: If an action is brought against a corporation upon a contract alleged to be its contract.

imbecility. whether objection is interposed by the opposite party or not. The parties to an action are required to submit their respective contentions to the court in their complaint and answer. This rule of course operates with like effect upon both parties. but this has reference rather to the formality of reducing to proper form the contract which are authorized by the board and is not intended to confer an independent power to make contract binding on the corporation. We can see no reason why a constructive admission. That we may not appear to have overlooked the matter. by other means than by a formal expression of its will. 103) plainly says that if a written instrument.. Copp. Fernandez. It was held that. Like the defenses of fraud. it was proper for the court to consider it. have the effect of elimination the question of his authority from the case. and that this consent of the president and directors.officers. the court quoted with approval the following language form one of its prior decisions: The authority of the subordinate agent of a corporation often depends upon the course of dealings which the company or its director have sanctioned. If there appeared that the secretary of the defendant corporation had signed an obligation on its behalf binding it as guarantor of the performance of an important contract upon which the name of another corporation appeared as principal. Columbia Rice Packing Co. it was a matter which could be proved under the general issue and did not have to be set up in a sworn reply. be given of the case of Clark vs. In the earlier of these cases. (124 La. and of the acquiescence of the board charged with the duty of supervising and controlling the company's business. to state such defense in its answer. and applies equality to the defendants special defense as to the plaintiffs cause of action.. and all corporate business conducted by the board of directors. should be considered to have less effect than any other admission.. considered as a matter of mere pleading. vs. in a case where an officer of a corporation has made a contract in its name. 432. The defendant company set up by way of defense that is secretary had no authority to bind it by such an engagement. It is declared in section 28 of the Corporation Law that corporate power shall be exercised. and in its answer inserted a copy of the release. he was incompetent by reason of drunkenness to bind himself thereby. vs. and if we believed that the interests of justice so required. The execution of the release was not denied under oath. The court found that the guaranty was given with the knowledge and consent of the president and directors. so far as the authority of the secretary was concerned. by proof of the usage which the company had permitted to grow up in business. With respect to both decisions which we merely observe that upon point of procedure which they are supposed to maintain. Crowley. we think. like an individual. Of course this Court. 433. and all proof submitted by him contrary thereto or inconsistent therewith should simply be ignored by the court. the reasoning of the court is in our opinion unconvincing. the circumstance that it was not denied under oath is immaterial. so long as the pleadings remain that form. upon the issues presented in the record as it now stands. As will appear further on in this opinion. In this connection the case of Robert Gair Co. (Cf. it shall be deemed to be admitted. Moore vs. the failure of the defendant to make such denial must be taken to operate as a conclusive admission. and he is given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved. as treasurer. created by the express words of the statute. if it denies his authority. The same section. alleged to have been killed by the negligence of the defendant. The defendant company pleaded by way of defense a release purporting to be signed by the plaintiff. and this principle is recognized in the by-laws of the corporation in question which contain a provision declaring that the power to make contracts shall be vested in the board of directors. 429. 194) is instructive. due to his drunken condition. We do not question the propriety of that decision. under section 109 of the Code of Civil Procedure. It was held that inasmuch as this evidence had been submitted by the plaintiff without objection. Railroad Co. however. recognizes the necessity for an amendment of the pleadings. was a matter which did not involve either the genuineness or due execution of the release. The statute (sec. These documents supply the materials which the court must use in order to discover the points of contention between the parties. We shall now consider the liability of the defendant company on the merits just as if that liability had been properly put in issue by a specific answer under oath denying the authority of Fernandez go to bind it. 628). the foundation of the suit. Upon this question it must at the outset be premised that Ramon J. It is true that it is declared in section 109 of the Code of Civil Procedure that immaterial variances between the allegations of a pleading and the proof shall be disregarded and the facts shall be found according to the evidence. Child in which the rule declared in the earlier case was followed. but we believe that the decision would have been more soundly planted if it had been said that the incapacity of the plaintiff. without more ado. It is therefore reasonable. but at the trial evidence was submitted on behalf of the plaintiff tending to show that at the time he signed the release. By this means the plaintiff is apprised of the fact that the agent's authority is contested. an action was brought against a railroad company to recover damages for the death of the plaintiff's minor son. we would either exercise that authority or remand the cause for a new trial in court below. and relief can not be granted that is substantially inconsistent with either. The fact that the power to make corporate contract is thus vested in the board of directors does not signify that a formal vote of the board must always be taken before contractual liability can be fixed upon a corporation. It is familiar doctrine that an admission made in a pleading can not be controverted by the party making such admission. we will observe that two cases are cited from California in which the Supreme Court of the State has held that where a release is pleaded by way of defense and evidence tending to destroy its effect is introduced without objection. and where the statute says that the due execution of a document which supplies the foundation of an action is to be taken as admitted unless denied under oath. In discussing this point. And judgment must be in conformity with the case made in conformity with the case made in the pleadings and established by the proof. 119 Cal. . especially as the issue had been passed upon by a jury. coercion. to sign contract. (60 Cal.) A somewhat similar explanation can. is not denied upon oath. A party can no more succeed upon a case proved but not alleged than upon a case alleged but nor proved. the contract was binding. and it shall be his duty. for the board can create liability. that the corporation should be required. It is true that it is also declared in the same by-laws that the president shall have the power. however. and that this consent was given with as much observance of formality as was customary in the transaction of the business of the company. We are of the opinion that the failure of the defendant corporation to make any issue in its answer with regard to the authority of Ramon J. has authority even now to permit the answer of the defendant to be amended. Fernandez to bind it. It may be established sometimes without reference to official record of the proceedings of the board. and particularly its failure to deny specifically under oath the genuineness and due execution of the contracts sued upon. we think that the interests of justice will best be promoted by deciding the case. and mistake. had no independent authority to bind the company by signing its name to the letters in question. It is declared by signing its name to the letters in question.

At this meeting. to obtain a credit of P10. after Fernandez had departed from the Philippine Islands. The stockholders meeting was convoked upon September 18. Papa met for the purpose of considering the acceptance of the offer together with the responsibilities attached thereto. The minutes add that terms of this offer were approved. but at the suggestion of Fernandez it was decided to call a special meeting of the stockholders to consider the matter and definite action was postponed. Fernandez was the particular officer and member of the board of directors who was most active in the effort to secure the films for the corporation. (7) To buy a book and cards for indexing the names of the films. . that on July 30. but the bank declined to grant his credit. that the four gentlemen above mentioned (Hernandez. namely: (1) To rent a box for the films in the "Kneeler Building. Ignoring now. made to the corporation by the film manufacturers ofEclair and Milano of Paris and Italy respectively. The following extracts from the minutes of this meeting are here pertinent: Mr. At the time this meeting was held three shipment of the films had already been received in Manila. if we could enter into a contract with about nine cinematographs. the stockholders adopted a resolution to the effect that the agencies of the Eclair and Milano films should be accepted. as the letter accepting the offer had been sent with their knowledge and consent. inasmuch as the corporation is lacking available funds for the purpose. Fernandez was the person to who keeping was confided the printed stationery bearing the official style of the corporation. As appears from the papers in this record. said payment to be made in shares of the company in accordance with the suggestion made at the previous meeting. inasmuch as we think for reasons presently to be stated. It is not however. Ocampo. A resolution was thereupon passed to the effect that the company should pay to Hernandez. the transactions of the stockholders. was foreseen. and especially from the first paragraph above quoted. Fernandez informed the board of the offer which had been received from the plaintiff with reference to the importation of films. and Dr. and that the corporation could very well meet the expenditure involved and net a certain profit." (4) To be in charge of the films and of the renting of the same. in the case now before us. big gains would be obtained through such a step. Acuña to enter into agreements with cinematograph proprietors in the provinces for the purpose of renting films from us. The negotiations were conducted by him with the knowledge and consent of other members of the board. Fernandez. upon which occasion Fernandez informed those present of the offer in question and of the terms upon which the films could be procured. including the president. on behalf of the corporation.000 from the Bank of the Philippine Islands for the purpose indicated. R. Certainly four members of the board of directors there present were aware of this fact. said board adopted a resolution conferring the following among other powers on Vicente Ocampo. if the corporation could obtain the money with which to meet the expenditure involved. Thereafter another special meeting of the shareholders of the defendant corporation was called at which the failure of their committee to obtain a credit from the bank was made known. In view of this circumstance. the manager of the Oriental theater. and also because there are 88 shares of stock remaining still unsold. who had already signified their consent to the making of the contract. (6) Not to deliver any film for rent without first receiving the rental therefor or the guaranty for the payment thereof. Fernandez. Hernandez. (10) Upon the motion of Mr. necessary to found the judgment on this interpretation of the stockholders proceedings. The evidence shows that an attempt was made. as appears from the minutes. The possibility that the corporation might not see fit to authorize the contract. and we will here assume that in the end the contract were not approved by the stockholders. Monroy. Leon Monroy. and reverting to the proceedings of the board of directors of the Orientalist Company. Monroy. We believe it is a fair inference from the recitals of the minutes of the stockholders meeting of September 18. Fernandez at the request of the latter. If such was the intention of the stockholders their action amounted to a virtual. There were present the four members. it was decided to give ample powers to the Hon. a certain doubt arises whether they meant to utilize the financial assistance of the four so-called importers in order that the corporation might bet the benefit of the contract for the films. and the contract was made with their prior approval." In view of this statement. It will be observed that Ramon J.500 per month. as well as rubber stencil with which the name of the corporation could be signed to documents bearing its name. but that. and shall be entitled only to a compensation of 10 per cent of their outlay in importing the films. though indirect. to be absent for many months. if the offer for the two films should be accepted by it. and Papa) "would continue importing said films at their own account and risk. and to this end appointed a committee to apply to the bank for a credit. or might for lack of funds be unable to make the necessary outlay. we find that upon October 27. approval of the contract. (5) To advertise in the different newspapers that we are importing films to be exhibited in the Cine Oriental. Fernandez informed the stockholders that. He estimated that the company would have to make an outlay of about P5. just as it would have utilized the credit of the bank if such credit had been extended. 1913. B. and Papa an amount equal to 10 per cent of their outlay in importing the films. he and Messrs. 1913. the date upon which the letter accepting the offer of the Eclair films was dispatched the board of directors of the Orientalist Company convened in special session in the office of Ramon J. inasmuch as the first shipment of films was then expected to arrive. and in such contingency the stockholders were informed.It appears in evidence. At the same time he informed the said stockholders that he had already made arrangements with respect to renting said films after they have been once exhibited in the Cine Oriental. said payment to be made in shares of said corporation. that the corporation is bound. in view of the urgency of the matter and for the purpose of avoiding that other importers should get ahead of the corporation in this regard. for a moment. that this body was then cognizant that the officer had already been accepted in the name of the Orientalist Company and that the films which were then expected to arrive were being imported by virtue of such acceptance.

(Cook on Corporations. Ponce Enrile. a certain difference between these witnesses as to the nature of this guaranty. Accordingly. it must be remembered. in such matters. 708. in affixing his personal signature to said contract. and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporations whose name and authority had been used in the manner disclosed in this case. there is little for the stockholders to do beyond electing directors. ESTATE OF THE DECEASED CASIMIRO GARCIA. and thus hold him out to the public as possessing power to do those acts. Naturally he can have little or no information as to what occurs in corporate meetings. we are of the opinion that the contracts in question were thus inferentially approved by the company's board of directors and that the company is bound unless the subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability thus created. Fernandez. the only question presented to this court is: To what extent are the signatory parties to the contract liable to the plaintiff J.3 and LEONOR MOLL. Montecillo and Belo for defendants-appellees. in his individual capacity. preservation and development of the coconut industry in the Philippines. that the responsibility of the latter was intended to be that of guarantor. In this connection it is entirely clear. Simeon M.2 JUAN BOCAR. There is. Emma Quisumbing. As already observed. is not in line with the signature of the Orientalist Company. L-18805 August 14.. making by-laws. In conformity with this idea it is settled that contract between a corporation and third person must be made by the director and not by the stockholders. which declares that if the words of a contract should appear contrary to the evident intention of the parties. No. HEIRS OF MAXIMO M. in looking to the evidence to discover that intention. it is familiar doctrine that if a corporation knowingly permits one of its officer. and exercising certain other special powers defined by-law. KALAW.) This conclusion is entirely accordant with the provisions of section 28 of our Corporation Law already referred to. or whether his liability is that of a guarantor merely. but is set off to the left of the company's signature and somewhat who sign contracts in some capacity other than that of principal obligor to place their signature alone would justify a court in holding that Fernandez here took upon himself the responsibility of a guarantor rather than that of a principal obligor. The functions of the stockholders of a corporation are. and where it is said "if the corporation permits" this means the same as "if the thing is permitted by the directing power of the corporation. that the form in which the contract is signed raises a doubt as to what the real intention was. nor does the present the present action involve any question as to the undertaking of Fernandez and his three associates to effect the importation of the films upon their own account and risk. Fernando and Quisumbing. Gopengco and Solicitor General for plaintiff-appellant. G. The question here is whether Fernandez is liable jointly with the Orientalists Company as a principal obligor. we think. vs. to do acts within the scope of an apparent authority. for short) was chartered as a non-profit governmental organization on May 7. deducible from the general principle that in case of ambiguity parol evidence is admissible to show the intention of the contracting parties. of a limited nature. but its performance. before the financial inability of the corporation to proceed with the project was revealed. H. secs. called directors. the intention shall prevail.: The National Coconut Corporation (NACOCO. the corporation will as against any one who has in good faith dealt with the corporation through such agent. J. whatever its character. F. The theory of a corporation is that the stockholders may have all the profits but shall turn over the complete management of the enterprise to their representatives and agents. Hernandez. We are not unmindful of the force of that rule of law which declares that oral evidence is admissible to show the character in which the signature was affixed. the Orientalist Company and Ramon H. sixth ed. however. inasmuch as Fernandez would have us believe that his name was signed as a guaranty that the contract would be approved by the corporation. it remains to consider the character of the liability assumed by R. L. from the testimony of both Ramirez and Ramon J. In the light of all the circumstances of the case. 709.It thus appears that the board of directors. But the conclusion reached is. 1940 by Commonwealth Act 518 avowedly for the protection. On . It results that where a meeting of the stockholders is called for the purpose of passing on the propriety of making a corporate contract. Fernandez. The corporation. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. Fernandez. be estopped from denying his authority. We are convinced that the latter was the real intention of the contracting parties. This conclusion is perhaps supported by the language of the second paragraph of article 1281 of the Civil Code. or any other agent. J. defendants-appellees. Whether they may be bound to hold the company harmless is a matter upon which we express no opinion. SANCHEZ. plaintiff-appellant. its resolutions are at most advisory and not in any wise binding on the board.R. and we feel justified. think." It being determined that the corporation is bound by the contract in question. is represented by the former and not by the latter. to be sure. We do. In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made.. Particularly suggestive is the direction given at this meeting for the publication of announcements in the newspapers to the effect that the company was engaged in importing films. while Ramirez says that the name was put on the contract for the purpose of guaranteeing. Siguion Reyna. Jr. and he must necessarily rely upon the external manifestations of corporate consent. the signature of Fernandez. not the approval of the contract. had already recognized the contract as being in existence and had proceeded to take the steps necessary to utilize the films. It should be stated in conclusion that as the issues in this case have been framed. Ramirez? No contentious issue is raised directly between the defendants. must be ignored. As appears upon the face of the contracts. Both upon principle and authority it is clear that the action of the stockholders. 1967 THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES.

(c) August 22. 1947. $160. This contract was assigned to Pacific Vegetable Co. 1947: Spencer Kellog & Sons. 1947. Pacific ports. Kalaw made a full disclosure of the situation. 1948. for 1. to be shipped: September-October.. for 2. This contract was assigned to Pacific Vegetable Co. Then. 1948.386. delivery: August and September. The corporation thereunder paid Dreyfus P567. 1947) 1. NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy. c.408. the margin of middlemen.40.. to be shipped in November.52 representing 70% of the total claims. General manager and board chairman was Maximo M. viz: Pacific Vegetable Oil Co. P287. Pacific ports. Defendant Moll took her oath on that date. Franklin Baker Corporation. P159. f. Undelivered 2. o. This contract was later assigned to Louis Dreyfus & Co.. financing a problem. $167. Philippine ports. (Overseas) Ltd. for 3.000 long tons.00 Franklin Baker 1. (Overseas) Ltd. It was not until December 22. Cash requirements doubled. Spencer Kellog & Sons. in copra delivered by NACOCO. for 1. Kalaw.45 9. The buyers threatened damage suits.040. mostly aliens. This contract was assigned to Pacific Vegetable Co. 1947: Pacific Vegetable Co. With particular reference to the Dreyfus claims. 1947: Alexander Adamson & Co.024. A meeting was then held. the second and third in November. . for that per the September 12 contract reduced to judgment (Civil Case 4322. and in any other manner deal in. (h) October 27.b.00. The charter amendment was enacted to stabilize copra prices. embarked on copra trading activities. NACOCO but partially performed the contracts. (b) August 14. Neither did the board vote thereon at the meeting of January 7. that NACOCO was recouping its losses. did (i) October 28. and the fourth in December. to cut down to a minimum.000 tons..i. $154. 1947: Franklin Baker Division of General Foods Corporation.00. Garcia and Moll in attendance. sell.i.August 1.00 per long ton. 1948 following.098.i.000 long tons $145. on January 11. for the delivery of copra.. barter. delivery: November. for 2. $210. c.4 An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts.000 long tons. P75. 1947.f. and to act as agent.908. export. delivery: September. (Overseas) Ltd. 1947: Alexander Adamson & Co.00 per ton.00 per short ton. 1947.. for the balance on the August 14 contract (Civil Case 4398). for 1. broker or commission merchant of the producers. defendants Juan Bocar and Casimiro Garcia were members of the Board.. apprised the board of the impending heavy losses. viz: (a) July 30. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. P447. as follows: Buyers Pacific Vegetable Oil (f) September 12.63.000 tons. But one buyer. This contract was also assigned to Louis Dreyfus & Co. P78. 1947: Louis Dreyfus & Co. P539. 1948. upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459). California. Quick turnovers became impossible. 1947 when the membership was completed. for 2. to serve coconut producers by securing advantageous prices for them. delivery: November.613. Nature supervened. c.000 tons.00 per short ton. if not altogether eliminate. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts. Four devastating typhoons visited the Philippines: the first in October. (Overseas) Ltd. and that Kalaw was to remain in his post. that is. NACOCO. the board met again with Kalaw. coconut. Bocar. for 1. copra.5 Louis Dreyfus (e) September 9.i. 1947.091. Copra production decreased. c. $164. Some of the claims were settled. Los Angeles. 1947) 1. 1947: Fairwood & Co. (Overseas) Ltd. defendant Leonor Moll became director only on December 22. 1947. New York.00: per ton.b.000 long tons.500 long tons.000 50 800 2. Not long thereafter. 1947.f. f.o.o. as well as their by-products. emphasized that government concerns faced the same risks that confronted private companies. 1948.. did in fact sue before the Court of First Instance of Manila.5 Spencer Kellog None 1. f.755 24 7.028.000. 1947.150 85 Louis Dreyfus (Adamson Contract of August 14. President Roxas made a statement that the NACOCO head did his best to avert the losses. 1947: Fairwood & Co.f. Tons Delivered TOTALS (g) September 13..00. 1947. No action was taken on the contracts.00 per ton. 3 Philippine ports. delivery: January.. Warehouses were destroyed.210. dealers or merchants" thereof. 1946. $137.f. They unanimously approved the contracts hereinbefore enumerated... after the passage of Republic Act 5. When it became clear that the contracts would be unprofitable.50 per ton.20 Louis Dreyfus (Adamson contract of July 30. (d) September 5. Louis Dreyfus & Go. 1947 and January. NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. b.000 tons. on January 30.45 4. As was to be expected. Prices spiralled. appealed to this Court in L-2829).00 per ton.00. 1947: Juan Cojuangco. for 3... These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. delivery: November and December. $210.. Coconut trees throughout the country suffered extensive damage. and dessicated coconut. delivery: December. Kalaw submitted them to the board for approval. $175.00 per ton.

although there was much possibility of successfully resisting the claims. . to dispose of and convey its property and to divide its capital stock. 1959. dated November 24. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176. on which this case was tried. within the three year period just mentioned. for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs. and a judgment. but void and subject to collateral attack. creditors. to dispose of and convey its property in the manner hereinafter provided". and defendant board members.not have license to do business here." (2) under Section 77 of the Corporation Law. "is authorized and empowered to convey all of its property to trustees for the benefit of members. the claim of Dreyfus against NACOCO should have been compromised for only P10. The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims. are hereby abolished.343. new Civil Code).274. In this suit started in February.1. or at least settlement for nominal sums like what happened in the Syjuco case.) Following the same proportion. The fifth amended complaint. is to be read not as an isolated provision but in conjunction with the whole. nor can a valid judgment be rendered therein.52 from general manager and board chairman Maximo M." 8 It is defendants' pose that their case comes within the coverage of the second method.601. express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. that by Executive Order 372. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3. defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment. however. Right at the outset. So reading. The proviso in Section 1 of Executive Order 372. it will be readily observed that no time limit has been tacked to the existence of .000. They reason out that suit was commenced in February. On appeal. and that. NACOCO seeks to recover the above sum of P1. by virtue of which the corporation. Plaintiff's brief did not. convey its property in the manner hereinafter provided.274. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed.94. and others interested. the court cannot extend the time alloted by statute. question the judgment on Kalaw's counterclaim for the sum of P2. Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"9 and that suit "cannot be continued or revived. the National Tobacco Corporation. . "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher.654. the court may direct "such disposition of its assets as justice requires. stockholders. And this. 11 unless the statute merely requires a commencement of suit within the added time. That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs.00. and prosecute. the present case to its conclusion. "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved." 10 So it is. The Philippine Law of Stock Corporations. and may appoint a receiver to collect such assets and pay the debts of the corporation.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345.000. and/or in such manner as the President of the Philippines may direct. Justice Fisher. the Board of Liquidators may not now continue with. of the Rules of Court [which superseded Section 66 of the Corporation Law]7 whereby. nonetheless. 390-391). To project the utter unreasonableness of this compromise. the provisions of this Order. we reproduce in haec verba this finding below: x x x However. two preliminary questions raised before. upon voluntary dissolution of a corporation. except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2. but not for the purpose of continuing the business for which it was established. upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error. defendants renew their bid. in similar cases brought by the same claimant [Louis Dreyfus & Co. The said corporations shall be liquidated in accordance with law. why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds.6 1. whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs. whereby a corporation whose corporate existence is terminated. that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation. (Overseas) Ltd. Kalaw. pp.68 wherein defendant set upsame defenses as above. if at all. The National Abaca and Other Fibers Corporation. and the Board of Liquidators was entrusted with the function of settling and closing its affairs. Rule 104. because Executive Order 372 provides in Section 1 thereof that — Sec. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. was abolished. NACOCO. 13 We. is not only erroneous.00 only (Exhs. the court below." and (3) under Section 78 of the Corporation Law. the National Coconut Corporation. the typhoons.52. Casimiro Garcia and Leonor Moll.343.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. together with other government-owned corporations. to dispose of and. Now. however. 31 & 32 Heirs. and (2) failure to deliver was due to force majeure. if rendered. 12 For. 1950.601. since the three year period has elapsed. plaintiff accepted a promise of P5. Provided. including Kalaw. and directors Juan Bocar. but adversely decided by. Plaintiff appealed direct to this Court. Citing Mr.5 All the settlements sum up to P1. 1949. was filed on July 2. . with bad faith and/or breach of trust for having approved the contracts. arrest our attention. 1949. the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations.

in effect. the provisions of the executive order." 15 We accordingly directed the record of said case to be returned to the lower court. "and/or in such manner as the President of the Philippines may direct. The President thought it best to do away with the boards of directors of the defunct corporations. Defendant moved to dismiss. Kalaw. L-16779. Plaintiff came to this Court on appeal.the Board of Liquidators and its function of closing the affairs of the various government owned corporations. and placed its assets in the hands of the Board of Liquidators. however. these precepts notwithstanding. The Board of Liquidators thus became the trustee on behalf of the government. There. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw. Ground: excusable negligence. with notice that the same would be submitted to the Samar court on February 23. plaintiffs sought to recover damages from defendant Llemos. She failed to account for that money." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation. must be filed in the estate proceedings of the deceased. the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators. as party plaintiff. Plaintiff moved to reconsider. to mail the original thereof to the court and a copy of the same to defendant's counsel. liquidation by the Board of Liquidators may. is that the term of life of the Board of Liquidators is without time limit. abolished NACOCO. express or implied". And the action is embraced in suits filed "to recover damages for an injury to person or property. anyway. Pore.. The suit involves alleged tortious acts. the President had chosen to see to it that the Board of Liquidators step into the vacuum. in that its counsel prepared the amended complaint. after three (3) years from the expiration of its lifetime. plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers. The Board of Liquidators. Upon leave of court. to continue the management of such matters as may then be pending. We." Implicit in all these. the corporation. The lower court ordered plaintiff to include as co-party plaintiff. Reyes. and in their nineteenth special defense. This motion was rejected below. testate or intestate proceedings should be initiated and the claim filed therein. commenced suit within the three-year extended period for liquidation. there declared: . Mrs. we. and that defendant Llemos maliciously failed to appear in court. that plaintiff's action is personal to the deceased Maximo M. Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. accordingly. Defendants' position is vulnerable to attack from another direction. The lower court dismissed the suit. The beneficial interest remained with the sole stockholder — the government. A glance at the other provisions of the executive order buttresses our conclusion. rule that the Board of Liquidators has personality to proceed as: partyplaintiff in this case. 18 They say that the controlling statute is Section 5. causing them mental anguish and undue embarrassment. We there said that "the rule appears to be well settled that. or the authority to continue the present suit. By Section 2 of the executive order. 2. If for this reason alone. thru Mr. so that plaintiffs' expenditure and trouble turned out to be in vain. L-18107. which survive. under section 1. 17 which was overruled. 1961. 1960 at 8:00 a.m. the government. should have been made the party defendant. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. or project is transferred to any governmental instrumentality "for administration or continuance of any project. the action being for recovery of money. in turn. She mailed the copy to the latter but failed to send the original to the court. and instructed the board's incoming and outgoing correspondence clerk. The legal interest became vested in the trustee — the Board of Liquidators. The heirs moved to dismiss. plaintiffs amended their complaint to include the heirs of the deceased. 19 which provides that "[a]ll claims for money against the decedent. Justice Jose B. that in view of the copy and notice served. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. and not the heirs. held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously. arising from contract. from the Board of Liquidators. Llemos. Receda Vda. fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry. By Executive Order 372. We disagree. proceed in accordance with law. 7." Clearly then. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation." By Section 4. to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However. 1962. only to discover that no such petition had been filed. to which the corporation's liquidation was entrusted by Executive Order 372. while the boards of directors of the various corporations were abolished. real or personal". fund. and that. of the 1940 Rules of Court. already dissolved. Appellee heirs of Kalaw raised in their motion to dismiss. the Board of Liquidators. de Ocampo. Plaintiff failed to effect inclusion. and may not be deemed to have survived after his death. the sole stockholder. 20 The leading expositor of the law on this point is Aguas vs. Defendant died before he could answer the complaint." the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. The court dismissed the complaint on the ground that the legal representative. including NACOCO. And by Section. Rule 87. to the damage and prejudice of plaintiff. August 16. at the same time. and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan. This Court. 16 The provisions of Section 78 of the Corporation Law — the third method of winding up corporate affairs — find application. Samar. talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. in the absence of statutory provision to the contrary. In that case. with instructions to admit plaintiff's amended complaint to include. as directed. when any property. the present case is not a mere action for the recovery of money nor a claim for money arising from contract. August 30. Thus. Section 5. At no time had the government withdrawn the property. It was an express trust. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs. L. questioned the corporation's capacity to sue. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors.

In fact. the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent... all contracts necessary and essential to the proper accomplishment for which the Corporation was organized. as amongst the duties of the general manager. the labor needed to prepare and sack the copra for market. and (3) "all claims for money against the decedent. Rule 88. Under Rule 87. 22 The problem. 182. thru its general manager Kalaw. the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board. The ruling in the preceding case was hammered out of facts comparable to those of the present. and A. 126. So pleased was NACOCO's board of directors that. from those copra sales. is whether the case at bar is to be taken out of the general concept of the powers of a general manager. Copra could not stay long in its hands. is the nature of a general manager's position in the corporate structure. but it must arise from "contract express or implied". On December 22. "he may. recites. 1946. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. against the Estate of Casimiro Garcia survives. Ordinary in this enterprise are copra sales for future delivery. without any special authority from the Board of Directors perform all acts of an ordinary nature." Upon the other hand. L-4369. 189-194. 38 Phil. A certain amount of speculation is inherent in the undertaking. for it is not enough that the claim against the deceased party be for money. deserves express articulation. arising from contract express or implied. It was a contract of lease executed on November 16. NACOCO was much more conservative than the exporters with big capital.48. which by usage or necessity are incident to his office. To maliciously cause a party to incur unnecessary expenses. 1947. for the lease of a space in Soriano Building On November 14." Not of de minimis importance in a proper approach to the problem at hand. O'Brien. as charged in this case. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88. sec. The aforesaid contracts stand to prove one thing: Obviously. Rep." This practice was observed in a later . when the controversy over the present contract cropped up. given the cited provision of the NACOCO bylaws requiring prior directorate approval of NACOCO contracts. it having been held that "injury to property" is not limited to injuries to specific property. it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office. The movement of the market requires that sales agreements be entered into. is certainly injury to that party's property (Javier vs. but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Article IV (b). (2) judgments for money. NACOCO's limited funds necessitated a quick turnover. to the sound discretion of NACOCO's general manager Maximo M. 21As such officer. the quantity required before being accepted for loading. on December 5. and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. for the matter. And. 1940 by the then general manager and board chairman. 1395). NACOCO. the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business. The peculiar nature of copra trading. Such were the environmental circumstances when Kalaw went into copra trading. and may bind the corporation by contracts in matters arising in the usual course of business. those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87.631. the board gave its nod to a contract for renewal of the services of Dr. "to include all purely personal obligations other than those which have their source in delict or tort. During that period. The preliminaries out of the way. 1947. Kalaw contracted — by himself alone as general manager — for forward sales of copra. Said contracts were known all along to the board members. in Kalaw's absence.000 tons of copra to the Food Ministry. Known in business parlance as forward sales. its value decrease. One at least was executed by a predecessor way back in 1940. thru Sebastian Palanca. 31. 1946. therefore." None of these includes that of the plaintiffsappellants. also on that date. soon after NACOCO was chartered. at this point. Chapter III thereof.Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court. the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. the conclusion remains: Action against the Kalaw heirs and. were signed by Kalaw without prior authority from the board. London. Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation. Copra contracts then had to be executed on short notice — at times within twenty-four hours. Above all. 1). section 5. Nothing was said by them. NACOCO reaped a gross profit of P3. Manuel L. sold 3. and (3) actions to recover damages for an injury to person or property. also 171 A. 1953). 47 Am. it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. For the fiscal year ending June 30. This short-selling was inevitable at the time in the light of other factors such as availability of vessels. Roxas. The present suit is one for damages under the last class. not before. section 1. enumerates actions that survive against a decedent's executors or administrators." These previous contract it should be stressed. Kalaw. forward sales were a necessity. Soriano y Cia. To NACOCO. has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. Long before the disputed contracts came into being. sec. Kalaw signed some 60 such contracts for the sale of copra to divers parties. we now go to the core of the controversy.R. Crandall. No cogent reason exists why we should break away from the views just expressed. To be appreciated then is the difficulty of calling a formal meeting of the board. Plaintiff leans heavily on NACOCO's corporate by-laws. These agreements were not Kalaw's alone. Aug. NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end. it is concededly the practice of the trade. Maximo Rodriguez. (2) actions to enforce a lien thereon. and they are: (1) actions to recover real and personal property from the estate. Araneta. despite numerous handicaps and difficulties. it would lose weight. On the same date. even though the goods are not yet in the hands of the seller.L.181.

"under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers. However. though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Bell and Co. a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2. Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice. by its acts and through acquiescence. 1947. But that board itself. 33 . are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified. Such ratification was necessary because. practically laid aside the by-law requirement of prior approval. the board approved two previous contracts for the sale of 1. or must be presumed to have. the contracts executed by Kalaw are thus purged of whatever vice or defect they may have." 31 Indeed. 28 x x x Thus. But if more were required.300 long tons of copra to the French Government. If the by-laws were to be literally followed." and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time. great in number. the usage and practices of the company and by the knowledge which the board of directors has.00 to P7. 1947: 521. 26 In varying language."23 In the board meeting of July 29. Knowledge by the board is also discernible from other recorded instances. by proof of the course of business.00 per hundred kilos.ñët When the board met on May 10.29 In the case at bar. 1947. 1947. On December 19. The General Manager explained that in this connection a certain amount of speculation is unavoidable. And more. Cojuangco & Co. a radical rise or decrease was not indicated by the trends. Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady. it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. the Kalaw contracts are valid corporate acts. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. an officer has been allowed in his official capacity to manage its affairs. Under the given circumstances. as stated by Kalaw in that same meeting. he said that the Nacoco is much more conservative than the other big exporters in this respect.000 tons of copra each to a certain "SCAP" and a certain "GNAPO". The theory of corporate ratification is predicated on the right of a corporation to contract. In view thereof. on the sale of 2.000 tons of copra was favorably acted upon by the board. 27So also. of acts and doings of its subordinates in and about the affairs of the corporation. the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. the brokerage fee agreements of 1-1/2% on three export contracts. On March 19. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. custom. when.1äwphï1. our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted.not the sales contracts themselves." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract." 24 We now lift the following excerpts from the minutes of that same board meeting of July 29. 1946. we need but turn to the board's ratification of the contracts in dispute on January 30. and any ratification or adoption is equivalent to a grant of prior authority. Authorities. the board resolved to ratify the brokerage commission of 2% of Smith. 1947. and policy. on January 7. 4. for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board. Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra. 1947.instance when.000 tons of copra. 1948. and 2% on three others. in the usual course of business of a corporation. and is equivalent to original authority." On February 5. the board should give its stamp of prior approval on all corporate contracts. the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. the prices seemed to oscillate between $140 to $150 per ton.." On January 15. existence of such authority is established." 32 By corporate confirmation. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5. 1948.. the general manager may bind the company without formal authorization of the board of directors. 1947. 25 It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board. x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. Ltd. his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. in the sale of 4. the brokerage fee of 2% of J. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons: (1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers.

warehouses destroyed. The prices for which NACOCO contracted in the disputed agreements. extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities." 38 6. also suffered tremendous losses. it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels. prices spiralled. There cannot be an actionable wrong if either one or the other is wanting. to charge now that the damage suffered was because of Kalaw's negligence. to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. or to serve their own private interests. NACOCO resisted the suits filed by Louis Dreyfus & Co. The facts yield the answer. To what then may we trace the damage suffered by NACOCO. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. Obviously. were not spared. 148-149. except when they have themselves been personally guilty of some fraud on the corporation. in the event of a sharp rise in the price of copra in the Philippine market produce byforce majeure or by caused beyond defendant's control. it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. The truth. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. . For. Spaulding. with bigger facilities. Plaintiff's witness Sisenando Barretto. Result: Copra production was impaired. categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts. old. observed that from late 1947 to early 1948 "there were many who lost money in the trade. quotes with approval from Judge Sharswood (in Spering's App. is that no assertion is made and no proof is presented which would link Kalaw's acts — ratified by the board — to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. that he entered into the contracts in pursuance of an overall policy to stabilize prices. the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence." 40 A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom. The various contracts involved delivery of but 16. experienced. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts." Nor was it even intimated here that the NACOCO directors acted for personal reasons. should not merit the same treatment." or "conscious doing of wrong. head of the copra marketing department of NACOCO. even with hostile eyes. we find that there was no "dishonest purpose. It would be difficult. Plaintiff's witness. The record discloses that private traders. or for that matter. or have known and connived at some fraud in others." or "some moral obliquity. the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness.000 tons of copra a day. . although there are many dicta not easily reconcilable. And. 42 NACOCO could have. all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. met its contractual obligations. it partakes of the nature of fraud. the following: "Upon a close examination of all the reported cases. fair dealing disagrees with the idea that similar contracts. ed. it means breach of a known duty thru some motive or interest or ill will. this is a case of damnum absque injuria. 5. 46 . NACOCO envisioned a profit of around P752. and for a long time. The typhoons were known to plaintiff. eleven principal trading concerns did run losses to about P10. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes.300.34 Applying this precept to the given facts herein. As the trial court correctly observed. were it not for the typhoons. on the basis of prices then prevailing. or where such fraud might have been prevented had they given ordinary attention to their duties. Kalaw had authority to execute the contracts without need of prior approval. Stock accessibility was no problem. to free the producers from the clutches of the middlemen. Roughly estimated." 37 The directors are not liable. 41 Indeed. Despite the typhoons.000. . 71 Pa. of the matter is that — in the words of the trial court — the ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous. It could purchase 2. with ease. Conjunction of damage and wrong is here absent. that he did so in the best interests of the corporation. 43 7. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. in reality." 36 Briggs vs. the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract. thought so. Barretto. NACOCO had 90 buying agencies spread throughout the islands. the conclusion inevitably is that the embattled contracts remain valid. when unprofitable." or "Some motive or interest or ill will" that "partakes of the nature of fraud. As we have earlier expressed. including Kalaw himself. were at a level calculated to produce profits and higher than those prevailing in the local market.. In fact.500 tons over a five-month period." 45 Really. Four typhoons wreaked havoc then on our copra-producing regions. 669. then. a case is here presented whereunder. by reason of the board's ratification of the contracts. 132.440. or to pocket money at the expense of the corporation. 35 L. Everybody. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO.00. By the same token.00.S. 141 U.In sum." 39 NACOCO was not immune from such usual business risk." or "breach of a known duty. yet I have found no judgment or decree which has held directors to account. 11). On top of all these. even in the face of an express by-law requirement of prior approval. 662." and that "it had never been the intention of the contracting parties in entering into the contract in question that.

The complaint alleged. The bank did not release the loan. Kalaw invariably consulted with NACOCO's Chief Buyer. not even the sum of P200. FIDEL BATTULAYAN. And even as typhoons supervened Kalaw was not remissed in his duty. Well may we profit from the following passage from Montelibano vs. that plaintiff would be constituted as the corporation's representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such shipments. Branch V (Quezon City) dismissing plaintiff's complaint on the ground that it states no cause of action. vs. who constituted the entire Board of Directors of said corporation (except Leon Q. No.." (Fletcher on Corporations. Inc. "to execute any agreement with any person or entity. and the court is without authority to substitute its judgment for the judgment of the board of directors. by a formal resolution. Kalaw as acting general manager of the corporation. that said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma Inc. RAYMUNDO BATALLONES. Inc. or the Assistant General Manager. Vol. 1947. 1962. "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment. JUSTINO GALANO. J.. and solong as it acts in good faith its orders are not reviewable by the courts. . EMILIANO ACUÑA. 1962 it was tentatively agreed upon between plaintiff and defendant Leon Q.00 to be advanced to the defendant Batac Procoma.: Kalaw's good faith. or alternatively. against all the other defendants named in the caption. Maximo M.00. PLACIDO QUIAOIT. On December 27. He asked the Philippine National Bank to implement its commitment to extend a P400. 1962: Marquez and Marquez for plaintiff-appellant. than P20. who was its Manager). and that of the other directors. that the former would seek and obtain the sum of not less. the board. 1962 of the Court of First Instance of Rizal. the board is the business manager of the corporation. 2. appointed Maximo M. PABLO BACTIN. and on May 6.. 1948. TEODORO NARCISO. clinch the case for defendants. Inc. May 18. is a purely business and economic problem to be determined by the directors of the corporation. Kalaw as General Manager of the National Coconut Corporation. was approved by the bank's board of directors. (DR. BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION.000. or closed down at a smaller loss. 1947. as President and Vice-President. MARCOS ESQUIVEL. 1967 That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence.50 per kilo of tobacco. inter alia. respectively. Appeal taken from the order dated September 10. INC. President Roxas expressed his desire "that the Board of Directors should reelect Hon. L-15092. Inc. Without costs. Bacolod-Murcia Milling Co. as Manager of the defendant Batac Procoma. and LEON Q. and discharging the writ of preliminary attachment issued therein. So ordered. against the defendant Batac Producers Cooperative Marketing Association... complained about the bank's short-sighted policy. plaintiff Emiliano Acuña filed a complaint.R. affirmed. He could not be expected to predict the coming of unpredictable typhoons. at a time when the contracts had already been openly disputed.000. for the purpose of securing additional funds for the corporation. 49 Viewed in the light of the entire record. Kalaw could not have been an insurer of profits. VENANCIO DIRIC. and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. He exerted efforts to stave off losses. which was later amended on August 13. that for his services plaintiff would be paid a remuneration at the rate of P0. 1947.00 loan. in October. In frustration. DAMIAN ROSSINI. G. Fernandez for defendants-appellees. Of course. to be utilized by it as additional funds for its Virginia tobacco buying operations during the current redrying season. Estanislao A. Inc." 47 And. It is a well known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation. hereinafter called the Batac Procoma. on behalf of the corporation. Verano. The dailies and quotations from abroad were guideposts to him. Verano.Kalaw's acts were not the result of haphazard decisions either. unanimously authorized defendant Leon Q. EVARISTO CAOILI. In the end..)48 MAKALINTAL. Kalaw turned to the President. President Roxas defended the actuations of Kalaw. at its regular meeting. plaintiff-appellant. which. would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself. NACOCO eventually faltered in its contractual obligations. Whether the business of a corporation should be operated at a loss during a business depression. 1962 all the defendants named above. On August 9.. as it is hereby. p. Verano. on December 12.000.) EMMANUEL BUMANGLAG. Sisenando Barretto. L-20333 June 30. together with defendants Justino Galano and Teodoro Narciso. that on or about May 5. and not by the court. VERANO defendants-appellees. the judgment under review must be. nothing came out of the negotiations with the bank. on January 7. 390..

in the collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration. Rule 16. Board of Pampanga. Prov. and that on the basis of plaintiff's pleadings the contract is void and unenforceable. Emmanuel Bumanglag and Atty. IN VIEW OF THE FOREGOING. plaintiff diligently and religiously kept his part of the "Agreement. that plaintiff was made to understand by all of said defendants that the original understanding between him and defendant Leon Q.ñët On August 22. On the first point we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted the entire Board of Directors) and discussed with them extensively the . On August 25. that after the defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help. the writ was accordingly issued by the Clerk of Court. On August 14. 1962. Justino Galano.000. giving and conferring upon the Manager. 1954. Santos Belarmino. upon request of its Manager Leon Q.G. Dimayuga vs. If said motion assails directly or indirectly the veracity of the allegations. and it should have limited itself.000. to the facts alleged in the complaint in considering and resolving said motion to dismiss. as Manager of the defendant corporation. 1 [f].495. 2397-2400. if he so desires.00 and that plaintiff had personally advanced out of his own personal funds the total sum of P5. However. On September 10. that from then on. (b) that after due trial. jointly and severally. If these allegations show a cause of action.00 representing the amount of money invested by the plaintiff plus the corresponding interest thereon.00 with the full knowledge. except that the remuneration for the plaintiff's services would be P0." A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. Verano.000. 30043068. Dominador T. 1962.00 for attorney's fees.000) sacks which it utilized in the shipment of its tobacco costing P6. Rigonan. he was assured by these defendants that a formal approval of said "Agreement" by the Board was no longer necessary. 130852. the "Agreement" was disapproved by its Board of Directors on June 6. however that the contract entered into by said manager to carry out the purposes above-mentioned shall be subject to the approve by the Board. L-6459. par. without special pronouncement as to costs. Defendants further denied the fact that plaintiff had performed his part of the contract.00. 1962. 1962. or alternatively. may withdraw the same in due time.as well as to secure the services of such person or entity. for which the said corporation collected from the PVTA the total sum of P381. upon proper receipt therefor. which the said Manager may deem expedient and necessary for that purpose. Fernando Alcantara.00 for his services. the lower court should not have gone beyond. 1962. as it was a mere "formality" appended to its authorizing resolution and as all the members of the Board had already agreed to the same. 1962. Section 1. Consequently. Rules of Court). Emmanuel Bumanglag as instrumental witnesses and acknowledged by Atty. and signed by defendants Justino Galano and Dr. Verano three thousand (3. plus P31.. thru its treasurer. to comply with their contractual obligations and to pay plaintiff the sum of P300. judgment be rendered condemning defendant corporation. the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the preliminary attachment on the ground that it was improperly or irregularly issued. the amended complaint filed in this case is hereby ordered DISMISSED.. 52 O.000. the Secretary and Legal Counsel of the defendant corporation.400.00 for cash advances made by him and P25. plaintiff gave and turned over to the defendant corporation. 6557. Inc. or furnish sufficient basis by which the complaint can be maintained.) The first ground upon which the order of dismissal issued by the lower court is predicated is that the Board of Directors of defendant corporation did not approve. vs. which we shall consider seriatim: The first assignment reads: "As the defendants' motion to dismiss the complaint and to discharge the preliminary attachment was based on the specific ground that the complaint states no cause of action (Sec. 7 of the old Rules.G. From the foregoing order plaintiff interposed the present appeal. It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause of action (Rule 8. Plaintiff. and no other. it is improper to grant the motion upon the assumption that the averments therein are true and those of the complaint are not (Carreon vs. the agreement in question — in fact disapproved it by a resolution passed on June 6.) The sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint.000. that on May 10.30 per kilo of tobacco.R. for which said treasurer issued to plaintiff its corresponding Official Receipt No. The specific stipulation referred to by the Court as a suspensive condition states: "provided. [g] of the Revised Rules) the averments in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. Dr. the trial court sustained defendants' motion and issued the following order: In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio. 1962. Verano was acceptable to the corporation. all the other individual defendants. it is of record that the defendants has (sic) deposited the Court the amount of P20. that on the same date. Dimayuga. Cocson the sum of P20. and under such considerations. that upon plaintiff's inquiry. after the plaintiff had posted the required bond. Section 1. by virtue of this order." that plaintiff even furnished the defendant corporation. Upon the foregoing allegations plaintiff prays: (a) that an order of attachment be issued against the properties of defendant corporation. No. 1962 — and that as a consequence the "suspensive condition" attached to the agreement was never fulfilled.G. Fernando Alcantara. acquiescence and consent of all the individual defendants. (Josefa de Jesus. alleging that he had not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation. Appellant has assigned four errors. 50 O. April 23. the complaint should not be dismissed regardless of the defenses that may be averred by the defendants. Verzosa vs. in the presence of defendants Leon Q. May 10. G. Verano. the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the following day.00. et al. Rule 8. 51 O. In support of the motion defendants alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of defendant Batac Procoma. plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment. duly authorized by its Board of Directors for such purpose. the writ of preliminary attachment issued herein is ordered discharged.1äwphï1. full and complete authority to bind the corporation with such person or entity in any agreement. assistance and intervention of plaintiff.000. par. the formal "Agreement" was executed between plaintiff and defendant Leon Q.

Galano and Dr.000. they are then reassorted and re-classified in accordance with their actual quality or grade as found by the officials of the Facoma. Verano. The resolution then proceeds to "disapprove and/or rescind" the said contract.. Messrs. however.30 per kilo. Fernando Alcantara. the PVTA and the Facoma representative. the General Auditing Office. The lower court. then the tobaccos are considered or said to be "downgraded" and in that event I should not receive any centavo for such deliveries. 1962 which reads: That I. or from B to C. Q-6547). if these officials found the classification incorrect and lowers the classification given by the Facoma. is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board of Directors. is squarely traversed by appellant in another affidavit attached to his reply and opposition to the motion to dismiss. admitting their veracity. It should be noted in this connection that although the contract required such approval it did not specify just in what manner the same should be given. upon reclassification those found to belong to Class A are separated from Class B. then and only then would or should be entitled to collect the P0. in its order of dismissal. then examines and grades the tobaccos. and there. and that after the agreement was formally executed he was assured by said Directors that there would be no need of formal approval by the Board. and they proceeded to explain to me the following.000 sacks at a cost of P6. C. There is abundant authority in support of the proposition that ratification may be express or implied. was contrary to the intention of the parties. Specific reference was made by said court to an affidavit executed by appellant on May 10. It refers to plaintiff's failure to comply with certain promises he had made. EMILIANO ACUA.30 per kilo stipulated there to be paid to me were to be indiscriminately applied to all deliveries of tobaccos. such as those presented by defendants in support of the motion. — thus in a bunch which are purchased as Class C. the Bureau of Internal Revenue. (c) the Facoma. except as to plaintiff's remuneration. thus class A to B. It is therein stated: That after the execution of the agreement (Annex "B" to the amended complaint in said Civil Case No. and this is what is termed "downgrading. the party of the Second Part in the contract entered into with the Batac Procoma. and that he did all of these things with the full knowledge.000. Appellants' second assignment of error reads: "Assuming that in resolving the defendants' motion to dismiss the lower court could consider the new facts alleged therein and the documents annexed thereto it committed an error in extending such consideration beyond ascertaining only if an issue of fact has been presented and in actually deciding instead such fact in issue. I agreed readily and Atty. that it was finally agreed between plaintiff and all said Directors that his remuneration would be P0. but not as a basis for deciding the factual issue itself." The assignment is well taken.00 and advanced to it the further sum of P5. the Corporation would be placed in a disadvantageous and losing position. held that "the upgrading of tobaccos is clearly prohibited under our laws. — (a) that when the farmers sell their tobaccos to the Facoma. drafted and typed the "addendum" in question in their own typewriter of the Corporation. Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal. The idea of conflicting interpretation. B. and as I am not a .30 per kilo is referred to upgraded tobacco only as delivered. Inc. Evidently the court had in mind a fraudulent upgrading of tobacco by appellant as part of the services called for under the contract. and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a cause of action addresses itself to the averments in the complaint and. This should await the trial on the merits. such as by silence or acquiescence. that he furnished said defendant 3. and the real meaning of the word "upgraded" therein. that he rendered the services he was required to do. Affidavits. or by acceptance and retention of benefits flowing therefrom. they do so in bunches of assorted qualities which may belong either to Class A. according to the Board.00.tentative agreement and he was made to understand that it was acceptable to them. in which he explained the circumstances which led to the execution of the one relied upon by the court. and so on. Legal Counsel and Secretary of the defendant Corporation forthwith prepared." and hence the contract cannot be validly ratified. and that implied ratification may take diverse forms. and this is what is termed "upgrading" upon delivery original arbitrary classification given when purchased from the which was used in the addendum.00 as called for in the contract. This supplements paragraph three of the contract referred to. those belonging to Class B are separated from Class C. or rescission on the ground that one of the parties has failed to fulfill his obligation under the contract. the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as possible. the party of the First Part in same contract declares that the amount of P0. a group of officials composed of a representative of the redrying plant. D or E. in turn. D and E. by acts showing approval or adoption of the contract. Bumanglag of the defendant Corporation indicated to me that if the price of P0. Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of P20. and it is in this sense that I was made to understand the term. The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be maintained thereon because its object was illegal and therefore void. acquiescence and consent of each and all of the individual defendants who constitute the Board of Directors of the defendant corporation.30 per kilo (of tobacco). delivers these properly re-classified tobaccos to the redrying plant. and if the classification given by the Facoma is found correct and not changed. as well as to his interpretation of the contract with respect to his remuneration which. and this they said is what is termed "grade maintained" — on the other hand. This conclusion. merely questions their sufficiency to make out a case on which the court can grant relief. and upon such purchase they are initially given an arbitrary classification of any of such classes as the case may be. Deliveries downgraded or maintained at the redrying plant are deemed not included. and these bunches so reclassified necessarily have a higher grade than the farmers. can only be considered for the purpose of ascertaining whether an issue of fact is presented.000." (b) that after the tobaccos have been purchased by the Facoma from the farmers.

. I relied in absolute good faith that. the right of plaintiff-appellant to ask for another writ of attachment in said court. it is highly improbable that the representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or tally sheet.R. without prejudice to.P. because at the time of the transaction. customs and phraseology usually used in tobacco trading.. The foregoing explanation. L-37281 November 10. defendants knew the physical impossibility of "upgrading" the tobaccos at the redrying plant.. are the (1) American representative of the redrying plant (PTFC & RC). aside from the fact that stringent measures had been devised under the present administration to prevent the "upgrading" of tobaccos by any party. Wherefore. To be sure.. J. Dizon. only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery area for tobaccos at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually make the grading of tobaccos delivered. 1933 . Due process demands that they be the subject of proof and considered only after trial on the merits. and require no separate treatment. Alcantara unfortunately used in the same. Apart from the above. Costs against defendants-appellees. Reyes. Sanchez and Castro. the order appealed from is set aside and the case is remanded to the court a quo for further proceedings. J. (2) the PVTA. No. C. The other errors assigned by appellant are merely incidental to those already discussed. G. took no part. Bengzon. which Atty. is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it by the lower court. as the circumstances may warrant.B. (Record on Appeal. JJ.lawyer and was not well versed with the usage.J. there was nothing wrong nor illegal in the use of the words "upgrading" and "downgrading" used in said addendum. an impossible condition could not have been contemplated by me and the defendants. as explained by the defendants.L. whether the allegations in this subsequent affidavit are true or not is a question of fact. and (4) the General Auditing Office in the presence of the representative of the FACOMA. Certainly. Zaldivar. Concepcion. and since the redrying plant is compelled to purchase 41% of all tobaccos delivered and redried under their negotiated management contract. concur. 171-175). would allow the "upgrading" of tobaccos. pp.. J. (3) the BIR. on its face. but it is precisely for this reason that they can neither be summarily admitted nor rejected for purposes of a motion to dismiss.

In finding that the 97 shares of stock in question had been adjudicated to Mrs. the attorney of the Sulu Development Company. vs. that after the death of Mr. Copies of the documents relied upon by Martin were made a part of the record. MARTIN. Price. PRICE and THE SULU DEVELOPMENT COMPANY. but apparently no action was taken by the stockholders or by the directors. Worcester. Worcester. Worcester on May 2. such motion having been filed the rendition of the judgment herein. and Martin prayed in his special cross-complaint and counter-claim that the Defendant Agusan Coconut Company be required to make such further cash advances to "carry out the full scale development of the tract of land in the cultivation agreement and as contemplated therein. and the attorneys of the Agusan Coconut Company went over the mutual accounts with care and arrived at the sum set forth in the mortgaged. had been advancing sums through Martin in order that the Sulu Development Company might secure good and sufficient title to a large tract of land situated near Siasi and thereon develop a coconut plantation. In ruling that although the 97 shares voted by Mrs. Mrs. did not appear here as a plaintiff to depend his own right but for the purpose of giving aid to the defendant.W. the principal contentions being that at the stockholders' meeting in which the officers of the Sulu Development Company were elected and at which the proposed mortgage was approved of. Martin presented evidence to the effect that he. J. Dean C. The Sulu Development Company from its inception up to the time of executing the contract was virtually owned and controlled by Martin. W. Worcester's proxy apparently voted the stock without protest on the part of Martin or any other stockholder. but between the meeting on November 12 and the final action on November 19. in whose name the stock at that time stood upon the books of the company. plaintiffs-appellants. that said shares belonged to H. defendant-appellant. Martin and were merely held in trust by her deceased husband. In finding in effect that the meetings pretended to be held by Sulu Development on the dates aforementioned were validly and legally held and that the action taken and proceedings had thereat were valid and effective. 17. Worcester at the meetings in question thru her proxy belonged to Harry Martin and were only held in trust by her late husband. on the ground of newly discovered evidence. 17 and 19. In holding the effect that there was a quorum in the pretended meetings of the stockholders of the Sulu Development Company alleged to have taken place on November 12. whereas defendant Martin claimed that he was the true owner and that he should have voted the stock. suit would have been instituted by the Agusan Company against the Sulu Development Company. 5. in violation of the express terms of the trust agreement. Worcester could legally vote the said 97 shares she actually voted at the meeting in question. defendant-appellee. when in law and in fact there was no such quorum. 1925. 6. one of whom was also an accountant. 7. 2. particularly that one asserted to have been held on November 19. 1925. Prince purchased one share of stock about a month before the called meeting but was not present at the meetings in question. HULL. Another ground relied upon by plaintiffs is a claim that the mortgage was without consideration. on timely objection. From that decision plaintiff appeal and make the following assignments of error: The trial court erred: 1. and after trial and a lengthy opinion.: Plaintiffs brought suit in the Court of First Instance of Manila praying that a mortgage executed by the Sulu Development Company on its properties in favor of the Agusan Coconut Company be dissolved and declared null and void. 97 shares of stock of the Sulu Development Company were voted by the proxy of Mrs. 1924." The trial court. Nanon L. H. through its general manager. S. refused to receive the parol evidence as to the cultivation agreement. Harry Martin. In refusing appellants the right to introduce evidence as to the "cultivation agreement" extensively referred to by the parties herein. yet such trusteeship was for the benefit of the Agusan Coconut Company. and not Mrs. As far as the record shows. the Agusan Coconut Company failed to comply with the terms and conditions of the so-called cultivation agreement. 4. There is also a claim that there was a parol agreement between Martin and Worcester. Nanon L. representing the two companies.S. . 3. and 19. every formal action taken at those three meetings was unanimous. Worcester had inherited said shares by virtue of the will of her deceased husband. In refusing to reopen the case on motion filed in due form and manner by the plaintiffs and appellants herein. and that the said Nanon L. From the records of the Sulu Development Company it appears that at the meeting of November 12. that such adjudication had been approved by the Court of First Instance of the City of Manila. and at the meetings of November 12. Nanon L. Worcester by the commissioners on claims against the estate of her deceased husband. and that such company is the actual cestui que trust thereunder. In holding that Mrs. 8. The amount of money so advanced was in dispute. notwithstanding the facts as found by said court. 1925. was the owner of the 97 shares of stock. THE AGUSAN COCONUT COMPANY. In finding that the plaintiff. The evidence shows that for years the Agusan Coconut Company. held that the mortgage in question was valid and refused to order its cancellation. and Martin at the last two meetings was accompanied by two members of the Bar of the Philippine Islands as his counsel. Worcester. Had there been no agreement.

9. In finding that if the defendant H. Martin had had the 97 shares in question in
his own name at the alleged meetings of the Sulu Development Company, he
would have voted them in the same way and to the same effect as the said
Nanon L. Worcester voted them.
10. In not finding that there was attendant fraud, misrepresentation and deceit in
the execution and issuance of the mortgage contract, Exhibit U.
11. In not holding that said mortgage is null and void for want of legal
consideration.
12. In finding that the plaintiffs and appellants herein are legally bound by the
said mortgage contract Exhibit U.
13. In holding that the plaintiffs and appellants herein are legally estopped to
contest the efficacy and validity of the mortgage contract, Exhibit, U.
14. In dismissing plaintiffs' complaint herein.
15. In denying plaintiffs' motion for a new trial.
While defendant Martin appeals and assigns the following errors:
1. The trial court erred in refusing to find that the one hundred shares of the
capital stock of the appellant, the Sulu Development Company, delivered on
November 23, 1922, by the appellant, H. Martin, to the late Dean C. Worcester,
were so delivered in trust to be held and used for the benefit of the said H.
Martin.
2. The trial court erred in finding that the voting by Mrs. Nanon L. Worcester, in
the meeting held by the stockholders of the appellant, the Sulu Development
Company, on November 12, 17, and 19, 1925, was legal.
3. The trial court erred in refusing to find that the mortgage involved in this
litigation, purported to have been executed by the appellant, the Sulu
Development Company, in favor of the appellee, the Agusan Coconut Company,
is null and void.
4. The trial court erred in excluding, as being within the statute of frauds,
testimony regarding a certain verbal agreement entered into by and between the
appellee, the Agusan Coconut Company, and the appellant, H. Martin, which
agreement had been fully performed by the latter.
5. The trial court erred in excluding as "Hearsay Evidence", testimony regarding
statements made by certain officials of the appellee, the Agusan Company.
6. The trial court erred in excluding the testimony of the appellant, H. Martin,
regarding matters of fact which occurred between him and certain officials of the

appellee, the Agusan Coconut Company, who had died prior to the trial of this
action.
An examination of the assignments of error will show that although this case in its main
aspects is a simple one and confined to the questions, first, as to whether the mortgage
was duly executed by the Sulu Development Company and, second, whether it was given
for a valuable consideration, many side issues of no moment were urged upon the trial
court, which probably accounts for the voluminous record with which we are confronted
and numerous assignments of error which we do not deem it necessary to discuss in
detail.
Plaintiffs contend that the transference on the books of the company of 97 shares of stock
in the name of Mrs. Worcester was fraudulent and illegal. The evidence of record,
however, under all the circumstances of the case, fails to demonstrate the allegation of
fraud, and this court believes that she acted in good faith and in the honest belief that she
had not only a legal right but a duty to participate in the stockholders meeting.
As to whether the stock was rightfully the property of Martin, that is a question for the
courts and for a stockholder's meeting. Until challenged in a proper proceeding, a
stockholder according to the books of the company has a right to participate in that
meeting, and in the absence of fraud the action of the stockholders' meeting cannot be
collaterally attacked on account of such participation. "A person who has purchased stock,
and who desires to be recognized as a stockholder, for the purpose of voting, must secure
such a standing by having the transfer recorder upon the books. If the transfer is not duly
made upon request, he has, as his remedy, to compel it to be made." (Morrill vs. Little
Falls Mfg. Co., 53 Minn., 371; 21 L.R.A., 175-178, citing Cook, Stock & Stockholders, par.
611; People vs. Robinson, 64 Cal., 373; Downing vs. Potts, 23 N.J.L., 66; State vs. Ferris, 42
Conn., 560; New York & N.H.R. Co. vs. Schuyler, 34 N.Y., 80; Bank of Commerce's App., 73
Pa., 59; Hoppin vs. Buffum, 9 R.I., 513; 11 Am. Rep., 219; Re St. Lawrence S.R. Co., 44 N. J.
L., 529.)
As to the question of lack of consideration for the mortgage, throughout the brief for
appellants it appears by the constant reiteration of the phrase that all the advances were
made "by the Agusan Coconut Company and/or its then General Manager, the late Dean
C. Worcester, to H. Martin and/or the Sulu Development Company."
It must be remembered that there is no dispute between the Worcester interests and the
Agusan Coconut Company as to who advanced the money, namely, the Agusan Coconut
Company, nor is there any difficulty in determining to whom the money was advanced.
Although Martin was virtually the owner of all the capital stock of the Sulu Development
Company, business was carried on in the name of the company, and the land and
properties were secured in the name of the company, and up to the time of the execution
of the mortgage and some time thereafter there was no claim from anybody the money
had been advanced to Martin instead of the company. Even a repeated use of the
questionable phrase "and/or" as to the grantor "and/or" as to the grantee, will not
fabricate a life-raft on which a recalcitrant debtor can reach a safe harbor of
repudiation.lawphil.net
We are therefore convinced that the contention that the mortgage was made without
consideration was a afterthought without foundation in fact and in a vain attempt to avoid
a legal and binding obligation.

We find no merit in the contention that the trial court should have concerned itself with an
alleged parol contract between Martin and Dean C. Worcester, deceased. The alleged
contract not being in writing or to be executed within a year, it is within the statute of
frauds. The value of the rule is shown in this case as it was some time after Mr.
Worcester's death before anything was heard of such an alleged agreement. Even if such
an agreement had been made and it had been proper to receive proof thereof, it would
not benefit plaintiffs as the mortgage was executed pursuant to a compromise agreement
to settle the affairs between the two companies, and all the transactions between the two
companies were merged and settle by that compromise.
The contention that a new trial should have been granted in order that plaintiffs could
present in evidence a letter from Mr. Worcester to the late Governor-General Wood, is
likewise without merit. The letter, even if admitted, would not have changed the result of
these proceedings, as a fair reading of the letter is not repugnant to a single contention of
defendant-appellee.
The judgment appealed from is therefore affirmed. Costs against appellants. So ordered.
Malcolm, Villa-Real, Abad Santos, and Imperial, JJ., concur.
G.R. No. L-17504 & L-17506

carried out by them for defendant corporation, and "to collect, produce and/or pay to the
defendant corporation the outstanding balance of the amounts so diverted and still
unpaid to defendant corporation";
Under the SECOND CAUSE OF ACTION, that the individual defendants be held liable and
be ordered to pay to the defendant corporation "whatever amounts may be recovered by
the plaintiffs in Civil Case No. 20122, entitled 'Francisco Rodriguez vs. Ma-ao Sugar Central
Co.'"; to return to the defendant corporation all amounts withdrawn by way of
discretionary funds or backpay, and to account for the difference between the
corporation's crop loan accounts payable and its crop loan accounts receivable;
Under the THIRD CAUSE OF ACTION, that the corporation be dissolved and its net assets
be distributed to the stockholders; and
Under the FOURTH CAUSE OF ACTION, that the defendants be ordered "to pay the sum of
P300,000.00 by way of compensatory, moral and exemplary damages and for expenses of
litigation, including attorney's fees and costs of the suit."
THE FIFTH CAUSE OF ACTION was an application for the provisional remedy of
receivership.

February 28, 1969

RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS
and PATRIA SALAS, heirs of Magdalena Salas, as stockholders on their own
behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other
stockholders thereof who may wish to join in this action, plaintiffs-appellants,
vs.
MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S.
ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO, defendantsappellants.
San Juan, Africa and Benedicto for plaintiffs-appellants.
Vicente Hilado and Gianzon, Sison, Yulo and Associates for defendants-appellants.
CAPISTRANO, J.:
This was a representative or derivative suit commenced on October 20, 1953, in the Court
of First Instance of Manila by four minority stockholders against the Ma-ao Sugar Central
Co., Inc. and J. Amado Araneta and three other directors of the corporation.
The complaint comprising the period November, 1946 to October, 1952, stated five
causes of action, to wit: (1) for alleged illegal and ultra-vires acts consisting of self-dealing
irregular loans, and unauthorized investments; (2) for alleged gross mismanagement; (3)
for alleged forfeiture of corporate rights warranting dissolution; (4) for alleged damages
and attorney's fees; and (5) for receivership.
Plaintiffs prayed, in substance, as follows:
Under the FIRST CAUSE OF ACTION, that the defendant J. Amado Araneta and his
individual co-defendants be ordered to render an accounting of all transactions made and

In their answer originally filed on December 1, 1953, and amended on February 1, 1955,
defendants denied "the allegations regarding the supposed gross mismanagement,
fraudulent use and diversion of corporate funds, disregard of corporate requirements,
abuse of trust and violation of fiduciary relationship, etc., supposed to have been
discovered by plaintiffs, all of which are nothing but gratuitous, unwarranted, exaggerated
and distorted conclusions not supported by plain and specific facts and transactions
alleged in the complaint."
BY WAY OF SPECIAL DEFENSES, the defendants alleged, among other things: (1) that the
complaint "is premature, improper and unjustified"; (2) that plaintiffs did not make an
"earnest, not simulated effort" to exhaust first their remedies within the corporation
before filing their complaint; (3) that no actual loss had been suffered by the defendant
corporation on account of the transactions questioned by plaintiffs; (4) that the payments
by the debtors of all amounts due to the defendant corporation constituted a full,
sufficient and adequate remedy for the grievances alleged in the complaint and (5) that
the dissolution and/or receivership of the defendant corporation would violate and impair
the obligation of existing contracts of said corporation.
BY WAY OF COUNTERCLAIM, the defendants in substance further alleged, among others,
that the complaint was premature, improper and malicious, and that the language used
was "unnecessarily vituperative abusive and insulting, particularly against defendant J.
Amado Araneta who appears to be the main target of their hatred." Wherefore, the
defendant sought to recover "compensation for damages, actual, moral, exemplary and
corrective, including reasonable attorney's fees."
After trial, the Lower Court rendered its Decision (later supplemented by an Order
resolving defendants' Motion for Reconsideration), the dispositive portion of which reads:
IN VIEW WHEREOF, the Court dismisses the petition for dissolution but condemns
J. Amado Araneta to pay unto Ma-ao Sugar Central Co., Inc. the amount of

P46,270.00 with 8% interest from the date of the filing of this complaint, plus the
costs; the Court reiterates the preliminary injunction restraining the Ma-ao Sugar
Central Co., Inc. management to give any loans or advances to its officers and
orders that this injunction be as it is hereby made, permanent; and orders it to
refrain from making investments in Acoje Mining, Mabuhay Printing, and any
other company whose purpose is not connected with the Sugar Central business;
costs of plaintiffs to be borne by the Corporation and J. Amado Araneta.
From this judgment both parties appealed directly to the Supreme Court.
Before taking up the errors respectively, assigned by the parties, we should state that the
following findings of the Lower Court on the commission of corporate irregularities by the
defendants have not been questioned by the defendants:
1. Failure to hold stockholders' meetings regularly. No stockholders' meetings
were held in 1947, 1950 and 1951;
2. Irregularities in the keeping of the books. Untrue entries were made in the
books which could not simply be considered as innocent errors;
3. Illegal investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining,
P7,000.00. The investments were made not in pursuance of the corporate
purpose and without the requisite authority of two-thirds of the stockholders;
4. Unauthorized loans to J. Amado Araneta totalling P132,082.00 (which,
according to the defendants, had been fully paid), in violation of the by-laws of
the corporation which prohibits any director from borrowing money from the
corporation;
5. Diversion of corporate funds of the Ma-ao Sugar Central Co., Inc. to:
J. Amado Araneta & Co.

P243,415.62

Luzon Industrial Corp.

585,918.17

Associated Sugar

463,860.36

General Securities
Bacolod Murcia
Central Azucarera del Danao
Talisay-Silay

86,743.65
501,030.61
97,884.42
4,365.90

The Court found that sums were taken out of the funds of the Ma-ao Sugar Central Co.,
Inc. and delivered to these affiliated companies, and vice versa, without the approval of
the Ma-ao Board of Directors, in violation of Sec. III, Art. 6-A of the by-laws.
The errors assigned in the appeal of the plaintiffs, as appellants, are as follows:

I.
THE LOWER COURT ERRED IN HOLDING THAT THE INVESTMENT OF CORPORATE
FUNDS OF THE MA-AO SUGAR CENTRAL CO., INC., IN THE PHILIPPINE FIBER
PROCESSING CO., INC. WAS NOT A VIOLATION OF SEC. 17-½ OF THE
CORPORATION LAW.
II.
THE LOWER COURT ERRED IN NOT FINDING THAT THE MA-AO SUGAR CENTRAL
CO., INC. WAS INSOLVENT.
III.
THE LOWER COURT ERRED IN HOLDING THAT THE DISCRIMINATORY ACTS
COMMITTED AGAINST PLANTERS DID NOT CONSTITUTE MISMANAGEMENT.
IV.
THE LOWER COURT ERRED IN HOLDING THAT ITS CULPABLE ACTS WERE
INSUFFICIENT FOR THE DISSOLUTION OF THE CORPORATION.
The portions of the Decision of the Lower Court assailed by the plaintiffs as appellants are
as follows:
(1) ".... Finally, as to the Philippine Fiber, the Court takes it that defendants admit
having invested P655,000.00 in shares of stock of this company but that this was
ratified by the Board of Directors in Resolutions 60 and 80, Exhibits "R" and "R2"; more than that, defendants contend that since said company was engaged in
the manufacture of sugar bags it was perfectly legitimate for Ma-ao Sugar either
to manufacture sugar bags or invest in another corporation engaged in said
manufacture, and they quote authorities for the purpose, pp. 28-31,
memorandum; the Court is persuaded to believe that the defendants on this
point are correct, because while Sec. 17-1/2 of the Corporation Law provides
that:
No corporation organized under this act shall invest its funds in any
other corporation or business or for any purpose other than the main
purpose for which it was organized unless its board of directors has
been so authorized in a resolution by the affirmative vote of
stockholders holding shares in the corporation entitling them to exercise
at least two-thirds of the voting power on such proposal at the
stockholders' meeting called for the purpose.
the Court is convinced that that law should be understood to mean as the
authorities state, that it is prohibited to the Corporation to invest in shares of
another corporation unless such an investment is authorized by two-thirds of the
voting power of the stockholders, if the purpose of the corporation in which
investment is made is foreign to the purpose of the investing corporation
because surely there is more logic in the stand that if the investment is made in

. first. — against whom apparently plaintiffs have no quarrel. C-1. 230231. the fact that off and on. there is really reason to find that said anomaly is not a clear basis for the derivative suit.082. namely. and the amount of P1. those grievances were grievances of plaintiffs as planters and not as stockholders — just as the grievance as to the crop loans already adverted to. manipulation of cane allotments. the Court therefore finds this count to be duly proved. AMADO ARANETA. THE AMOUNT OF P46. does not appear to have made any protest against the same. 1952. formation of rival planters associations. on the other hand.) xxx xxx xxx (3) "As to the crop loan anomalies in that instead of giving unto the planters the entire amount alloted for that. while the books of the Corporation would show that the last balance of P46.. Going to the discriminatory acts of J. AMADO ARANETA TO PAY TO MA-AO SUGAR CENTRAL CO. proved as already mentioned. Art. Amado Araneta. the only trouble here is that the investment was made without any previous authority of the Board of Directors but was only ratified afterwards. for the Court must admit its limitations and confess that it cannot pretend to know better than the Board in matters where the Board has not transgressed any positive statute or by-law especially where as here. and February 25. in 1947. e. the Court has no doubt that this was against the By-Laws which provided that: The Directors shall not in any case borrow money from the Company.. there is ground to hold with defendants that it was an anomaly pernicious not to the Central but to the planters. Amado Araneta secured personal loans..708. 127.56. A).270. the errors assigned in the appeal of the defendants as appellants are as follows: I. pp. there is the circumstance that presumably. Vol. p. S. however. the granting of personal loans to J. withholding of molasses and alcohol shares. refusal to deal with legitimate planters group. Francisco Rodriguez v.supra. and as admitted by defendants. that part containing the decision of the Court of First Instance of Manila.. 1947 by charges transferred to loans receivable nor was interest paid on this amount. (Decision. an impartial representative in the Board of Directors. but that it included the Central's own credit line on its 40% share in the standing crop.22. (Decision. THE DAMAGES PRAYED FOR IN THE COUNTERCLAIM OF SAID DEFENDANTS. for the reason. pp. the net result will be to hold that the culpable acts proved are not enough to secure a dissolution. resolutions passed on February 25. as can be seen in Appendix A of Exh. 7).063. Ma-ao Sugar.) On the other hand. Dunca p.488. 243-244. it is really true that according to the books. namely. there should have been a showing that the Central had no authority to make the diversion. the crop loan receivable. pp. the Court will only order the correction of abuses. the Court has noted against plaintiffs that their contention that Ma-ao Sugar is on the verge of bankruptcy has not been clearly shown. and that this irregularity amounts to a grievance by plaintiffs as planters and not as stockholders.. worse. etc. THE LOWER COURT ERRED IN NOT ORDERING THE PLAINTIFFS TO PAY THE DEFENDANTS. WITH 8% INTEREST FROM THE DATE OF FILING OF THE COMPLAINT. defendants contend that the first amount did not represent the totality of the crop loans obtained from the Bank for the purpose of relending to the planters. 239-241 of Record on Appeal. this of course would have the effect of legalizing the unauthorized act but it is an indication of the manner in which corporate business is transacted by the Ma-ao Sugar administration. 244. if the anomaly existed. Amado Araneta of P46. Exh. civil 20122.270.. J.270. 1. 7. while the theory of plaintiffs is that since between the amount of P3. and secondly.083.a corporation whose business is important to the investing corporation and would aid it in its purpose.) xxx xxx xxx (4) ". — the one from the Philippine National Bank. there is a difference of P2. withholding of trucking allowance. 1. the Central withheld a certain portion for their own use. Sanchez.. (Sec.00. nor will the Court grant any more damages one way or the other. to require authority of the stockholders would be to unduly curtail the Power of the Board of Directors.supra. C-3 perhaps the best proof that insolvency is still far is that this action was filed in 1953 and almost seven years have passed since then without the company apparently getting worse than it was before.791. because plaintiffs' evidence is not very sufficient to prove clearly the alleged diversion in the face of defendants' defense. 1947. that even if these were true. resolutions ratifying all acts previously done by the management.g.00 was closed on October 31. the Court finds that this is related to charge No. as testified to by Auditor Mr. by the Board of Directors as set forth in the affidavit of Isidro T. against this are Exh. supra.00 was written off as paid. the payment appeared to be nothing more than a transfer of his loan . PARTICULARLY J. the cash advance to him was P132.) xxx xxx xxx (2) "On the other hand. INC.00 (Exh. the Court also finds that as plaintiffs contend. the Court must find that as to this count. this in a way is corroborated by Exh. II. C to Exh. there would be passed by the Board of Directors. the Court notices that as to the failure to provide hauling transportation. The portions of the Decision of the Lower Court assailed by the defendants as appellants are as follows: (1) "As to the alleged juggling of books in that the personal account of J. III. — this Court will find insufficient merit on this count." (Decision.551. it was not even pernicious to the stockholders. this would indicate that this latter sum had been used by the Central itself for its own purposes. Amado Araneta.78 the crop loan account payable. (Decision. THE LOWER COURT ERRED IN ADJUDGING J.

000.000.00 worth of capital stock of the Philippine Fiber Processing Co. 1952. (Decision. nor is there anything in the complaint essentially libelous. 1953. . supra. 1951. Inc. Inc. that the said Board Resolutions are valid.000. and that it was only on November 26. for P100. but the Court has not found that the complaint is premature. the Court does not concur. The First Assignment of Error in the brief of the plaintiffs as appellants.. the excess of liabilities over assets does not establish insolvency. 812-813. or for any purpose other than the main purpose for which it was organized. 1952. and (3) that the acts of mismanagement complained of and proved do not justify a dissolution of the corporation. 233-235 of Record on Appeal.000. citing "Thwing v. Inc. malicious and that the language is unnecessarily vituperative abusive and insulting. 17-½ of the Corporation Law. 3 and 4 contained in the brief of the plaintiffs as appellants. to the Court. when other assets are available. 5 photostatic copy of the page in loan receivable and it is sought to be proved that J. and on March 6. Inc. as well as a consideration of the liabilities. Amado Araneta. of the Law of Private Corporations.. Bank of St... Be it stated that defendants have presented in evidence Exh. deserves consideration. 1960. as appellants. in another corporation (the Philippine Fiber Processing Co. to the defendant Ma-ao Sugar Central Co.000. it appears to us that the Lower Court was correct in its appreciation (1) that the evidence presented did not show that the defendant Ma-ao Sugar Company was insolvent (2) that the alleged discriminatory acts committed by the defendant Central against the planters were not a proper subject of derivative suit. that payments on the subscription were made on September 20. provides: No corporation organized under this act shall invest its funds in any other corporation or business. for it has not seen anything in the evidence that would justify a finding that plaintiffs and been actuated by bad faith. The legal provision invoked by the plaintiffs. with a valuation of P355. especially as the rule is that allegations in pleading where relevant. 564.. and clarifies that it has dismissed the counterclaims of defendant. Cas. these findings can be gleaned from the decision with respect to the allegation that the complaint was abusive and insulting. Again the "investment" was made without prior board resolution.W..00. (Fletcher Cyc. Vol.. 252). 158 N.. constituted a cause of action of the individual planters. subscribed for P300. 7 Minn. the Court takes it that its findings of fact on pages 17 to 21 of its decision were enough to justify a dismissal of the counterclaim.) (2) "With respect to the second point in the motion for reconsideration to the effect that the Court did not make any findings of fact on the counterclaim of defendants. Emphasis supplied). through its President. nor has the Court found that the complaint was malicious. 15A. the Court makes its position clear on this matter in this order.receivable account. in the absence of definite primary proof of actual payment having found out that there had already been a juggling of books. 17-½ of the Corporation Law. But the mere impairment of capital stock alone does not establish insolvency there being other evidence as to the corporation being a going concern with sufficient assets.. Plaintiffs-appellants contend that in 1950 the Ma-ao Sugar Central Co. 17-½ of the Corporation Law. Mitchell v. 148.. as appellees. on April 30.. that the President of Ma-ao Sugar Central Co. Paul.. 780. 1942 Ed. stated otherwise.00 on the basis of P1. the item was only transferred from the personal account to the loan receivable account. so that the Court has not seen any merit in the counterclaims. is still wanting in legality. 13. or are. 159 N. J. protected in some other way. Whether insolvency exists is usually a question of fact.. 1938 Ed pp. 1918 E 420. at most.. but. and the Court had believed that the decision already carried with it the implication of the dismissal of the counterclaims.W. for P150. was so authorized by the Board of Directors. Corporations. 820..00 par value per share. corporation were transferred on May 31.. because the counterclaims were based on the fact that the complaint was premature.W. although the Court did not say that in so many words. it cannot just believe that the amount had been paid as noted in the books.. as required in Sec. On the other hand. — Every corporation has the power: xxx xxx xxx . Plaintiffs-appellants also contend that even assuming. to be determined from an inventory of the assets and their value. for P50. Sec.) constitutes a violation of Sec. Amado Araneta's debt was totally paid on 31 October. it is also true that the loans were secured without any interest and while it is true that in the Directors' meeting of 21 October." (Order of September 3.00. owned by Luzon Industrial. Inc. it was resolved to collect 8%. and then again.) Regarding Assignment of Errors Nos. But relief by dissolution will be awarded in such cases only where no other adequate remedy is available. 355. the transaction.. par. pp.00. contending that the investment of corporate funds by the Ma-ao Sugar Co. 156 N. the authorizing resolution having been subsequentIy approved only on June 4. so that again the Court considers established the juggling of the books. 10 of the Corporation Law. pp. no resolution having been approved by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power. Also. 1950.000 shares of stock of the same Philippine Fiber Processing Co.. 1951. improper.. pp. McDonald".. 134 Minn.. are privileged even though they may not clearly proved afterwards. 13. 1952. Inc. 248249. Ann. 1953. In addition. 34-37. (16 Fletcher Cyc. but if that is not enough. the Court does not see how such a unilateral action of the Board could bind the borrowers. the defendants. which provides: SEC. arguendo. 2. unless its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such proposal at a stockholders' meeting called for the purpose . Inc. invoked Sec. that at the time the first two payments were made there was no board resolution authorizing the investment. and is not available where the rights of the stockholders can be.

the vote of approval of the stockholders is necessary. Mabuhay Printing." As regards defendants' first assignment of error. that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. A reading of the two afore-quoted provisions shows that there is need for interpretation of the apparent conflict. pledge or dispose of shares. particularly in this case where there is evidence that the account in question was transferred from one account to another. In the judgment. In any case... — A private corporation has the power to invest its corporate funds in any other corporation or business. 17. (Id. Professor Sulpicio S. affirmed. malicious and that the language is unnecessarily vituperative abusive and insulting. College of Law. the lower court ordered the management of the Ma-ao Sugar Central Co. has the power to acquire.)lawphi1.. 89. As the Lower Court aptly ruled in its Order of September 3. We therefore agree with the finding of the Lower Court that the investment in question does not fall under the purview of Sec. and subject to the limitations imposed by the Corporation Law.. are privileged even though they may not be clearly proved afterwards. mortgage. The other parts of the judgment are. but the Court has not found that the complaint is premature. "because the counterclaims were based on the fact that the complaint was premature. namely. hold.) We agree with Professor Guevara. and in order to accomplish its purpose as stated in the articles of incorporation. 1960 (resolving the defendants' Motion for Reconsideration) the findings of fact were enough to justify a dismissal of the counterclaim. 1967 Ed. provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose.." is reversed. photostatic copy of the page on loans receivable does not constitute definite primary proof of actual payment. pledge or dispose of shares. . 17-½ of the Corporation Law allows a corporation to "invest its fund in any other corporation or business." now in its 5th edition. and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce or combination in restraint of trade. nor is there anything in the complaint essentially libelous especially as the rule is that allegations in pleadings where relevant. There is no better substitute for an official receipt and a cancelled check as evidence of payment. (10) Except as in this section otherwise provided. these findings can be gleaned from the decision. or (b) that a non-agricultural or non-mining corporation shall be restricted to own not more than 15% of the voting stock of any agricultural or mining corporation. Guevara. No special pronouncement as to costs.00. does not need the approval of the stockholders.(9) To enter into any obligation or contract essential to the proper administration of its corporate affairs or necessary for the proper transaction of the business or accomplishment of the purpose for which the corporation was organized.' and provided further. IN VIEW OF ALL THE FOREGOING. Mabuhay Printing and any other company whose purpose is not connected with the sugar central business. Inc. this Court likewise agrees with the finding of the Lower Court that Exhibit 5." This portion of the decision should be reversed because. and other evidences of indebtedness of any domestic or foreign corporation. Power to acquire or dispose of shares or securities. the second (referring to the counterclaim) is clearly without merit. for it has not seen anything in the evidence that would justify a finding that plaintiffs had been actuated by bad faith. referring to the status of the account of J. Such an act. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation. mortgage. as follows: j. to acquire. improper. securities.) (Emphasis ours. but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation. nor has the Court found that the complaint was malicious. "to refrain from making investments in Acoje Mining. that part of the judgment which orders the Ma-ao Sugar Central Co.270." provided that its board of directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. bonds. Guevara of the University of the Philippines.nêt 40. In his work entitled "The Philippine Corporation Law. in order to accomplish its purpose as stated in its articles of incorporation. with respect to the allegation that the complaint was abusive and insulting.½ of the Corporation Law. securities and other evidences of indebtedness of any domestic or foreign corporation. 108. Sec. the purchase of such shares or securities must be subject to the limitations established by the Corporation Law. — A private corporation. (The Philippine Corporation Law by Sulpicio S. bonds. if done in pursuance of the corporate purpose. hold. Power to invest corporate funds. (a) that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. or for any purpose other than the main purpose for which it was organized. or for any purpose other than the main purpose for which it was organized.. the Court does not concur. Amado Araneta in the amount of P46. With respect to the defendants' assignment of errors. . reconciled these two apparently conflicting legal provisions. and any other: company whose purpose is not connected with the sugar central business. "to refrain from making investments in Acoje Mining.) (Emphasis ours. p. a well-known authority in commercial law. p. the approval of the stockholders is not necessary. Inc.

4 burners. Gatchalian & Padilla for appellant. et al. REYES. 1953. and the following personal properties therein contained: 1 Radio. cabinet type. in order to secure an indebtedness of P15. L-13194 January 29.Teodoro Padilla for the other appellees. Zenith. Emiliano Tabasondra for appellee Company. plaintiff's motion for reconsideration was denied. Pasay City. 1 Cooler. stateside. for lack of sufficient cause of action. .L. The facts are that on May 8. and the case was appealed to this Court.. SALDANA.. plaintiff-appellant. 1957 of the same court. J. 1 Frigidaire. No. defendants-appellees. Josefina Vda. 1960 BUENAVENTURA T.: This case arose from a complaint for damages filed by Buenaventura Saldana (docketed as Civil Case No. vs.G.R. J.000. 1957. In another order of September 30. 8 cubic feet. de Aleazar executed in favor of the plaintiff-appellant Buenaventura Saldana a chattel mortgage covering properties described as follows: A building of strong materials. 1 Electric range. 32703 of the Court of First Instance of Manila) that was dismissed by order of the Court dated August 20. located in front of the San Juan de Dios Hospital at Dewey Boulevard. used for restaurant business.. INC.00.B. PHILIPPINE GUARANTY COMPANY.

for P1. 464). 32 Chromiun chairs. Guam Bee Co. Crooks State Bank.. The rules are general in nature and are different where the controversy is between the parties to the mortgage from the situation where third parties with out actual notice come in. 1 Table (large) with 5 chairs. 1 Freezer (G.E. on February 13. stock. stateside. N. 6 pieces. cabinet type. In virtue thereof. 1 Bedroom set. to wit: 1 Radio. 72 Phil. 1 Freezer (deep freeze). (See Stockholder vs. Accordingly. 1 Table with 4 (wooden) chairs.W. being situated in or about the shop or building now occupied by me in Howley Stree" (Winslow vs. in Civil Case No. "all of the property of the said W.E. Section 7 of Act No.L. 120 Fed. Dec. Deep freezer. Deepfreezer. de Eleazar. fixtures and equipment found in the said premises". executed an indemnity bond to answer for any damages that plaintiff might suffer. On January 31.500. 993. obtained. Thus. the defendants-appellees Hospital de San Juan de Dios. 1 Tocador (brown with mirror). 614). after reasonable inquiry and investigation to identify the same". 6 pieces.. or any other person. iron tools manufactured articles and property of every description. 1 Sala set upholstered.C. 1 G. 44 Phil. 1508. 64 A. and the Philippine Guaranty Co. 1930 of the Municipal Court of Pasay City. stateside.J. There is merit in appellant's contention. it is said: "Ad against third persons the description in the mortgage must point out its subject matter so that such person may identify the chattels . Subsequent to the execution of said mortgage and while the same was still in force. 1957. 97 Am.. 1 table and 3 sidetables .E. 1957. Inc.1 G. on the theory that parol evidence could supplement it to render identification rule is expressed in Walker vs. stateside. a judgment was duly Josewfina Vda. 2 Showcases (big. general description have been held by this Court. with mirrors).00.) 1254 A.. "all goods in the store where they are doing business in E. Ramirez. 368. 1 Wooden drawer. Gauged by this standard. whereupon the following properties of Josefina Eleazar were levied upon: 8 Tables with 4 (upholstered) chairs each. Dec. 755). the same was served on the judgment debtor by the sheriff of Pasay City. Inc. Zenith. stateside. A similar rule obtains in the United States courts and decisions there have repeatedly upheld clauses of general import in mortgages of chattels other than goods for trade. the sheriff released only some of the property originally included in the levy of January 28. Co. Johnson (Mont. with 4 burners). 1957. and containing expressions similar to that of the contract now before us.) were held sufficient description. the said properties were sold to the defendant hospital as the highest bidder. the plaintiff-appellant Saldana filed a third-party claim asserting that the above-described properties levied are subject to his chattel mortgage of May 8. 937: The courts and textbook writers have developed several rules for determination of the sufficiency of the description in a chattel mortgage. 1 Radio-phono (Zenith.." (Davis vs.. on January 28. Appellants claims that the phrase in the chattel mortgage contract — "and all other furnitures. as to warrant an action for damages by the plaintiff mortgagee. 8 Tables. wares. 8 tubes). 605). Allen used or situated upon the leased premises" (Dorman vs. 2 Beds (single type). Winne. fixtures or equipment found in the said premises. A writ of execution was duly issued and. 1 Gas range (magic chef. does not demand a minute and specific description of every chattel mortgaged in the deal of mortgage but only requires that the description of the properties be such "as to enable the parties in the mortgage.R. the defendant Hospital de San Juan de Dios. commonly and better known as the Chattel Mortgage Law.L. Pedro de Jesus vs. 1957. City. 1 Rattan sala set with 4 chairs. 32 Chromium chairs. Turner. 457. "all and singular the goods.). 1953..R. To proceed with the execution sale of the rest of the properties still under levy. Merchants Ins. Inc. And all other furniture's. validly and sufficiently covered within its terms the personal properties disposed of in the auction sale. In 11 C. 38 Am. Inc. 1 Aparador . 8 Tables. "and all other stones belonging to me and all other goods and chattels" (Russel vs.

we believe. J. vs. which articles can be definitely pointed out or ascertain by simple inquiry at or about the premises. the description is sufficient if it points to evidence whereby the precise thing mortgaged may be ascertained with certainty. Zobel vs. respondents. Cayanga. Barrera and Gutierrez David. though otherwise faulty. the orders appealed from are set aside and the case remanded to the lower court for further proceedings... they should be treshed out in the insolvency proceedings. It can thus be reasonably inferred therefrom that the "furnitures. wares. which appears inconsistent with the definitive character of the rulings invoked. SACOBA MANUFACTURING CORP. Wherefore. if pursued will disclose the property conveyed. Costs against appellee. fixture and equipment" referred to are properties of like nature. the mortgage explicity states that the property is in the possession of the mortgagor." In 5 R. but it is not essential that the description be so specific that the property may be identified by it alone. 52 Off. 213. which is that the description be only such as to enable identification after a reasonable inquiry and investigation. Blanco. Bengzon. thereby making any particular or definite identification either impractical or impossible under the circumstances. not to those already existing and originally included at the date of the constitution of the chattel mortgage.. p. and THOMAS GONZALES. Gaz.C. cannot be likened to the case at bar. aided by inquires which the instrument itself suggest to identify the property is sufficiently definite. 44 Phil.L... C. that the phrase in question is found after an enumeration of other specific articles. Paras. Zuniga & Angel Law Offices for petitioners. LACDAO. LEE and ANTONIO DM. In many instances the courts have held the description good where. Labrador." In 1 Jones on Chattel Mortgages and Conditional Sales. PABLO GONZALES. 220) — Moreover.observed. A contrary view would unduly impose a more rigid condition than what the law prescribes.: . Bautista Angelo.. 93695 February 4. and especially where it is the only property of that kind owned by him.. 219. Bowers Edition. A. petitioners. Jureidini Bros. Note that the limitation found in the last paragraph of section 7 of the Chattel Mortgage Law 1on "like or subsituated properties" make reference to those "thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged". Concepcion. cited by the appellees and the lower court. the mortgagee or third persons. if such description or means of identification which. for there. 1992 RAMON C. The rule in the Jureidini case is further weakened by the court's observation that (44 Phil. No. We may notice in the agreement. if there should exist any doubts on the questions we have just discussed. in substantial compliance with the "reasonable description rule" fixed by the chattel Mortgage Act.. We find that the ground for the appealed order (lack of cause of action) does not appear so indubitable as to warrant a dismissal of the action without inquiry into the merits and without the description in the deed of mortgage (Nico vs. Timbol & Associates for private respondents.R. JR.N. the properties deemed overed were more or less fixed. J. The case of Giberson vs. THE HON. 81 Phil. Pasay City.J. 216. effects. Abreau. 3592). COURT OF APPEALS. concur. similarly situated or similarly used in the restaurant of the mortgagor located in front of the San Juan de Dos Hospital at Dewey Boulevard. The specifications in the chattel mortgage contract in the instant case. what were sought to be mortgaged included two stores wit all its merchandise. at page 95 the writer says: "As to them (third persons). moreover. or at least permanently situated or used in the premises of the mortgagor's restaurant. could ascertain with any certainty what chattels were covered by the mortgage. Montemayor. and other bazar goods which were being constantly disposed of and replaced with new supplies in connection with the business." Here there is nothing in the description "873 head of sheep" from which anyone. JR. Endencia. Here. GUTIERREZ. G. 423 the rule is stated that a description which will enable a third person..

On April 25. On July 18. on the other hand. the private respondents argued that the voting trust agreement dated March 11. In a manifestation dated July 22. in turn. 1989. 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA. 1989. the public respondent rendered its decision. for short). 1990. . the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10. On March 19. the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included). of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP. for short) through the petitioners as president and vice-president. On September 18. the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14. Inc. 1989. 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. 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. 1988. 1988. 1989 and August 14. 1987. Subsequently. the orders of respondent judge dated April 25. On January 2. and the DBP. 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. i. filed a third party complaint against ALFA and the petitioners on March 17. 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. after the petitioners filed their answer to the private respondents' petition for certiorari. the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17. On August 4.through publication to effect proper service upon ALFA. on October 25. 1989. 1989. 1990. 8. they could no longer receive summons or any court processes for or on behalf of ALFA. 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. whereby the management and control of ALFA became vested upon the DBP. p. 24) On April 11. the dispositive portion of which reads: WHEREFORE. On May 15. in view of the foregoing. the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA. the trial court upheld the validity of the service of summons on ALFA through the petitioners. Hence. 1988. 1989 of the court a quo.What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari — whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA. In support of their second motion for reconsideration. 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. 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper. the trial court. the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati. From the records of the instant case. allegedly. 1990. On August 16. on July 12. nonetheless. 1986. 1989. Branch 58 denied in an Order dated June 27. Meanwhile. 1989 denying the private respondent's motion for reconsideration. In their Comment to the Motion for Reconsideration dated September 27. 1985. On September 12. the petitioners filed their answer to the third party complaint. Rollo. resolved to give due course thereto on September 21. the public respondent inadvertently made an entry of judgment on July 16. on the one hand. On October 17. 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action. thus. the petitioners filed a motion for reconsideration submitting that Rule 14. p. 1988. the following antecedent facts appear: On November 15. thus. 1989. In the meantime. against the private respondents who. a petition for certiorari was belatedly submitted by the private respondent before the public respondent which. hence. a complaint for a sum of money was filed by the International Corporate Bank. Section 16 of the said Rules. 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. (CA Decision. On September 17. 1989 and August 14.. the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25. holding that there was proper service of summons on ALFA through the petitioners.e. 1988. 1988. On January 19. 1988. the trial court reversed itself by setting aside its previous Order dated January 2. 1988. not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25. denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided. as trustee. not to appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. either with or without a reservation to the owners. the point of controversy arises from the effects of the creation of the voting trust agreement. sec. (CA Rollo. Intermediate Appellate Court. the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals. we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. on the one hand. 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. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. They argue that by virtue to of the voting trust agreement the petitioners . 2703273). to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo. it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. pp. said agreement is ineffective and unenforceable. 331citing Tankersly v. supra. either for certain purposes or for all purposes. section 2075 [1976] p. or until the agreement is terminated. pp. 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. A voting trust agreement must be in writing and notarized. In the instant case. a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud. 538) Under section 59 of the Corporation Code. to wit: (1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as director of the corporation.However. may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders. the former assigned and transferred all their shares in ALFA to DBP. in its Resolution dated January 3. the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement. A voting trust is defined in Ballentine's Law Dictionary as follows: (a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission. the petitioners present the following arguments. (2) that the voting rights granted are intended to be irrevocable for a definite period of time. as one party." (section 59. 379 sec. therefore. 1 [d]. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA. whereby it is provided that for a term of years. 1991. 59. in order to distinguish a voting trust agreement from proxies and other voting pools and agreements. However. Cyclopedia of the Law on Private Corporations. Albright. is to be lodged in the trustee. namely: (1) that the voting rights of the stock are separated from the other attributes of ownership. 374 F. said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. the right to inspect the books of the corporation. or for a period contingent upon a certain event. The execution of a voting trust agreement. and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. and (2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14. would be violative of section 23 of the Corporation Code ( Rollo. 176 SCRA 539 [1989]. 273-275) In resolving the issue of the propriety of the service of summons in the instant case. as the other party. 685). it must pass three criteria or tests. Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective. pp. By its very nature. of the power to direct how such control shall be used. as the respondent Court of Appeals did. and shall specify the terms and conditions thereof. (98 ALR 2d. control over the stock owned by such stockholders. 5th paragraph of the Corporation Code) Thus. (5 Fletcher. 19 Am J 2d Corp. In 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. and the DBP. and the legal title thereto on the other hand. that in the case of a voting trust specifically required as a condition in a loan agreement. Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements. to rule otherwise. a more definitive meaning may be gathered. otherwise. The said provision partly reads: Sec. Supp. 249-250) In their memorandum. or persons designated by them.

the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. . citing 5 Fletcher 326. insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation.E. not beneficial ownership of.. (Emphasis supplied) Under the old Corporation Code. 268. matter or business that may be submitted to any such meeting. In support of their contention. . Cyclopedia of the Law of Private Corporations. (Rollo. on the contrary. 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 penultimate question. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA. 492-493. remains and is treated as a stockholder. Consequently. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. 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. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 1981. supra. p. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations: 1. 1969 ed. therefore. [Commercial Laws of the Philippines by Agbayani. such as. 1988 ed. as trustee. Vol. 327] (Rollo. the eligibility of a director. also called the "depositing stockholder". 3 pp. . this is a clear indication that in order to be eligible as a director. p. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature. They cited the commentaries by Prof. strictly speaking. Commentaries and Jurisprudence on the Commercial Laws of the Philippines. . Notes & Selected Cases. Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution — from legal titleholder or owner of the shares subject of the voting trust agreement. (Salonga. They also ceased to have anything to do with the management of the enterprise. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this . annual or special. 175. p. Vol. xxx xxx xxx 9. 269 Ill. upon any resolution. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred. 2. which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof. in part. p. 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. p. by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP. to wit: The "transferring stockholder". which stock shall stand in his name on the books of the corporation. and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock. 296) Hence..Philippine Law on Private Corporations. Lihme." Section 30 of the old Code states that: Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director. 3. the stock as appearing on the books of the corporation (2 Fletcher. is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right. 291) We find the petitioners' position meritorious. ed. The Law on Private Corporations and Corporate Practice. p. The Corporation Code. what is material is the legal title to. 270) The private respondents. 3. No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. 4. 386. The facts of this case show that the petitioners. Hence. Pineda and Carlos.can no longer be considered directors of ALFA. 351. section 300. Agbayani. 1051). 536). The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA. 109 N. 92 [1969]citing People v. Campos and Lopez-Campos. cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). p. p. Aguedo Agbayani on the right and status of the transferring stockholders. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and LopezCampos.. Comments. The petitioners ceased to be directors. and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person. a technical stockholders' suit in right of the corporation. 1958 ed. the petitioners invoke section 23 of the Corporation Code which provides.. he becomes the equitable or beneficial owner. and thus render them ineligible as directors.

p. In view of the foregoing. G. the DBP would not have transferred all its rights. Department of Labor and Employment. service may be made on the president. WHEREAS. On the contrary. there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21. it is stated that the DBP. the TRUSTEE is one of the creditors of ALFA. AND WHEREAS. Under section 13. Both parties. or any portion thereof. still belonged to the DBP. and is renewable for as long as the obligations of ALFA with DBP. in consideration of additional accommodations from the TRUSTEE. 140-142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA. v. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. Moreover. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. December 21. 137-138. Emphasis supplied) Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee. the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA. . Service upon private domestic corporation or partnership. ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations. the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE. ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE. There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: Unless expressly renewed. WHEREAS. of the corporation at the time of service of summons on them on August 21.. had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CA Rollo. In the same certification. Osias Academy v. and its credit is secured by a first mortgage on the manufacturing plant of said company. the public respondent committed a reversible error when it ruled that: . This Agreement shall last for a period of Five (5) years. THEREFORE. and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors. still directors .agreement. all the directors of ALFA were stripped of their positions as such. the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. the latter became the stockholder of record with respect to the said shares of stocks. it is hereby agreed as follows: xxx xxx xxx 6. 137-138) Had the five-year period of the voting trust agreement expired in 1986. 1987. . 4 of the subject voting trust agreement..R. (CA Rollo. Remedial Management Group. — If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered. and this agreement shall have the same force and effect upon that said stockholder. then. DBP is willing to accept the trust for the purpose aforementioned. 1987. . This is shown by the following portions of the agreement. 72 SCRA 347 [1976]. WHEREAS. Inc. manager. There appears to be no dispute from the records that DBP has taken over full control and management of the firm. Thus. 13. . In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA. pp. 1990). remains outstanding. Guevarra. 142) Hence. et al. ALFA and the DBP. 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24. all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period. in the Certification dated January 24. Vice-President of its Special Accounts Department II. the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president. Rule 14 of the Revised Rules of Court. 1989 issued by the DBP through one Elsa A. secretary. Araneta. . cashier. The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. pp. pp. the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative." (CA Rollo. titles and interests in ALFA "effective June 30. NOW. they were at least up to that time. 83257-58. (CA Rollo. it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. agent or any of its directors. (See Sulo ng Bayan Inc. 1989 of the Vice President of the DBP's Special Accounts Department II. respectively. the petitioners were no longer included in the list of officers of ALFA "as of April 1982. from 1987 until 1989. it is provided that: Sec. were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP. Nos.

Bidin. No. petitioner.00 Philippine Commercial and Industrial Bank 1. WHEREFORE. Garcia. (against immediate shipment) 555.00. v. Batjak for short) for the appointment of receiver and denied petitioners' motion to dismiss the complaint of said private respondent. CONSING and ROBERTO S. shown as follows: Republic Bank P 2. EUSEBIO VILLATUYA MARIO Y. Palafox. No. BENJAMIN AQUINO. Far East Motor Corp. (Basic Agricultural Traders Jointly Administered Kasamahan) is a Filipino-American corporation organized under the laws of the Philippines. HON. Inc. Branch 58 are REINSTATED. Batjak's financial condition deteriorated to the point of bankruptcy. is not valid. SO ORDERED. NIDC et al. primarily engaged in the manufacture of coconut oil and copra cake for export. 146 SCRA 197 [1986] citing Villa Rey Transit. G. the petition is hereby GRANTED. BENEDICTO. L-34192 June 30.00 Manila Banking Corporation 2. 52 SCRA 210 [1973]). entitled Batjak Inc. Davide.346.000. Nos. Batjak.. Batjak's indebtedness to some private banks and to the Philippine National Bank (PNB) amounted to P11. with preliminary injunction.000. No. Feliciano. (Far Corporation v. PADILLA. Francisco. and Romero. No.000. GRACIANO A. 1988 NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION.324. dated 16 August 1971 and 30 September 1971..000.00 Cruz.00 TOTAL 11. in his official capacity as Presiding Judge of Branch VIII of the Court of First Instance of Rizal.R. Inc.R. The petitioners in this case do not fall under any of the enumerated officers.000. The appealed decision dated March 19. 14452 of said court. 1990 and the Court of Appeals' resolution of May 10. Cruz & Reyes for movant in G. Tolentino. through the petitioners. Benemerito & Associates for private respondents in G. GARCIA and MARCELINO CALINAWAN JR. Geraldez. in Civil Case No.000. As of that year. petitioners. No.00 Manufacturers Bank 440. 1988 PHILIPPINE NATIONAL BANK. Jr. premises considered. J. AQUINO.000. 34192. as correctly argued by the petitioners. To rule otherwise. G. 81 SCRA 303 [1978]). 34192 & 34213. vs.000.00 . BATJAK INC.: These two (2) separate petitions for certiorari and prohibition. 34213.000.The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (against immediate shipment) 5.915. will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. 1989 issued by the Regional Trial Court of Makati. seek to annul and set aside the orders of respondent judge.00 Hongkong and Shanghai Banking Corporation 250." The order of 16 August 1971 1 granted the alternative petition of private respondent Batjak. PNB export advance line Duran. (see Vicente v. therefore.000.R. respondents. Alfonso and Associates for petitioner NIDC in G. HON.R. vs.R. Chuanico Oebanda. The service of summons upon ALFA. JJ. concur. The order dated 30 September 1971 2 denied petitioners' motion for reconsideration of the order dated 16 August 1971. 1990 are SET ASIDE and the Orders dated April 25.R. respondents. Foreign Export Advances The Chief Legal Counsel for petitioner PNB in G..00 Reyes and Sundiam Law Office for respondent Batjak. L-34213 June 30.915.000. The herein petitions likewise seek to prohibit the respondent judge from hearing and/or conducting any further proceedings in Civil Case No. L-34192. in his capacity as Presiding Judge of the Court of First Instance of Rizal. Inc. vs. Branch VIII and BATJAK INCORPORATED. BENJAMIN H. 1989 and October 17. In 1965. 14452 of the Court of First Instance of Rizal.

500 within a period of one to two years at NIDC's option. Jimenez. shall be applied to the latter three (3) banks accounts with the Loans & Discounts Dept. 6) That this accomodation shall be secured by the joint and several signatures of officers and directors. at your expense. 3) That the above banks (Republic Bank. Escolta.000.500. Manufacturers Bank & Trust Company and the PCIB which. and Tanauan. NIDC shall match your P 10 million subscription by an additional investment of P3. three (3) from your firm and the other four (4) from the PNB-NIDC. Puyat Bldg.) shall release in favor of PNB the first and any mortgage they hold on your properties. In need for additional operating capital to place the three (3) coco-processing mills at their optimum capacity and maximum efficiency and to settle. Davao City is erected in favor of PNB. 11) That we shall grant you an export advance of P3 million to be used for copra purchases. d) That release or releases against the line shall be covered by promissory note or notes for 90 days but not beyond the expiry dates of the coveting L/C and proceeds of said L/C shall first be applied to the correspondent drawings on the line. & PCIB) shall be applied to reduce the above Demand Loan of P 5 million. INCORPORATED 8) That a comptroller.00. participating and convertible within 5 years at par into common stocks to liquidate your accounts with the Republic Bank. Misamis Occidental and Tanauan. however. MENDOZA Vice-President & General Manager Gentlemen: 10) That any excess of NIDC investment as required in Condition 1 after payment of the obligations to three (3) Banks (RB.00 but total drawings shall not in any event exceed P3. c) That drawings against the line be limited to 60% of the peso value of the export letters of credit computed at P3.722. Philippines 7) That the number of the Board of Directors shall be increased to seven (7). shall be appointed by PNB-NIDC to supervise the financial management of your firm. . Jimenez.As security for the payment of its obligations and advances against shipments. PHILIPPINE NATIONAL BANK Manila. PCIB. and Philippine Commercial and Industrial Bank (PCIB).00 in the form of preferred shares of stocks at 9% cumulative. The Financial Agreement reads: 4) That you shall exercise (execute) a first mortgage on all your properties located at Sasa.50 per $1. 9) That the past due accounts of P 5 million with the International Department of the PNB shall be transferred to the Loans & Discount Department and to be treated as a Demand Loan. Davao City. Misamis Occidental. G. subject to the following conditions: a) That the line shall expire on September 30. respectively. Batjak applied to PNB for additional financial assistance. Leyte and assign leasehold rights on the property on which your plant at Sasa. Republic Bank (RB). Batjak mortgaged its three (3) coco-processing oil mills in Sasa. We are pleased to advise that our Board of Directors approved for you the following: 1) That NIDC shall invest P6. On 5 October 1965. Leyte to Manila Banking Corporation (Manila Bank).000. 1966 but revocable at the Bank(s) option. MBTC and Manila Banking Corp. MBTC. 5) That a voting trust agreement for five (5) years over 60% of the oustanding paid up and subscribed shares shall be executed by your stockholders in favor of NIDC. b) That drawings against the line shall be allowed only when an irrevocable export L/C for coconut products has been established or assigned in your favor and you shall assign to us all proceeds of negotiations to be received from your letters of credit.277. CIRIACO B. pay or otherwise liquidate pending financial obligations with the different private banks. Davao City. 1965 BATJAK. Manila Attn. International Department October 5. a Financial Agreement was submitted by PNB to Batjak for acceptance.: Mr. 3rd Floor. 2) That NIDC will guaranty for five (5) years your account with the Manila Banking Corporation.

As agreed. the undersigned stockholders. you shall negotiate with us on equivalent amount in export bills. Manufacturers Bank and Trust Company (MBTC) and Philippine Commercial & Industrial Bank (PCIB). Very truly yours. RB. PNB also granted Batjak an export-advance line of P 3 million.e) That drawings against the line shall be charged interest at the rate of 9% per annum and subject to 1/2% penalty charge on all drawings not paid or extended on maturity date. Misamis Occidental and Tanauan. AND WHEREAS. To secure the advance. and which amount was advanced to Batjak by NIDC. invest P6.400. upon its expiration be subject to a re-negotiation between the parties.00. This AGREEMENT made and executed by the undersigned stockholders of BATJAK.859. NIDC would.207. (hereinafter called the CORPORATION) in the amounts represented by the number of shares set fort opposite their respective names hereunder. the Republic Bank. wholly-owned subsidiary of PNB. and the balance of the investment was to be applied to Batjak's past due account of P 5 million with the PNB. the Philippine Commercial & Industrial Bank and the Manufacturers Bank & Trust Company and the Manila Banking Corporation regarding the above. the TRUSTEE designated in the manner herein provided is hereby made. instituted foreclosure proceedings against the same but which were aborted by the payment by Batjak of the sum of P2. INC. as it actually did. Batjak's plant in Sasa.000. upon its expiration. this Voting Trust Agreement has been executed under the following terms and conditions. SAMSON The terms and conditions of the Financial Agreement were duly accepted by Batjak. in 1967. Leyte.. was to be subject to negotiation between the parties. later increased to P 5million. (SGD.850.51. 4 Next.) JOSE B. In connection with the above. Davao City to NIDC. with a view or establishing a safe and competent management to operate the corporation for the best interest of all the stockholders thereof. Upon receiving payment. without power of revocation on the part of the SUBSCRIBERS. This agreement was for a period of five (5) years and. that this Voting Trust Agreement shall. As of 29 September 1966. . as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. whose names are hereinbelow subscribed hereinafter caged the SUBSCRIBERS. PCIB. Batjak executed a first mortgage in favor of PNB on all its properties located at Jimenez. constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS. a corporation duly organized and existing under the laws of the Philippines. and a standby letter of credit facility in the amount of P5.000. the line shag be temporarily suspended until the outstanding export advance is fully liquidated.00 in Batjak in the form of preferred shares of stock convertible within five (5) years at par into common stock. it being understood. and as mutually agreed between the SUBSCRIBERS and the TRUSTEE. a WHEREAS. and MBTC released in favor of PNB the first and any mortgages they held on the properties of Batjak. and the NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION.00 to Manila Bank. hereinafter referred to as the trustee. Davao City was mortgaged to the Manila Bank which.500. NOW THEREFORE. WITNESSETH: Thank you. the financial accomodation that had been extended by PNB to Batjak amounted to a total of P 14. otherwise. Under said Agreement. and f) That within 90 days from date of release against the line. PERIOD OF DESIGNATION — For a period of five (5) years from and after date hereof. As likewise agreed. The voting Trust Agreement reads: VOTING TRUST AGREEMENT KNOW ALL MEN BY THESE PRESENTS: We are writing the National Investment & Development Corporation. the SUBSCRIBERS are owners respectively of the capital stock of the BATJAK. however. in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting rights of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. kindly submit to us two (2) copies of your board resolution certified to under oath by your corporate secretary accepting the conditions enumerated above authorizing the above transactions and the officer or officers to sign on behalf of the corporation.722. a Voting Trust Agreement was executed on 26 October 1965 in favor of NIDC by the stockholders representing 60% of the outstanding paid-up and subscribed shares of Batjak. Batjak mortgaged the oil mill in Sasa. to liquidate Batjak's obligations to Republic Bank (RB). INC.

36 of Act No. KEISTER 21. pledges.000 shares FIDELA DE GUZMAN 2. MENDOZA 2.2. shall be subject to this Agreement and the same .000 shares ALEJANDRO G. (C. Mendoza. IRREVOCABILITY — This Agreement shall during its 5-year term or any extension thereof be binding upon and inure to the benefit of the undersigned stockholders and their respective legal representatives. proper or convenient. motions.000 shares LLOYD D.000 shares ESPERANZA A. 4. and other liabilities incurred in the carrying out of the but herein established or by reason thereof. DIVIDEND — the full and absolute beneficial interest in the shares subject of this Agreement shall remain with the stockholders executing the same and any all dividends which may be declared by the CORPORATION shall belong and be paid to them exclusively in accordance with their stockholdings after deducting therefrom or applying the same to whatever liabilities the stockholders may have in favor of the TRUSTEE by virtue of any Agreement or Contract that may have been or will be executed by and between the TRUSTEE and the CORPORATION or between the former and the undersigned stockholders. champs. Expenses costs. and/or assigns and shall be irrevocable during the said terms and/or its extension pursuant to the provisions of paragraph 1 hereof. 8. 3.000 shares RENATO B. as provided by law. 6 COMPENSATION. if anym shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual.000 shares to the TRUSTEE by virtue of the provisions hereof and do hereby authorize the Secretary of the CORPORATION to issue the corresponding certificate directly in the name of the TRUSTEE and on which certificates it shall appear that they have been issued pursuant to this Voting Trust Agreement and the said TRUSTEE shall hold in escrow all such certificates during the term of the Agreement. transferees. It is hereby understood and the undersigned stockholders have bound as they hereby bind themselves to make a condition of every pledge. being a corporation and a juridical person shall accomplish the foregoing objectives and perform its functions under this Agreement as well as enjoy and exercise the powers.300 shares CBM FINANCE & INVESTMENT CORP. The TRUSTEE or any of its duly authorized representative shall incur no liability by reason of any error of law or of any matter or thing done or omitted under this Agreement. the TRUSTEE shall deliver to the undersigned stockholders the corresponding Voting Trust certificates provided for in Sec. REPRESENTATION — The TRUSTEE. p with full authority under the specific appointment or designation or Proxy. which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary. FILING of AGREEMENT — An executed copy of this Agreement shall be filed with the CORPORATION at its office in the City of Manila wherever it may be transfered therefrom and shall constitute irrevocable authority and absolute direction of the officers of the CORPORATION whose duty is to sign and deliver stock certificates to make delivery only to said voting trustee of the shares and certificates of stock subject to the provisions of this Agreement as aforesaid. transfer of assignment of their interests in the CORPORATION that the interests and participation so pledged. In turn. 5. BEJAR 200 shares TOTAL 60. transferred or assigned is evidenced by annotations in the certificates of stocks or in the books of the corporation. ZAMORA 3.B. resolutions and matters including the election of directors and such matters on which the stockholders. 1459. BELTRAN 4. by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote.000 shares CIRIACO B. COMBS 2. Such copy of this Agreement shall at all times be open to inspection by any stockholder. adjourned and special meetings of the CORPORATION on all questions. IMMUNITY — The TRUSTEE or its successor in trust shall not receive any compensation for its serviceexcept perhaps that which the CORPORATION may grant to the TRUSTEE's authorized representative.) 5. VOTING POWER OF TRUSTEE — The TRUSTEE and its successors in trust. shall be paid for with the funds of the CORPORATION. Pres.500 shares JOHNNY LIEUSON 20. if any. rights and interests herein established through its duly authorized and accredited re resentatives . ASSIGNMENT OF STOCK CERTIFICATES UPON ISSUANCE — The undersigned stockholders hereby transfer and assign their common shares to the capital stock of the CORPORATION to the extent shown hereunder: JAMES A. 7. privileges. except for his own individual malfeasance.

10. MENDOZA Stockholder Stockholder B y : (SGD) RENATO B. TERMINATION — Upon termination of this Agreement as heretofore provided. and the duties of the TRUSTEE shall cease and terminate. BELTRAN By: (SGD) MARIANO ZAMORA Stockholder ESPERANZA A. COMBS Stockholder Stockholder N A T I O ( S G D ) I G . Philippines. ZAMORA (SGD) FIDELA DE GUZMAN (SGD) CIRIACO B. transferees and assigns while the trust herein created still subsists.B.shall be binding upon the pledgees. MENDOZA President C O R P O R A T I O N ESPERANZA A. ACCEPTANCE OF TRUST — The TRUSTEE hereby accepts the trust created by this Agreement under the signature of its duly authorized representative affixed hereinbelow and agrees to perform the same in accordance with the term/s hereof. ZAMORA (SGD) ALEJANDRO G. 1965 in the City of Manila. have hereunto affixed their signatures this 26 day of October. BEJAR (SGD) LLOYD D. N A L I N V E S T M E N T A N D IN WITNTESS HEREOF. upon surrender of their respective voting trust certificates. the undersigned stockholders and the TRUSTEE by its representatives. the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof. D E V E L O P M E N T (SGD) JAMES A. KEISER (SGD) JOHNNY LIEUSON Stockholder Stockholder CBM FINANCE & INVESTMENT CORPORATION By: (SGD) C. 9.

As regards the oil mill located at Sasa. in said Civil Case No. Before the court could act on the said motion. wrote a letter to NIDC inquiring if the latter was still interested in negotiating the renewal of the Voting Trust Agreement. In July 1967. after Batjak failed to exercise its right to redeem the foreclosed properties within the allowable one year period of redemption. 12 On 24 February 1971.. final Certificates of Sale were issued by the provincial sheriffs of Leyte 6 and Misamis Occidental 7 for the two (2) oil mills in Tanauan and Jimenez in favor of PNB. It was sold to NIDC as the highest bidder. books. Vice-President On 24 April 1971.N A C I O D E B U Q U E J R . forced by the insolvency of Batjak. 17 On 8 May 1971. an order denying a motion to quash or to dismiss is interlocutory and cannot be the subject of a petition for certiorari. Davao City. One year thereafter. 8 Three (3) years thereafter. as they involve a resolution of the same issues. 9 On 22 September 1970. 20 On 30 September 1971. Misamis Occidental. Batjak represented by majority stockholders. the objection or objections raised by him in said motion to dismiss. was a wholly-owned PNB subsidiary. machineries. which have been consolidated. Leyte and Jimenez. preparatory to their turn-over and transfer to the stockholders of Batjak. private respondent Batjak filed on 3 May 1971 a petition for receivership as alternative to writ of preliminary prohibitory and mandatory injunction. Batjak filed before the Court of First Instance of Rizal a special civil action for mandamus with preliminary injunction against herein petitioners docketed as Civil Case No. confirming the fact that it had no intention whatsoever to comply with the demands of Batjak. the Court finds and holds for the petitioners. Amado Duran. 1. Sasa. dated 25 August 1986. as aforestated. Davao City. in view thereof. respondent judge issued the now assailed order denying petitioners' motion to dismiss and appointing a set of three (3) receivers. NIDC and PNB filed an opposition to the ex parte application for the issuance of a writ of preliminary prohibitory and mandatory injunction and a motion to set aside restraining order. On the denial of petitioners' motion to dismiss. Subsequently. 19 NIDC moved for reconsideration of the aforesaid order. renting out. and leasing. 13 On 14 April 1971. these two (2) petitions. raw materials and finished products and/or by-products thereof now in the factory sites of the three (3) modem coco milling plants situated in Jimenez. this time asking for a complete accounting of the assets. then proceed to trial and. 14452. recourse to the extraordinary legal remedies of certiorari. legal counsel of Batjak sent stin another letter to NIDC. legal counsel of Batjak wrote another letter to NIDC informing the latter that Batjak would now safely assume that NIDC was no longer interested in the renewal of said Voting Trust Agreement and. or in September 1968. Batjak contends that the NIDC has already been abolished or scrapped by its parent company. As a general rule. 14 On the same day. as among the premises which private respondent Batjak was authorized to enter in order to conduct an inventory. After a careful study and examination of the records of the case. Misamis Occidental. The remedy of the aggrieved party in a denied motion to dismiss is to file an answer and interpose. and Tanauan. PNB instituted extrajudicial foreclosure proceedings against the oil mills of Batjak located in Tanauan. management and operation of Batjak. 21 Hence. management and operations. NIDC and PNB filed a motion to dismiss Batjak's complaints. requested for the turn-over and transfer of all Batjak assets. 10 On 23 September 1970. 16 This was opposed by PNB and NIDC . in case of adverse decision. under certain situations. legal counsel of private respondent Batjak. In their manifestation with motion for early decision. 11 NIDC replied. respondent judge denied the motion for reconsideration. the same was similarly foreclosed extrajudicial by NIDC. private respondent. 18 On 16 August 1971. or on 31 August 1970. prohibition and mandamus to question the denial of a motion to dismiss or quash is . the PNB. However. NIDC consolidated its ownership of the oil mill. as defense or defenses. PNB transferred the ownership of the two (2) oil mills to NIDC which. to elevate the entire case by appeal in due course. Leyte. through Atty. 14452. Batjak filed an urgent ex parte motion for the issuance of a writ of preliminary prohibitory and mandatory injunction. commercial papers or cash. disposing of or otherwise transferring any or all of the properties. After Batjak failed to redeem the property. respondent judge issued a restraining order "prohibiting defendants (herein petitioners) from removing any record. properties. The properties were sold to PNB as the highest bidder." 15 The order of 14 April 1971 was subsequently amended by respondent judge upon an ex parte motion of private respondent Batjak so as to include the premises of NIDC in Makati and those of PNB in Manila. properties.

Plaintiff has no legal capacity to sue. Rule 65 of the Rules of Court means a right clearly founded in or granted by law. have to set aside the judgment of conviction of the lower court. who executed the Voting Trust Agreement with NIDC. and 3. c. In addition. the Court finds no clear right in Batjak to be entitled to the writ prayed for. It is not disputed that the mortgages on the three (3) oil mills were foreclosed by PNB and NIDC and acquired by them as the highest bidder in the appropriate foreclosure sales. in the Voting Trust Agreement. d & g. management and operation of Batjak from 1965. after trial. Batjak's complaint should have been filed in the provinces where said oil mills are located. Thus. the flaw in the procedure followed by petitioner herein may be overlooked.considered proper. Sec. this Court may entertain the petition for certiorari interposed by the party against whom the said order is issued. management. were we to require adherence to this pretense. On the appointment of receiver. "actions affecting title to. The venue is improperly laid. with grave abuse of discretion. not only because it was rendered in a criminal case. It will not issue to enforce a doubtful right. Generally. 166443. we would. the parties thereto were NIDC and certain stockholders of Batjak. real property. Batjak itself was not a signatory thereto. Moreover. in denying the motion to dismiss. 456) citing the case of Gonzales V. Jimenez. Lutero (105 Phil. 24 The writ does not issue as a matter of course. what Batjak seeks to recover is title to. the case at bar would have to be dismissed and petitioner required to go through the inconvenience. therefore. and that it should never be used to effectuate an injustice. mandamus will not lie against PNB. a. Under Sec. the action instituted by Batjak before the respondent court was a special civil action for mandamus with prayer for preliminary mandatory injunction. Sec. A clear legal right within the meaning of Sec. and ordering NIDC and PNB to submit a complete accounting of the assets. not to say the mental agony and torture. It will issue only where there is a clear legal right sought to be enforced. NIDC and PNB raised common grounds for its allowance. Rule 3 of the Rules of Court. Applying the above-cited principles of law in the present case. or possession of. Rules of Court). In effect. 2. Davao City. shall be commenced and tried in the province where the property or any part thereof lies. 20 Phil. Bartolome. This Honorable Court (the trial court) has no jurisdiction over the subject of the action or suit. . . Under Rule 4. The Board of Pharmacy. Par. In their motion to dismiss Batjaks complaint. management and operation of Batjak particularly the three (3) oil mills located in Sasa. and therefore. relinquish and turnover to Batjak the assets. vs. Ownership thereto was subsequently consolidated by PNB and NIDC. 95 Phil. Leyte. be most unfair and unjust. 1307): However. in Civil Case No. A careful reading of the Voting Trust Agreement shows that PNB was really not a party thereto. where there is patent grave abuse of discretion." In support of the third ground of their motion to dismiss. paragraph A of the Rules of Court. 367. It should be noted that the petition for mandamus filed by it prayed that NIDC and PNB be ordered to surrender. relinquish and turn-over to Batjak the assets. not the real party in interest in the suit to enforce the same. The three (3) oil mills are now titled in the name of NIDC.938 For analogous reasons it may be said that the petition for certiorari interposed by the accused against the order of the court a quo denying the motion to quash may be entertained. to wit: 1. 930. every action must be prosecuted and defended in the name of the real party in interest. in the interest of more enlightened and substantial justice. Hence. This would. As the court said in Pineda and Ampil Manufacturing Co. Argel 22 citing Yap v. 14452. as claimed. Salazar vs. Anent the first ground. as found by the Court of Appeals. On the matter of proper venue. it is evident that Batjak had no clear right to be entitled to the writ prayed for. but because it was rendered. in the interest of a more enlightened and substantial justice. 2. From the foregoing. 23 The petition for mandamus of Batjak prayed that NIDC and PNB be ordered to surrender. on the ground of an alleged breach of fiduciary relationship. or foreclosure of mortgage on. 3. a right which is enforceable as a matter of law. but only to prevent a failure of justice. as in the present case. PNB claims that Batjak has no cause of action and prays that the petition for mandamus be dismissed. the Court said that the writ of mandamus will not issue to give to the applicant anything to which he is not entitled by law. an appeal to this Court. the action should have been filed by the stockholders of Batjak. Misamis Occidental and Tanauan. 1. 2. after Batjak failed to exercise its right of redemption. real property (the three (3) oil mills which really made up the assets of Batjak) but which the records show already belong to NIDC. Under the circumstances obtaining the present case. 2. or for partition or condemnation of. despite the fact that his trial and conviction therein would violate one of this [sic] constitutional rights. and not by Batjak itself which is not a party to said agreement. In Lamb vs. In addition.. mandamus is not a writ of right and its allowance or refusal is a matter of discretion to be exercised on equitable principles and in accordance with well-settled rules of law. PNB and NIDC contend that Batjak's complaint for mandamus is based on its claim or right to recovery of possession of the three (3) oil mills. and reiterated in Mead v. Clearly. or for recovery of possession. what Batjak asked of respondent court was the exercise of power or authority outside its jurisdiction. and operation of Batjak particularly the three (3) oil mills and to make the order permanent. it is a well-settled rule that the jurisdiction of a Court of First Instance to issue a writ of preliminary or permanent injunction is confined within the boundaries of the province where the land in controversy is situated. obviously. apart from the expenses incidental thereto. Noteworthy is the fact that. and that. Philippines(22 Phil. PNB contended that the complaint states no cause of action (Rule 16. Applying the rule in the present case. of submitting himself to trial on the merits in Case No.

Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose of confering upon a trustee or trusties the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: . PNB transferred the ownership of the two (2) oil mills to NIDC. representing 60% of Batjak's outstanding shares. or in its amended petition therefor. The law on the matter is Section 59. More so. resolutions and matters including the election of directors and all such matters on which the stockholders. if any. shall have the power and it shall be its duty to vote the shares of the undersigned subject hereof and covered by this Agreement at all annual. From the foregoing provisions. not the properties or assets of Batjak itself which were never delivered. As borne out by the records of the case. VOTING POWER OF TRUSTEE — The TRUSTEE and its successors in trust. under the terms of said Voting Trust Agreement. operations. upon the termination of the agreement. . which may be voted upon at any and all said meetings and shall also have the power to execute and acknowledge any agreements or documents that may be necessary in its opinion to express the consent or assent of all or any of the stockholders of the CORPORATION with respect to any matter or thing to which any consent or assent of the stockholders may be necessary. 1 thereof. Neither Batjak nor its stockholders have instituted any legal proceedings to annul the mortgage foreclosure aforementioned. interest. constituted and appointed as a VOTING TRUSTEE to act for and in the name of the SUBSCRIBERS. management and operations of Batjak. NIDC should tum over the assets of the three (3) oil mills to Batjak. it is necessary in granting the relief of receivership that the property or fired be in danger of loss. that this Voting Trust Agreement shall. motions. in consideration of the premises and of the mutual covenants and agreements herein contained and to carry out the foregoing purposes in order to vest in the TRUSTEE the voting right. and who are the signatories to the agreement. to establish the requisite condition that the property is in danger of being lost. must be present and existing. Batjak in its petition for receivership.. 3 thereof reads: 3. Certificates of title were issued to PNB and NIDC after the lapse of the one (1) year redemption period. where Batjak does not impugn the validity of the foreclosure proceedings. in the first place to NIDC. proper or convenient. which is the subject of the action. Moreover. adjourned and special meetings of the CORPORATION on all questions. In the case at bar. on 26 October 1970. or claim in property. NIDC was constituted as trustee of the assets. that due to the expiration of the Voting Trust Agreement. NIDC acquired ownership of the third oil mill also under a mortgage foreclosure sale. NIDC was constituted as trustee only of the voting rights of 60% of the paid-up and outstanding shares of stock in Batjak. PNB acquired ownership of two (2) of the three (3) oil mills by virtue of mortgage foreclosure sales. thus: 9. Paragraph 1 of the Corporation Code (BP 68) which provides: Sec. The power entrusted to NIDC also included the authority to execute any agreement or document that may be necessary to express the consent or assent to any matter. There can be no doubt. as may be warranted by the balance and attending circumstance of the loan investment of the TRUSTEE or otherwise in the CORPORATION. a voting trust transfers only voting or other rights pertaining to the shares subject of the agreement or control over the stock. claiming that under said agreement.. therefore. but also title to the three (3) oil mills formerly owned by Batjak. the certificates delivered to the TRUSTEE by virtue hereof shall be returned and delivered to the undersigned stockholders as the absolute owners thereof. and No.Under the aforecited provision. however. removal or material injury. 1 (b). This is confirmed by paragraph No. PERIOD OF DESIGNATION — For a period of five (5) years from and after date hereof. 9 of the Voting Trust Agreement. by the stockholders. particularly paragraph 4 & No. without power of revocation on the part of the SUBSCRIBERS. removed or materially injured unless a receiver is appointed to guard and preserve it. Subsequently. upon surrender of their respective voting trust certificates. TERMINATION — Upon termination of this Agreement as heretofore provided. may be appointed by the court when it appears from the pleadings that the party applying for the appointment of receiver has an interest in said property. failed to present any evidence. are hereby reproduced: NOW THEREFORE. The interest of Batjak over the three (3) oil mills ceased upon the issuance of the certificates of title to PNB and NIDC confirming their ownership over the said properties. In any event. Nowhere in the said provisions or in any other part of the Voting Trust Agreement is mention made of any transfer or assignment to NIDC of Batjak's assets.8 of the shares of stock held by the undersigned in the CORPORATION as hereinafter stated it is mutually agreed as follows: 1. and management. the undersigned stockholders. that NIDC not only has possession of. Batjak premises its right to the possession of the three (3) off mills on the Voting Trust Agreement. The relevant provisions of the Voting Trust Agreement. 25 The right. it is clear that what was assigned to NIDC was the power to vote the shares of stock of the stockholders of Batjak. 59. the TRUSTEE designated in the manner herein provided is hereby made. are the certificates of shares of stock belonging to Batjak's stockholders. Under Sec. upon its expiration be subject to a re-negotiation between the parties. and the duties of the TRUSTEE shall cease and terminate. what was to be returned by NIDC as trustee to Batjak's stockholders. Rule 59 of the Rules of Court.A receiver of real or personal property. to entitle one to a receiver over it. it being understood. 26 The acquisition by PNB-NIDC of the properties in question was not made or effected under the capacity of a trustee but as a foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak. by virtue of the by-laws of the CORPORATION and of the existing legislations are entitled to vote. the prevention of imminent danger to property is the guiding principle that governs courts in the matter of appointing receivers.

J. With costs against private respondents. 432." This provision is to be read of course in connecting with the related provisions of sections 51 and 52. and we accordingly hold. a stockholder in the Philippine Manufacturing Company. vs. alleged a demand upon and refusal by the corporation. only the corporation was named as defendant. The pertinent provision of our law is found in the second paragraph of section 51 of Act No. STREET. BERRY. and a decision of the California Supreme Court — Barber vs. Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned. among others. seeks by this proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff. No. The first point made has reference to a supposed defect of parties. if necessary to the effectuation of the order of the court. except to dismiss the same. G. There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company. respondents. By the plain language of sections 515 and 222 of our Code of Civil Procedure. R. A.R. where any corporation or person unlawfully excludes the plaintiff from the use and enjoyment of some right to which he is entitled.. The orders of the respondent judge. Mulford (117 Cal. Certainly there is nothing in the complaint to indicate that the secretary is an improper person to be joined. Philpotts. it being evident that the petitioner desires to exercise said right through an agent or attorney. In the Ohio case of Cincinnati Volksblatt Co. that the right of inspection given to a stockholder in the provision above quoted can be exercised either by himself or by any proper representative or attorney in fact. In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the Corporation Law. 356) — is quite clear upon the point that both the corporation and its officers may be joined as defendants. petitioner. which reads as follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director. 735). The petition is filed originally in this court under the authority of section 515 of the Code of Civil Procedure. Crossfield and O'Brien for defendants. are hereby ANNULLED and SET ASIDE. namely. member or stockholder of the corporation at reasonable hours. Now it is our opinion. during a specified period. G. even after judgment rendered. which gives to this tribunal concurrent jurisdiction with the Court of First Instance in cases. and this official might be brought in later. 14452. PHILPOTTS. The petitioner might have named the president of the corporation as a respondent also. whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person. G. The respondents interposed a demurrer. at the disposal of the plaintiff or his duly authorized agent or attorney. 1918.. 1919 W. Hoffmister (61 Ohio St.: The petitioner. but it is insisted that this right must be exercised in person. Section 222 of our Code of Civil Procedure is taken from the California Code. 1459. and either with or without the attendance of the stockholder.WHEREFORE. and records of a corporation. and the controversy is now before us for the determination of the questions thus presented. since such official is customarily charged with the custody of all documents. addition of the allegation that the latter is the custodian of the business records of the respondent company. SO ORDERED. Lawrence and Ross for petitioner.. defining the duty of the corporation in respect to the keeping of its records. PHILIPPINE MANUFACTURING COMPANY and F. vs. The respondent judge and/or his successors are ordered to desist from hearing and/or conducting any further proceedings in Civil Case No. L-15568 November 8. N. dated 16 August 1971 and 30 September 1971. while the complaint. This is in conformity with the general rule that what a man may do in person . one of the respondents herein. correspondence. 48 L. to inspect and examine the records of the business transacted by said company since January 1. and the petition prays for a peremptory order commanding the respondents to place the records of all business transactions of the company. W. in person or by some authorized agent or attorney. and the respondent corporation in this case was the only absolutely necessary party. and it is said that the action can not be maintained jointly against the corporation and its secretary without the The real controversy which has brought these litigants into court is upon the question argued in connection with the second ground of demurrer. in language almost identical with that in the case at bar. the right of action in such a proceeding as this is given against the corporation. and he is presumably the person against whom the personal orders of the court would be made effective in case the relief sought should be granted. the petitions are GRANTED.

. Lawrence and Selph for respondents. To this petition the respondents interposed an answer. 4517. This conclusion is supported by the undoubted weight of authority in the United States.H. So ordered. There is.: The petitioner. The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution.... so as to make the inspection valuable to them. THE HERCULES LUMBER CO. and may be aided in this by experts and counsel. JJ. Antonio Pardo. C.J. It may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or under other improper conditions. de Joya for petitioner. Said provision was under the consideration of this court in the case of Philpotts vs. No serious question is of course made as to the right of the petitioner. in which. his right to inspection and examination is lost.) Under a statute similar to our own it has been held that the statutory right of inspection is not affected by the adoption by the board of directors . A by-law unduly restricting the right of inspection is undoubtedly invalid. As was said in Foster vs. 107 Am. one of the respondents herein. seeks by this original proceeding in the Supreme Court to obtain a writ of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and representative to examine the records and business transactions of said company. where it is generally held that the provisions of law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right may be exercised through any other properly authorized person. 859.. but as they may be found cited in any legal encyclopedia or treaties devoted to the subject of corporations. Arellano. is a principle too well settled to need discussion. were debarred the right of procuring in his behalf the services of one who could exercise it. (14 C. and more particularly the Board of Directors. To this answer the petitioner in turn interposed a demurrer. (28 La. which has proved of utility to it in the manufacture of its products.. Malcolm and Avanceña. Authorities to this effect are too numerous and direct to require extended comment. Philippine Manufacturing Co.. L-22442 August 1. and it is ordered that the writ of mandamus shall issue as prayed. Inc. 325.. with notice to the shareholders that the books of the company are at their disposition from the 15th to 25th of the same month for examination. a stockholder in the Hercules Lumber Company. and Berry (40 Phil.. [Tenn. if not directly admitted that the petitioner is in fact a stockholder in the Hercules Lumber Company. vs. respondents." An observation to the same effect is contained in Martin vs. 664. the respondents set forth the facts upon which they mainly rely as a defense to the petition.net The demurrer is overruled. It is not our intention to declare that the authorities of the corporation. where a corporation. or times. 1924. in the sense that only a stockholder may enjoy it. 27 Utah. We are entirely unable to concur in this contention. notwithstanding the right of inspection given by law to the stockholder. Inc.. as acting secretary of the said company. G.. 467). we deem it advisable to say that there are some things which a corporation may undoubtedly keep secret. Harkness vs.he may do through another. STREET. The main ground upon which the defense appears to be rested has reference to the time.. Otherwise it would be unavailing in many instances. The contention for the respondent is that this resolution of the board constitutes a lawful restriction on the right conferred by statute. and we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents. 108). to exercise the right of inspection conferred by section 51 of Act No. W..L. sec. J.. 1459. not generally known. Sumulong and Lavides and Ross. Torres. and that the respondent. within which the right of inspection may be exercised. and it is insisted that as the petitioner has not availed himself of the permission to inspect the books and transactions of the company within the ten days thus defined. nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep secret. taking minutes from the same. at times desired by the petitioner. 204). "The right may be regarded as personal. In order that the rule above stated may not be taken in too sweeping a sense. Inc. through lack of knowledge necessary to exercise it.J. at all reasonable times. Guthrie. Wilson (8 Baxt. petitioner. 681. concur. INC. it is unnecessary here to refer to other cases announcing the same rule. the board passed a resolution to the following effect: The board also resolved to call the usual general (meeting of shareholders) for March 30 of the present year.R. No. 1924 ANTONIO PARDO.. engaged in the business of manufacture. In this connection the answer asserts that in article 10 of the By-laws of the respondent corporation it is declared that "Every shareholder may examine the books of the company and other documents pertaining to the same upon the days which the board of directors shall annually fix. 248. has acquired a formula or process. however. 2nd ed. White (86 Ala. as for instance." In Deadreck vs. Rep. but the inspection and examination may be made by another. at least for this year. the court said: "That stockholders have the right to inspect the books of the corporation." Authorities on this point could be accumulated in great abundance. unless within 5 days from notification hereof the respondents answer to the merits. and the cause is now before us for determination of the issue thus presented. might not adopt measures for the protection of such process form publicity. and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the proceedings. It is inferentially. 4 Thompson on Corporations." It is further averred that at the directors' meeting of the respondent corporation held on February 16. in appropriate hours. St. Bienville Oil Works Co.C. by himself or proper representative.. Araullo. Ignacio Ferrer. Johnson. where it is said: "The possession of the right in question would be futile if the possessor of it. 7 R. but neither the executive officers nor the board of directors have the power to deprive a stockholder of the right altogether. after admitting certain allegations of the petition.].J. where we held that the right of examination there conceded to the stockholder may be exercised either by a stockholder in person or by any duly authorized agent or representative. 471). has refused to permit the petitioner or his agent to inspect the records and business transactions of the said Hercules Lumber Company. O'Donovan and M. and IGNACIO FERRER.lawphil.

for his inspection as director and stockholder.. we now feel that this was error. the petitioner is entitled to relief. we are unable definitely to say. and to place at his disposal at reasonable hours. since none of the members of the court saw or heard the witnesses testify. this order was set aside and the case was permitted to continue in this court. Secretary of the same corporation. in accordance with settled practice. Acting President..) It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours. and that as to . and books of the corporation. Inc." This means at reasonable hours on business days throughout the year.. Director and Stockholder of the Isabela Sugar Company. Montilla. which raised questions of fact and law. and that it would have been the correct practice to have required the petitioner to present the action in a court of First Instance which is better equipped for the taking of testimony and the resolution of questions of fact than is the appellate court. upon payment of the fees. GIL MONTILLA. and in this connection it is alleged that the information which the petitioner seeks is desired for ulterior purposes in connection with a competitive firm with which the petitioner is alleged to be connected. and to place at his disposal at reasonable hours the minutes. G. Inc. 1932 Speaking to the first point with which the petition is concerned. who is the petitioner. MONTILLA. therefore. No. and Agustin B. (7 R. together with a resolution of the board of directors. generally speaking. of the regular and special meetings of the board of directors. upon payment of the fees.) We are of the opinion that. J.. EUGENIO VERAGUTH. 327.. documents. documents.C. in a spirit of antogonism. and to issue. Gil Montilla.. (State vs. Ap. we find by-laws. therefore. It should first be observed that when the case was filed here. Inc. can appropriately be stated and is decisive. sustained. It is also insisted that one of the purposes of the petitioner is to obtain evidence preparatory to the institution of an action which he means to bring against the corporation by reason of a contract of employment which once existed between the corporation and himself. On further reflection. In addition to relying upon the by-law. a director and stockholder of the Isabela Sugar Company. So ordered. respondents. and documents. providing for the holding of ordinary and special meetings. dismissed without prejudice to the right of the petitioner to present the action before the Court of First Instance of Occidental Negros. to which reference is above made.. This much. too long to be here summarized. Whether there was a malicious attempt to keep Director Veraguth from attending a special meeting of the board of the board of directors at which the compensation of the attorneys of the company was fixed. or whether Director Veraguth. in view of the memoranda and hearing of the parties. the motive of the shareholder exercising the right is immaterial. documents. on a motion of reconsideration being presented. Only with considerable difficulty. 301. and the books of the aforesaid corporation.R.of a resolution providing for the closing of transfer books thirty days before an election. These suggestions are entirely apart from the issue. secretary of the company. who are the respondents. St. and (b) that. vs. Inc. 29 Mo. and the Isabela Sugar Company. however. Following the taking of considerable before the clerk as commissioner. since his interests were fully protected by the Philippine National Bank. has made this merely a pretext to cause trouble. of all regular and special meetings of the board of directors of the Isabela Sugar Central Company. now merely presents an academic question. relating to the alleged failure of the secretary of the company to notify the petitioner in due time of a special meeting of the company. as. Thereafter. the minutes. and this is that the meeting in question is in the past and. therefore. acting president of the company. MALCOLM. To the petition an answer has been interposed by the respondent. and books of said corporation for his inspection as director and stockholder. the answer of the respondents calls in question the motive which is supposed to prompt the petitioner to make inspection. L-37064 October 4. and not merely during some arbitrary period of a few days chosen by the directors. petitioner. Louis Railroad Co. certified copies of any documentation in connection with said minutes.. certified copies of any documentation in connection with said minutes.L. and books of the aforesaid corporation. ISABELA SUGAR COMPANY. that no damage was caused to Veraguth by the action taken at the special meeting which he did not attend. The petitioner prays: (a) That the respondents be required within five days from receipt of notice of this petition to show cause why they refuse to notify the petitioner. upon the allegations of the petition and the admissions of the answer. INC.: The parties to this action are Eugenio Veraguth. The demurrer is. it was. as director. and AGUSTIN B. can we decide the issues of fact. with the costs against the respondent.. and the writ of mandamus will issue as prayed. a final and absolute writ of mandamus be issued to each and all of the respondents to notify immediately the petitioner within the reglamentary period. and to issue immediately. the case has been submitted on memoranda.

in which shall be set forth in detail the time and place of holding the meeting was regular or special.C. vs. 1983 RAMON A. vol. it should be said that this is a family dispute. and the right of inspection is not to be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. THE PHILIPPINE NATIONAL BANK. We do not conceive. the Bank. Inc.net On the second question pertaining to the right of inspection of the books of the company. 1967.meetings in the future it is to be presumed that the secretary of the company will fulfill the requirements of the resolutions of the company pertaining to regular and special meetings. Continental Ore. we do not think that anything improper occurred when the secretary declined to furnish certified copies of minutes which had not been approved by the board of directors. of course." The Corporation Law. those present and absent. Pretexts may not be put forward by officers of corporations to keep a director or shareholder from inspecting the books and minutes of the corporation.. In view thereof. the instant appeal to review the said dismissal was filed. The above puts in statutory form the general principles of Corporation Law. if special its object. as follows: Briefly stated. be incumbent upon Veraguth to give formal notice to the secretary of his post-office address if he desires notice sent to a particular residence. or stockholder of the corporation at reasonable hours. that resolution. Previous to the present action. the petitioner and the individual respondents belonging to the same family. and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines. and papers as an incident to the right of inspection. L-33320 May 30... First among them is Civil Case No.. The facts that gave rise to the subject controversy have been set forth by the trial court in the decision herein sought to be reviewed. The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director. a certified copy could not be furnished and that as to other proceedings of the stockholders a request should be made to the president of the Isabela Sugar Company. Petition denied with costs.J. Inc. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by Japanese suppliers and financiers. so far as we are aware.. Inc. It further appears that the board of directors adopted a resolution providing for inspection of the books and the taking of copies "by authority of the President of the corporation previously obtained in each case. JJ. the petitioner instituted several cases in this Court questioning different transactions entered into by the Bark with other parties. and Fletcher Cyclopedia Corporations. VASQUEZ. section 51. the following facts gathered from the stipulation of the parties served as the backdrop of this proceeding. . abstracts. by petitioner as a taxpayer versus Sec. The petitioner has alleged hat his written request for such examination was denied by the respondent. J. In addition. We rule that the petitioner has not made out a case for relief by mandamus. 1967. (See Fisher's Philippine Law of Stock Corporations. Allis Chalmers and General Motors Corporation In the course of the hearing of said case on August 3. sec. Chap. Avanceña. concur. Inc.R. that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be constructed by V. and that the appellate court should not intrude its views to give an advantage to either party. however.: Petitioner Ramon A. petitioner.. G. Ponce.) Combining the facts and the law. To this the secretary made answer by letter stating that. and memoranda of documents. or stockholders. A director or stockholder can not of course make copies. books. asking the latter to forward in the shortest possible time a certified copy of the resolution of the board of directors concerning the payment of attorney's fees in the case against the Isabela Sugar Company and others. . 45. we find Director Veraguth telegraphing the secretary of the company. Villamor. he expressed and made known his . No. Villa-Real. and that while so much of the last resolution of the board of directors as provides for prior approval of the president of the corporation before the books of the corporation can be inspected puts an illegal obstacle in the way of a stockholder or director. It will. Hull and Imperial. without an order of a court. Huber Corporation. be permitted to take books from the office of the corporation. member. Continental Ore Phil. 69345 filed on April 27. respondent. members. 4. has not been enforced to the detriment of anyone. but cannot. the personality of herein petitioner to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the massive development program of the President was raised. 153. and a minute of all meetings of directors. and every act done or ordered done at the meeting. that a test case between the petitioner and the respondents has not been begun in the Court of First Instance of Occidental Negros involving hundreds of thousands of pesos. since the minutes of the meeting in question had not been signed by the directors present. The trial court having dismissed the petition for mandamus. as well as to inquire into the validity of Id transactions. C. the Commissioner of Public Highways. Antonio Raquiza of Public Works and Communications. Directors of a corporation have the unqualified right to inspect the books and records of the corporation at all reasonable times. . that a director or stockholder has any absolute right to secure certified copies of the minutes of the corporation until these minutes have been written up and approved by the directors. GONZALES. 1awphil. provides that: All business corporations shall keep and carefully preserve a record of all business transactions.

and Agro-Inc. in his dual capacity as a taxpayer and stockholder. as amended) has been replaced by Batas Pambansa Blg. pp. as amended. 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP. that such examination would violate the confidentiality of the records of the respondent bank as provided in Section 16 of its charter. Inc. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. 1459.. trustee.. 1969. or was not acting in good faith or for a legitimate purpose in making his demand. 1968. must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes. requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. 1300. in writing. the Asst. there is nothing improper in his purpose for asking for the examination and inspection herein involved. 71044 versus the Board of Directors of the Bank. 68. as amended. for a copy of excerpts from said records or minutes. That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's 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. trustee. On May 8.. member or stockholder of the corporation at reasonable hours. On January 23. 16-18. and the construction of the Passi Sugar Mills in Iloilo. petitioner addressed a letter to the President of the Bank (Annex A. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 72936 versus Roberto Benedicto and other Directors of the Bank. 1967. 1459. On May 11. Petitioner maintains that the above-quoted provision does not justify the qualification made by the lower court that the inspection of corporate records may be denied on the ground that it is intended for an improper motive or purpose. but is limited to purposes reasonably related to the interest of the stockholder. shall be liable to such director. 3. Assailing the conclusions of the lower court. pp. Pet.. Safary Central.. regarding the right of a stockholder to inspect and examine the books and records of a corporation.. Inc. as amended.. (Annex B. to be financed by Japanese suppliers and financiers. Marubeni Iida Co. and Batangas Sugar Central Inc. Civil Case No." (Petitioner-Appellant"s Brief. He further argues that. on the following day. stockholder or member of the corporation to examine and copy excerpts from its records or minutes. further. trustee. Said provision reads in part as follows: Sec.) The court a quo denied the prayer of the petitioner that he be allowed to examine and inspect the books and records of the respondent bank regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No.intention to acquire one share of stock from Congressman Justiniano Montano which. 1459 has been retained. Talog sugar Milling Co.). Petitioner may no longer insist on his interpretation of Section 51 of Act No. filed the following cases involving the bank or the members of its Board of Directors to wit: l. CalinogLambunao Sugar Mill Integrated Farming. . petitioner. Inc. Any officer or agent of the corporation who shall refuse to allow any director. and in addition." The right of inspection granted to a stockholder under Section 51 of Act No. The former Corporation Law (Act No. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal. Ponce. As may be noted from the above-quoted provisions. among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following the records must be kept at the principal office of the corporation. The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director. Vice-President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one-share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. 1459.) In view of the Bank's refusal the petitioner instituted this action. Dev. Subsequent to his aforementioned acquisition of one share of stock of the Bank. the law having granted such right to a stockholder in clear and unconditional terms. Civil Case No. 51. or Saravia. in accordance with the provisions of this Code. On October l8. the National Investment and Development Corp.' (Rollo. Inc. 1969. Inc.1967. 57.. Ltd. the petitioner has assigned the single error to the lower court of having ruled that his alleged improper motive in asking for an examination of the books and records of the respondent bank disqualifies him to exercise the right of a stockholder to such inspection under Section 51 of Act No. 1969. Civil Case No.. Co.C. but with some modifications. otherwise known as the "Corporation Code of the Philippines. assuming that a proper motive or purpose for the desired examination is necessary for its exercise.. August 30. stockholder or member for damages. was transferred in his name in the books of the Bank. stockholder or member of the corporation at reasonable hours on business days and he may demand. Pet. Passi (Iloilo) Sugar Central. and Provided. On January 11. however. at his expense.) The petitioner has adopted the above finding of facts made by the trial court in its brief which he characterized as having been "correctly stated. its financing of the Cebu-Mactan Bridge to be constructed by V.. the inspection must be . Republic Act No. 2. and that the petitioner has not exhausted his administrative remedies. 68 provide the following: The records of all business transactions of the corporation and the minutes of any meeting shag be open to inspection by any director. 1459. as amended) is not absolute. That if such refusal is made pursuant to a resolution or order of the board of directors or trustees.

respondents. petitioner. 4. officer.— Any director. (CA-G. Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank. Penalties for violation of the provisions of this Act. as a rule. G. It is not correct to claim. COURT OF APPEALS (FIFTH DIVISION). The provision of Section 74 of Batas Pambansa Blg. 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. Corporations created by special laws or charters. The argument of the petitioner that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of the respondent bank loses whatever validity it might have had before the amendment of the law. 15. 30. 68 of the new 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. No. the Secretary of Finance. shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years. except by order of a Court of competent jurisdiction. 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. 16. shall not reveal to any person other than the President of the Philippines. PUBLISHING CO. Inspection by Department of Supervision and Examination of the Central Bank. no longer holds true under the provisions of the present law. APOSTOL. LETTY J. the petition is hereby DISMISSED.. nor shall they give any information relative to the funds in its custody. but it could not be said that his purpose is germane to his interest as 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. or any person aiding or abetting the violations of any of the provisions of this Act. 68. by the Corporation Code of the Philippines. 1459. 16 and 30 of the said charter provide respectively as follows: Sec. & MS. (Republic Act No. Act No. EUGENIA D. therefore. and the Board of Directors the details of the inspection or investigation. 1998 . Confidential information. as amended. the new Code has prescribed limitations to the same. JOSE A. or both such fine and imprisonment. and that the person asking for such examination must be "acting in good faith and for a legitimate purpose in making his demand. Section 4 of the said Code provides: SEC. while seemingly enlarging the right of inspection. AND ADORACION G. MR. supplemented by the provisions of this Code. as amended. insofar as they are applicable. He could have been impelled by a laudable sense of civic consciousness. 1998 (CA-G. 33291) July 13. The Philippine National Bank is not an ordinary corporation. 33873) July 13. its current accounts or deposits belonging to private individuals. Having a charter of its own." The unqualified provision on the right of inspection previously contained in Section 51. or any other entity. — The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank' Sec. 123553 July 13. corporations. who violates or permits the violation of any of the provisions of this Act.R. MAGSANOC. WHEREFORE. NUYDA.made on business days. No. the stockholder may demand a copy of the excerpts of the records or minutes. No. employee. We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be violative of the provisions of its charter. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same. or agent of the Bank. — Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them.) Sections 15. without costs.R. or other officers designated by law to inspect or investigate the condition of the National Bank. 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. it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 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. However. and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. Sec. 1300. 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.' vs. APOSTOL.R. 1998 NORA A. it is not governed. he has not set forth the reasons and the purposes for which he desires such inspection. —The Superintendent of Banks and the Auditor General. BITONG.

Nuyda. (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. Despite the fact that the advances made by Mr. & Ms. & Ms.00 to P2. & Ms. Inc. directors and officers in both Mr. (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. and the other stockholders.000. When Ex Libris suffered financial difficulties. the real party being JAKA which continued to be the true stockholder of Mr.00.. & Ms.569. from P301. and PDI. Apostol 2 liable for fraud.000 shares of stock out of the 4. in the total stockholders' equity from P203. only represented and continued to represent JAKA in the board. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. among others. Private respondents further contended that petitioner. in the net sales.000. Magsanoc and Adoracion G. upon instructions of Eugenia D. Mr.e. But.. Thereafter it was agreed among them that. & Ms. hereafter). would be operated as a partnership or a close corporation. As a result. disloyalty. either expressly or impliedly.489. BELLOSILLO.. no payments were ever received from respondents. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations. & Ms. Bitong before the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of private respondent Mr. Luis Villafuerte. ESPIRITU. President and Chairperson of the Board of Directors.00 by PDI from Mr. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter). petitioner. respondent Eugenia D. & Ms. Apostol. Hence from mid-1986 to mid1988 petitioner refused to speak with respondent Eugenia D. cash dividends were distributed and received by the stockholders. Publishing Co. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750. (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts. petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. and Mr.. Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names. made several cash advances to PDI on various occasions amounting to P3. Magsanoc and Nuyda. Private respondents also asserted that respondent Eugenia D. & Ms. misrepresentation. from P457. there existed no board or stockholders' resolution. and in 1988 the former became openly critical of the management of the latter.143. refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. Apostol and Jose A. to the damage and prejudice of Mr. Likewise. Inc. Nuyda subscribed to PDI shares of stock at P50. consequently. J.00.00 each to respondents Magsanoc and Nuyda. it was PDI. on the other hand. (g) direct the management committee for Mr. (b) enjoin respondents Apostol spouses. On some of these borrowings PDI paid no interest whatsoever. & Ms. & Ms. & Ms. Apostol. Apostol. of Mr. to PDI were booked as advances to an affiliate. and was the registered owner of 1. and. (f) appoint a management committee for Mr. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business. & Ms. COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. they being close friends. Nevertheless. petitioner did not have the personality to initiate and prosecute the derivative suit which. Apostol on the other. hence.. & Ms.NORA A. respondent Eugenia D. shares. Private respondents further argued that petitioner was not the true party to this case. & Ms. BITONG. and. all shares of stock paid from cash advances from it and all accessions or fruits thereof. with PDI were not supported by any bond and/or stockholders' resolution. Apostol and Jose A. being merely a holder-in-trust of JAKA shares. respondents. Thus. Apostol from further acting as president-director and director. Magsanoc. to hold respondent spouses Eugenia D. In the beginning. had been fully paid with 20% interest per annum. Mr. And. & Ms. And. as shown in a statement prepared by the accounting firm Punongbayan and Araullo.276 million. contract nor any other document which could legally authorize the creation of and support to an affiliate.. as receivables from officers and employees. by reason of their improper and fraudulent acts. They offered no objections.00 to P10. & Ms. no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. The stock subscriptions were paid for by Mr. (Mr. Consequently the other stockholders consented. and from disposing of their Mr. and its stockholders. vs. Apostol would manage the affairs of Mr.610. Ramon Siy. to her management.324. together with new investors Luis Villafuerte and Ramon Siy. to file the necessary action to enforce its rights against PDI and other third parties. conflict of interest and mismanagement in directing the affairs of Mr. must be dismissed. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders. restructured Ex Libris by organizing a new corporation known as Mr. Leticia J. Private respondents Apostol spouses. . & Ms.. the business prospered. including petitioner.: These twin cases originated from a derivative suit 1 filed by petitioner Nora A. In fact on 2 May 1986 respondents Eugenia D. Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. including petitioner. & Ms. and respondents Eugenia and Jose Apostol. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co.000.00.088 total outstanding shares. Apostol. petitioner cooperated with and assisted the management until mid-1986 when relations between her and her principals on one hand. and initially treated. The petition principally sought to (a) enjoin respondents Eugenia D. JAKA. & Ms. & Ms.325. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989.378. there were increases from 1976 to 1988 in the total assets of Mr. JAKA and the Apostols.00. & Ms. i. evident bad faith. the Apostols and Ex Libriscontinued to be virtually the same up to 1989. & Ms.00 each or a total of P150. and respondent Eugenia D.000. not Mr. & Ms. respectively.954. which loaned off P250. Apostol had been informing her business partners of her actions as manager. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr.00 to P16.046. became strained due to political differences. and. & Ms. The original stockholders of Mr.. and obtaining their advice and consent.

. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. fraud and conflict of interest on the part of respondent Eugenia D. petitioner's complaint did not state a cause of action. filed a petition for review before respondent Court of Appeals. which would warrant drastic corrective measures. 008. And. respondents' contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest ." This statement refers to petitioner sitting in the board of directors of Mr. & Ms. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. Apostol signed Certificate of Stock No. for reasons of fraud. Espiritu. while respondent Edgardo B. It gave credence to the assertion of respondent Eugenia D. For not being the real party-in-interest. it viewed the real issue to be the alleged mismanagement. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock. Such reference alluded to by the respondents indicates an admission on respondents' part of the petitioner's legal personality to file a derivative suit for the benefit of the respondent Mr. Nuyda. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile. was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. Respondent Eugenia D. account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons. Accordingly. since 25 July 1983 as respondent Eugenia D. & Ms. docketed as CA-GR No.088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms.On 6 December 1990. not petitioner Bitong. & Ms. the SEC Hearing Panel 3 issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. ordered private respondents to account for. 008 bearing the date 25 July 1983. & Ms. and. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D.D. & Ms. On 3 August 1993. V (Affirmative Allegations/Defenses). The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Apostol that Mr. 8. dividends and/or fruits that they might have received as a result of their investment in PDI. . The Hearing Panel however denied petitioner's prayer for the constitution of a management committee. SP 33873. seven (7) times no less. No less than respondents' Amended Answer. Apostol. and Mr. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. in two capacities. docketed as CA-GR No. hence. under Certificate of Shares of Stock No. and considered Mr. JAED Management Corporation. is bereft of any merit. & Ms. and thus were null and void. Apostol. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals. Apostol. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. including those arising from the P150. As such. the signature which appeared on the face of Certificate of Stock No. or want of it. No. hence. after trial on the merits. assets. Consequently. Respondent Eugenia D. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company. The Hearing Panel also enjoined respondent Apostol spouses. .Answer to the Amended Petition. Hence. 5 On 18 January 1996. since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC. Apostol explained that she stopped using her long signature (Eugenia D. par. & Ms. return and deliver to Mr. a defense which was never waived. Apostol claimed that she had not seen the Stock and Transfer Book at anytime until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. Espiritu to be tainted with fraud. and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. profits. . Magsanoc and Nuyda. On 24 January 1994 the SEC En Banc 4 reversed the decision of the Hearing Panel and. & Ms. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. Leticia J. & Ms. respondent Apostol spouses. null and void. and ordered them to forthwith deliver said shares to Mr. Magsanoc. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. mismanagement. one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr.00 advanced to respondents Eugenia D. & Ms. Nuyda and Magsanoc from disposing of their PDI shares. board meeting of 22 September 1988. the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. petitioner's motion for reconsideration was denied for lack of merit. specifically paragraph V. On 8 December 1994 the two (2) petitions were consolidated. to Edgardo B. & Ms. & Ms. Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of jurisdiction. was stipulated due to inadvertence and excusable mistake and should be amended. The Hearing Panel ruled that there was no serious mismanagement of Mr. and not on 25 July 1983. Apostol. out of the 4. petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. On 10 October 1991 the Hearing Panel denied the motion for amendment. 008 were fraudulent. her petition should have been dismissed. Inc. the Hearing Panel considered petitioner to be the real party-in-interest. No. among others. 008 only on 17 March 1989. and this resulted in the sale to her of JAKA's interest and holdings in that publishing firm... & Ms. . Apostol) in 1987 and changed it to E. Nuyda. and further ruled — . & Ms. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-ininterest was JAKA. 8 on Affirmative Allegations/Defenses states that "The petitioner being herself a minor stockholder and holderin-trust of JAKA shares represented and continues to represent JAKA in the Board. for this purpose. disloyalty and conflict of interest. Magsanoc and Adoracion G. Publishing Co. the entries therein including Certificate of Stock No. cease and desist from managing the affairs of Mr.000. and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. & Ms. & Ms. & Ms. SP 33291.

were: Cert. but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner. . Apostol. Ex Libris Publishing Company was paid 800 shares for the name of Mr. THE PARTIES 1. . & Ms. Publishing Co.000. & Ms. out of the latter's 4. The Parties" of her Amended Petition before the SEC. 1 under the caption "II.000 21% 004-9-15-76 Jose Z.. Luis Villafuerte contributed his own P100. PARTIES 1. . .088 total outstanding shares" and that she was a member of the Board of Directors of Mr. & Ms. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses.000 21% 005-9-15-76 Ex Libris Publishing Co. Consequently. at all times material to this petition. THE FACTS 1." "the truth . she does not have the personality to initiate and prosecute this derivative suit. petitioner submits that in paragraph 1 under the caption "I. . the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. 800 16% —— —— 4. Bitong is not the true party to this case. but qualify said admission insofar as they are limited. In addition. & Ms. 003-9-15-76 Ramon L./No. Where the statements of the private respondents were qualified with phrases such as. II. 1.Before this Court. Respondents admit paragraph 1 of the Petition.000.. THE FACTS 1. "insofar as they are limited. the original stockholders of respondent Mr. restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. . consequently. & Ms. . Not necessarily. Petitioner is the registered owner of 1.000 shares of stock of Mr. pars. Petitioner Nora A. . 8. . . addresses and capacity of the parties to the petition except . Fortunately. The above-named original stockholders of respondent Mr. & Ms. ./Date Name of Stockholder No. Siy 1. Inc. & Ms. represented and continues to represent JAKA in the Board . qualified and/or expanded by. & Ms. & Ms. . a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered by the adversary. Apostol 1.. & Ms. . JAKA and respondent Jose Z. respondent Apostol was able to convince Mr. Respondents admit the allegations contained in Caption I. Petitioner. forecloses any question on her status and right to bring a derivative suit on behalf of Mr. . continue to be virtually the same stockholders up to this date . . .000 shares of stock registered in her name in the books of Mr.088 total outstanding shares. is a member of the Board of Directors of Mr. In par. . the Amended Answer to the Amended Petition states — I. & Ms. and treasurer from its inception until 11 April 1989. Publishing Co. the truth being as stated in the Affirmative Allegations/Defenses of this Answer .000 21% 002-9-15-76 Luis Villafuerte 1. private respondents' admission that petitioner has 1.800 96% 4. . & Ms. On the other hand. to entitle her to file a derivative suit on behalf of the corporation. Petitioner is a stockholder and director of Mr. . 1 to 4 of the Petition referring to the personality. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency. . II. . . out of the latter's 4. and from the inception of Mr. Inc. and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact.000 shares of stock of Mr. . & Ms. and should therefore be dismissed . Luis Villafuerte to take interest in the business and he. & Ms. magazine and goodwill. together with the original investors.00 each. 3.00. The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. Thus. The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares. 21. until 11 April 1989 was its treasurer . . . original investors of Ex Libris contributed P100. 6 The Amended Petition before the SEC alleges — V. Mr.000 21% I. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission. that . . The Facts" she declared that she "is the registered owner of 1. & Ms. . she stated that she was a stockholder and director of Mr. qualified and/or expanded by allegations in the Affirmative Allegations/Defenses . of Shares % 001-9-15-76 JAKA Investments Corp.

Being a mere interlocutory order. the date of the transfer. while the admission is admissible in evidence. the par value. however. Although acts or facts admitted do not require proof and cannot be contradicted. 63. And. This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. was favorable to private respondents. which tends to neutralize or explain the portion which is against interest. fraud. Sec. 11 Second. the number of the certificate or certificates and the number of shares transferred . The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. 10 Thus. Petitioner alleges that even in the absence of a stock certificate. delivery of the certificate is an essential element of its issuance. For. they were not expected to appeal therefrom. the court should weigh any other portion connected with the statement. they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. First. and sealed with the seal of the corporation. countersigned by the secretary or assistant secretary. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement. Accordingly. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction. In fact. evidence aliunde can be presented to show that the admission was made through palpable mistake. On the other hand. must first be fully paid. the certificates must be signed by the president or vice-president. When taken in its totality. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioner's lack of legal capacity to sue before the SEC. Apostol. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Not quite. the Hearing Panel categorically stated that the evidence presented showed that the real party-in-interest was not petitioner Bitong but JAKA and/or Senator Enrile. & Ms. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. countersigned by the secretary or assistant secretary. cannot be construed as judicial admissions. fraud and conflict of interest allegedly committed by respondent Eugenia D. in the 3 August 1993 Decision. and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. In other words. The reason for this is. she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. and sealed with the seal of the corporation shall be issued in accordance with the by-laws. one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. 8 The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court. a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder. clearly raises an issue as to the legal personality of petitioner to file the complaint. It was in fact petitioner's turn as the aggrieved party to exercise her right to appeal from the decision. 7 More so. . 12 Third. In fact. Certificate of stock and transfer of shares. . there was no compelling reason for the latter to appeal to the SEC En Banc. the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder of Mr. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit. or the full subscription as to no par value shares." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. 63 of The Corporation Code expressly provides — Sec. there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint. the Amended Answer to the Amended Petition. as to par value shares. Fourth. .being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough. even though the 6 December 1990 Order was adverse to private respondents. She invokes Sec. the original . Hence. 9 Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue. & Ms. an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy. disloyalty and conflict of interest and dissolving the writ of preliminary injunction. they are now estopped from questioning her personality. including the right to file a derivative suit in the name of the corporation. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. where part of a statement of a party is used against him as an admission. modify or destroy its effect on the other side. its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. or even the Answer to the Amended Petition alone. the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement. & Ms. with the dismissal of the complaint of petitioner against private respondents. — The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. Hence. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation. it is not appealable.

& Ms. His instruction was to transfer the shares of JAKA in Mr. 14The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. 13 Similarly. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. 001 were thus transferred to respondent Eugenia D. contrary to petitioner's submission. 22 Contrary to Senator Enrile's testimony. several corporate documents disclose that the true party-in-interest is not petitioner but JAKA.16 Where there is an inherent lack of power in the corporation to issue the stock. A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. the Certificate of Stock No. a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary.000 covered by Certificate of Stock No. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholder's derivative suit against private respondents.. He said that there was no other document evidencing the assignment to petitioner because the stocks were personal property that could be transferred even orally. & Ms. 008 in petitioner's name only in 1989. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation. to relieve Mr. Private respondents stress that petitioner's counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. was evolving to be an opposition newspaper. and Ex Libris to respondent Apostol as a nominal holder. & Ms. when Certificate of Stock No. Thus. 20 Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. 17 As found by the Hearing Panel and affirmed by respondent Court of Appeals. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. & Ms. where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued. and not before that date. They are ordinarily the best evidence of corporate acts and proceedings. it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. However.. Apostol at the time of the filing of the complaint with the SEC although they were issued years before.000 shares of Mr. Certificate of . there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book. its financial status and other matters including one's status as a stockholder. Based on the foregoing admission of petitioner. it is supposed to serve as paper representative of the stock itself and of the owner's interest therein. this presumption may be rebutted. Apostol in trust or in blank. to respondent Apostol on 10 May 1983 and not to petitioner. Parol evidence may be admitted to supply omissions in the records. from political pressure. While a certificate of stock is not necessary to make one a stockholder. & Ms. He then finally decided to transfer the shareholdings to petitioner.certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. petitioner maintains that Senator Enrile executed a deed of sale in her favor. or in some cases where such records were contradicted. Senator Enrile sold to petitioner 997 shares of JAKA. 15 The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. while petitioner asserts in her petition that Certificate of Stock No. & Ms. & Ms. are indistinctive if not enshrouded in inconsistencies. however. However. 21 When asked if there was any document or any written evidence of that divestment in favor of petitioner. Senator Enrile answered that there was an endorsement of the shares of stock. books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts. e. petitioner said that early in 1983. even as it indicates that petitioner owns 997 shares of stock of Mr. petitioner admits that while respondent Eugenia D. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. & Ms. the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. petitioner was not a bona fidestockholder of Mr. a deed of sale was executed and antedated to 10 May 1983. Aside from petitioner's own admissions. & Ms. neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estopped cannot operate to create stock which under the law cannot have existence. & Ms.g. or show what transpired where no records were kept. For this purpose. The JAKA shares numbering 1. In her testimony before the Hearing Panel. explain ambiguities. 008 dated 25 July 1983 was issued in her name. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983. In this case. 001 in the name of JAKA was already cancelled and a new one. 18 Petitioner now claims that a few days after JAKA's shares were transferred to respondent Eugenia D. Hence. Apostol signed the Certificate of Stock No. In her reply. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. Apostol. Verily. Senator Enrile decided to divest the family holdings in Mr. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. there is no truth to the statement written in Certificate of Stock No. had not yet been signed by respondent Eugenia D. as he was then part of the government and Mr. 19 This submission of petitioner is however contradicted by the records which show that a deed of sale was executed by JAKA transferring 1. Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. private respondents argue that this certificate was signed by respondent Eugenia D.

Hence. And. The rule is that the endorsement of the certificate of stock by the owner or his attorney-infact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. (c) to be valid against third parties. Augusto San Pedro. 63 of The Corporation Code should be mandatorily complied with. When a dividend is declared. the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Mrs. respondent Apostol agreed. she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to the JAKA shares. 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. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. 31 That JAKA retained its ownership of its Mr. Atty. Apostol explained to the Directors that through her efforts. It was also stated therein that being a trustee. Augusto San Pedro noting the changes he had made in the Stock and Transfer Book without prior notice to the corporate officers. in their audit. 29 In the 27 October 1988 directors' meeting. (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer. Petitioner was well aware of this trust. Atty. 007. even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. upon verification with the SEC. Apostol wrote Atty. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Thus. it was even possible that the original Stock and Transfer Book might not have been registered at all. when the corporate secretary resigned. a deed of sale over 1. issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale. if indeed there was a transfer. shares was clearly shown by its receipt of the dividends issued in December 1986. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper. about the lost stock and transfer book which was also noted by the corporation's external auditors. 007. 30 This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares. to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. If it was true that the shares of stock covered by Certificate of Stock No. petitioner has satisfied only the third requirement. Punongbayan and Araullo. Apostol. were in the possession of petitioner before their custody was transferred to the Corporate Secretary. On 20 October 1988 respondent Eugenia D. San Pedro made the changes upon her instructions conformably with established practice. the requirements are as follows: (a) There must be delivery of the stock certificate.000 Mr. her principal. Apostol as President of Mr. shares in question still belonged to JAKA and not to petitioner. Compliance with the first two requisites has not been clearly and sufficiently shown. Unson even informed respondent Eugenia D. For. and. Petitioner being the chief executive officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA 26 was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her. & Ms.Stock No. As it is. The records show that the original stock and transfer book and the stock certificate book of Mr. 33 Finally. perhaps strangely. the mere alleged endorsement of Certificate of Stock No. the transfer must be recorded in the books of the corporation. 001 by Senator Enrile or by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. Petitioner answered that Atty. the rule on presumption of regularity cannot apply. it was discovered that the general file of the corporation with the SEC was missing. on written request of the principal. 28 On 25 May 1988. she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA. & Ms. shares covered by Certificate of Stock No. being the person in charge of this documentation and being one of the witnesses to the execution of this document. as shown by the minutes thereof which she duly signed 34 — 5. respondent Eugenia D. 007. that Mr. respondent Apostol signed a declaration of trust stating that she was the registered owner of 1. 25 In fine.000 Mr. 27 At most. 007 had been transferred to petitioner. for a valid transfer of stocks. & Ms. Considering that the requirements provided under Sec. the asset base of the Company has improved and profits were realized. in the instant case. 23 It should be emphasized that on 10 May 1983 JAKA executed. very obviously. Incidentally. 32 This only means. shares in favor of respondent Eugenio D. Considering that petitioner's status is being questioned and several factual circumstances have been presented by private respondents disproving petitioner's claim. regular and authorized. The declaration of trust further showed that although respondent Apostol was the registered owner. & Ms. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders. it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms. not just seven (7) but nine (9) times. Apostol. 24 Hence. this Court takes notice of the glaring and open admissions of petitioner made. It is . & Ms. dividends are distributed to stockholders pursuant to their right to share in corporate profits. & Ms. Then. On the same day. The regularity and validity of the transfer must be proved. as if to magnify and compound the uncertainties in the ownership of the shares of stock in question. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case. E. the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. 001 was already canceled by virtue of the deed of sale to respondent Apostol. Apostol. the person who could legally endorse the certificate was private respondent Eugenia D.

& Ms.respondents. Siguion Reyna. RALPH KAHN and RAMON DEL ROSARIO. 3 Shortly after the Revolution of February. Bitong. Ms. . In many instances. On December 15. ANTONIO ROXAS. Her principals when asked for an opinion.. 1983. said that they recognized the concept as something very noble and visible . JR. and intracorporate remedy is futile or useless. 24 January 1993 and 18 February 1994 Orders of the SEC En Banc in CA-G. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. Then Ms. she remembers. brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. as testified to by Senator Enrile himself. 2 and were placed under a Voting Trust Agreement in favor of the late Andres Soriano.. . Espiritu as well as annulling the 5 November 1993. . .for this reason that the Company has declared a 100% cash dividend in 1986. . at any time before 1988 or at the time the acts complained of were committed. a stockholder may sue for mismanagement. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs.266 shares of the outstanding capital stock of the San Miguel Corporation were acquired 1 by fourteen (14) other corporations. her principals were instrumental in helping Mr. Bitong pointed out that the practice of using the former Minister's influence and stature in the government is one thing which her principals themselves are strongly against . 37 Hence. . ANDRES SORIANO III. represented by EDUARDO DE LOS ANGELES. 7. 41 WHEREFORE. it cannot prosper without first complying with the legal requisites for its institution.R. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him. SO ORDERED. Apostol did not answer the question. E. . Jr. the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. G. to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. No. 6. N.. the petition is DENIED.133. 1986 . Bitong expressed her recollection of how ExLibris/Mr. . E. and granting the petition for certiorari and prohibition filed by respondent Edgardo U. SP 33873. NARVASA. & Ms. were organized and her participation for and on behalf of her principals. . petitioners. . FRANCISCO EIZMENDI. 38 The stockholder's right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. N.R. her principals supplied first hand and newsworthy information that made Mr. 4 . did you not think of my shareholders the Ponce Enriles as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. as follows: She recalled that her principals were invited by Mrs. JR. & Ms. Eduardo M. 35 These admissions render nugatory any argument that petitioner is a bona fidestockholder of Mr. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Ms.A. No. E. Cojuangco left the country amid "persistent reports" that "huge and unusual cash disbursements from the funds of SMC" had been irregularly made. . in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf. Mabanta. In this regard. The relationship between her principals and Mrs. N. & Ms. SP 33291. 36 However. Buenaventura.: It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust. JR. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. EDUARDO SORIANO. . Roco & Bunag Law Offices for respondent Ernest Kahn. . Bitong in CA-G. not of mere error of judgment or abuse of discretion. & Ms. . a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation.. was elected Substitute Trustee on April 9. Cojuangco. 33. Montecillo and Ongsiako for other respondents.R. However. According to Ms. vs. Romulo. ANTONIO PRIETO. There is no doubt that petitioner was an employee of JAKA as its managing officer. & Ms. waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. 85339 August 11. Sayoc & De Los Angeles petitioner. and the resources of the firm extensively used in support of the candidacy of Ferdinand Marcos during the snap elections in February. petitioner is disqualified by law to sue in her own name. Apostol. is AFFIRMED. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof. When the latter died.A. J. BENIGNO TODA. No. a popular paper . 1986. Bitong asked a very specific question — "When you conceptualized Ex-Libris and Mr. . 1989 SAN MIGUEL CORPORATION. . Apostol to invest in Ex-Libris and eventually Mr. Ms. Jr. 40 The basis of a stockholder's suit is always one in equity. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. survive during those years that it was cash strapped . Costs against petitioner. At this point. 1984 with power to delegate the trusteeship in writing to Andres Soriano III. ERNEST KAHN. 39 In effect.

1986 was merely a "further study" by Director Ramon del Rosario of a plan presented by him for the assumption of the loan. the PCGG directed San Miguel Corporation"to issue qualifying shares" in the corporation to seven (7) individuals.313.. the transfer..lâwphî1." there "was no additional expense or exposure for the SMC Group. the proceeds of the loan were deposited in different banks 17 for the account of "Eduardo J. 1986 and March 12. Soriano III sent identical letters to the stockholders of San Miguel Corporation. "from the proceeds of certain loans"..133. "decided to assume the loans incurred by Neptunia for the down payment ((P500M)) on the 33.. 9 The sequestration was subsequently lifted. Inc. or "an aggregate sum of Three Billion Three Hundred Thirteen Million Three Hundred Twenty Six Thousand Six Hundred (P3. 1986.. a wholly owned subsidiary of San Miguel International which is.' the seller corporations were 'fully owned' by said farmers and Cojuangco owned only 2 shares in one of the companies. at the meeting of the SMC Board on January 30." since Neptunia was "an indirectly wholly owned subsidiary of SMC." The Board opined that there was "nothing illegal in this assumption (of liability for the loans). 1986 had made the down payment of P500. 1987. c) Three (3) days later.266 shares. etc. the buyer of the shares was a foreign company.00. . in turn." and Soriano's own wish to purchase the same "in order to institutionalize and stabilize the management of the COMPANY in . friends and affiliates acquired a considerable block of San Miguel Corporation shares only a few days ago . 7 and it was Neptunia which on or about April 1." of the 33. The same order forbade the SMC corporate Secretary to register any transfer or encumbrance of any of the stock without the PCGG's prior written authority. compound the damages caused San Miguel Corporation by. an "Agreement" was executed between Andres Soriano III.266 shares of stock at the price of P100. by Resolution No. Soriano". one of the PCGG representatives in the SMC board.00. thereby committing the former to the purchase of its own shares for at least 25% higher than the price at which they were fairly traded in the stock exchanges.laws.000.133. 8612-2.. to wit: a) On April 1. and to direct the COMPANY towards giving the highest priority to its principal products and extensive support to agriculture programme of' the Government . according to Soriano and the other private respondents.00) Pesos payable in specified installments." and the 14 corporations. Mrs. among other things: (1) agreeing to pay a higher price for the shares than was originally covenanted in order to prevent a rescission of the purchase agreement by the sellers.000. Inc.313. Neptunia Corporation Limited (of Hongkong. through various subsequent machinations and manipulations. 1986 .. 18 inter alia soliciting their proxies and announcing that "the Soriano family.133. and stating that what in truth was agreed upon at the meeting of December 4.3 million coconut farmers. business associates. concealment or liquidation of assets and properties acquired by former President Ferdinand Marcos and/or his wife. 16 b) The loan of $26.266 shares .500." to "be held in trust by .000.133." The letters also stated that the purchase was "an exercise of the Sorianos' right to buy back the same number of shares purchased in 1983 by the . 11 On June 4. and 33. a wholly owned subsidiary of San Miguel Corporation. 8 At this point the 33. against ten (10) of the fifteen-member Board of Directors who had "either voted to approve and/or refused to reconsider and revoke Board Resolution No.266 SMC shares were sequestered by the Presidential Commission on Good Government (PCGG).Miguel Corporation.. 86-122.ñèt He filed with the SEC in April.000. the transaction . 5 The Agreement revoked the voting trust above mentioned." 15 His Amended Petition in the SEC recited substantially the foregoing antecedents and the following additional facts.133. enabling him.500. which assumption constituted an improper use of corporate funds to pay personal obligations of Andres Soriano III. had met and passed a resolution authorizing the company to borrow up to US $26. 12 In December. on representations by San Miguel Corporation x x that the shares were 'owned by 1. 10 San Miguel promptly suspended payment of the other installments of the price to the fourteen (14) seller corporations. At the latter's request.00 per share. Kahn and Roxas. on the ground that the stock belonged to Eduardo Cojuangco.On March 26.326." for the purchase by Soriano.600. and/or whoever shall finally be determined to be the owner/owners of said shares. for interior motives and in breach of fiduciary duty.. as directors of' Neptunia Corporation.. to purchase stock of the corporation using funds of' the corporation itself." d) In implementing the assumption of the Neptunia loan and the purchase agreement for which said loan was obtained. The latter as promptly sued for rescission and damages. and there were tax and other benefits which would redound to the SMC group of companies. as "Sellers. what he describes as a derivative suit in behalf of San Miguel Corporation.. 1986. including Eduardo de los Angeles. (2) urging UCPB to accept San Miguel Corporation and Neptunia as buyers of the shares. the respondents. (said seven [7] persons) for the benefit of Anscor-Hagedom Securities. However. allegedly a close associate and dummy of former President Marcos.Hagedorn Securities.. He was however overruled by private respondents. respectively) which prohibit .. 86-12-2. the sequestration was soon re-imposed by Order of the PCGG dated May 19. (himself) and the professional officer corps. Imelda Romualdez Marcos. 14 When his efforts to obtain relief within the corporation and later the PCGG proved futile.1986. the corresponding loan agreement having been signed for Neptunia by Ralph Kahn and Carl Ottiger..00 from the Hongkong & Shanghai Banking Corporation... 1986 Soriano. dated February 28. 6 Actually. and the sale thereof was "in direct contravention of . encumbrance. Hongkong "to enable the Soriano family to initiate steps and sign an agreement for the purchase of some 33. "for himself and as agent of several persons. 1986. Ltd. and the sale allowed to proceed. (14 seller corporations).600. impugned said Resolution No. as "Buyer. on April 4. 13 However.00 was obtained on the same day.326. 1987. the SMC Board. De los Angeles also pointed out certain "deleterious effects" thereof. (having been) made through the facilities of the Manila Stock Exchange. denying that it was ever adopted. conveyance. subordinates. "from the sequestered shares registered as street certificates under the control of Anscor. mandated by the COMPANY's By. Executive Orders Numbered 1 and 2 (. (having thereby been) purchased for the aggregate price of' P3. he repaired to the Securities and Exchange Commission (SEC). Eduardo de los Angeles. 1986.266 shares of San . and expressed the desire of the 14 corporations to sell the shares of stock "to pay certain outstanding and unpaid debts. Jr. their close relatives.

1987. and against Andres Soriano III from further using or disposing of the funds or assets of the corporation for his obligations. a derivative suit being one brought for the benefit of the corporation. 1987 making San Miguel Corporation a party to the purchase agreement.860 or 0. c) he has not come to court with clean hands. 2) it is indisputable that the action had been brought by de los Angeles for the benefit of the corporation and all the other stockholders. The complaint closed with a prayer for injunction against the execution or consummation of any agreement causing San Miguel Corporation to purchase the shares in question or entailing the use of its corporate funds or assets for said purchase. and 2. it had the right to seek the protection of the interest of the corporation. seeking the annulment of this adverse resolution of the SEC Hearing Officer and her perpetual inhibition from proceeding with SEC Case No. Pasay Paz. the number of shares owned by him being to repeat. various assets and receivables of San Miguel Corporation. to wit: 1 De los Angeles has no legal capacity to sue because — a) having been merely imposed by the PCGG as a director on San Miguel. and 5) where business judgment transgresses the law." 2) de los Angeles has not met this conflict-of-interest argument. sufficed to qualify a person to bring a derivative suit.800. 4) there is no merit in the assertion that he had come to Court with unclean hands. a conclusion founded on the following propositions: 1) a party "who files a derivative suit should adequately represent the interests of the minority stockholders. it having been held that even an unregistered shareholder or an equitable owner . for the nullification of the SMC Board's resolution of April 2. de los Angeles was put by the PCGG to vote the majority stock. Ernest Kahn moved to dismiss de los Angeles' derivative suit on two grounds. 20 The motion to dismiss was denied by SEC Healing Officer Josefina L. and (c) its voting of sequestered stock must be done only pursuant to its power of administration. The majority 22 ruled that de los Angeles had no egal capacity to institute the derivative suit. he has no standing to bring a minority derivative suit. The dissenting Justices. not having been elected by the minority.1987. that his position as PCGG-nominated director is inconsistent with his assumed role of representative of minority stockholders. 3152. 24 on the other hand.. (e)specially so when . he being a stockholder in his own right.00001644% (appearing to be undisputed). upon a vote of three-to-two. b) he personally holds only 20 shares and hence cannotfairly and adequately represent the minority stockholders of the corporation. his voting would expectedly consider the interest of the entity which placed him in the board of directors. 3) Baseco v. May 27. 19 Kahn's motion to dismiss was subsequently adopted by his correspondents . 3) he was a stockholder at the time of the commission of the acts complained of. i.00 on said purchase." since "De los Angeles holds 20 shares of stock out of 121.and shifting to said corporations the personal obligations of Soriano III under the purchase agreement. (b) it has only powers of administration. ownership of even one share only. A Special Division of that Court sustained him. and 4) de los Angeles' suit is not a derivative suit. The Securities & Exchange Commission has no jurisdiction over the controversy because the matters involved are exclusively within the business judgment of the Board of Directors.000.645." a situation generating "a genuine conflict of interest. and (3) causing to be applied to the part payment of P1. it not having been shown that he participated in the act complained of or ratified the same. and for damages. the securities and Exchange Commission always has competence to inquire thereinto. PCGG. 23 has laid down the principle that the (a) PCGG cannot exercise acts of dominion over sequestered property.. by order dated September 4. and 3) even if PCGG was not the owner of the sequestered shares. 21 In her view — 1) the fact that de los Angeles was a PCGG nominee was irrelevant because in law.e. 2) he had not voted in favor of the resolution authorizing the purchase of the shares. (he) cannot even be remotely said to adequately represent the interests of the minority stockholders. Kahn filed a petition for certiorari and prohibition with the Court of Appeals. were of the opinion that the suit had been properly brought by de los Angeles because — 1) the number of shares owned by him was immaterial. immaterial.

. a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of. invoked by him. appeal to the SEC en banc and despite the fact that no question of jurisdiction was involved. for the benefit of certain of its officers and stockholders. Nos. i. speedy and adequate remedy within SEC. speedy and accurate remedy was available to him in this case. and 3) having held that he (de los Angeles) could not file a derivative suit as stockholder and/or director of the San Miguel Corporation. De los Angeles has appealed to this Court. and in this Court." be this as it may..of shares and pledgees of shares may be deemed a shareholder for purposes of instituting a derivative suit. and e) de los Angeles had not raised the issue of absence of a motion for reconsideration by respondents in the SEC case. 74910. 4) the respondents had properly applied for certiorari with the Court of Appeals because — a) that Court had. the respondents make the following assertions: 1) SEC has no jurisdiction over the dispute at bar which involves the ownership of the 33.e. moreover. and (3) that wrong was in truth a 'wrong against the stockholders of the corporation. imputing to the latter the following errors: 1) having granted the writ of certiorari despite the fact that Kahn had not first resorted to the plain remedy available to him. d) the Order of the SEC Investigating Officer — denying the motion to dismiss — was issued without or in excess of jurisdiction. the validity of the resolution of the board of directors for the assumption by the corporation.133. De Los Angeles had in fact asserted to this propositions before the Appellate Tribunal. de los Angeles does not fairly and adequately represent the interest of the minority stockholders.133. a motion for reconsideration before the Sec en banc and. the . although he (de los Angeles) had disputed them and there had been no trial in the SEC. generally. For their part.266 shares of SMC stock. (2) he had sought without success to have the board of' directors remedy with wrong. 76397. contrary to the respondent's claim. indeed. c) said respondents had no plain.266 sequestered SMC shares but rather. viz: 2) having ruled on Kahn's petition on the basis merely of his factual allegations. having acquired those shares as early as 1977. has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea. and not he. to wit. bars a resort to certiorari. promulgated on August 10. in light of this Court's Resolution in G. where a plain. of liability for loans contracted by another .the particular stockholder bringing the suit. which had "imposed" him on the corporation. 5075. and c) c)the cause of action actually devolves on the corporation. de los Angeles. 75094.R. 79459 and 79520. Rule 65.wrongdoing or harm having been caused to the corporation and not to . since the PCGG had a clear conflict of interest with the minority. the derivative suit does not fall within the BASECO doctrine since it does not involve any question of ownership of the 33. as director of the former. He prays for reversal of the judgment of the Court of Appeals.e. in any event. had no legal capacity to sue on behalf of the latter. 2) Kahn had not limited himself to questions of law in the proceedings in the Court of Appeals and hence could not claim exclusion from the scope of the doctrine of exhaustion of remedies. De los Angeles' Reply seeks to make the following points: 1) since the law lays down three (3) requisites for a derivative suit. and 3) the respondent had not raised the issue of jurisdiction before the Court of Appeals. 3) even assuming absence of conflict of interest. b) he has exhausted intra-corporate remedies. exclusive appellate jurisdiction over officers and agencies exercising quasi-judicial functions. particularly. 25 2) de los Angeles was beholden to the controlling stockholder in the corporation (PCGG). such a motion was unnecessary in the premises. by law. and since (1) he is admittedly the owner of 20 shares of SMC stock in his own right. they admit to their Comment that that issue has not yet been resolved by the SEC. that would be entitled to the appropriate' relief — the propriety of his suit cannot be gainsaid. hence was correctly nullified by the Court of Appeals.. b) the principle of exhaustion of administrative remedies does not apply since the issue involved is one of law. 1988. and hence file competence to issue the writ of certiorari. i.and not against him individually — and it was the corporation.

but assets indisputably belonging to San Miguel Corporation which were. he cannot be deemed to fairly and adequately represent the interests of the minority stockholders.645. has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea.860)." His complaint does not involve any property illegally acquired or misappropriated by Marcos. their close relatives. individually. . in SEC Case No. Mrs. The contention. an issue evidently distinct from. 3000 above mentioned. Neither can the "conflict-of-interest" theory be upheld. are lodged within the exclusive and original jurisdiction of the Sandiganbayan.. or being caused to the corporation and not to the particular stockholder bringing the suit.. but in behalf and for the benefit of the corporation. and his complaint in the SEC does not pray for. 27 Neither does de los Angeles impugn. said cases having later become subject of G. which is an intra-corporate dispute within the exclusive jurisdiction of the SEC.R. incidental to.R. Imelda Romualdez Marcos. in fine. 13865 of the Manila RTC. His consent to sit in the board as nominee of PCGG unquestionably indicates his advocacy of the PCGG position. in G. had in fact espoused the affirmative). or related to" any case involving such property. or for the protection or vindication of his own particular right. or Nominees. to be sure. assets. citing PCGG v. whether civil or criminal. he owns 20 shares in his own right.' and all incidents arising from. Ltd. or the redress of a wrong committed against him. an intra-corporate one. is confined to the issue of the validity of the assumption by the corporation of the indebtedness of Neptunia Co. in Civil Case No. as stockholder and director of SMC. therefore.266 SMC shares sequestered by the PCGG belong to Marcos and his cronies or dummies (on which. later consolidated with SEC Case No. 1. not having been elected by the minority stockholders.corporation. It is claimed that since de los Angeles 20 shares (owned by him since 1977) represent only.R.ñèt 28 The subject matter of his complaint in the SEC does not therefore fall within the ambit of this Court's Resolution of August 10. 79459 of this court . his vote would necessarily never consider the latter's interests. to the effect that. moneys. 3005. Pena. 32 b) he has tried to exhaust intra-corporate remedies. it being plainly a director's duty to vote according to his own independent judgment and his own conscience as to what is in the best interests of the company. et al 29 an cases of the Commission regarding 'the funds. 30 2.. (2) by the 14 corporations which sold the stock to SMC. with other SMC directors.No. Agents. such cases necessarily fall likewise under the Sandiganbayan's exclusive and original jurisdiction. Makati. that in view of this Court's ruling as regards the sequestered SMC stock above adverted to. or related to. The dispute concerns acts of the board of directors claimed to amount to fraud and misrepresentation which may be detrimental to the interest of the stockholders. that he cannot legitimately take a position inconsistent with that of the PCGG. and properties illegally acquired or misappropriated by former President Ferdinand Marcos. Moreover. as regards which he cannot from any aspect be deemed to be "beholden" to the PCGG. The implicit argument — that a stockholder. the number of his shares not being material. subject to review on certiorari exclusively by the Supreme Court. being illicitly committed by a majority of its board of directors to answer for loans assumed by a sister corporation.of the sequestered stock. his ownership of these shares being precisely what he invokes as the source of his authority to bring the derivative suit. de los Angeles. et al. incidental to. 75094 of this Court). or that. Dummies. From the conceded premise that de los Angeles now sits in the SMC Board of Directors by the grace of the PCGG. 79520 of this Court. non sequitur. obviously. 76397) as well as by one Clifton Ganay. it does not follow that he is legally obliged to vote as the PCGG would have him do. and there is a "conflict of interest" between him and the PCGG — cannot be sustained.lâwphî1. in his (de los Angeles') view. it is undisputed that apart from the qualifying shares given to him by the PCGG. having no relevance whatever to the ownership.. No. in common with the PCGG.R. 16371 of the RTC. allegedly for the benefit of certain of its officers and stockholders. No. 74910 of this Court.e. Ltd. either. 3. 1988 on the cases just mentioned. De los Angeles' dispute. the right of the PCGG to vote the sequestered stock thru its nominee directors — as was done by United Coconut Planters Bank and the 14 seller corporations (in SEC Case No. i. a UCPB stockholder (in G. or "any incidents arising from. the wrongdoing or harm having been. the annulment of the purchase by SMC of the stock in question. or is one arising out of intra-corporate relations between and among stockholders. (3) by Neptunia. [on the theory that the sequestered stock in fact belonged to coconut planters and oil millers]. but also constitutes an erroneous conception of a director's role and function. and (4) by Eduardo Cojuangco and others in Civil Case No. cannot be sustained and must be rejected. Business Associates. The requisites for a derivative suit 31 are as follows: a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of. No. Subordinates. 00001644% of the total number of outstanding shares (1 21. The proposition is not only logically indefensible. No.R. as already pointed out. The number of his shares is immaterial since he is not suing in his own behalf. Neptunia Co. these two (2) cases later having become subject of G.issue. or between any or all of them and the corporation of which they are stockholders . De los Angeles' complaint. He does not here seek. 3000. to be considered as qualified to bring a derivative suit. or even the subsequent purchase of the same stock by others 26which proposition was challenged by (1) one Evio.. 33 and c) the cause of action actually devolves on the corporation. SMC. and others.133. De los Angeles is not opposed to the asserted position of the PCGG that the sequestered SMC shares of stock belong to Ferdinand Marcos and/or his dummies and/or cronies. The theory that de los Angeles has no personality to bring suit in behalf of the corporation — because his stockholding is minuscule. is of no concern to the Sandiganbayan. and not even remotely requiring inquiry into the matter of whether or not the 33. the SEC has no jurisdiction over the de los Angeles complaint. said case later having become subject of G. must hold a substantial or significant block of stock — finds no support whatever in the law. 34 The bona fide ownership by a stockholder of stock in his own right suffices to invest him with standing to bring a derivative action for the benefit of the corporation.

SP No. The appealed decision of the Court of Appeals in CA. that it held such act permissible is evident from the context of its reference to the Presidential Memorandum of June 26. and that he was owning in his own right 20 shares of stock. it must be assumed to have done so...000. that the PCGG has no power to vote sequestered shares of stock as an act of dominion but only in pursuance — to its power of administration. but only "for demonstrably weighty and defensible grounds" or "when essential to prevent disappearance or wastage of corporate property. 12857 — setting aside the order of September 4.. The inference is that the PCGG's act of voting the stock to elect de los Angeles to the SMC Board of Directors was unauthorized and void. As already more than plainly indicated. the petition is GRANTED." The issues raised here do not peremptorily call for a determination of whether or not in voting petitioner de los Angeles to the San Miguel Board. SO ORDERED. 3153 and dismissing said case — is REVERSED AND SET ASIDE. all he had to be was a stockholder. Nor is there anything in the Baseco decision which can be interpreted as ruling that sequestered stock may not under any circumstances be voted by the PCGG to elect a director in the company in which such stock is held. It is also theorized. and absent any showing to the contrary. 1987 issued in SEC Case No. on the authority of the BASECO decision. and any writ of injunction issued pursuant thereto is lifted. On the contrary. a fact not disputed by the respondents. "pending the outcome of proceedings to determine the ownership of . it was not necessary for de los Angeles to be a director in order to bring a derivative action.00 by respondent Ernest Kahn (petitioner in the Appellate Court) is also SET ASIDE. sequestered shares of stock. 1986 authorizing the PCGG. whether it be to oust and replace directors or to effect substantial changes in corporate policy. programs or practice. The further disposition in the appealed decision for the issuance of a writ of preliminary injunction upon the filing and approval of a bond of P500."'to vote such shares . consistently with the presumption that official duty is regularly performed. the PCGG kept within the parameters announced in Baseco." the only caveat being that the stock is not to be voted simply because the power to do so exists. at all stockholders' meetings called for the election of directors . the latter could not bring suit in the corporation's behalf.R. The argument is strained and obviously of no merit.G.4. hence. WHEREFORE. Costs against private respondents.. .

Upon appeal this judgment was reversed and the record returned for further proceedings.1awphil.. The defendants' demurrer to this cause of action was sustained upon the ground that the facts alleged therein were not sufficient to entitle the plaintiff to the relief sought. during the time mentioned. vs. (19 Phil. Cohn & Fisher for appellees. In holding that any of the debit items appearing in Exhibits C-1 to C-9 and especially the industrial and internal-revenue taxes. That the said defendants. The only compensation to which the defendants were entitled for their services is that prescribed by article 30 of the by-laws then in force. 1903. respectively. 82. five per cent for the board of managers (composed of counselors and trustees) in compensation for their services as such. The question raised by the plaintiff in his first assignment of error requires an examination of the pertinent allegations in the first cause of action. ET AL. of which the first only is here involved. No.4. during the time mentioned in the complaint. 2. In holding that the interpretation placed upon article 30 of the bank's charter by the decision of the Supreme Court herein is not the law of the case. during each and all of the years specified. fraudulently and to the great detriment of the said Bank and its shareholders. L-7945 December 1. The complaint contains three separate causes of action. X. XI. respectively. until January 1. was controlled by the by-laws and regulations annexed to the complaint as Exhibits A and B. carefully concealed in all the balances and reports of the said Bank published by them every indication that might gave the stockholders of the said Bank the slightest suspicion that the said defendants were fraudulently appropriating to themselves the funds of the same. Rep. or a total sum of one hundred thousand pesos during the five years aforementioned. TRENT. did. and the remainder.net 5. and collectively constituted the board of government. the offices of director. appropriate to themselves for their own use from the profits of the said Bank sums of money reaching an approximate amount of twenty thousand pesos. and that the plaintiff learned of such appropriation. In holding that it was proper for defendants to compute their compensation upon the gross profits before charging against such gross profits the aggregate amount of accounts written off as uncollectible (dudosa y fallida) as shown in Exhibits C-1 to C-9. EUGENIO DEL SAZ OROZCO. from the gross profits instead of deducting them from the net profits of the said bank. On November 13. Hausermann. The Banco Español-Filipino was a banking corporation which. The defendants filled. defendants-appellees. eighty-five per cent. the plaintiff acquired 10 shares of the capital stock and has been the registered holder of these shares since that date. inclusive. the defendants. plaintiff-appellant. C. In holding that the defendants had a right to deduct their compensation from the gross profits of the bank.) The complaint was not thereafter amended. Ney and O'Brien & De Witt for appellant. in the month of November. In holding that it was within the power of the stockholders of the bank to ratify the so-called interpretation by defendants of said article 30. and without the knowledge. and sindico. are items that should be charged against capital and not against current profits.R. W. by a mere chance. and insists that the court erred: 1. consent or acquiescence of the latter. . These allegations are as follows. integrally for the shareholders of the said bank. Its purpose is to require the defendants as former directors and councilors of the bank to refund a portion of the compensation paid to them for their services. by deducting their said ten and five per cent.. on the ground that the amounts thereof have been wrongfully computed. J.: The plaintiff appeals from a judgment upon the merits in favor of the defendants. consiliario. G. 1907. 3. as such members of the said boards of directors and managers. This action was commenced by the plaintiff as a shareholder of the Banco Español-Filipino for the benefit of the bank and all of the stockholders thereof. 1914 CANDIDO PASCUAL. notwithstanding the fact that article 30 of the said by-laws (Exhibit B) clearly and unequivocally prescribes that the net profits of the said bank shall be apportioned as follows: Then per cent for the board of directors. 1908. That.

the plaintiff addressed to the defendants a letter alleging that the earnings of the bank had not been apportioned in accordance with the provisions of article 30. To the debit of this "profit and loss" account were entered all sums paid out by the bank as interest upon fixed deposits or credit balances of current accounts. has been closed by the decision of this court rendered upon the demurrer of the defendants to the complaint. The items of "general expenses" included salaries. and decided on previous reviews. inclusive. Since that decision was rendered the case has been tried and the facts now before the court for consideration are not the allegations that the defendants fraudulently misappropriated to themselves certain funds of the bank. decided that. 1907. 2907. which corresponds to the legal reserve fund. and that a complaint which alleges that they have done so states a cause of action." At this shareholders' meeting there were present. there shall be set apart ten per cent remaining shall belong integrally to the shareholders pro data the number of shares owned by each. This holding is not in conflict with the rule announced in the cases cited and relied upon by counsel for the plaintiff. Leslie (118 Fed.. 385). vs. if any. . and. after a discussion in which the appellant's attorney took part." Now. light . and by a series of concealment's withheld the knowledge thereof from the shareholders. the profits from exchange. a resolution was adopted ratifying and approving the distribution of the bank's earnings as made. insurance. supra. In the case the court decided that the defendants may not fraudulently compute their percentages upon the gross earnings.499 shares of the total issue of 7. upon the parties and those in privity with them. it is strongly urged that inquiry respecting the interpretation and application of article 30. and all other items of general expenses incurred either by the main office in Manila or by . These facts are that the defendants did not. If these were the facts of the case now under consideration. . 246). Under the doctrine ofstare decisis the plaintiff insists that "the law of the case" has been established and that it has been necessarily decided that the remuneration received by the defendants for their services was not in accordance with article 30. even assuming the facts to be as alleged in the complaint. including the accounts of current debtors. Del Saz Orozco (19 Phil. . the plaintiff did have a cause of action. attorneys' fees.1awphil. Minor (113 Cal. . The question submitted upon the present appeal is whether the computation really made is in accordance with article 30.500. but the real facts as they have been stipulated in the agreed statement. as was the complaint which the plaintiff had previously filed. "The law of the case. the court said: "Moreover.net The plaintiff. which relates to the point now under consideration.550 shares. in the case of Heidt vs. But the case which the present appeal presents is not the case at all. after deducting all the expenses of its administration and the part. but the first deduct the expenses of administration. The decision is relied upon by the plaintiff is that of Pascual vs. by a series of fraudulent concealment's. As will be seen from the plaintiff's first assignment of error and the argument of counsel relating thereto. fraudulently misappropriate certain funds of the bank by computing their percentages upon the gross earnings. The demurrer admitted the facts as alleged and raised the question of the right of the plaintiff to recover upon those facts. In favor of this resolution there was a total of 555 votes. assuming the facts to be as alleged in the complaint. attached to the agreed statement of facts. vs. We regard the former decision as adjudicating all of the controlling questions in the case. . in violation of article 30. holding 6. either in person or by proxy. but to the appellate tribunal itself on a subsequent writ or appeal. Under date of November 15. had fraudulently misappropriated to themselves certain funds of the bank by computing their percentages upon the gross earnings of the bank and. the court used this language: "It is a familiar and entirely righteous rule that a court of review is precluded from agitating the questions that were made.. the issues and the facts found remain substantially the same. as alleged. had withheld the knowledge thereof from the shareholders. the profits in the sale of money. the court laid down this rule: "But where the questions are necessarily involved. the rule of the law of the case only applies when. stamps.. Soon thereafter the present action was commenced." Since the date on which the plaintiff acquired his shares. . during the entire period covered by the complaint. the judgment on appeal rules the case throughout all its subsequent stages. above quoted.This article reads: "Of the profits or gains which may result from the bank's operations. whose sufficiency was then and there under consideration. stationery. and the respective defendants have individually collected for their services the sums specified in Exhibit D. and on December 21. in reversing the ruling of the lower court. The plaintiff's letter. is the law of the case which was before the court and which the court thereby decided. for it was not possible to reach the conclusion there announced without deciding that the property in the promissory notes in controversy was in the administrator of the estate of Mahala Shaw deceased." established by that decision. the net proceeds from the real properties of the bank after the payment of all the expense thereof. For example. on subsequent trial. It is not. supra. 183 persons and entities. was read. and all other net profits obtained by the bank."itc@alf In the case of Foregerson et al. This action was dismissed. the plaintiff had no right of action. On appeal the Supreme Court considered this very question and necessarily none other. as will be seen from paragraphs 10 and 11. The defendants refused to comply with this demand and on December 7. 557). Among those present at this meeting was plaintiff's attorney. considered. the earnings of each half-year of the bank have been liquidated in the manner set forth in the Exhibits C-1 to C-9. was made up by crediting to it all the items of net profits produced by the various accounts of the bank. the shareholders of the bank were convened in a special meeting "for the express purpose of discussing and taking action relative to the alleged interpretation of article 30 of the by-laws. In this particular the case now under consideration is clearly differentiated and distinguished from the former case. and that none of the acts of the defendants were tainted in any way with fraud. has the remuneration of the defendants for their services been computed in accordance with article 30 of the by-laws? The item of "profit and loss" for each half year. alleged that the defendants. and authorizing the defendants to proceed in the same manner with the earnings of the latter half of the year 1907. referred to above. the profits from the discount of bills and notes. The decision is an adjudication concluding the courts and the parties. and repairs. This was question submitted and decided. and making demand upon them for the refund to the bank of a portion of the amounts received by them in compensation for their services. and. The former decision furnishes 'the law of the case' not only to the tribunal to which the cause is remanded. there would be neither occasion nor opportunity to further discuss the law applicable thereto." In Standard Sewing Machine Co. representing 5. 1907. of course. conclusive in judgment in the case in which it was rendered. Rep. including taxes. 82).. The ruling of the lower court was to the effect that. water. Smith (104 Ind. the plaintiff commenced an action seeking the same relief herein prayed for.

during the four and a half years............... and (b) That before computing the defendant's remuneration there was not first deducted from the earnings or gains the amounts retained to cover bad accounts.. December 31... General expenses .......... 60.. its amount must first be a known quantity. corresponding to the legal reserve fund... is a general one.......000 per year Bearing in mind the magnitude of the business and the fact that the bank prospered under the management of the defendants..... therefore... not participating in the active management of the corporation..... during the period in question...... this amount due the defendants from the profits must be known before the amount remaining for dividends can be fixed......77 ¯¯¯¯¯¯¯¯¯ 137..458.......... This article provides for a percentage of the profits (utilidades y ganacias). and it may be at once said that these are not necessarily net profits.000.... applicable alike in all cases... what amounted to the same thing..... Hardly less unusual. furthermore... the amount of the latter must likewise by a known quantity before the operation can be made.. The amount to be distributed depends upon how much may be left after the remuneraton of the defendants is paid......825.. Upon this point it might be well to set out in full Exhibit C-1.38 ¯¯¯¯¯¯¯¯¯ 188...56 Balance on June 30 carried forward ....00 ¯¯¯¯¯¯¯¯¯ 53.......816.010....000 ... as well as the other shareholders of the bank.274...... remained silent. is the incorporation into the bank's charter of the measure of remuneration of the board of government... were made up in the same manner. Indeed.......07 Compensation for the board of government........... and there are innumerable methods of computing each of these.... (Exhibits C2 to C-9...274. has generally been considered a detail in the internal management of a corporation to be controlled by the shareholders themselves..............000 and that in such cases t is simple matter to compute 5 per cent of P60..... as the correctness of these exhibits is not disputed. in many instances..... C-1 to C-9.... 7... deducted from the "profit and loss" account before computing the remuneration received by the respective defendants for their services.....580...56 Dividend of 4 per cent on $1. with the exception of the industrial tax (later internalrevenue tax) and amounts set off against bad accounts.....458... but a voluntary reserve fund of P665.... It is no reply to this argument to point out that the total profits may be or are usually sufficiently great to permit a declaration of the maximum dividend of P60....... should be so lacking in precision..... This article does not establish two rules of computations............. it is somewhat unusual that a provision of the bank's charter.... there is no wonder that no claim is made of excessive compensation....51 ¯¯¯¯¯¯¯¯¯ 116. inclusive.. The remuneration received by the defendants is not even alleged to be excessive.. so difficult of exact definition...81.. which the appellant insists should be first deducted from the earnings before computing the percentages..... Balance of the account of profit and loss .... And... 15 per cent ...... received sums amounting in no instance to a salary of P2...... inclusive. even delegate to the directors the power of fixing their own salaries.... how much is to be deducted therefrom as internal-revenue tax before computing the percentage of the defendants? The law said that the amount of this tax should be 5 per cent of the dividends distributed.... 1903.. it is also apparent that nothing was due this fund at any time during the period covered by the complaint... At the outset it may be said that the proper disposition of this case is rendered difficult by the inaccurate language used in article 30.. apparently content with the increased prosperity of the business.........763.. from an American point of view.. In short. as claimed by counsel for the plaintiff.............. From an examination of article 30 it will be seen that only two items from the gross profits of the bank are to be deducted before computing the compensation of the directors and board of government (the defendants constituted both the directors and the board of government)......000. had accumulated. Profits may be either gross profits or net profits.000....84 Do.... after deducting from the gross earnings the general expenses. During all these years the plaintiff.. an extraordinary meeting of the shareholders was duly convened on December 21... For example.458. .. All of the defendants received.... or an approximate yearly average of P45. On December 31......... whether the earnings of the bank be great in small.... 3... the legal reserve fund of P225..22 Deduction of surplus of June 30....000 per year..... The industrial tax. The amount available as dividends is dependent upon the amount due and payable out of profits to the defendants for their services... it is apparent that nothing whatever was applied to this reserve fund.... Unless.... is the sum of P58.000 was not only completed........ to wit: Expenses of administration and the amount.. 20. and..56 Industrial tax (later internal revenue) 5 per cent of $60... one which is only feasible or practicable when the earnings are sufficiently large to warrant a dividend in the maximum amount and another and different rule when the dividend falls below that amount..... sums amounting to approximately P15... if any. for the express purpose....000.. as we have indicated.... Likewise....... if the remaining earnings. In order to make the deduction of this tax. was included in the item of "general expenses.. This. for the rule of computation............. who... last ...... Since its amount is a percentage of the dividends. 51....000 ........ From the various Exhibits...... $196.....00 ¯¯¯¯¯¯¯¯¯ 56. 7.....551..500..... although at the increased prosperity of the business... The two active managers of the bank received........ although at the end of each fiscal year they had the opportunity to examine the books of the bank and inform themselves of the method by which the defendants computed their compensation..... P201.000.753......." or.....000. is America.......) This exhibit is as follows: 1903........ authorized by the charter..... was fixed by law at 5 per cent of the dividends distributed among the shareholders of the bank... it appears that every expenditure of whatever nature made from the funds of the bank..38 ¯¯¯¯¯¯¯¯¯ 61.. the items of industrial tax (later internal-revenue tax) and the amounts set aside to cover bad debts that there is no merit in the plaintiff's contention. 60...... established by article 30.. 1.94 Amount for bad accounts ...... while the other defendants.500 per year...94 ¯¯¯¯¯¯¯¯¯ To this method of computing the defendants' remuneration the objection of the plaintiff is twofold: (a) That before computing the defendants' remuneration there was not first deducted from the earnings or gains the amount payable as industrial tax (later internal revenue)......00 ¯¯¯¯¯¯¯¯¯ Balance for next semester . Therefore...816.. 1907.... "expenses of administration" may or may not include all amounts expended in the conduct of business.the branch office in Iloilo. of discussing the interpretation placed upon article 30 by the defendants.......

It would be wholly unjust to include under "expenses of administration" during the time the defendants were in charge. From the fact that part of either the legal or voluntary reserve. DEDUCTION OF AMOUNTS TO COVER BAD ACCOUNTS When the defendant Orozco took over the management of the bank. We. and to the wishes of the board of government respecting a voluntary reserve. and carry the bad accounts as accounts in suspense until the same could be gradually and conveniently wiped out. belonging to the shareholders. should be partially divided among them and partially kept intact in the bank. The discrimination made by article 30 between "expenses of administration" and other disbursements is reasonable and in accordance with the principles of the contract which existed between the bank and the defendants. it might be said in the first place that the greater part of these losses constitutes the third cause of action of appellant's complaint and was made the subject of a separate appeal to this court. would. but only upon such earnings or profits as were actually distributed among the shareholders as dividends. In the second place. but levied solely and exclusively upon the distributed dividends. collected for convenience in a lump sum from the company. so it was incumbent upon it to maintain the same. or additional dividends as the case might be. and the earnings after payment of the expenses of administration. Therefore. first went into the voluntary reserve fund and were then applied to the extinction of the bad accounts in suspense or were applied directly by the semiannual liquidation's from the profit and loss accounts. Article 30 does not require the defendants as employees of the bank to contribute to the payment of the bank's taxes. That was a contract of employment in which one of the contracting parties agreed to supply the capital and the other his services. existing for just such purposes. to hold that the bad accounts of the bank should have been extinguished by the gross earnings instead of the net profits. To interpret article 30 so would result in the incoming manager becoming an heir to an insolvent inheritance.Again. it has not been shown that any part of such losses were written off as bad debts during the period of time in question. therefore. since the application of the funds to the purposes of the reserve fund is exactly the same as if the reserve fund had been employed for the purpose and then replenishment by these funds. in each half yearly liquidation the dividends distributed to the shareholders were strictly limited to 4 per cent per semester. According to article 31. it cannot be said that such portion of the net profits had ceased to belong to the share-holders. To deduct this tax from the amount upon which the remuneration of the defendants was computed would have made the defendants contributors to the tax levied upon the company-shareholders. It was purely a dividend tax. As to the remaining half of the excess net profits. the remuneration of defendants. the shareholders made a sacrifice for their own welfare. embracing among other thins a loss from bad accounts for the past of over P500. onehalf to the shareholders and one-half to the legal reserve. 1905. which were used for that purpose. the application made was in direct accord with the by-laws. compel the defendants. Whether this was validly done or not is of no importance of this time for the reason that the remuneration of the defendants was not affected in any way thereby. the taxes. Any tax which tended directly to impair the amount of the capital should consequently have been paid by the hirer of the services and not by the servant. in so far as the industrial tax (internal-revenue tax) is concerned. the net profits belonged to the shareholders. These defendants were in no wise connected with the bank no were they in any way responsible for those losses. the losses previously sustained by the defendants' predecessors in office. It was decided to preserve the reserve fund intact. we are not now called upon to decide whether the defendants could have treated these losses in the same manner as they did those occurring prior to December 31. This tax was levied by law. conclude that the method employed by the defendants for the liquidation of the bank's business. To the extent that one-half of the excess of net profits were not distributed as dividends. according to the amount thereof. As to the responsibility of the defendants for the losses which occurred during the period covered by the complaint. This excess of net profits was divisible under that article. to the status of the legal reserve. in a sense. 1 In this opinion it has been our intention to set forth at some length our reasons for affirming this judgment at the close of the last session. these excess net profits are. And it is upon this fact that we rest our holding on this point. but to have done so would have left the bank without a present reserve. It does not clearly appear whether these funds. Consequently. . The important fact is that in each semester there was an excess of net profits over and above the 4 per cent provided in article 31 of the by-laws. was strictly in accordance with article 30 of the by-laws. still in the bank and still belong to the shareholders within the meaning of article 30. There could be no real difference in principle between the failure to furnish the capital in the first place and the failure to replace any part of it which disappears by reason of a tax levied thereon.000. and to divide in a stipulated proportion the proceeds of the application of the services of the one to the capital of the other. to contribute to the replenishing of the depleted reserves of the bank. It probably would have been possible to cover this entire amount of losses from funds in the reserve. voluntary reserve. Under such conditions no one would be found to accept the office and the bank would have to cease its operations. as employees. not upon the earnings or profits of the bank. in our opinion the nature of the old industrial tax negatives the idea that it is one of the items of "expenses of administration" referred to in article 30. Since it was incumbent upon the bank to furnish the capital. the entire excess of net profits went to extinguish bad accounts whose extinction would have exhausted the reserve fund and required its replenishment. but were put to the purposes of reserve. these not profits. he reported to the board of directors its financial situation. Instead. and the said dividends were applied pro tanto to the extinction of the ad accounts held in suspense. According to article 30. The process followed is immaterial since the result must be the same. in effect. The judgment appealed from is affirmed.

Evangelista.. Evangelista.. No.500 each. MAKALINTAL. Leonardo Atienza Abad Santos and Conchita P. which was that the plaintiff was not an industrial partner." On June 7. 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila." On December 17. JR. Jr. 1973 EVANGELISTA & CO. NAVARRO and LEONARDA ATIENZA ABAD SABTOS. in the proportion of 70% for the first three partners. J. 1954 a co-partnership was formed under the name of "Evangelista & Co.: On October 9. Conchita P. plus attorney's fees and costs.R.. CONCHITA B. and byway of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties.G. 1955 the Articles of Co-partnership was amended as to include herein respondent. as industrial partner. that she did not in fact contribute industry to the partnership. denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books. The amended Articles provided. and that her share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December. with herein petitioners Domingo C. Navarro and Leonardo Atienza Abad Santos to be divided among them equally. and 30% for the fourth partner Estrella Abad Santos. L-31684 June 28. with a contribution of P17. ESTRELLA ABAD SANTOS. The defendants. Jr. EVANGELISTA. and that notwithstanding her demands the defendants had refused and continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership. in their answer. inter alia. that "the contribution of Estrella Abad Santos consists of her industry being an industrial partner". petitioners. denied ever having declared dividends or distributed profits of the partnership. remaining in that capacity. Estrella Abad Santos. which was also made a party-defendant. DOMINGO C. the original capitalist partners.. Navarro. respondent. vs.. alleging that the partnership.. Domingo C. had been paying dividends to the partners except to her. and that the profits and losses "shall be divided and distributed among the partners . She therefore prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her corresponding share in the partnership profits after such accounting. 1955 from the Rehabilitation Finance Corporation in .

The first point refers to Exhibit A." and that "The grounds relied upon by the lower Court are untenable" (Pages 21 and 26. The parties are in agreement that the main issue in this case is "whether the plaintiffappellee (respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7. to the extent of reproducing verbatim therein the lengthy testimony of the witnesses. Appellant's Brief). 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid." The defendants appealed to the Court of Appeals. notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the appellate court the said respondent was one of the judges of the City Court of Manila. B. as . her alleged share. The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to demonstrate that the same were made after a through analysis of then evidence. secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company. It should be observed..000.. wherein it is pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in fact admitted by appellants as industrial partner of Evangelista & Co. and hence are beyond this Court's power of review. consisting of both testimonial and documentary evidences. C. for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security. as claimed by appellants (herein petitioners). (C) In finding that respondent did not in fact contribute her industry. II. and in fact did not. to pay plaintiff attorney's fees in the sum of P2. was conclusive evidence that the respondent was an industrial partner of the said company. As a matter of fact. because appellants have admitted their genuineness and due execution. and its profits or net income.00 and the costs of this suit. 1955. because she was one of the judges of the City Court of Manila since 1954.. from June 7. and despite its findings that respondent had been paid for services allegedly contributed by her to the partnership.. In the petition before Us the petitioners have assigned the following errors: I. Appellants are virtually estopped from attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent. K-1. The evidence presented by the parties as the trial in support of their respective positions on the issue of whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its decision. appellants' complaint being that "In finding that the appellee is an industrial partner of appellant Evangelista & Co. hence they were admitted without objection by the lower court when appellee rested her case and. instead of dismissing respondent's complaint. and there is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to appellee's complaint. entirely disregarding facts and circumstances established by appellants" evidence which contradict the said finding' (Page 21. and deprived of. despite the appellate court's own finding that she has been paid for the services allegedly rendered by her. as an alleged industrial partner..000.000. J. The lower court erred in not finding that in any event the respondent was lawfully excluded from. The aforequoted findings of the lower Court are assailed under Appellants' first assigned error.the sum of P30. Appellants' Brief). and she could not. In this connection the Court of Appeals erred: (A) In finding that the "amended Articles of Copartnership. interests and participation. first. to pay the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an accounting has been properly made. in arriving at the factual conclusion expressed in the decision. 1955. identified in the record as Exhibit "A". Jr. all the appellant Evangelista.. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was declared an industrial partner of the petitioner. which thereafter affirmed judgments of the court a quo. but considered it together with other factors." On that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista & Co. as well as for the loans of money made by her to the partnership. III. (B) In not finding that a portion of respondent's testimony quoted in the decision proves that said respondent did not bind herself to contribute her industry. in this regard." Exhibit "A" is conclusive evidence that respondent was in fact made an industrial partner of Evangelista & Co. herein referred to as the partnership — the lower court relied mainly on the appellee's documentary evidence. K. its jurisdiction being limited to reviewing errors of law that might have been commited by the lower court. in the partnership Evangelista & Co. against the respondent. The lower court could not have done otherwise but rely on the exhibits just mentioned. and to pay the respondent her alleged share in the net profits of the partnership plus the sum of P2. with costs. N and S.00 as attorney's fees and the costs of the suit. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co. would have us believe — as against the cumulative force of appellee's aforesaid documentary evidence — is the appellee's Exhibit "A". It is not the function of the Supreme Court to analyze or weigh such evidence all over again. It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. and petitioners were ordered to render an accounting of the business operation of the partnership from June 7. that the Court of Appeals did not hold that the Articles of Co-partnership. ordering the defendants to render an accounting of the business operations of the (said) partnership ..

as an alleged industrial partner. There is no pretense. It is an admitted fact that since before the execution of the amended articles of partnership. 1955. 1899. with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting. until the mortgage loan of P30. devoting all her time to the performance of the duties of her public office. property. since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. aside from teaching in law school in Manila. 1964 — or after around nine (9) years from June 7. Any partner shall have the right to a formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners.' It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest between the industrial partner and the partnership. The Court of Appeals then proceeded to consider appellee's testimony on this point. 24-25). (3) As provided by article 1807. the appellee Estrella Abad Santos has been. 1955 up to the filing of their answer to the complaint on February 8. Another article of the same Code relied upon appellants reads: 'ART." (Appellants Brief. 1789. and deprived of.confirmed and corroborated by the other exhibits already mentioned. the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision. An industrial partner cannot engage in business for himself. 1955 — subsequent to the filing of defendants' answer to the complaint. but also by the fact that from June 7. quoting it in the decision. did not contemplate to make the appellee Estrella Abad Santos. That appellee has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29.000. (2) If the right exists under the terms of any agreement. This version.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid. . does not express the true intent and agreement of the parties thereto. What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant company. 1955 as an industrial partner. is discredited not only by the aforesaid documentary evidence brought forward by the appellee. to contribute money. 38). had appellee not filed the present action. on the ground plaintiff has never contributed her industry to the partnership. or industry to a common fund. without the express consent of the herein defendants' (Record On Appeal. and up to the present time still is. defendants reached an agreement whereby the herein plaintiff been excluded from. with a right to damages in either case. with the intention of dividing the profits among themselves. however. 1955. Exhibit "A". and if he should do so. and then concluded as follows: One cannot read appellee's testimony just quoted without gaining the very definite impression that. Exhibit "A". Our said holding is based on the following article of the New Civil Code: 'ART. an industrial partner of Evangelista & Co. hence the said services may legitimately be considered as appellee's contribution to the common fund. 1789 of the Civil Code. for she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. unless the partnership expressly permits him to do so.00 to be obtained from the RFC shall have been fully paid. interests or participation. they also make much of the argument that 'there is an overriding fact which proves that the parties to the Amended Articles of Partnership. Article 1767 of the New Civil Code which provides that "By contract of partnership two or more persons bind themselves. At pages 32-33 of appellants' brief. she has rendered services for appellants without which they would not have had the wherewithal to operate the business for which appellant company was organized. appellants would not have advanced this obvious afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto. even on the part of the appellee is engaged in any business antagonistic to that of appellant company. This fact proves beyond peradventure that it was never contemplated between the parties. and to insure faithful compliance by said partner with this prestation. the real understanding between them being the appellee would be merely a profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7. her alleged share. in the defendant partnership and/or in its net profits or income. however. instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila. why did it take appellants many yearn before excluding her from said company as aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the net profits which the appellant partnership may realize from June 7. It is thus reasonable to suppose that. until the mortgage of P30. which right appellants take exception under their second assigned error. 1964 — or a period of over eight (8) years — appellants did nothing to correct the alleged false agreement of the parties contained in Exhibit "A". one of the judges of the City Court of Manila. devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said office. 'does not specify the kind of industry that a partner may thus contribute.000. even as she was and still is a Judge of the City Court of Manila. pp. Having always knows as a appellee as a City judge even before she joined appellant company on June 7. p.

JUSTINIANI. vs. J. LABRADOR.(4) Whenever other circumstance render it just and reasonable. G. REYES. with costs. respondents.R. L-16982 September 30. BIENVENIDO A. petitioner. We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law. TAN. HON. accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence.: . as Judge of the Court of First Instance of Manila. Branch XIII and FRANCISCA R. 1961 CATALINA R. The judgment appealed from is affirmed. No.

Invariably the props of defendants' motion consist of the unconvincing countercharges of the plaintiff's non-observance of the technicalities of our procedural law and disregard of technical and evidently futile intracorporate remedies to redress the violations charged against the defendants. Born. it is clear that the plaintiff has sufficient averred facts constituting a cause or basis for a derivative suit for "injuries to the corporation. Roxas. that the resale of the finished goods was the business of the Indian Commercial Company of Manila. of which all the plaintiff and defendants are members. Adelia K.g. Class B — 1. and to initiate suit against Dalamal for his fraud against the corporation. et al. Inc. admitting the facts alleged in the complaint. RoxasKalaw Textile Mills. After a denial of a motion to dismiss and the filing of an answer alleging that the complaint states no cause of action.g. Robert W. Roxas. while the designation of the receiver was made in an order of the court dated April 30. finished rayon tafetta in cubes. in Civil Case No. 1960. Hon. to be redressed in a suit by or on behalf of the corporation. 5-7. In the complaint in said Civil Case No. 1954 by defendants Cesar K. the Board of Directors approved a resolution designating one Dayaram as co-manager with the specific understanding that he was to act as defendant Wadhumal Dalamal's designee. 1957.. the court issued mother order which reads as follows: After this incident wherein it was clearly shown that the minority stockholders. Roxas. 15. are normally dealt with as wrong to the whole group of share holders in their corporate capacity. 6 and 7 of the Complaint). exposing his offense to the Central Bank. 42375. Costales.. (Order dated Feb. the motion for the appointment of a receiver was set for hearing and subsequently the court entered the order for the appointment of a receiver. 489). Tan. that plaintiff and some members of the board of directors urged defendants to proceed against Dalamal. jointly and severally. rayon and grey goods for the textile mill and shipped to the Philippines. which company could not obtain dollar allocations for importations of finished goods under the Central Bank regulations. that defendants refused to proceed against Dalamal and instead continued to deal with the Indian Commercial Company to the damage and prejudice of the corporation. Inc. Benjamin M. and since these acts are prejudicial to the . as by negligence.1awphîl. 5. Philippine jurisprudence is complete with authorities upholding the principle that this ground for dismissal must appear in the face of the complaint itself. and that to determine the sufficiency of the cause of action. The action was filed about January of 1960 and the order for the appointment of the receiver issued on February 15. presiding. that the supplier of the aforesaid finished goods was the United Commercial Company of New York in which defendant Dalamal had interests and the letter of credit for said goods were guaranteed by the Indian Commercial Company and the Indian Traders in which firms defendant Dalamal likewise held interests. represented by the plaintiff. Robert Born and Wadhumal Dalamal or their respective representatives. to repair the damage caused to the corporation.nèt Evident from the defendants' motion to dismiss and/or to deny the petition for receivership is their complete failure to come up with a valid and substantial defense against or denial of the complaint's allegations of mismanagement. 1200 Class A shares. It is clear that the controlling majority did nothing for two years to protect the interests of corporation. and after it has been shown that the majority has violated the law by importing into the Philippines finished goods instead of raw materials as stipulated in their license. 450 Class A shares and Morris Wilson. that several purchases aggregating $289. 450 Class A shares.) The defendants themselves having admitted in open court during the oral discussion of their motion to dismiss and the plaintiff's motion for receivership that the majority stockholders will under any condition entertain any suggestion of the minority shareholders. only the facts alleged in the complaint and no other. such as. appointing a receiver of the corporation Roxas-Kalaw Textile Mills. etc. paragraphs 4. for and on behalf of the following primary principals with the following shareholdings: Adelia K. that an office in New York was opened for the purpose of supervising purchases.. which shipment were found out to consist not of raw materials but already finished products. Taking these paragraphs of the complaint in context. that on May 8. 1960. Wadhumal Dalamal.86 were made in New York for raw materials such as greige cloth. Roxas. the Court could render a valid judgment upon the same in accordance with the prayer of the petition (e. Sherman. for which reasons the Central Bank of the Philippines stopped all dollar allocations for raw materials for the corporation which necessarily led to the paralyzation of the operation of the textile mill and its business. the appointment of an independent third party in the management of the corporation becomes imperative for the survival of the company. I. 42375. Barcelona and Morris Wilson. entitled "Francisca R. (See pars. West Point Khaki rayon suiting materials dyed in the piece. it is alleged that the corporation. have no recourse whatsoever before the majority stockholders of the company. The prayer asks for the appointment of a receiver and a judgment marking defendants jointly and severally liable for the damages. if not the actual commission of ultra vires and illegal acts. Jose Ma.678. 1960). New York resident member of the board of directors. should be considered. 900 Class A shares. The court found and held: The second ground of the defendant's motion to dismiss and or deny the petition is the allegedly want of a cause of action of the plaintiff's complaint. Bienvenido A. Morris Wilson was likewise designated as co-manager with responsibilities for the management of the factory only. Paminsan v. which purchases must have the unanimous agreement of Cesar K. Justiniani vs. Inc. in fine. plaintiff Justiniani asks the court to order the directors of the corporation. that the plaintiff holds both Class A and Class B shares and number and value thereof are is follows: Class A — 50 shares.This is a petition for certiorari to review and set aside an order of the Court of First Instance of Manila. cotton eyelets. was organized on June 5. 29 Phil. In said action. mismanagement or fraud of its directors. On April 30. complaint.250 shares. the test of sufficiency of cause of action is whether or not. 587. against all the defendants (See e. 1960. The complaint in the instant case abounds with arguments establishing and supporting plaintiff's cause of action for and in behalf of the Roxas-Kalaw Textile Mills.". Roxas.

In the first assignment of error. 1958. 82). L-15792. Collector of Internal Revenue v. These textiles were denied importation and had to be re-exported. the Philippine National Bank to which the corporation owes considerable sums of money might be led to foreclose the mortgage.. de Villaruel. thus insuring the collection of the bank's loan. 684. The Court of Appeals. in place of cotton raw materials. Dec. No. 13. Therefore. Considering the above circumstances we are led to agree with the judge below that the appointment of a receiver was not only expedient but also necessary to restore the faith and confidence of the Central Bank authorities in the administration of the affairs of the corporation.R. 744. July 31. This contention is not well founded. The record shows the list of the various documents proving the purchase of letters of credit for textiles. The supposed new management. v. Andres Reyes. a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation. et al.R.R. de Caina vs. as a cause of which receivership proceedings were instituted. that the alleged fraudulent transaction took place more than two years before the application for receivership. she had not taken the steps to remedy the situation. January 29. G. evidently beyond reach of respondent.. a breach of trust was committed which justified the derivative suit by a minority stockholder on behalf of the corporation. P. S. and so was the refusal of the directors to sue or prosecute Dalamal. In a way the appointment of a receiver may have been thought of by the court below so that the dollar allocation for raw material may be revived and the textile mill placed on an operating basis. It is also not denied by petitioner that the allocation of dollars to the corporation for the importation of raw materials was suspended. alleged as a ground for the reversal of the order of the court below appointing a receiver. G. The claim that respondent Justiniani did not take steps to remedy the illegal importation for a period of two years is also without merit. In the second assignment of error. Pictures. and L11542-46. Manila Motor Co. No. No. as well as the failure of the Board of Directors to take action against those directly responsible for the misuse of dollar allocations constitute fraud. conclusively shown. Angeles vs. is not in itself a ground of objection to the appointment of a receiver. L-7075. et al. G.R. the dollar allocation for raw material may be restored. et al. Del Saz Orozco (19 Phil. Inc. G. L-43413.company because it might result in the cancellation of their license. Only after such period of time had elapsed could respondent conclude that the directors were remiss in their duty to protect the corporation property and business.. Graño. Santos [G. which took no action to stop the anomalies being perpetrated by the management. This court held that the suit could properly be maintained. Hon. et al. were the Board of Directors. overruled. Nos. 3 Phil. the Court is of the opinion and so holds that the appointment of a receiver is absolutely necessary for the protection not only of the rights of the minority but also those of the majority stockholders of the company. May 30. Trinidad. as well as in our own. It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless. This ground of the petition was not mentioned or raised as a ground of defense or objection to the appointment of a receiver in the court below. petitioner claims that respondent Justiniani neither alleged nor proved the existence of an emergency requiring the immediate appoinment of a receiver of the Roxas-Kalaw Textile Mill. the fraud. and this over the objection of the majority of the stockholders and the directors.S. Publicity had also been given to the importations of textiles by the corporation. could have been avoided if the president and directors had been more vigilant in the administration of the affairs of the bank. 1958. prom.. the Banco Español-Filipino suffered heavy losses due to fraudulent connivance between a depositor and an employee of the bank. The stockholders constituting the minority brought a suit in behalf of the bank against the directors to recover damages. During that period of time respondent had the right to assume and expect that the directors would remedy the anomalous situation of the corporation brought about by their own wrong doing.. 1937] p. 1960. therefore. et al.. decided by this Court as early as 1911. Vda. 697). Ramiro v. Inc. The principle has long ago been enunciated by Us that an appellate court may not consider any ground of objection that was not raised in the court below. Precisely the appointment of a receiver in whom the bank may have had confidence might rehabilitate the business and bring a restoration of the dollar allocation much needed for raw material and an improvement in the business and assets the corporation. therefore. Counsel for petitioner claims that respondent Justiniani was treasurer of the corporation for sometime and had control of funds and this notwithstanding. (64 Phil. In the eyes of the court below.V. Claim is made that if a receiver is appointed. petitioner claims that the management has been changed and the new management has not been afforded a chance to show what it can do. No. Estate of F. it was contended. Buan. et al. 1960).. 54 Phil. L-11438-39. The fact of the importation of finished textiles on dollar allocations for raw materials in violation of Central Bank regulations was. therefore. Inc. The parties found to be guilty of the fraud.R. various records of shipments of finished textile goods on dollar allocations for raw materials were exhibited. It is possible that if a receiver in which the Central Bank may have confidence is appointed. August 31. which losses. the importation of textiles instead of raw materials.. v. Elena Peralta Vda. to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. It is only raised for the first time before Us in the petition for certiorari. or consent thereto on the part of the directors.. An illustration of a suit of this kind is found in the case of Pascual vs. was committed by the manager of the business and was consented to by the directors. In answer we state that the fraud consisted in importing finished textile instead of raw cotton for the textile mill. At the hearing of the petition for the appointment of a receiver held on January 30. thus ultimately leading to a restoration of the dollar allocation so essential to the operation of the textile mills. (Tan Machan v. The first assignment of error is. The directors permitted the fraudulent transaction to go unpunished and nothing appears to have been done to remove the erring purchasing managers. 1960. In that case. L-10394. But it appears that the management .

defendants-appellees. the banking frauds and violations of the Banking Act. The appointment of a new management. reported by the Superintendent of Banks. and selected Bienvenido Dizon as chairman of the Board of Directors of the Republic Bank. Miguel Cuaderno (then Governor of the Central Bank) and the Monetary Board ordered an investigation. J. a stockholder of the Republic Bank.. which was carried out by Bank Examiners. the Board of Directors of the Republic Bank. Bienvenido Dizon exercised supervision over the Republic Bank. would not remedy the anomalous situation in which the corporation is found. on Appeal. J. dismissed. and of its Executive Loan Committee. therefore. the Central Bank through its Governor. represented in this action by DAMASO P.must have acted directly under orders of the Board of Directors. a Philippine banking corporation domiciled in Manila. No. "in grave abuse of his fiduciary duty and taking advantage of his said positions and in connivance with other officials of the Republic Bank". connived and confederated in approving the appointment and selection of Cuaderno and Dizon. Pablo Roman engaged Miguel Cuaderno as technical consultant at a compensation of P12.00 per month. WHEREFORE. and his compensation highly unconscionable.R. plaintiffappellant. BIENVENIDO DIZON.400. That the relator herein filed the present derivative suit without any further demand on the Board of Directors of the Republic Bank for the reason that such formal demand to institute the present complaint would be a futile formality since the members of the board are personally chosen by defendant Pablo Roman himself. as it is hereby. that such action was motivated by bad faith and without intention to protect the interest of the Republic Bank but were prompted to protect Pablo Roman from criminal prosecution. Bienvenido Dizon. that subsequently. because such situation was not due to the management alone but principally because of direction of the Board of Directors. the court finds that the court below did not commit an abuse of discretion in appointing a receiver for the corporation and the petition to set aside the order for the appointment of a receiver should be. 53936. PABLO ROMAN. instituted a derivative suit for and in behalf of said Bank. For a cause of action plaintiff alleged. L-22399 March 30. Paragraph 6 of the Complaint (Rec. that acting on said reports. 7) expressly pleaded the following: . inter alia.. With costs against the petitioner. that acting upon the complaint. that the appointment of Cuaderno and his acceptance of the position of technical consultant are immoral. G. on the basis of fictitious and inflated appraised values of real estate properties. also without merit. that the selection of Dizon as chairman of the Board of the Republic Bank after he was forced to resign from the presidency of the Philippine National Bank and from . Damaso Perez. In the Court below. that other similar frauds were subsequently discovered.B. the Monetary Board. anomalous and illegal. the latter accepted the offer of Pablo Roman to put up adequate security for the questioned loans made by the Republic Bank. MIGUEL CUADERNO. of which defendant Cuaderno was a member. relatives and/or employees. that they and the Superintendent of Banks of the Central Bank reported that certain mortgage loans amounting to P2. The second ground for the petition is.L. and such security was made a condition for the resumption of the Bank's normal operations. and subsequently approved by the Monetary Board. who were in reality their dummies. in that being chairman of the Board of Directors of the Republic Bank. PEREZ. 1960. because court actions involving the actuations of Cuaderno as Governor and Member or Chairman of the Monetary Board are still pending in court. vs. Crispin D. that the Board of Directors composed of individuals personally selected and chosen by Roman. REYES.: Direct appeal from an order of the Court of First Instance of Manila. Baizas and Associates and Halili. which was done. 78 and 88 of the General Banking Act.500. in 1957 to 1959. for investigation and prosecution. 1960. Miguel Cuaderno.303. and the Monetary Board of the Central Bank of the Philippines.00 were granted in violation of sections 77. Roman had fraudulently granted or caused to be granted loans to fictitious and non-existing persons and to their close friends. referred to special prosecutors of the Department of Justice on July 22. that said loans amounted to almost 4 million pesos. Bolinao and Associates for plaintiffappellant. p. in its civil case No. therefore. 6. that on January 5. etc. against Miguel Cuaderno. that to neutralize the impending action against him. but no information was filed up to the time of the retirement of Cuaderno in 1961. THE BOARD OF DIRECTORS OF THE REPUBLIC BANK AND THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES. that as member of the Monetary Board from 1961 to 1962. dismissing the petitioner's complaint on the ground of failure to state cause of action. 1967 REPUBLIC BANK. ordered a new Board of Directors of the Republic Bank to be elected. that Damaso Perez had complained to the Monetary Board of the Central Bank against certain frauds allegedly committed by defendant Pablo Roman.

denied the petition for a writ of preliminary injunction and dismissed the case. 82. as prayed for in the complaint in this case (Angeles vs. the court. These motions were duly opposed by plaintiff Damaso Perez. — Plaintiff Damaso Perez thereupon appealed to this Court. is whether or not the Court below erred in dismissing the complaint. f) ordering all the defendants to pay the sum of P25..1So rigid is the norm prescribed that if the Court should doubt the truth of the facts averred it must not dismiss the complaint but require an answer and proceed to trial on the merits. 697. it has been ruled that the test of sufficiency of the facts alleged is whether or not the Court could render a valid judgment as prayed for. by a Board composed by Roman's creatures and nominees. has no right to select or to be allowed to select person or persons who are his alter egos to manage the Republic Bank. They mainly controvert the right of plaintiff to question the appointment and selection of defendants Cuaderno and Dizon. The court in effect suggested that the matter at issue in the case may be presented in any of the pending eight cases by means of amended and supplemental pleadings. There is no denying that the facts thus pleaded in the complaint constitute a cause of action for the bank: if the questioned appointments were made solely to protect Roman from criminal prosecution.1äwphï1. which they contend to be the result of corporate acts with which plaintiff. and of Bienvenido Dizon to head the Board of Directors of the Republic Bank. Everett vs. and recover those paid out for the purpose. otherwise known as the Anti-Graft and Corrupt Practices Act. Cuaderno. enjoin disbursement of its funds to pay them. and "that there are already eight cases pending in the different branches of this The issue in this appeal. that the Monetary Board was about to approve the appointment of Cuaderno and Dizon and would do so unless enjoined. 85. with these principles. Asia Banking Corp. but Philippine jurisprudence is settled that an individual stockholder is permitted to institute a derivative or representative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights. Del Saz Orozco. and non-exhaustion of intra-corporate remedies. Santos. 1963. And. lack of legal capacity of plaintiff-relator to sue.membership of the Monetary Board and within one year thereafter is in violation of option 3. the suing stockholder is regarded as a nominal party. and avers that both men are Roman's alter egos. sub-paragraph (d) of Republic Act No. and to pay such reasonable damages to the plaintiff Republic Bank. 64 Phil. but the interest of the Republic Bank and the damage caused to it. and the directors in approving the appointments would be committing a breach of trust. 518. therefore.ñët On October 24. The complaint. Santos. 6).000. expressly manifested to be for and in behalf of the Republic Bank. 5019.). In this connection. Dizon. with an interest thereon at the rate of 6%. with the corporation as the real party in interest (Pascual vs. therefore. then. Roman. admissions and affirmative defenses. accepting as true the exclusive facts set forth in the complaint. a) making the writ of injunction permanent. Angeles vs. whenever the officials of the corporation refuse to sue. that both Cuaderno and Dizon were alter egos of Pablo Roman. remuneration or emolument. b) declaring the appointment of defendant Miguel Cuaderno as technical consultant with monthly compensation of P12. "taking into consideration the grounds alleged in the motions to dismiss and the opposition for the issuance of a writ of preliminary injunction and the affirmative defenses filed by the defendants and the arguments in support thereof". 45 Phil. and the Board of Directors of the Republic Bank. And concluded by praying that after due hearing. Our sole concern is with the motions to dismiss of the other defendants. being interposed in an answer and not in a motion to dismiss. but the other defendants filed separate motions to dismiss on practically the same grounds: no valid cause of action against the individual movants. Evangelista vs. Facts pleaded in the complaint are to be deemed accepted by the defendants who file a motion to dismiss the complaint for failure to state a cause of action. illegal and null and void.2 . The frauds charged by plaintiff are frauds against the Bank that redounded to its prejudice. against the Board of Directors of the Republic Bank from recognizing Cuaderno as technical consultant and Dizon as Chairman of the Board. c) declaring the selection of defendant Bienvenido Dizon as chairman of the Board of Directors of the Republic Bank violative of Section 3. and against Pablo Roman from appointing or selecting officers or directors of the Republic Bank. In such actions. since its Directors were nominees and creatures of defendant Pablo Roman (Complaint. Normally. The action he has brought is a derivative one. He is neither alleging nor vindicating his own individual interest or prejudice. The Monetary Board filed an answer with denials.00 unconscionable. The complaint expressly pleads that the appointment of Cuaderno as technical consultant. or are the ones to be sued or hold the control of the corporation. supra. it should be remembered that the defenses of the Monetary Board of the Central Bank. and enjoining the defendant Board of Directors of the Republic Bank from recognizing any officers or directors appointed or selected by defendant Pablo Roman. judgment be rendered. or to order defendant Pablo Roman to refund the amounts paid to said defendant Miguel Cuaderno and defendant Bienvenido Dizon. then the moneys disbursed in favor of Cuaderno and Dizon would be an unlawful wastage or diversion of corporate funds. because it was futile to demand action by the corporation. were made only to shield Pablo Roman from criminal prosecution and not to further the interests of the Bank. immoral. d) declaring that defendant Pablo Roman. 388). are not here at issue. p. could sue to nullify the appointments.00 as attorney's fees. 86 Phil. illegal and null and void. and therefore. court between practically the same parties". in view of his criminal liability for the fraudulent real estate mortgage loans in the Republic Bank amounting to P4 million. This is the cardinal principle in the matter. including all expenses of litigation and costs of this suit. Santos. as stockholder. the Bank. cannot interfere. 19 Phil. prayed for a writ of preliminary injunction against the Monetary Board to prevent its confirmation of the appointments of Dizon and Cuaderno. sub-paragraph (d) of the Anti-Graft and Corrupt Practices Act. this is correct.500. and against the recognition of any such appointees until final determination of the action. e) ordering defendants Miguel Cuaderno and Bienvenido Dizon to return to the Republic Bank all amounts they may have received either in the form of compensation. Plaintiff-appellant's action here is precisely in conformity. since the Republic Bank would have no interest in shielding Roman.

J. The case is remanded to the court of origin with instructions to overrule the motions to dismiss and require the defendants to answer the complaint. since the smallness of plaintiff's holdings is no ground for denying him relief (Ashwander vs. The CA disposed as follows: Wherefore. TVA. respondents. the Court a quo gave as a further pretext for the dismissal of the action the pendency of eight other lawsuits between practically the same parties. the Judgment appealed from is hereby AFFIRMED. FRANCISCA OCFEMIA. Secondly. vs. in order to make the Court's judgment binding upon it. it is legally obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the property in their names. No. 1997 Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch 28). the amendment of a complaint after a responsive pleading is filed. 46246. there is no pretense that the cause of action here was already included in any of the other pending cases. On what side the corporation appears loses importance when it is considered that it lay within the power of the trial court to direct the making of such amendments of the pleadings. and WINSTON OCFEMIA. petitioner. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract which it had authorized. At any rate. The suit is aimed at preventing the waste or diversion of corporate funds in paying officers appointed solely to protect Pablo Roman from criminal prosecution. through its Board of Directors is hereby ordered to immediately issue a Board Resolution confirming the Deed of Sale it executed in favor of Renato Ocfemia marked Exhibits C. it is yet too early in the proceedings for the absence of other stockholders to be of any significance. Costs against the respondent-appellant. 51 LRA [NS] 123). TEN THOUSAND (P10. as may be required in the interest of justice (Revised Rule 3. decision is hereby rendered whereby the [petitioner] Rural Bank of Milaor (Camarines Sur). (Ibid. NIÑO.00) PESOS as actual damages. Santos. Objections can be raised against either method.000. FELICISIMO OCFEMIA. So ordered. reasoning that the question at issue in the present case could be incorporated in any one of the other actions by amended or supplemental pleading. and any demand for intra-corporate remedy would be futile. premises considered. the usage leans in favor of its being joined as party defendant (see Editorial Note. 1998 Decision of the Court of Appeals 1 (CA) in CA-GR SP No. and not to carry on the corporation's bank business. Ed. and thus bar future relitigation of the issues. G. 11).00) PESOS as exemplary damages. In view of the foregoing. 394). no issues having even been joined.000.: When a bank. Independently of the grounds advanced by the defendants in their motions to dismiss. sec. by adding or dropping parties. THIRTY THOUSAND (P30. 80 L. 688).00) PESOS as moral damages. this case cannot be dismissed simply because of the possibility that the cause of action here can be incorporated or introduced in any of those of the pending cases. As a matter of fact. There remains the procedural question whether the corporation itself must be made party defendant.R.Defendants urge that the action is improper because the plaintiff was not authorized by the corporation to bring suit in its behalf. Whether the complaint's allegations to such effect are true or not must be determined after due hearing. 3 The dispositive portion of the judgment affirmed by the CA ruled in this wise: WHEREFORE. ROWENA BARROGO. 2000 RURAL BANK OF MILAOR (CAMARINES SUR).000. What is important is that the corporation' should be made a party. has clearly clothed its manager with apparent authority to sell an acquired asset in the normal course of business. would rest upon the discretion of the party and the Court. and to pay the costs. in view of all the foregoing findings. Hence. That no other stockholder has chosen to make common cause with plaintiff Perez is irrelevant. to pay [respondents] the sum of FIVE HUNDRED (P500. These circumstances permit a stockholder to bring a derivative suit (Evangelista vs. C-1 and C-2). by its acts and failure to act. Costs against defendants-appellees. dismissal of the present action was not sought on the ground of pendency of another action between the same parties. which affirmed the May 20. the order dismissing the complaint is reversed and set aside. Absence of corporate authority would seem to militate against making the corporation a party plaintiff. while in the United States. In the first place. Thereafter. Misjoinder of parties is not a ground to dismiss an action.) We see no reason to support the contention of defendant Bienvenido Dizon that the action of plaintiff amounts to a quo warranto proceeding.00) PESOS as attorney's fees. 137686 February 8. THIRTY THOUSAND (P30. PANGANIBAN. RENATO OCFEMIA JR. Any such authority could not be expected as the suit is aimed to nullify the action taken by the manager and the board of directors of the Republic Bank. Inc. Plaintiff Perez is not claiming title to Dizon's position as head of the Republic Bank's board of directors. as expressly pleaded in the complaint. The English practice is to make the corporation a party plaintiff. The Case Before this Court is a Petition for Review on Certiorari challenging the December 18. the case shall be tried and decided on its merits. MARIFE O. while joining it as defendant places the entity in the awkward position of resisting an action instituted for its benefit. 4 . 86 Phil. We fail to see that this justifies the dismissal of the case under appeal.

On April 10. Felicisimo Ocfemia. Niño even before she brought the matter to her lawyer. the defendant filed a motion for reconsideration of the order of June 17. showed to if the Deed of Sale (Exh. cannot be transferred in the name of the buyers as there is a need to have the document of sale registered with the Register of Deeds of Camarines Sur. subject of the sale. D and D-1) informing the latter that the request for board resolution ha[d] already been referred to the board of directors of the [petitioner] bank with another request that the latter should be furnished with a certified machine copy of the receipt of payment covering the sale between the [respondents] and the [petitioner] (Exh. Niño went to the Register of Deeds of Camarines Sur with the Deed of Sale (Exh. E). Marife O. 1996. C). Renato Ocfemia. have not been. Niño knows the five (5) parcels of land described in paragraph 6 of the petition which are located in Bombon. She was asked and she complied with the request of the [petitioner] for a copy of the deed of sale and receipt of payment. [herein petitioner] was declared in default on motion of the [respondents] for failure to file an answer within the reglementary-period after it was duly served with summons. a co-[respondent] in this case. Jr. show[s] that she is the daughter of Francisca Ocfemia. 1995 to the [petitioner] bank inquiring why no action was taken by the board of the request for the issuance of the resolution considering that the bank was already fully paid [for] the consideration of the sale since January 1988 as shown by the deed of sale itself (Exh. Marife O. 41497-SP but the petition was denied in a decision rendered on March 31. C) in order to have the same registered. [respondents] filed a motion to set case for hearing. This request of the [petitioner] bank was already complied [with] by Marife O.nêt Marife O. informed her that the document of sale cannot be registered without a board resolution of the [petitioner] Bank. On July 10.1âwphi1. [respondents] mortgaged the said five (5) parcels of land and two (2) others to the [petitioner] Rural Bank of Milaor as shown by the Deed of Real Estate Mortgage (Exhs. were Juanita Arellano Ocfemia and Felicisimo Ocfemia. On July 31. Juanita Arellano Ocfemia and Felicisimo Ocfemia. She complied with said requirements and after she gave all these documents. Niño as evidenced by a Deed of Sale executed in January 1988 (Exhs. Niño brought the matter to her lawyer and the latter wrote a letter on December 22. During the lifetime of her grandparents. 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. The manager of the [petitioner] bank received the letter which was served personally to him and the latter told Marife O. Barrogo. 1996. The aforementioned five (5) parcels of land subject of the deed of sale (Exh. Her other co-[respondents] Rowena O. A certiorari case was filed by the [petitioner] with the Court of Appeals docketed as CA GR No. The Register of Deeds. [herein petitioner] filed a motion to set aside the order of default with objection thereto filed by [herein respondents]. 1996. Camarines Sur and that they are the ones possessing them which [were] originally owned by her grandparents. On January 15. B). 1996. The president of the [petitioner] bank told her to get an authority from her parents and other [respondents] and receipts evidencing payment of the consideration appearing in the deed of sale. C). Marife Niño then went to the bank. the tax declaration and receipt of tax payments and requested the [petitioner] for a board resolution so that the property can be transferred to the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other [respondents] having died already. F). an order was issued denying [petitioner's] motion for reconsideration. and the late Renato Ocfemia who died on July 23. The evidence presented by the [respondents] through the testimony of Marife O. On April 26. Renato Ocfemia. Niño returned to the [petitioner] bank and she was told that the resolution of the board would not be released because the [petitioner] bank ha[d] no records from the old manager. Niño. one of the [respondents] in this case. On January 23. Marife O.Also assailed is the February 26. Niño after they were sold to her parents by the [petitioner] bank because according to the Assessor's Office the five (5) parcels of land. C-1 and C-2). The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged properties consisting of seven (7) parcels of land and so the mortgage was foreclosed and thereafter ownership thereof was transferred to the [petitioner] bank. She was told that the [petitioner] bank ha[d] a new manager and it had no record of the sale. 1996. Marife O. After two (2) weeks. 1994. 1996 with objection thereto by [respondents]. The parents of her father. five (5) of them are in the possession of the [respondents] because these five (5) parcels of land described in paragraph 6 of the petition were sold by the [petitioner] bank to the parents of Marife O. The [petitioner] bank refused her request for a board resolution and made many alibi[s]. Because of this. A copy thereof was duly furnished the [petitioner] but the latter did not file any opposition and so [respondents] were allowed to present their evidence ex-parte. and Winston Ocfemia are her brothers and sisters. however. On July 12. D and D-1 ). 5 which denied petitioner's Motion for The Facts The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows: This is an action for mandamus with damages. A and A-1) and the Promissory Note (Exh. however transferred in the name of the parents of Merife O. 1996. C. In view of the foregoing. 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner] bank informing the latter that they were already furnished the receipts the bank was asking [for] and that the [respondents] want[ed] already to know the stand of the bank whether the board [would] issue the required board resolution as the deed of sale itself already show[ed] that the [respondents were] clearly entitled to the land subject of the sale (Exh. 1997 and the same is now final. Niño was again told to wait for two (2) weeks because the [petitioner] bank would still study the matter. 1999 CA Resolution Reconsideration. Niño that since he was the one himself who received the . On June 17. an order was issued denying [petitioner's] motion to set aside the order of default. Out of the seven (7) parcels that were foreclosed.

(2) mandamus fell within the jurisdiction of RTC. The illness of Francisca Ocfemia beg[a]n after her husband died and her suffering from arthritis and pulmonary disease already became serious before December 1995. (1) in the issuance of writ of certiorari. Issues In its Memorandum. this Court issued a Temporary Restraining Order directing the trial court "to refrain and desist from executing [pending appeal] the decision dated May 20. Original jurisdiction in other cases. 21.00? 2. under RA 7691. the issue therein was not the title to the property. Niño went to the [petitioner] again and reiterated her request. however. and (2) In actions affecting ambassadors and other public ministers and consuls. After several days from receipt of the letter (Exh. The [respondents] are interested in having the property described in paragraph 6 of the petition transferred to their names because their mother and co-petitioner. Marife O. Question of Law. Petitioner refused. This Court's Ruling The present Petition has no merit. Allegations in the Petition for Mandamus Deemed Admitted . To repeat. to enter into such transaction. Hence. quo warranto. 9 the bank posed the following questions: 1. a municipal trial court or a municipal circuit trial court. Second Issue: Authority of the Bank Manager Respondents initiated the present proceedings. so that they could transfer to their names the subject five parcels of land. Thus. For the property to be transferred in their names. petitioner argues that the matter in fact involved title to real property worth less than P20. it was still cognizable by the said court. but merely asked that petitioner's board of directors be directed to issue the subject resolution. Niño declared that her mother is now in serious condition and they could not have her hospitalized for treatment as they do not have any money and this is causing the family sleepless nights and mental anguish. and (3) assuming that the action was for specific performance as argued by the petitioner. and subsequently.000. the CA affirmed the RTC Decision. Question of Jurisdiction of the Regional Trial Court. F). 7 In a Resolution dated June 23. the bank did not controvert the allegations in the said Petition. F) when Marife O. to mortgage said lots and to use the loan proceeds for the medical expenses of their ailing mother. because (1) the Petition involved a matter incapable of pecuniary estimation. 11 In the present case. Tena." 8 Ruling of the Court of Appeals The CA held that herein respondents were "able to prove their present cause of action" against petitioner. respondents sued in exasperation. the manager of the [petitioner] bank told her that they could not issue the required board resolution as the [petitioner] bank ha[d] no records of the sale. Moreover. It ruled that the RTC had jurisdiction over the case. RTC-96-3513. 1999. We disagree. — Has a Regional Trial Court original jurisdiction over an action involving title to real property with a total assessed value of less than P20. is very sickly and they want to mortgage the property for the medical expenses of Francisca Ocfemia. Niño already went to their lawyer and ha[d] this petition filed. this recourse. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129. prohibition. The well-settled rule is that jurisdiction is determined by the allegations of the complaint. habeas corpus and injunction which may be enforced in any part of their respective regions. mandamus. it was respondents' right to compel the bank to issue a board resolution confirming the Deed of Sale. A perusal of the Petition shows that the respondents did not raise any question involving the title to the property. — 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? 10 First Issue: Jurisdiction of the Regional Trial Court Petitioner submits that the RTC had no jurisdiction over the case. 6 The trial court granted the Petition.letter he would not sign anymore a copy showing him as having already received said letter (Exh. Francisca Ocfemia. Disputing the ruling of the appellate court that the present action was incapable of pecuniary estimation. the register of deeds required the submission of a board resolution from the bank confirming both the Deed of Sale and the authority of the bank manager. effective immediately until further orders from this Court. the case should have been filed before a metropolitan trial court. the Petition for Mandamus filed by respondents before the trial court prayed that petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale covering five parcels of unregistered land. Because of this Merife O.000. which the bank manager had executed in their favor. 1997 in Civil Case No. which provides: Sec. Fe S. — Regional Trial Courts shall exercise original jurisdiction. As noted earlier. After being given the runaround by the bank. thinking that their mother may die because they could not submit her for medication as they do not have money.

however. 13 Thus. So also. by its own acts or failure to act. Tena to enter into binding contracts. let alone present evidence controverting such authority. the substance of such instrument or document shall be set forth in the pleading. for which reason it was declared in default. 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. to do acts within the scope of an apparent authority. custom. when one of herein respondents. the corporation will. In fact. and thus holds him out to the public as possessing power to do those acts. his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business. . by proof of the course of business. this Court has ruled in Board of Liquidators v. the bank admitted the due execution of the said contract. she was merely told to bring the receipts. that — In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made." 16 In this light. and the latter had acknowledged her authority. As already observed. or any other agent. Kalaw: 15 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice. Tena as the representative of the bank. . Sec.— When an action or defense is founded upon a written instrument. . 12 In failing to file its answer specifically denying under oath the Deed of Sale. Thus. 17 . existence of such authority is established. Action or defense based on document. it filed no answer at all. even though such agent is abusing her authority. went to the bank to ask for the board resolution. as against any one who has in good faith dealt with the corporation through such agent. . — Whenever an action or defense is based upon a written instrument or document. thus. which shall be deemed to be a part of the pleading. but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. Indeed. Pertinent provisions of the Rules of Court read: Sec. Marife S. and where it is said "if the corporation permits this means the same as "if the thing is permitted by the directing power of the corporation. How to contest genuineness of such documents. 8. 654-655. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. . Petitioner. Nino. and he must necessarily rely upon the external manifestation of corporate consent. The Deed named Fe S. under oath.. respondents occupied the properties in dispute and paid the real estate taxes due thereon. as against anyone who has in good faith dealt with it through such agent. the usages and practices of the company and by the knowledge which the board of directors has. and sets forth what he claims to be the facts. it holds the agent out to the public as possessing the power to do those acts. In varying language. petitioner has failed to file an answer to the Petition below within the reglementary period. the corporation will. . it is familiar doctrine that if a corporation knowingly permits one of its officers. no matter how regular they should appear on their face. in the usual course of business of a corporation. copied in or attached to the corresponding pleading as provided in the preceding section. 7. Naturally he can have little or no information as to what occurs in corporate meetings. The bank failed to categorically declare that Tena had no authority. Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale. 634. 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 general manager may bind the company without formal authorization of the board of directors. the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. After the execution of the Deed of Sale.Respondents based their action before the trial court on the Deed of Sale. defenses that are inconsistent with the due execution and the genuineness of the written instrument are cut off by an admission implied from a failure to make a verified specific denial. If the bank management believed that it had title to the property. This Court has observed in Ramirez vs. the bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. 14 Clearly. specifically denies them. an officer has been allowed in his official capacity to manage its affairs. Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers. Thus. 38 Phil. authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf. it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof. of acts and doings of its subordinates in and about the affairs of the corporation. . when. and we would be sorry to announce a doctrine which would permit the property of man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. Likewise. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority. or must be presumed to have. failed to specifically deny under oath the allegations in that contract. Orientalist Co. the bank acknowledged. Tena had previously transacted business on behalf of the bank. be estopped from denying the agent's authority. the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party. . and policy. the authority of Fe S. be estopped from denying his authority. or said copy may with like effect be set forth in the pleading. Other Acts of the Bank In any event. and the original or a copy thereof shall be attached to the pleading as an exhibit. This Court stresses the following: .

Accordingly. G. it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use. it is paper work necessary in the orderly operations of the register of deeds and the full enjoyment of respondents' rights. the Court finds it proper to assess the bank treble costs. 1968 . The board resolution is. Treble costs against petitioner. Worse. SO ORDERED. it has a clear legal duty to issue the board resolution sought by respondent's. in fact. Having authorized her to sell the property. L-23428 November 29. In this light. the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. WHEREFORE.R. petitioner has authorized Tena to enter into the Deed of Sale. in addition to the award of damages. mere paper work. Petitioner-bank persistently and unjustifiably refused to perform its legal duty. No. it was less than candid in dealing with respondents regarding this matter.Unquestionably. The Temporary Restraining Order issued by this Court is hereby LIFTED. Nonetheless.

vs. Alberto. 164. respondent Judge issued. to the irreparable damage of the corporation.DETECTIVE & PROTECTIVE BUREAU. that Jose M.00. 1963. the defendant. that defendant. on August 5. therein plaintiff (petitioner herein) against Fausto S. justified the order complained of. now respondent Fausto S. the stockholders. in a meeting. records. 1. et al. 6 of Rule 58 of the revised Rules of Court)inasmuch as the Judge set aside said order and directed the dissolution of the preliminary injunction without any formal petition of the parties and without having followed the procedure prescribed by the statute. Now petitioner contends that the setting aside of the order granting the writ was contrary to law and was done with a grave abuse of discretion. This Court said: Section 169 of Act 1909 does not prescribe the manner of filing the application to annul or modify a writ of preliminary injunction. respondents. in Civil Case No. a motion to admit a counter-bond for the purpose of lifting the order granting the writ of preliminary injunction. THE HONORABLE GAUDENCIO CLORIBEL. Alberto traversed the material allegations of the petition.1 the only question raised was whether the respondent Judge exceeded his jurisdiction and abused his discretion in setting aside an order directing the issuance of a writ of preliminary injunction.000. speedy and adequate remedy available to it. admitting and approving the counter-bond of P5. Sarte for petitioner. but also continued to perform unauthorized acts for and in behalf of plaintiff corporation. petitioner. Plaintiff prayed that a preliminary injunction ex-parte be issued restraining defendant from exercising the functions of managing director and from disbursing and disposing of its funds. however. vouchers and receipts of the corporation from the accountant-cashier. (2) the preliminary injunction was not issued ex-parte but after hearing. 1964. that defendant not only had refused to vacate his office and to deliver the assets and books to Jose de la Rosa. as required by Section 6 of Rule 58. it appears that the only issue to be resolved is whether the order of respondent Judge dated August 5. 1964.. petitioners in that case alleged that the questioned order was issued in violation of the provisions of Section 169 of Act 190(which is one of the sources of Sec. Alberto filed. had been illegally disposing of corporate funds.000 and setting aside the writ of preliminary injunction granted in his order dated June 18. The Court gave due course to the petition but did not issue a preliminary injunction. The first reason given by petitioner in support of its contention that the dissolution of the writ of preliminary injunction was contrary to law is that the motion to admit respondent's counter-bond for the dissolution of the writ was not supported by affidavits as required by section 6 of Rule 58 of the Rules of Court. upon reasonable notice to the adverse party. Biazas and Associates and Jose S. however. Regarding the necessity of verification of the motion for dissolution of a writ of preliminary injunction. Albert from exercising the functions of managing director be issued. the record shows that respondent Alberto had filed a verified answer to the complaint and a verified opposition to the issuance of the writ of preliminary injunction. Gaudencio T. to the judge who granted the injunction. and the admission of the counter-bond rendered said writ ineffective. removed defendant as managing director and elected Jose de la Rosa in his stead. that defendant. dated May 4. Barrios and Buyson Lampa. From the pleadings.: The complaint. the injunction be made permanent and defendant be ordered to render an accounting. In maintaining the affirmative. plaintiff filed with this Court the instant petition for certiorari. 1964. contrary to a resolution adopted by the Board of Directors on November 24. for accounting with preliminary injunction and receivership. 1963. a verbal application for the dissolution of the writ. ALBERTO. There was. the Honorable Gaudencio Cloribel. may apply. respondent Judge granted the writ of preliminary injunction prayed for. unless immediately restrained ex-parte. and FAUSTINO S. and that it was necessary to appoint a receiver to take charge of the assets and receive the income of the corporation. conditioned upon plaintiff's filing a bond of P5. 1964. In his answer. does not appear in the record. 56949 of the Court of First Instance of Manila. would continue discharging the functions of managing director. INC. Barredo be appointed receiver. Inc. but while the same was pending approval defendant Fausto S. The controverted motion. 1964. filed by Detective and Protective Bureau. that on January 14. and prayed for the dismissal of the petition. alleged that plaintiff was a corporation duly organized and existing under the laws of the Philippines. In the case of Sy Sam Bio. 1964. 1964 of respondent Judge approving the counter-bond and lifting the writ of preliminary injunction he had previously issued be set aside and declared null and void. However. or to the judge of the court of which the action was brought. that in June. was issued contrary to law and with grave abuse of discretion. 1964. an order admitting the counterbond and setting aside the writ of preliminary injunction. Bocobo for respondents. and that there was no plain. that defendant had been required to submit a financial statement and to render an accounting of his administration from 1952 but defendant has failed to do so. praying that a writ of preliminary injunction enjoining defendant Fausto S. Court of First Instance of Manila. to dissolve or modify the same. on July 1. Plaintiff filed the bond. set for hearing plaintiff's prayer for ancillary relief and required the parties to submit their respective memoranda. vs.. at any time before trial. that defendant was managing director of plaintiff corporation from 1952 until January 14. and that the order dated August 5. (3) the writ was granted in accordance with Rule 58 of the Rules of Court and established precedents' (4) public interest required that the writ be not set aside because respondent had arrogated unto himself all the powers of petitioning corporation. Herein respondent Judge. ZALDIVAR. On the belief that the order approving the counter-bond and lifting the writ of preliminary injunction was contrary to law and the act of respondent Judge constituted a grave abuse of discretion. Crispin D. this Court has ruled that the requirement of verification is not absolute but is dependent on the circumstances obtaining in a particular case. Inspite of the opposition filed by plaintiff. in his capacity as Presiding Judge of Branch VI. and that (5) the counter-bond could not compensate petitioner's damage. concealed them illegally and refused to allow any member of the corporation to see and examine the same. therein defendant (respondent herein). . defendant illegally seized and took control of all the assets as well as the books. after judgment. because: (1) the motion to admit defendant's counter-bond was not supported by affidavits showing why the counter-bond should be admitted. J. based upon the ground of the in suficiency of the complaint which was the basis of the application for the issuance of said writ of preliminary injunction. On June 18. that. It simply states that if a temporary injunction be granted without notice.

and any irregularity committed by the trial court on this score may be cured not by certiorari but by appeal. 3. 206). however. because a writ of preliminary injunction is an interlocutory order which is always under the control of the court before final judgment. Comments on the Rules of Court. and much less must the motion be supported by affidavits. Philippine Ready Mix Concrete Co. vs. Aquino. Ramos. has to rely on the order of respondent Judge. et al. then respondent Fausto Alberto's motion to lift the preliminary injunction in the court below need not be verified. In an original action for a writ of certiorari filed with this Court to annual said order. maybe dissolved. 50 Phil.. this Court in Caluya. 63 Phil. Thus. This contention is untenable.3 this Court ruled that a motion for the dissolution of a writ of preliminary injunction should be verified. or. Artiaga and Green. If he did not own any share of stock." The court granted the motion and dissolved the preliminary injunction. if granted ex parte. et al. citing the case of Sy Yam Bio v. If the motion is based on the ground that the injunction would cause great damage to defendant while the plaintiff can be fully compensated for such damages as he may suffer. or. etc. or for moving the dissolution of. as well as from the terminology of Section 6 of Rule 58 of the new Rules of Court. If he did not own any share of stock.4this Court said: The first contention of the petitioners is that. et al.. the motion need not be verified. We cannot determine what are the grounds for the dissolution that are alleged therein. which in part provides: There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation.5 one of the issues presented was whether a writ of preliminary injunction granted the plaintiff by a trial court after hearing. a preliminary injunction prior to its issuance or after its granting ex parte. If the application is based on the insufficiency of the complaint. does not constitute lack or excess of jurisdiction or an abuse of discretion. was unverified. specially on the strength of an unverified motion for dissolution and in the absence to support it." Consequently. was disputed by respondent Alberto who stated that Jose de la Rosa could not be elected managing director because he did not own any stock in the corporation. (Manila Electric Company vs.. From the precedents quoted above.. may be dissolved" can not be construed as putting beyond the reach of the court the dissolution of an injunction which was granted after hearing. Petitioners' criticism that the motion to dissolve filed by the defendants in Civil Case No. certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law. Rule 58) of the Rules of Court did not require any form for the application for the dissolution of the writ of preliminary injunction. This is to be so.. et al. The contention is clearly erroneous. without giving petitioner an opportunity to be heard.2 said. is also groundless inasmuch as even an indirect verbal application for the dissolution of an ex parteorder of preliminary injunction has been held to be a sufficient compliance with the provisions of Section 6 of Rule 60 (Moran. therefore.. as urged by petitioner. 1964. alleging that the same "would work great damage to the defendant who had already spend a considerable sum of money" and that petitioners "can be fully compensated for any damages that they may suffer. p. The fourth reason alleged by petitioner in support of its stand is that public interest demanded that the writ enjoining respondent Fausto Alberto from exercising the functions of managing director be maintained. the same cannot be dissolved. as said injunction was issued after a hearing." thereby arguing that if an injunction is not issued ex parte the same cannot be dissolved. There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. 2. if granted ex parte. vs. Ramos. dated August 5. the motion should be verified. If according to the above rulings. it is alleged by petitioner that the motion for the dissolution of the writ of preliminary injunction was not verified. vs. and as such it is always under the control of the court before final judgment. 65. in Caluya. even if the dissolution is ordered without giving the other party an opportunity to be heard. it does not thereby outlaw a dissolution if the injunction has been issued after a hearing. Second Edition. The provision of Section 6 of Rule 58 that "the injunction may be refused. and this Court ruled that: The action of a trial court in dissolving a writ of preliminary injunction already issued after hearing. However. the first ground alleged by petitioner must be brushed aside. might be dissolved upon an ex parte application by the defendant. The reason is because a writ of preliminary injunction is an interlocutory order. does not constitute an abuse of discretion and may be cured not by certiorari but by appeal. which states that "the filing of the counter-bond is in accordance with law.. Barrios. In the instant case. The second and third reasons alleged by petitioner in its petition for certiorari assume that a preliminary injunction issued after hearing and in accordance with Rule 58 cannot be set aside. 1959. Vol. et al. This allegation was not denied in the answer. In that case. it is evident that whether the application for the dissolution of the writ of preliminary injunction must be verified or not depends upon the ground upon which such application is based. 147). Inc. which in part provides: ... Reliance is placed on Section 6 of Rule 60 of the Rules of Court which provides that "the injunction may be reduced. 4634 was not verified.. Petitioner contended that respondent Alberto had arrogated to himself the power of the Board of Directors of the corporation because he refused to vacate the office and surrender the same to Jose de la Rosa who had been elected managing director by the Board to succeed him. Although said section prescribes the grounds for objecting to. et al. 6. This Court has also ruled that the dissolution of a writ of preliminary injunction issued after hearing. II.On the strength of the decision in the above-cited case. This assertion. This Court. Section 6 of Rule 60 (now sec. 144. certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law. respondent Tayag filed an unverified motion for the dissolution of a writ of preliminary injunction. In Clarke vs. et al. the obvious reason being that said rule does not prescribe the form by which an application for the dissolution or modification of an order of preliminary injunction should be presented. in Canlas. this Court remarked in part: Petitioners herein are entitled to the writ prayed for. The motion of respondent Tayag for the dissolution of the writ of preliminary injunction issued on October 22. But because said motion does not appear in the record of the case now before this Court. and so We cannot rule on whether the motion should have been verified or not.

.11 The instant case is not one of the exceptions in the application of this rule. transfer property in litigation from the possession of one party to another is more particularly applicable where the legal title is in dispute and the party having possession asserts ownership in himself. contended that he really was the owner of the controlling interest in the business carried on the name of the petitioner. 1964 lifting the writ of preliminary injunction which had previously been granted in the order dated June 18.727. not the appellate court. if not more.10 In the instant case. 30. Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director. which are: where the questions of jurisdiction has been squarely raised. Section 1 that "Directors shall serve until the election and qualification of their duly qualified successor. the instant petition for certiorari with preliminary injunction is dismissed. and where there is a deprivation of the petitioner's fundamental right to due process.. with costs againsts the petitioner. Respondent Alberto. If he could not be a director. The fifth reason alleged by herein petitioner in support of its contention that respondent Judge gravely abused his discretion when he lifted the preliminary injunction upon the filing of the counter-bond was that said counter-bond could not compensate for the irreparable damage that the corporation would suffer by reason of the continuance of respondent Fausto Alberto as managing director of the corporation. Where ownership is in dispute. pursuant to Article V. submitted to." 4.000 only invested by one other director. the party in control or possession of the disputed interest is presumed to have the better right until the contrary is adjudged.. 6 Should it be the truth that respondent Alberto is the controlling stockholder. one vital reason why the instant petition for certiorari should be denied. in an appropriate motion for reconsideration. (Record. The following ruling of this Court has a persuasive application in this case: The rule that a court should not. that it is a settled rule that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case — the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. as the damages that the corporation would suffer if the injunction were maintained.Sec...7 Let it be stated. which stock shall stand in his name on the books of the corporations. It is so ordered. 1964. And it is. If the bond of P5.29 as against the sum of P4. The court which is to exercise that discretion is the trial court. he could also not be a managing director of the corporation. There is. argued before.000 filed by petitioner for the injunction would be sufficient to answer for the damages that would be suffered by respondent Alberto by reason of the injunction. 48) If the managing director-elect was not qualified to become managing director. . We find that petitioner failed to show manifest abuse of discretion by respondent Judge in setting aside the writ of preliminary injunction. Section 3 of the By-Laws of the Corporation which provides that: The manager shall be elected by the Board of Directors from among its members. however. having invested therein a total of P57. An omission to comply with this procedural requirement justifies a denial of the writ applied for. there is no alternative for this Court but to order its dismissal. respondent Fausto Alberto could not be compelled to vacate his office and cede the same to the managing director-elect because the by-laws of the corporation provides in Article IV. then the damages said respondent would suffer would be the same.12 It being our considered view that respondent Judge had not committed grave abuse of discretion in issuing the order dated August 5. Barredo. We find that there was a question as to who own the controlling interest in the corporation. p. 8 and it is equally well settled that a wide latitude is given under Section 7 of Rule 58 of the Rules of Court to the trial court to modify or dissolve the injunction as justice may require. there seems to be no reason why the same amount would not be sufficient to answer for the damages that might be suffered by the petitioning corporation by reason of the lifting of the injunction. and hence that party should not be deprived of the control or possession until the court is prepared to adjudicate the controverted right in favor of the other party. and met and decided by the respondent court. WHEREFORE. Jose M.. where the questioned order is a patent nullity. that from the order dissolving the writ of preliminary injunction. and the herein petition for certiorari having been filed without previously complying with a well settled procedural requirement. if any. in relation to all the reason given by petitioner. the petitioner has gone directly to this Court without giving the respondent Judge (or trial court) a chance or opportunity to correct his error. 9 The exercise of sound judicial discretion by the lower court in injunctive matters should not be interfered with except in cases of manifest abuse. on the contrary. by means of a preliminary injunction.

. 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 candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. 1990. which in turn upheld the decision of the HIGCs appeals board. 1975.[1] Briefly stated. the associations committee on election in a letter informed James Tan. and 3. from 1975. the by-laws of the association provided in Article IV. a committee of the board of directors prepared a draft of an amendment to the by-laws. The Charter and Associate Members shall elect the Directors of the Association.1.. J. while private respondents Alejandro G.M. 2. principal of the school. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10. For fifteen years from 1975 until 1989 petitioners representative had been recognized as a permanent director of the association. kindergarten and secondary courses at the Grace Village in Quezon City. BELTRAN. GRACE VILLAGE ASSOCIATION. the Board of Directors. petitioner was given a permanent seat in the board of directors of the association. reconsidering) the right of petitioners representative to continue as an unelected member of the board. As adopted in 1968. petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. respectively. On February 13. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association. as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P. is an organization of lot and/or building owners. 1990. Inc. Petitioner appealed to the Court of Appeals. Beltran and Ernesto L. Inc. and ERNESTO L. in 1990. vs. DECISION MENDOZA. Each Charter or Associate Member of the Association is entitled to vote. Private respondent Grace Village Association.[2] It appears.: The question for decision in this case is the right of petitioners representative to sit in the board of directors of respondent Grace Village Association. when this suit was brought. where they shall elect by plurality vote and by secret balloting. lessees and residents at Grace Village. after it was presumably submitted to the board. up to 1990.Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. GO. Go were its president and chairman of the committee on election. the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory. on the other hand. THE COURT OF APPEALS. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. The amended By-laws of the Association drafted and promulgated by a Committee on December 20.00) PESOS for one vote. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law. As the board denied petitioners request to be allowed representation without election. But on February 13. petitioner received notice from the associations committee on election that the latter was reexamining (actually. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. reading as follows: [3] GRACE CHRISTIAN HIGH SCHOOL. This draft was never presented to the general membership for approval. as a permanent member thereof. INC. Nevertheless. that on December 20. Hence this petition for review based on the following contentions: VI. petitioner. composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified. ALEJANDRO G. 1975 is valid and binding. respondents.

change or adopt any new bylaws. paragraph 2. petitioner maintained that the amended by-laws is valid and binding and that the association was estopped from questioning the by-laws. This provision of the by-laws actually implements 22 of the Corporation Law (Act No.P. 1990. That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation . 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. It argued that the by-laws which was registered with the SEC on January 16. the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.[7] A preliminary conference was held on March 29. notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Tan was told that the proposal to make the Grace Christian High School representative as a permanent director of the association. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office. the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board.the Board. although implemented in the past. the board of trustees of non-stock corporations. at a regular or special meeting duly called for the purpose. 1993. 1990 and April 24. however. A meeting was held on April 17. amend or repeal any by-law or adopt new by-laws. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections. or a majority of the members if there be no capital stock. but the parties failed to reach an agreement. the directors of the association declared the proposed by-law dated December 20. the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. . had not yet been ratified by the members of the association nor approved by competent authority. [4] For this reason. [was] merely a proposed by-laws which. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. On June 20. 1459) which provides: 22. affirmed the decision of the HIGC. thereof: The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. 1968 as the prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency. 1975 prepared by the committee on by-laws . not to say that allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association. The HIGC appeals board denied claims that the school [was] being deprived of its right to be a member of the Board of Directors of respondent association. and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. The owners of two-thirds of the subscribed capital stock. which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws. that. The parties merely agreed that the board of directors of the association should meet on April 17. on the contrary. . Blg. Private respondent association cited the SEC opinion in its answer. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query. The hearing officer rejected petitioners contention that it had acquired a vested right to a permanent seat in the board of directors. may alter. [8] The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13. Following this advice. had become part of the by-laws of the association as Article VI. as soon as organized. so classify themselves that the term of office of onethird (1/3) of the number shall expire every year. claiming that the notice issued for the 1990 elections ran counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board. 1990. The Court of Appeals held that there was no valid amendment of the associations by-laws because of failure to comply with the requirement of its existing by-laws. null and void and the by-laws of December 17. or two-thirds of the members if there be no capital stock. Election and term of trustees. 68). Additionally. it contended. upon which petitioner based its claim. The owners of a majority of the subscribed capital stock.[6] In reply. shall.[5] As the association denied its request. the hearing officer of the HIGC rendered a decision dismissing petitioners action. because the fact was that it may nominate as many representatives to the Associations Board as it may deem appropriate. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92.Unless otherwise provided in the articles of incorporation or the by-laws. amend. . 1969 should be the prevailing by-laws of the association and not the proposed amended by-laws. and it is undemocratic for a person or entity to hold office in perpetuity. prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. may. Instead. Article XIX of the by-laws provides: [10] The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose. It said that what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is not anchored upon any legal basis. Petitioner based its claim on the following portion of the proposed amendment which. 1990. The hearing officer held that the amended by-laws. 1990 but nothing substantial was agreed upon. 1990.[9] Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9. the association contended that the basis of the petition for mandamus was merely a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC. although previously tolerated in the past elections should be reexamined. in the meeting held on April 17.

again without need of any election. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. if there be no stockholders.. Another concrete example is the Cardinal Santos Memorial Hospital. This is not merely tantamount to tacit ratification of the acts done by duly authorized agents but express approval and confirmation of what the agents did pursuant to the authority granted to them. or. Corollarily. as amended. Unless otherwise provided in the by-laws. a notice of the election of directors shall be posted for a period of three weeks immediately . The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. or both. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the bylaws as in the instant case. Considering. further. that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. If fact. however. petitioner claims that it has acquired a vested right to a permanent seat in the board. And provided. Unless otherwise provided in this Act. If there be no newspaper published at the place where the principal office of the corporation is established or located. all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or. two weeks notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located. He also automatically sits as the Chairman of the Board of Trustees. as heretofore or hereafter amended.And not only that. postage pre-paid. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years. the directors need not be elected from among the holders of the stock. It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. where there is no stock. then to each member. 9095 of the President of the United States. That in corporations. the proposed amendment for all intents and purposes should be considered to have been ratified by them. One example is the Pius XII Catholic Center.. that the agents or committee were duly authorized to draft the amended by-laws and the acts done by the agents were in accordance with such authority.. the acts of the agents from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. directors shall be elected to hold their offices for one year and until their successors are elected and qualified. in which the United States has or may have a vested interest. At the meeting for the adoption of the original by-laws. Outside the present membership of the board. the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. Petitioner contends:[11] . where there is no stock from the members of the corporation. If there is anybody who has the right to take away such right of the petitioner. giving petitioners representative a permanent seat in the board of the association. addressed to each stockholder. the corporate powers of all corporations formed under this Act shall be exercised. other than banks. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation. petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. therefore. Referring to 92 of the present Corporation Code. and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the bylaws of any bank. Petitioner disputes the ruling that the provision in question. banking institution or building and loan association. or. or at such subsequent meeting as may be then determined. and by written notice deposited in the post-office. and similar Acts of Congress of the United States relating to the same subject. (emphasis added) 29. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. pursuant to the powers granted or delegated by the Trading with the Enemy Act. is contrary to law. Inc. Under the by-laws of this corporation. it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Inc. unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law. or by Executive Order No. These provisions read: 28. from the members of the corporation: Provided. at his last known place of residence. The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws.shall so vote at a regular or special meeting. not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees.

There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit asex officio members.[14] Finally. PADILLA.[13] It is probable that. until after the majority of the stockholders present and qualified to vote shall have chosen one of them to act as presiding officer of the meeting. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. similarly provides: 23. to reimburse it. Bautista and Nuevas for respondents.190 loaned to the wife of petitioner Domingo Ponce. as required by law or by laws of the corporation. G. the fact that for fifteen years it has not been questioned or challenged but. another order denying a motion of the petitioners to have the previous order set aside. which took effect on May 1. But in the case of petitioner. that on 16 April 1951 at a meeting duly called. otherwise known as the Corporation Law. Inc. PONCE. who is the largest stockholder.. in the sum of P4. Inc. the purchase price of a parcel of land acquired by the corporation. Act No. i.Nor does petitioner claim a right to such seat by virtue of an office held. and P8. But this case was not decided by the SEC but by the HIGC. Since the provision in question is contrary to law. In fact it was not given such seat in the beginning. and a third order denying a motion to the same effect as the one previously filed. respondents.. the corporate powers of all corporations formed under this Code shall be exercised. 13753) to compel the petitioners to render an accounting of the funds and assets of the corporation. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. no matter how long continued.Unless otherwise provided in this Code. the members of the association were not aware that this was contrary to law. L-5883 November 28. but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. Marcelino Lontok for petitioners. vs. No. who shall hold office for one (1) year and until their successors are elected and qualified. Even less tenable is petitioners claim that its right is coterminus with the existence of the association. 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. charged his mind and filed a complaint in the Court of First Instance of Manila (civil No. there is no reason at all for its representative to be given a seat in the board. appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. 1459. the voluntary dissolution of the corporation and the appointment of Potenciano Gapol as receiver were agreed upon and to that end a petitioner Domingo Ponce. Practice.: This is a petition for a writ of certiorari to annul an order of the respondent court granting Potenciano Gapol authority. from among the members of the corporation. that instead of filing the petition for voluntary dissolution of the of the corporation as agreed upon. The petitioners aver that the Daguhoy Enterprises. the decision of the Court of Appeals is AFFIRMED.690.P. pursuant to section 26.e. Judge of the Court of First Instance of Manila. if it is contrary to law. or where there is no stock. The present Corporation Code (B. jointly and severally. by virtue of and for as long as they hold a particular office. but certainly not the allowance of petitioners representative as an unelected member of the board of directors. Branch I. cannot give rise to any vested right if it is contrary to law. 1953 DOMINGO PONCE AND BUHAY L. plus interest. Zavalla. The Board of Directors or Trustees.500. DEMETRIO B. Nor can petitioner claim a vested right to sit in the board on the basis of practice. P6. and to preside at such meeting by giving proper notice to the stockholders. Blg. It is more accurate to say that the members merely tolerated petitioners representative and tolerance cannot be considered ratification.R. on the contrary. It contends that jurisdiction over this case is exclusively vested in the HIGC.000 spent by the latter in his trip to the United States. in allowing petitioners representative to sit on the board.preceding the election in at least three public places. 1980. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. Neither can it attain validity through acquiescence because. misapplied. was duly registered as such on 24 June 1948. The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so. J. or such sum as may be found after the accounting shall have been rendered to have been misspent. the respondent Potenciano Gapol. 68). and POTENCIANO GAPOL. (Emphasis added) [12] SO ORDERED. WHEREFORE. petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. or a total sum of P18. petitioners. . . For that matter the members of the association may have formally adopted the provision in question. it is beyond the power of the members of the association to waive its invalidity. to call a meeting of the stockholders of the Dagunoy Enterprises. ENCARNACION. in the place where the principal office of the corporation is established or located.

praying for an order directing him to a call a meeting of the stockholders of the corporation and to preside at such meeting in accordance with section 26 of the Corporation law. And this showing of good cause therefor exists when the court is apprised of the fact that the by-laws of the corporation require the calling of a general meeting of the stockholders to elect the board of directors but call for such meeting has not been done. why did they fail. the respondent Potenciano Gapol in this case. . If they felt that they were sure to be reelected.2 It means that the chancellor may issue such order without notice and hearing. Having the authority to grant the relief. the date set for the hearing of the petition. provides: The Board of Directors shall compose of five (5) members who shall be elected by the stockholders in a general meeting called for that purpose which shall be held every even year during the month of January. With persistency petitioners claim that they have been deprived of their right without due process of law. as required and provided for in article 7 of the by-laws of the corporation. Article 9 of the by-laws of the Daguhoy Enterprises. filed a motion praying that the petitioners be removed as members of the board of directors which was denied by the court. On the showing of good cause therefor. the respondent court denied the motion of 5 March in its order of 7 May. neglected. that the election of Juanito R. Such provisional reliefs have not been deemed and held as violative of the due process of law clause of the Constitution. to wit: to call a meeting of the stockholders." the court may grant to a stockholder the authority to call such meeting and to preside thereat does not mean that the petition must be set for hearing with notice served upon the board of directors. the judge of the Court of First Instance may direct the person calling the meeting to preside at the same until a majority of the members or stockholders representing a majority of the stock members or stockholders presenting a majority of the stock present and permitted by law to be voted have chosen one of their number to act as presiding officer for the purposes of the meeting. that two days later. They had no right to a hold-over brought about by the failure to perform the duty incumbent upon one of them.. the respondent court did not exceed its jurisdiction. from any cause. because the chairman of the board of directors called upon to do so had failed. fails or neglects to call a meeting. or when the officer authorized to do so refuses. neglect. In several state of the Union1 the remedy which may be availed of our resorted to in a situation such as the one brought about in this case is mandamus to compel the officer or incumbent board of directors to perform a duties specifically enjoined by law or by-laws. as authorized by the order of the court complained of. It may be likened to a writ of preliminary injunction or of attachment which may be issued ex-parte upon compliance with the requirements of the rules and upon the court being satisfied that the same should be issue. If it be true that one of the directors elected at the meting called by the respondent Potenciano Gapol. but the court denied the motion by its order of 13 June. 1459. that on 3 January 1952 respondent Potenciano Gapol filed a petition (civil No. Dela ware is the estate that has a law similar to ours and there the chancellor of a chancery court may summarily issue or enter an order authorizing a stockholder to call a meeting of the stockholders of the corporation and preside thereat. the alleged previous agreement to dissolve the corporation does not affect or render illegal the order issued by the respondent court. . . without notice to the petitioners and to the other members of the board of directors and in violation of the Rules of Court which require that the adverse parties be notified of the hearing of the motion three days in advance. Said section provides: — Whenever. Also. The only question to determine in this case is whether under and pursuant to section 26 of Act No. known as the Corporation law. That the relief granted by the respondent court lies within its jurisdiction is not disputed. The petition is denied. that on 18 May 1951 the plaintiff in that case. why did they not seek their reelection at the meeting called to elect the directors pursuant to the order of the respondent court. there is no person authorized to call a meeting. was not qualified in accordance with the provisions of the by-laws. or refuse to call the meeting to elect the members of the board? Or. the respondent court may issue the order complained of. Article 20 of the by-laws in part provides: .missappropriated and converted by the petitioner Domingo Ponce to his own use and benefit. and if there be no person legally authorized to preside at such meeting. directing him to call a meeting of the corporation by giving the proper notice required by this Act or by-laws. Regular general meetings are those which shall be called for every even year. 15445. as the respondent judge was on leave vacation judge directed its transfer to the branch of the respondent judge. . The respondent court was satisfied that there was a showing of good cause for authorizing the respondent Potenciano Gapol to call a meeting of the stockholders for the purpose of electing the board of directors as required and provided for in the by-laws. . that on 5 March the petitioners filed a petition in the respondent court to have the order of 5 January set aside but on April. may issue an order to any stockholder or member of a corporation. . any judge of a Court of First Instance on the showing of good cause therefor. when the Bank of America refused to recognize the new board of directors elected at such meeting and returned the checks drawn upon it by the said board of directors. . the court may authorize a stockholder to call a meeting and to preside threat until the majority stockholders representing a majority strockholders representing a majority of the stock present and permitted to be voted shall have chosen one among them to preside it. The alleged illegality of the election of one member of the board of directors at the meeting called by the respondent Potenciano Gapol as authorized by the court being subsequent to the order complained of cannot affect the validity and legality of the order. that the petitioners learned only of this order of the court on 27 February. the remedy of an aggrieved party would be quo a warranto. or refused to perform his duty. that on 14 May the petitioners filed another motion inviting the attention of the respondent court to the irregularity and illegality of its procedure and setting the motion for hearing on 21 May. Inc. nor did it abuse its discretion in granting it. with costs against the petitioners. the respondent court issued the order as prayed for (Exhibit M). They had no right to continue as directors of the corporation unless reflected by the stockholders in a meeting called for that purpose every even year. Exhibit L). that without having set the motion for hearing. The requirement that "on the showing of good cause therefor. Tianzon as member of the board of directors of the corporation he must be a member of theLegionarios del Trabajo.

the possessors of a majority of the shares of the Binalbagan Estate.: This is an original petition for the writ of certiorari whereby the petitioners.. instituted by Agustin Coruna and Mauro Ledesma against the petitioners and the Binalbagan Estate. Auxiliary Judge of First Instance of Occidental Negros. formed a voting trust composed of three members. seek to procure the abrogation of an order of the respondent judge granting a preliminary injunction in an action in the Court of First Instance of Occidental Negros. 1926 BALDOMERO ROXAS. is a corporation having its principal plant in Occidental Negros where it is engaged in the manufacture of raw sugar from canes grown upon farms accessible to its central. No. 1924. Lacson. Baldomeo Roxas. Inc. AGUSTIN CORUNA. Honorable MARIANO DE LA ROSA.. STREET. and Roman J.G. . J.. Enrique Echaus. Inc. MAURO LEDESMA and BINALBAGAN ESTATE.R. L-26555 November 16. petitioners. The cause is now before us upon the issues made by the answers filed by the respondents. LACSON. Inc. respondents. It appears that the Binalbagan Estate. ENRIQUE ECHAUS and ROMAN J. INC. vs. In July.

to issue to the shareholders a notice calling for a special general meeting of shareholders to be held at 10 a. as per the call of August 2. In response to a proper for a preliminary injunction. Moreover. Salvador Laguna. Timoteo Unson. and to this end the shareholders undertook to assign their shares to the trustees on the books of the company.000. on August 2. Segunda Monteblanco. the call was limited to the election of the board of directors. W. The total number of outstanding shares of the corporation is somewhat over 5. If suffices to know that in making the order he was acting within the limits of his judicial powers. if carried into effect. and for any other business that can be dealt with in said meeting. the law requires that when action is to be taken at a special meeting to remove the directors.500. In order to expose the true inwardness of the situation before us it is necessary to take not of the fact that under the law the directors of a corporation can only be removed from office by a vote of the stockholders representing at least two-thirds of the subscribed capital stock entitled to vote (Act No. it is now asserted here by the petitioners that the making of this order was beyond the legitimate powers of the respondent judge. By the document constituting this voting trust the trustees were authorized to represent and vote the shares pertaining to their constituents. as members. We say presumably. In the view we take of the case it is not necessary to determine this issue. was able to nominate and elect a board of directors to his own liking. its lawyers. vice-president. Inc. Jose G. as trustee. In the dispositive part of said order the Binalbagan Estate. said injunction to be effective until further order of the court. 1459. and H. resignation. Upon said occasion Heilbronn. in connection with said action. while vacancies in the board. to come out frankly and say in the notice that one of the purpose of the meeting was to removed the directors of the corporation from office. it does not have a clear twothirds majority. on August 16. sec.namely. DECISION . In this case it is not necessary for us to agitate ourselves over the question whether the respondent judge properly exercised his judicial discretion in granting the order complained of.. It will be noted that the order in question enjoins the defendants from holding the meeting called for August 16.. lawphil. his authority being recognized by the holders of all the other shares present at this meeting. which gave rise to the present petition for the writ of certiorari. We are of the opinion that this contention is untenable and that the respondent judge acted within his legitimate powers in making the order against which relief is sought. Now." Within a few days after said notice was issued Agustin Coruña. and all others who may be assisting or corroborating with them. by virtue of controlling the majority of the shares. 34). even supposing that their title to the office could be maintained. the general annual meeting of the shareholders of the Binalbagan Estate. with the result that various substitutions have been made in the personnel of the voting trust. 1459. or preliminary injunction. 3840 directly asserts that the members of the present directorate were regularly elected at the general annual meeting held in February. But the complaint in civil No. another directorate. vs. INC. agents. At the present time the petitioners Roxas.. and said order must not be understood as constituting any obstacle for the holding of the regular meeting at the time appointed in the by-laws of the corporation. For the reasons stated the petition will be denied. And at any rate the present board of directors are de factoincumbents of the office whose acts will be valid until they shall be lawfully removed from the office or cease from the discharge of their functions. Echaus. and Lacson presumably constitute its membership. who would probably need the assistance of judgment of court in an independent action of quo warrantoto get them installed into office. In other to effect this purpose the petitioners in their character as members of the voting trust. Instead. P.net It is instituted that there was some irregularity or another in the election of the present directorate. Fisher. secretary-treasurer. as member of the existing board. it being the evident intention of the voting trust to elect a new board as if the directorate had been then vacant. That the trial judge had jurisdiction to forestall that step and enjoin the contemplated election is a matter about which there cannot be the slightest doubt. 1926. respondents. Heilbronn appeared as representative of the voting trust. Since the creation of the voting trust there have been a number of vacancies caused by resignation or the absence of members from the Philippine Islands. petitioner. Inc. It was therefore impolitic for the petitioners. the proposal to elect. caused the secretary of the Binalbagan Estate. the present trustee are apparently desirous of ousting said officers. without awaiting the termination of their official terms at the expiration of one year from the date of their election. the respondent judge issued the restraining order. removal. 1459. On February 1. president. J. Montalvo. sec. sec. 1926. and it is accordingly prayed that said order be set aside. upon examining into the number of shares controlled by the voting trust. (Act No. After the board of directors had been thus elected and had qualified. Yusay. Said officials immediately entered upon the discharged of their duties and have continued in possession of their respective offices until the present time. because in the present proceedings an issue of fact is made by the respondents upon the point whether the three individuals named have been regularly substituted for their several predecessors. Inc. were elected by the representative of the voting trust. they chose a set of officers constituting of Jose M. Although the present officers of the Binalbagan Estate. and Arthur F.. Corp and Agustin Coruna. while the number of shares controlled by the voting trust is less than 3. with costs. XPERTRAVEL & TOURS. 34). while the trust controls a majority of the stock. Inc. at which Mr. COURT OF APPEALS and KOREAN AIRLINES. for the purpose of enjoining the meeting completed in the notice above-mentioned. would result in the election of a rival set of directors. and if that assertion be true. took place. Inc. 1926.. it will be seen that. without opposition from the minority. in forcing the call for the meeting of August 16. 1926. and it is so ordered. are restrained from holding the general shareholders' meeting called for the date mentioned and from electing new directors for the company in substitution of the present incumbents. m. when they exist. and we shall assume provisionally that the three petitioners are the lawful components of the voting trust. We see nothing upon which this suggestion can be safely planted. instituted a civil action (No. for the amendment of the By-Laws. 25). can be filled by mere majority vote. 3840) in the Court of First Instance of Occidental Negros against the trustees and the Binalbagan Estate. and Mauro Ledesma.. representatives. "for the election of the board of directors.. or otherwise. such purpose shall be indicated in the call (Act No. The law contemplates and intends that there will be one of directors at a time and that new directors shall be elected only as vacancies occur in the directorate by death. as a simple shareholder of the corporation.

124 Alfaro St. Upon his motion. 2000 at Manila. contending that it was inappropriate for the court to take judicial notice of the said teleconference without any prior hearing. Aguinaldo & Associates or any of its lawyers are hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the unpaid account of Expert Travel & Tours. Appended to the said opposition was the identification card of Atty. Mario A. Atty. SP No. 1999. On September 6. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation Code of the Philippines. (ETI).00. Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G. SR. The verification and certification against forum shopping was signed by Atty. Salcedo Village. Its general manager in the Philippines is Suk Kyoo Kim. assailing the orders of the RTC. 61000 dismissing the petition for certiorari and mandamus filed by Expertravel and Tours. Makati City. 1999. issued on January 7. Mario Aguinaldo and his law firm. 14914545. J. Aguinaldo. 1999. On April 12. contending that Atty. AGUINALDO Resident Agent SUBSCRIBED AND SWORN to before me this 10th day of January.150. Aguinaldo was also the corporate secretary of KAL. 1999. through Atty. 2000. Filipino. Aguinaldo subsequently filed other similar motions. KAL. Aguinaldo dated January 10. (Sgd. while its appointed counsel was Atty. . It was also averred that in that same teleconference. giving credence to the claims of Atty. Suk Kyoo Kim also alleged. during which it approved a resolution as quoted in the submitted affidavit. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Aguinaldo exhibiting to me his Community Tax Certificate No..R. who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. alleging that the board of directors conducted a special teleconference on June 25. ETI filed a motion for the reconsideration of the Order. with office address at Ground Floor. plus attorneys fees and exemplary damages. It was further alleged that Atty. which the trial court granted. attend the Pre-Trial Proceedings and enter into a compromise agreement relative to the abovementioned claim. KAL was given a period of 10 days within which to submit a copy of the said resolution. to wit: RESOLVED.: Directors indeed conducted a teleconference on June 25. and duly elected and appointed Corporate Secretary and Resident Agent of KOREAN AIRLINES. Finally. of legal age.CALLEJO.A. KAL appended a certificate signed by Atty. Aguinaldo and his law firm M. Aguinaldo and Suk Kyoo Kim that the KAL Board of ETI then filed a petition for certiorari and mandamus. a foreign corporation duly organized and existing under and by virtue of the laws of the Republic of Korea and also duly registered and authorized to do business in the Philippines. Aguinaldo. In its comment on the petition. KAL submitted on March 6. 2000. however. Inc. The trial court granted the motion. 2000. They are hereby specifically authorized to prosecute. During the hearing of January 28. sign and execute any document or paper necessary to the filing and prosecution of said claim in Court. that Mario A. executed by its general manager Suk Kyoo Kim. LPL Plaza Building. The trial court denied the motion in its Order [5] dated August 8. KAL opposed the motion. filed a Complaint [2] against ETI with the Regional Trial Court (RTC) of Manila. voted upon and approved the following resolution which is now in full force and effect. IN WITNESS WHEREOF. the trial court issued an Order [4] denying the motion to dismiss. Aguinaldo. HEREBY CERTIFY that during a special meeting of the Board of Directors of the Corporation held on June 25. ETI filed a motion to dismiss the complaint on the ground that Atty. 1999. that the corporation had no written copy of the aforesaid resolution. Atty. worded as follows: SECRETARYS/RESIDENT AGENTS CERTIFICATE KNOW ALL MEN BY THESE PRESENTS: I. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by Section 5. showing that he was the lawyer of KAL. Philippines. The Antecedents Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Mario A. litigate. Aguinaldo. the board of directors approved a resolution authorizing Atty. defend.) MARIO A. Rule 7 of the Rules of Court. in the City of Manila. I have hereunto affixed my signature this 10 th day of January. Aguinaldo attended.. which he and Atty. 1999. 2000. Philippines. 1999 at which a quorum was present. Atty. for the collection of the principal amount ofP260. the said Board unanimously passed. 2000 an Affidavit [3] of even date. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting held on June 25.

allowing for cost-cutting in terms of travel concerns. is authorized to sign and execute the certificate of non-forum shopping required by Section 5. may take judicial notice thereof without need of hearings. Rule 7 of the Rules of Court. on top of the board resolution approved during the teleconference of June 25. Even if such hearing is required. Rule 7 of the Rules of Court. the CA rendered judgment dismissing the petition. it would be against the provisions of the Corporation Code not to have any record thereof. According to the appellate court. On the merits of the petition. Certification against forum shopping. ruling that the verification and certificate of non-forum shopping executed by Atty. 1999. ADASA Page No. Hence. 119. ANNEXES A AND B OF THE INSTANT PETITION?[7] The petitioner asserts that compliance with Section 5. It asserts that safeguards must first be set up to prevent any mischief on the public or to protect the general public from any possible fraud. the trial court committed grave abuse of discretion amounting to excess of jurisdiction. for its part. and the CA erred in considering the affidavit of the respondents general manager. PTR #889583/MLA 1/3/2000[6] On December 18. a complete statement of the present status thereof. had provided a record of corporate conferences and meetings through FiberNet using fiber-optic transmission technology. 2001. The respondent insists that technological advances in this time and age are as commonplace as daybreak. As such. no such other action or claim is pending therein. the courts may take judicial notice that the Philippine Long Distance Telephone Company. Aguinaldo was sufficient compliance with the Rules of Court. of the Rules of Court can be determined only from the contents of the complaint and not by documents or pleadings outside thereof. such cannot be taken judicial notice of by the court. Rule 7 of the Rules of Court provides: SEC. The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief. HENRY D. cannot be raised in a petition for review oncertiorari under Rule 45 of the Rules of Court. In its reply. whether in this country or elsewhere. 5. The petitioner reiterates its submission that the teleconference and the resolution adverted to by the respondent was a mere fabrication. the requirement is nevertheless satisfied if a party is allowed to file pleadings by way of comment or opposition thereto. which the CA denied. The petitioner also maintains that the RTC cannot take judicial notice of the said teleconference without prior hearing. 1999 through teleconferencing where Atty. Aguinaldo.) Doc. ETI filed a motion for reconsideration of the said decision. it insists that Atty. and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending. teleconferencing cannot be the subject of judicial notice. until then. XXIV Until December 31. tribunal or quasi-judicial agency and. to the best of his knowledge. It insists that the Corporation Code requires board resolutions of corporations to be submitted to the SEC. Atty. 2000 Series of 2000. the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of conducting meetings of board of directors for purposes of passing a resolution. ETI. Inc. now the petitioner. 1999. 25. Section 5. he shall report that . Notary Public Book No. as proof of compliance with the requirements of Section 5. avers that the issue of whether modern technology is used in the field of business is a factual issue. Even assuming that there was such a teleconference. It further proposes possible amendments to the Corporation Code to give recognition to such manner of board meetings to transact business for the corporation. The respondent posits that the courts are aware of this development in technology. the petitioner asserts. ATTY. Aguinaldo was supposedly given such an authority is a farce. The petitioner insists that the teleconference and resolution adverted to by the respondent in its pleadings were mere fabrications foisted by the respondent and its counsel on the RTC.(Sgd. Thus. nor any motion therefor. as the resident agent and corporate secretary. (b) if there is such other pending action or claim. Aguinaldo had been duly authorized by the board resolution approved on June 25. and was the resident agent of KAL. hence. hence. It points out that even the E-Commerce Law has recognized this modern technology. considering that there was no mention of where it was held. or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court. The respondent. comes to the Court by way of petition for review on certiorari and raises the following issue: DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT RENDERED ITS QUESTIONED DECISION AND WHEN IT ISSUED ITS QUESTIONED RESOLUTION. as well as the Secretarys/Resident Agents Certification and the resolution of the board of directors contained therein. and that such technology facilitates voice and image transmission with ease. The petition is meritorious. No. The petitioner further avers that the supposed holding of a special meeting on June 25. Rule 7. Hence. this makes constant communication between a foreign-based office and its Philippine-based branches faster and easier. until and after teleconferencing is recognized as a legitimate means of gathering a quorum of board of directors. the CA and this Court. or other related corporate matters. the RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors.

[12] If the authority of a partys counsel to execute a certificate of non-forum shopping is disputed by the adverse party. however. Its regular officers. (Sgd. including its retained counsel.[9] Hence. the Court of Appeals. I will notify the court. without prejudice to the corresponding administrative and criminal actions. the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and have caused the preparation of the above complaint. as well as a cause for administrative sanctions.fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed. as the plaintiff. Aguinaldo reads: I. in respect to his power to act for the corporation. the Court of Appeals.. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court. I have read the complaint and that all the allegations contained therein are true and correct based on the records on files. for and on behalf of the said corporation. 1564 A. Filipino. The corporation. I hereby further certify that I have not commenced any other action or proceeding involving the same issues in the Supreme Court. liabilities and incapacities as are agents of individuals and private persons. or different divisions thereof. like its board chairman and president. the petitioner. The verification and certificate of non-forum shopping which was incorporated in the complaint and signed by Atty. Physical acts. to allege and establish that Atty. AGUINALDO Affiant . Ermita. who has personal knowledge of the facts required to be established by the documents. the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt. after having sworn to in accordance with law hereby deposes and say: THAT 1. If I subsequently learned that a similar action or proceeding has been filed or is pending before the Supreme Court. Even his counsel may be unaware of such facts. its officers and/or agents. Manila. in exceptional circumstances. incumbent upon the respondent. Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf. All acts within the powers of a corporation may be performed by agents of its selection. or any other tribunal or agency.[10] In a case where the plaintiff is a private corporation. the former is required to show proof of such authority or representation. issues and causes of action. The rule is that compliance with the rule after the filing of the complaint. the court may allow subsequent compliance with the rule. are subject to the same rules. assailed the authority of Atty. Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping. Mabini cor. a corporation exercises said powers through its board of directors and/or its duly-authorized officers and agents. 2. namely. by-law. The reason was explained by the Court in National Steel Corporation v. unless otherwise provided. 3. or different divisions thereof. thus. Indeed. Court of Appeals. may not even know the details required therein. is impermissible. upon motion and after hearing. by a specifically authorized person. or the dismissal of a complaint based on its noncompliance with the rule. The respondent. the requisite certification executed by the plaintiffs counsel will not suffice. and except so far as limitations or restrictions which may be imposed by special charter. Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It was. corporations may perform physical actions only through properly delegated individuals. failed to do so. Gil Sts. the certificate of non-forum shopping may be incorporated in the complaint or appended thereto as an integral part of the complaint. In this case. It is settled that the requirement to file a certificate of non-forum shopping is mandatory[8] and that the failure to comply with this requirement cannot be excused. The certification is a peculiar and personal responsibility of the party. has no powers except those expressly conferred on it by the Corporation Code and those that are implied by or are incidental to its existence. or members acting in their stead. Mario A. as the defendant in the RTC.[11]as follows: Unlike natural persons.) MARIO A. or statutory provisions. like the signing of documents. However. the certification may be signed. For who else knows of the circumstances required in the Certificate but its own retained counsel. tribunal or agency within five (5) days from such notice/knowledge. or any tribunal or agency. In turn. Hence. Aguinaldo of legal age. and agents once appointed. with office address at Suite 210 Gedisco Centre. the certification must be accomplished by the party himself because he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or tribunals. can be performed only by natural persons duly-authorized for the purpose by corporate by-laws or by specific act of the board of directors. such as the petitioner. P. an assurance given to the court or other tribunal that there are no other pending cases involving basically the same parties. of whatever status or rank.

a resolution purporting to have been approved by its Board of Directors during a teleconference held on June 25. ATTY. based on the said premise. However. he must be of good moral character and of sound financial standing. Rule 7 of the Rules of Court. and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly-authorized officers of the foreign corporation as its home office. is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge. Generally speaking. Hence. 320501 Mla. as contained in the affidavit of Suk Kyoo Kim. It attempted to show its compliance with the rule subsequent to the filing of its complaint by submitting. no such board resolution was appended thereto or incorporated therein. and (3) it must be known to be within the limits of the jurisdiction of the court.[15] Moreover. Under Section 127. XXI Until December 31. moreover. Philippines. Aguinaldo. whether in the Philippines against a domestic corporation or private individual. dictionaries or other publications. matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge. 1999. Resident agent. facts which are universally known. 128. or they may be matters which are generally accepted by mankind as true and are capable of ready and unquestioned demonstration. While Atty. In its April 12. against a Philippine registered corporation or a Filipino citizen. the authority of the resident agent of a foreign corporation with license to do business in the Philippines is to receive. or in the country where such corporation was organized and registered. Aguinaldo and Suk Kyoo Kim in attendance. SEC. Notary Public Book No. in part. 1999. No. Aguinaldo to execute the certificate of nonforum shopping. Aguinaldo had a teleconference with the respondents Board of Directors in South Korea on June 25.[17] . persons in one location may confer with other persons in other places. as its resident agent. Aguinaldos certification. such resident may not be aware of actions initiated by its principal. provided. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines). That in the case of an individual. 00671047 issued on January 7. The principal guide in determining what facts may be assumed to be judicially known is that of notoriety. and. [14] Under the law. The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some persons who must be a resident of the Philippines. of which courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of life. HENRY D. [16] Things of common knowledge. the RTC took judicial notice that because of the onset of modern technology. Atty. are judicially noticed. a judicially noticed fact must be one not subject to a reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court. affiant exhibiting to me his Community Tax Certificate No. was not specifically authorized to execute the said certification. and which may be found in encyclopedias. concluded that Suk Kyoo Kim and Atty. thus: SEC. 2000 Order. A resident agent may either be an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided. The CA.CITY OF MANILA SUBSCRIBED AND SWORN TO before me this 30th day of August. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as required by Section 5. (Sgd. 1/4/99[13] As gleaned from the aforequoted certification. services and other legal processes in all actions and other legal proceedings against such corporation. it can be said that judicial notice is limited to facts evidenced by public records and facts of general notoriety. likewise. or (2) capable of accurate and ready determination by resorting to sources whose accuracy cannot reasonably be questionable. Who may be a resident agent. they are of such universal notoriety and so generally understood that they may be regarded as forming part of the common knowledge of every person. PTR No. ADASA Page No. in relation to Section 128 of the Corporation Code. on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation. 1999. Thus. allegedly with Atty. service of process. 1005. As the common knowledge of man ranges far and wide. for and in behalf of the foreign corporation. 127. Aguinaldo had been authorized to execute the certificate of non-forum shopping by the respondents Board of Directors. 2000 Series of 1999. Atty. but also on the approval by the Board of Directors of the resolution authorizing Atty. 1999 at Manila. The respondent knew that its counsel.) Doc. (2) it must be well and authoritatively settled and not doubtful or uncertain. this does not mean that he is authorized to execute the requisite certification against forum shopping. gave credence to the respondents claim that such a teleconference took place. But a court cannot take judicial notice of any fact which. on March 6. such attempt of the respondent casts veritable doubt not only on its claim that such a teleconference was held. Aguinaldo is the resident agent of the respondent in the Philippines. there was no allegation that Atty. a wide variety of particular facts have been judicially noticed as being matters of common knowledge. 198. as well as Atty. 2000.

it does not alter the complexity of group communication. 4. 1999. The Securities and Exchange Commission issued SEC Memorandum Circular No. 5. Communication between the home office and field staffs is maximized. 7. The respondent opposed the motion on December 1. The respondent. At that time. Acoustical problems within the teleconferencing rooms. on its contention that Atty. 1.[24] Thus. Some routine meetings are more effective since one can audio-conference from any location equipped with a telephone.[19] 1. Impersonal. Although it may be easier to communicate viateleconferencing. and have three basic types: (1) video conferencing . 6. 7. 3. and meeting skills. [23] In the Philippines. The records show that the petitioner filed a motion to dismiss the complaint on the ground that the respondent failed to comply with Section 5. information exchange. it may also be easier to miscommunicate. 3. the Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty.printed communication through keyboard terminals. 8. people found it advantageous to hold teleconferencing in the course of business and corporate governance. A teleconference represents a unique alternative to face-to-face (FTF) meetings. Follow-up to earlier meetings can be done with relative ease and little expense. Rule 7 of the Rules of Court. Group members participate more equally in well-moderated teleconferences than an FTF meeting. meetings are shorter and more oriented to the primary purpose of the meeting.[20] In time. In general terms. Greater participant preparation time needed. one-to-one. Aguinaldo. [18] This type of group communication may be used in a number of ways. therefore. was duly authorized to sue in its behalf. in light of Republic Act No. the medium itself. Even given the possibility that Atty. Aguinaldo which the respondent .[21] On the other hand. however. other private corporations opt not to hold teleconferences because of the following disadvantages: 2. its resident agent. 15. Lack of participant familiarity with the equipment. 6.In this age of modern technology. Technical failures with equipment. 9. on November 30. social interaction not possible. 8792. Aguinaldo to file the complaint and execute the required certification against forum shopping. however. 8. which was regarded as more of a novelty than as an actual means for everyday communication. Difficulty in determining participant speaking order. and (3) audioconferencing-verbal communication via the telephone with optional capacity for telewriting or telecopying. Even the identification card [25] of Atty. the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. the Court is not convinced that one was conducted. providing the guidelines to be complied with related to such conferences. People (including outside guest speakers) who wouldnt normally attend a distant FTF meeting can participate. It was first introduced in the 1960s with American Telephone and Telegraphs Picturephone. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the respondents Board of Directors. Travel costs were reasonable and consumers were unwilling to pay the monthly service charge for using the picturephone. including connections that arent made. Unsatisfactory for complex interpersonal communication. Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium. because of the money saved. 2. [22] Indeed. even if there had been one. less easy to create an atmosphere of group rapport. teleconferencing can only facilitate the linking of people. It is particularly satisfactory for simple problem-solving.television-like communication augmented with sound. the Court agrees with the RTC that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance. Teleconferencing cannot satisfy the individual needs of every type of meeting. teleconferencing can bring people together under one roof even though they are separated by hundreds of miles. frequently one person monopolizes the meeting. and procedural tasks. teleconferencing and videoconferencing of members of board of directors of private corporations is a reality. no demand existed for the new technology. Participants are generally better prepared than for FTF meetings. such as negotiation or bargaining. 2001. 4. failed to establish its claim that Atty. Aguinaldo was its resident agent in the Philippines. Informal. (2) computer conferencing . Socializing is minimal compared to an FTF meeting. Severe climate and/or unreliable transportation may necessitate teleconferencing. among other advantages include: 5.

it appears that as early as January 10. 2001 when the respondent filed its comment in the CA that it submitted the Secretarys/Resident Agents Certificate [30] dated January 10. More importantly.[29] But then. within which to submit the board resolution purportedly authorizing him to file the complaint and execute the required certification against forum shopping. 1999. the CA and this Court.appended to its pleading merely showed that he is the company lawyer of the respondents Manila Regional Office. Aguinaldo & Associates or any of its lawyers are hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the unpaid account of Expert Travel & Tours. failed to comply. The court granted the motion per its Order[27] dated February 11. 61000 is REVERSED and SET ASIDE. announced the holding of the teleconference only during the hearing of January 28. more inclined to believe that the alleged teleconference on June 25. This belied the respondents earlier allegation in its February 10. The court granted the motion. inter alia. Atty. [26] The respondent. in the same affidavit. or at least appended a copy thereof. 2000. attend the Pre-trial Proceedings and enter into a compromise agreement relative to the abovementioned claim. Atty. to avert the dismissal of its complaint against the petitioner. Suk Kyoo Kim declared that the respondent do[es] not keep a written copy of the aforesaid Resolution because no records of board resolutions approved during teleconferences were kept. Aguinaldo then prayed for ten days. long before the complaint was filed. 2000 motion for extension of time to submit the questioned resolution that it was in the custody of its main office in Korea.R. 1999. 1999. the respondent should have incorporated it in its complaint. 2000. and that the resolution allegedly approved by the respondents Board of Directors during the said teleconference was a mere concoction purposefully foisted on the RTC. The respondent. contending that it was with its main office in Korea. as well as to its Compliance dated March 6. Moreover. through Atty. Aguinaldo in attendance) is incredible. The respondent again prayed for an extension within which to submit the said resolution. Aguinaldo as early as January 9. only to allege later that no written copy existed. thus. and yet was notarized one year later (on January 10. The respondents allegation that its board of directors conducted a teleconference on June 25. Aguinaldo. litigate. 2000. The Court is. Aguinaldo. The Regional Trial Court of Manila is hereby ORDERED to dismiss.A. 1999. 1999. until March 6. SP No. only to allege later (via the affidavit of Suk Kyoo Kim) that it had no such written copy. no such resolution was appended to the said certificate. 2000. it also did not explain its failure to append the said certificate to the complaint. for the first time. without prejudice. 2000 that the respondent alleged. Aguinaldo attended the said teleconference on June 25. that he and Atty. however. It was only on January 28. 2000). stating. for the first time. It was only on March 6. where the Board of Directors supposedly approved the following resolution: RESOLVED. Aguinaldo and his law firm M. [28] It was on the said date that the respondent submitted an affidavit of its general manager Suk Kyoo Kim. No such certificate was appended to the complaint. SO ORDERED. They are hereby specifically authorized to prosecute. It was only on January 26. The respondent gave the trial court the impression that it needed time to secure a copy of the resolution kept in Korea. given the additional fact that no such allegation was made in the complaint. 2000. 1999 and approved the said resolution (with Atty. and instead prayed for 15 more days to submit the said resolution. . that the meeting of the Board of Directors where the resolution was approved was held via teleconference. or until February 8. 1999. Suk Kyoo Kim stated in his affidavit that the resolution was embodied in the Secretarys/Resident Agents Certificate signed by Atty. 2000. Worse still. Aguinaldo had signed a Secretarys/Resident Agents Certificate alleging that the board of directors held a teleconference on June 25. defend. the complaint of the respondent. which was filed on September 6. that Mario A. 1999. IN LIGHT OF ALL THE FOREGOING. The Decision of the Court of Appeals in CA-G. 2000 that the respondent claimed. However. 1999 never took place. it even represented to the Court that a copy of its resolution was with its main office in Korea. the petition is GRANTED. that there was such a meeting of the Board of Directors held on June 25. The respondent failed to do so. the respondent did not explain why the said certificate was signed by Atty. sign and execute any document or paper necessary to the filing and prosecution of said claim in Court. If the resolution had indeed been approved on June 25.

RICHARD S.. SALVADOR T. INC. a stock corporation engaged in the operation. are the majority and controlling members of the Board of Trustees of Western Institute of Technology. duly seconded by Mrs. 6 which states: Possible implementation of Art. HERMOSISIMA.500. for short). RICARDO T. 37097 and 37098 for estafa and falsification of a public document. 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal Cases Nos. Vice Chairman — P3. 1986 On the motion of Mr. 1 In said meeting. a Special Board Meeting was held. the minority stockholders of WIT. Inc. III.R. SALAS. Soledad Salas-Tubilleja.00/month. s.000. J. it was unanimously resolved that: The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman — P9. Salas. PRESTON F. belonging to the same family. copies of notice thereof. respectively. JR. on compensation of all officers of the corporation. 1986. Iloilo City. Soledad Tubilleja (accused). 6 of the Amended By-Laws of Western Institute of Technology. Salas. of an educational institution. among others.500.. SALAS & HON. Sec. VILLASIS. ANTONIO S. petitioner. were distributed to all Board Members. 1997 There were no other business. No. viz.00/month. G. Salas. sometime on June 1. (WIT. 1986 included Item No.500. dated May 24. vs.00/month. 1985.WESTERN INSTITUTE OF TECHNOLOGY. 48 s. 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. retroactive June 1. 48. JUDGE PORFIRIO PARIAN. 113032 August 21. Antonio S. respondents. 1986 in the principal office of WIT at La Paz. Corporate Treasurer — P3. Inc. The notice allegedly indicated that the meeting to be held on June 1. VILLASIS & REGINALD F. VILLASIS.: Up for review on certiorari are: (1) the Decision dated September 6. Private respondents Ricardo T. and Richard S. Richard Salas (accused). HOMERO L. but petitioners seek to hold them civilly liable. . In attendance were other members of the Board including one of the petitioners Reginald Villasis. DIMAS ENRIQUEZ. 1986. Salvador T. SALAS. the Board of Trustees passed Resolution No. Salas. 1993 and (2) the Order dated November 23. SALAS. The judgment acquitted the private respondents of both charges. This shall amend and superceed (sic) any previous resolution. Prior to aforesaid Special Board Meeting.: Resolution No. granting monthly compensation to the private respondents as corporate officers retroactive June 1. According to petitioners. SOLEDAD SALAS-TUBILLEJA.00/month and Corporate Secretary — P3.

1(b) of the RPC. 1994.500. was consolidated. respectively. 1986. SALAS. 1986. par. The Information for falsification of a public document states: The undersigned City Prosecutor accuses RICARDO T. dated December 2. 1993. 7 Hence. Secretary. Treasurer. The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. being then the Chairman. After a full-blown hearing. series of 1986. that is. 48. for estafa reads: The undersigned City Prosecutor accuses RICARDO SALAS. 1986 until the present.00 per month. a corporation duly organized and existing under the laws of the Republic of the Philippines. Inc. petitioners Homero Villasis. knowing fully well that they have no sufficient. to better realized (sic) their purpose.e. A few years later. SOLEDAD SALAS-TUBILLEJA. Significantly on December 8.. to rectify the same to the damage and prejudice of the corporation (and its stockholders) in the total sum of P1. par. being then the Chairman. Treasurer. docketed as Criminal Cases Nos. conspiring and confederating together and mutually helping one another to better realize their purpose. 1991. however. November 22. disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186. 4. 1986). Art. 1986 is true and correct to the best of my knowledge and belief. in the City of Iloilo.453. Iloilo City. 171 of the Revised Penal Code. Philippines and within the jurisdiction of this Honorable Court. committed as follows: That on or about the 10th day of June. did then and there wilfully. as a result of which two (2) separate criminal informations. 4 [Emphasis ours] Thereafter.470. 1986. SALAS. 1986. Series of 1986 was passed on March 30. including therein the disbursement of the retroactive compensation of accused corporate officers in the amount of P186.79 as of November 15. Secretary. 1986. November 22. CONTRARY TO LAW. 1991. Iloilo City. a Motion for Intervention. 1991. unlawfully and criminally prepare and execute and subsequently cause to be submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year 1985-1986. 1985 and ending April 30. in the City of Iloilo.70. The Information. to wit: herein accused. one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315. ANTONIO S. making it appear that the same was passed by the board on March 30. by then and there making it appear that the basis thereof Resolution No. they refused. 1991. a corporation duly organized and existing under the laws of the Republic of the Philippines.00 and subsequently paying themselves every 15th and 30th of the month starting June 15. on the other hand. in the amount of P19. 37097 and 37098.The Chairman declared the meeting adjourned at 5:11 P. SALAS. and still refuse. committed as follows: That on or about the 1st day of June. conspiring and confederating together and mutually helping one another. 4. the above-named accused. trial for the two criminal cases. the instant petition.M. respectively. This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology. 1986. Philippines. on March 13. Art.470. a public document. lawful authority to disburse — let alone violation of applicable laws and jurisprudence. 3 [Emphasis ours]. Prestod Villasis. Inc. and within the jurisdiction of this Honorable Court. when in truth and in fact. 1986 and every year thereafter. SALVADOR T. Inc. no such Resolution No. ViceChairman. denied in an Order dated November 23. Vice-Chairman. Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was. and when herein accused were informed of the illegality of these disbursements by the minority stockholders by way of objections made in an annual stockholders' meeting held on June 14. SALVADOR T.. when in truth. 1986). SOLEDAD SALAS-TUBILLEJA.970. 1994. and therefore. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA. a date covered by the corporation's fiscal year 19851986 (i. SALAS (whose dates and places of birth cannot be ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT. as said accused well knew. a date not covered by the corporation's fiscal year 1985-1986 (beginning May 1. SALAS and RICHARD S. and Trustee (who later became Secretary).. CONTRARY TO LAW. supposedly one of the . the above-named accused. Inc. did then and there wilfully. unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner. Philippines. Philippines. of the board of trustees of the Western Institute of Technology. as if the same were their own. Judge Porfirio Parian handed down a verdict of acquittal on both counts 5 dated September 6. SALAS. RICHARD S. ANTONIO S. the same being required to be submitted every end of the corporation fiscal year by the aforesaid Commission. 1 (b) of the Revised Penal Code. Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo. held on March 30. of the Board of Trustees of Western Institute of Technology. 1993 without imposing any civil liability against the accused therein. Series of 1986 was passed by the board of trustees on March 30. and Trustee (who later became Secretary). from May 1. 1985 to April 30.. 315. was filed before this Court by Western Institute of Technology. the same was actually passed on June 1. were filed before Branch 33 of the Regional Trial Court of Iloilo City.

1986 On the motion of Mr.970. the last sentence of Section 30 which provides: .500. Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 48. Inc.00/month. retroactive June 1. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint .70 representing retroactive compensation as of June 1. 1995. Resolution No.00/month and Corporate Secretary — P3. however. as such directors.79 for the subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal complaints against them on March 1991. Soledad Tubilleja (accused).470. Vice-Chairman. 48 s. . (Emphasis ours] does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as board members. 1985 in favor of private respondents. (Sgd) ANTONIO S. s.10 In the case at bench. as such directors. We quote once more Resolution No. 12 It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. s. . 48. . there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the bylaws fixing their compensation. the prohibition with respect to granting compensation to corporate directors/trustees as suchunder Section 30 is not violated in this particular case. Richard Salas (accused). the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. however. disowning its inclusion in the petition and submitting that Atty." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. Corporate Treasurer — P3. The unambiguous implication is that members of the board may receive compensation. 37097 and 37098. Sec. as the case may be. . A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it. We cannot sustain the petitioners.00/month. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. In no case shall the total yearly compensation of directors. had no authority whatsoever to represent the corporation in filing the petition.500. but rather as officers of the corporation. as such directors. are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office.M.500. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. Tranquilino R. 48.: This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology. 9 Under the foregoing section. . Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and on behalf of the corporation to annul Resolution No.453. There were no other business. Treasurer and Secretary of Western Institute of Technology. viz. This proscription. We are unpersuaded. 1986 is true and correct to the best of my knowledge and belief. Gale. 48. This shall amend and superceed (sic) any previous resolution. s. Thus. 13 Here. except for reasonable per diems: Provided. Vice Chairman — P3. duly seconded by Mrs. however. . and that the return upon their shares adequately furnishes the motives for service.000.00/month. without compensation. . 1985 and the ten per centum of the net profits shall be distributed equally among the ten members of the Board of Trustees. . when they render services to the corporation in a capacity other than as directors/trustees. for which the directors refuse to sue. 1986 for easy reference. That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting.petitioners herein. it was unanimously resolved that: The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman — P9. the directors shall not receive any compensation. . series of 1986 ordering the disbursement of corporate funds in the amount of P186. more particularly as Chairman. against granting compensation to directors/trustees of a corporation is not a sweeping rule. therefore. 1986 which is prejudicial to the corporation. as such directors. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. held on March 30. SALAS Corporate Secretary 11 [Emphasis ours] Clearly. counsel for the other petitioners. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. The pertinent section of the Corporation Code provides: The Chairman declared the meeting adjourned at 5:11 P. in addition to reasonable per diems. . In no case shall the total yearly compensation of directors. The Motion for Intervention was granted on January 16. 1986 granted monthly compensation to private respondents not in their capacity as members of the board. Worthy of note is the clear phraseology of Section 30 which states: ". 30. This rule is founded upon a presumption that directors/trustees render service gratuitously. Compensation of directors — In the absence of any provision in the bylaws fixing their compensation. and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. [T]he directors shall not receive any compensation. private respondents are obliged to return these amounts to the corporation with interest. plus P1. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. board members of WIT. Consequently. They base their claim on the alleged illegal issuance by private respondents of Resolution No. . . 8 Resolution No. [Emphasis ours] There is no argument that directors or trustees.

As an appeal on the civil aspect of Criminal Cases Nos. It only presented in evidence Exh.[O]n the question of whether or not the accused can be held liable for estafa under Sec. It is the perception of this Court that the grant of compensation or salary to the accused in their capacity as officers of the corporation. 1986. The prosecution omitted to submit the complete minutes of the regular meeting of the Board of Trustees on March 30. xxx xxx xxx [Emphasis ours] Once the case is decided by the SEC. 1986 because the matter regarding compensation was not specifically stated or written in the Agenda and that the words "possible implementation of said Resolution No. Series of 1986 (Exh. 48.D. The ease should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits. 37097 and 37098 for falsification of public document and estafa.. members. 1957. 2. 15 This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which. through Resolution No. it can be readily seen and understood that Resolution No. 48. or mixed questions of fact and law. in pleading that we treat the instant petition as a derivative suit. it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations. "C". Granting. No. "1") consisting of five (5) pages. members or associates. "3-D-1") of the Articles of Incorporation (Exh. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. The mere fact of existence of Exh. No. "3-E"). between and among stockholders.before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. between any or all of them and the corporation. per Section 5 (b) of P. These Articles of Incorporation was adopted on May 17. the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. or associates. been submitted. The Officers of the corporation and their corresponding duties are enumerated and stated in Sections 1. it is perceived by this Court that the receipt and the holding of the money by the accused as salary on . partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity. III of the Amended By-Laws of the Corporation (Exh. The imputation that said Resolution No. III of the same By-Laws. partnership or association of which they are stockholders. Art. 1986 by the Board of Trustees. 1986. 1986. 37097 and 37098" 16 since the trial court's judgment of acquittal failed to impose any civil liability against the private respondents. Inc. can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. 6. 1986 for Exh. was expressly written in the Agenda for the Special Meeting of the Board on June 1. on March 30. xxx xxx xxx . the officers of the corporation shall receive such compensation as the Board of Directors may provide. 3 and 4 of Art. was indeed included in Other Business. 1986. that this is a derivative suit as insisted by petitioners. is simply an implication. Inc. 315 of the Revised Penal Code. This evidence by implication to the mind of the court cannot prevail over the Minutes (Exh. which is page 5 or the last page of the said minutes.18 Petitioners. enacted on March 30. 48 was neither taken up nor passed on March 30. we have to deny the petition just the same. Inc. which this petition truly is. is authorized by both the Articles of Incorporation and the By-Laws of the corporation. 1986. Had the complete minutes (Exh. This Court finds that under the Eleventh Article (Exh. 1957 (Exh. 1986 special meeting of the same board of trustees. which it is not. 14 This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. 1986. According to Sec. are trying to short-circuit the entire process which we cannot here sanction. 48. It will be well to quote the respondent court's ratiocinations acquitting the private respondents on both counts: The prosecution wants this Court to believe and agree that there is falsification of public document because. as claimed by the prosecution. in part. they being intracorporate disputes. but on June 1. 6 of the Agenda. 902-A: In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. . the losing party may file a petition for review before the Court of Appeals raising questions of fact. By no amount of equity considerations. No better and more credible proof can be considered other than the Minutes (Exh. of law. This Court is reluctant to accept this claim of falsification. 48. "C" is part and parcel of the whole minutes of the Board of Trustees Regular Meeting on March 30. but for their being officers of the corporation who oversee the day to day activities and operations of the school. now the Western Institute of Technology. In their defense the accused have properly and rightly asserted that the grant of salary is not for directors. . 17 It is only after the case has ran this course. "1-E-1") was not taken up and passed during the Regular Meeting of the Board of Trustees of the Western Institute of Technology (WIT). and not earlier.. Series of 1986 (Exh. and was taken up and passed on March 30. To state otherwise is to depart from the clear terms of the said articles and by-laws. Resolution No. and between such corporation. merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. "C" also proves that it was passed on March 30. "1") itself of the Regular Meeting of the Board of Trustees on March 30. can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of law. if at all deserved. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions. all officers shall receive such compensation as may be fixed by the Board of Directors. "1-E-1") giving compensation to corporate officers. "4-A") which was adopted on May 31. "3-B") of the Panay Educational Institution. 1 (b) of Art. respectively. for purposes of discussion.

GUILAS. Rule 120 reads: Sec. which we find to be amply substantiated by the records. as President and GALERIA DE MAGALLANES CONDOMINIUM ASSOCIATION. petitioners. [Emphasis ours] The acquittal in Criminal Cases Nos. Form and contents of judgment. xxx xxx xxx In case of acquittal.: At fore. Inc. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them. is the jurisdictional tug of war between the National Labor Relations Commission (NLRC) and the Securities & Exchange Commission (SEC) in this special civil action for certiorari under Rule 65 of the Revised Rules of Court. The money they received belongs to them and cannot be said to have been converted and/or misappropriated by them. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. xxx xxx xxx (b) Extinction of the penal action does not carry with it extinction of the civil. respondents. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides: Sec. BIENVENIDO ONGKINGCO. INC. otherwise known as the Condominium Act. It seeks to set aside the Resolutions of the NLRC in NLRC NCR Case No. vs.basis of the authority granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. Thus. NATIONAL LABOR RELATIONS COMMISSION and FEDERICO B. 00-05-02780-92 (NLRC CA No.. pursuant to the above rule and settled jurisprudence. DECISION KAPUNAN. 4726. Petitioner Galeria de Magallanes Condominium Association. private respondents herein. Institution of separate civil action. J. 2. any civil action ex delicto cannot prosper. the last paragraph of Section 2.A." [1] Petitioner Bienvenido Ongkingco was the president of Galeria at the time private respondent filed his complaint. once again. xxx xxx xxx 19 [Emphasis ours] From the foregoing factual findings. 004329-93) dated 9 March 1995 and 4 April 1995 which reversed the decision of Labor Arbiter Oswald Lorenzo and denied petitioners' motion for reconsideration. the instant petition is hereby DENIED with costs against petitioners. "Its primary purpose is to hold title to the common areas of the Galeria de Magallanes Condominium Project and to manage and administer the same for the use and convenience of the residents and/or owners. . non-profit corporation formed in accordance with R. 2. respectively. unless there is a clear showing that the act from which the civil liability might arise did not exist. (Galeria for brevity) is a non-stock. SO ORDERED. the judgment shall make a finding on the civil liability of the accused in favor of the offended party. [Emphasis ours] Likewise. No. civilly liable. it is evident that there is simply no basis to hold the accused. unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. 20 WHEREFORE.

private respondent was not re-appointed as Administrator. which is the MOTION FOR SUBSTITUTION OF PARTIES is hereby deferred for action by the SEC. on 15 May 1992. and hence the value of the investment for the owners thereof. thus: A judicious calibration of the position taken by the contending parties preponderate clearly in favor of respondents. pursuant to P. He was given a "monthly salary of P10. VACATED and SET ASIDE.. For. the same is hereby. however. The complainant falls under the second category. As a result. and not in the public respondent. Guilas as Administrator/Superintendent. Petitioner theorizes that since private respondent was a corporate officer. As explained in Dy. this Office hereby orders the dismissal of the instant action for reason of lack of jurisdiction. 127 SCRA 778.) The resolution. private respondent instituted a complaint against petitioners for illegal dismissal and non-payment of salaries with the NLRC.D. WHEREFORE. as the facts now stand. The Position of Administrator or Superintendent is a corporate position. With the directive that the instant case be given priority in the calendar of the Labor Arbiter for the speedy disposition hereon. PD. Accordingly. the present controversy is within the jurisdiction of the Securities and Exchange Commission. THIRD. 902. SO ORDERED. that this case is within the jurisdiction of the Securities and Exchange Commission and not this Office (Labor Arbiter).) Without need of applying the rule on estoppel by laches against petitioner. TWO. the jurisdiction of the NLRC should be sustained. As such. Our reasons are as follows: ONE." [2] As Administrator. because while it may be true that the termination of the complainant was effected allegedly by a resolution of the Board of Directors of the respondent association.[4] . (145 SCRA 211). We are more convinced that he is an employee of the respondent association occupying the position of administrator who is in (sic) charged with the function of managing and administering the building or condominium owned by the members. the same is true with Philippine Business Administration. (PSBA vs.. He ruled. et al. It ruled in this wise: We find merit in the appeal. It (Supreme Court) held. and not the labor arbiter. As obtaining in this case. to the point of being repetitious. no intracorporate controversy exists. finding merit on the appeal. in view of all the foregoing considerations. Indeed. the position of the administrator is a corporate creation. on 22 July 1992. since a person's relationship to a corporation is not determinative of the services performed but by the incidents of the relationship as they exist.D. it needs to be stressed that the fact that the complainant was removed by the Board of Directors did not change the issue from an illegal dismissal case to an intracorporate one. hence. thus "x x x Relying on Philippine School of Business Administration. Antonio J. Teodoro and NLRC (167 SCRA 79) wherein the Supreme Court had the occasion to clarify the jurisdiction of the Securities and Exchange Commission and that of the NLRC. reversed the Labor Arbiter's order in its resolution dated 9 March 1995. Sec. The complainant. on 17 March 1992. Our view finds basis in the case of Gregorio Araneta University Foundation vs. therefore. Thus. which has jurisdiction over the subject matter of the complaint. the controversies therein were intra corporate in nature and squarely within the purview of Section 5(c). Hence. through a resolution passed by the Board of Directors of Galeria. 902-A since the real question was the invalidity of the board of director's meeting wherein corporate officers involved were not re-elected. what remains to be resolved here is whether or not the complainant's removal from his position as Administrator was for a just and valid cause and in compliance with due process. V. resulting in the termination of their services. Clearly from the respondent corporation's Articles of Incorporation.. LEANO." (Underscoring ours. this did not make the dispute intracorporate in nature. or is not a unit holder thereof. 902-A. This is so. National Labor Relations Commission. its contention must fail on the ground of misplaced reliance. et al. the Order appealed from is declared Null and Void and is hereby. WHEREFORE. and thereby involves the exercise of deliberate choice and faculty of discriminative selection. We have taken note of the fact that the complainant is neither a member of the association nor an officer thereof. Galeria's Board of Directors appointed private respondent Federico B. the appointment and removal of the administrator is a prerogative that belongs to the Board. The NLRC. given due course. petitioners filed a motion to dismiss alleging that it is the SEC.On 1 September 1990. let the records of the case be remanded to the Arbitration Branch of origin for further proceedings. Accordingly. 6 thereof. Moreover. And. And. Art. It cannot be gainsaid that the complainant's cause of action in his complaint is illegal dismissal which issue falls four square within the jurisdiction of the NLRC. there is a whale of difference between a member of the association who is a part owner of the building and a mere employee performing managerial and administrative functions which are necessary in the usual undertaking of the respondent Association."[3] However. we find lacking of merit the argument of complainant that since he is not a member of the condominium association where he was formerly administrator. vs. In response. private respondent was tasked with the maintenance of the "performance and elegance of the common areas of the condominium and external appearance of the compound thereof for the convenience and comfort of the residents as well as to keep up the quality image. if he is mindful should file this case with the Securities and Exchange Commission. of the other pending incident. the issue is within the scope of authority of the National Labor Relations Commission to resolve. Labor Arbiter Lorenzo granted the aforestated motion to dismiss in his order dated 29 December 1992.000 subject to review after five (5) months and subsequently thereafter as Galeria's finances improved. We simply could not agree with the conclusions of law made by the Arbiter a quo on the applicability of the provisions of P. whose appointment depended on the Board of Directors. (127 SCRA 778) and Dy. et al.

SO ORDERED.[6] Hence. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. a Vice President. he shall be the principal administrative officer of the Association. with the upkeep of the condominium's common areas. The Superintendent or Administrator The Board of Directors may appoint a Superintendent or Administrator for the condominium project if the activities and financial condition of the Association so warrant. amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders.) xxx. Regalado. the work and duties of Superintendent or Administrator may be entrusted to a juridical entity which is qualified and competent to perform such work. That private respondent is an officer of petitioner corporation and not its mere employee cannot be questioned.Concomitant hereto. SECTION 5. or managers of such corporations. Section 2(i). (Underscoring ours. between any or all of them and the corporation. ruled that: Contrary to the contention of petitioner. as administrator/superintendent. members of associations or organizations registered with the Commission. a medical director and a hospital administrator are considered as corporate officers under the by-laws of respondent corporation. The bylaws of the Galeria de Magallanes Condominium Association specifically includes the Superintendent/Administrator in its roster of corporate officers: ARTICLE IV The petitioners raised a single issue: THE PRIVATE RESPONDENT ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION IN TAKING COGNIZANCE OF A SUBJECT MATTER THAT FELL WITHIN THE ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SEC. The petition is granted. between and among stockholders. partnerships or associations to be declared in the state of suspension of payments in cases where the corporation. a Treasurer. but is under the Management Committee created pursuant to this Decree. an "employee" . Comptroller/Administrator. all of whom shall be elected by the Board of Directors. members. c) Controversies in the election or appointment of directors. officers. vice-president." The president. or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. At the discretion of the Board of Directors."[7] The contentions of public respondent lack merit. Article I thereof states that one of the powers of the Board of Trustees is "(t)o appoint a Medical Director. the present recourse. partnership or association of which they are stockholders. its officers or partners. Executive Officers The Executive officers of the corporation shall be a President. trustees. and between such corporation. The Board of Directors may appoint a Superintendent or Administrator and such other officers and employees and delineate their powers and duties as the Board shall find necessary to manage the affairs of the corporation. However.) The Solicitor General contends that the case at bar falls outside the purview of the aforequoted provision. thus. other offices are sometimes created by the charter or by-laws of a corporation. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. secretary and treasurer are commonly regarded as the principal or executive officers of a corporation. Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and duties. 902-A are the cases over which the SEC exercises exclusive jurisdiction: OFFICERS Section 1. On the other hand.D. the nomenclature or title given to one's job which determines one's status in a corporation. NLRC. He insists that private respondent was a mere employee of petitioner corporation being tasked mainly. partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity. and modern corporation statutes usually designate them as the officers of the corporation. b) Controversies arising out of intra-corporate or partnership relations. They may be removed with or without cause at any meeting by the concurrence of four directors. This Court. Specifically delineated in P.[8] (Underscoring ours. partnership or association has no sufficient assets to cover its liabilities. respectively. partnerships or associations. the respondents are hereby directed to submit their position paper within ten (10) days from receipt hereof. He shall attend to routinary and day-to-day business and activities of the Association and shall keep regular officer hours for the purpose. it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts of the board of directors.[5] Petitioners filed a motion for reconsideration but the same was denied in the NLRC's resolution dated 4 April 1995. d) Petitions of corporations. He shall have such other duties and powers as may be conferred upon him by the Board of Directors or delegated by the President of the Association. members or associates. business associates. maintains that private respondent cannot be deemed a corporate officer because "it is the nature of one's functions and not Section 6. or associates. He. through Justice Florenz D. partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation. partners. If one is so appointed.[9] [10] Closely approximating the dispute at bar is the recent case of Tabang v. It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders.

management. jurisdiction remains with the SEC as ruled in the case of Cagayan de Oro Coliseum. NLRC[11] and Espino v. trustees. we must rule that private respondent was indeed a corporate officer. properly belongs to the SEC and not the NLRC. v. 1990. This particular argument baffles us. P. Having thus determined. Inc. v. the petition for certiorari is given DUE COURSE. therefore. officers or managers of corporations. considering that herein petitioner. partnerships or associations. which provides that the SEC exercises exclusive jurisdiction over controversies in the election or appointment of directors. [12] Supplementing the afore-quoted ruling. He was appointed directly by the Board of Directors not by any managing officer of the corporation and his salary was. his dismissal or non-appointment is clearly an intra-corporate matter and jurisdiction. jurisdiction over the same is vested in the SEC. is not a simple labor problem but a matter that comes within the area of corporate affairs and. 902-A.D. a close scrutiny thereof shows that said claims are actually part of the perquisites of his position in. and not in the Labor Arbiter or the NLRC. she is deemed an officer of the corporation. Based on the foregoing. and is in fact a corporate controversy in contemplation of the Corporation Code.[14] It is of no consequence." WHEREFORE. In Dy vs. Office of the MOLE:[15] Although the reliefs sought by Chaves appear to fall under the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other remunerations for services rendered.usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. applies in the present dispute. citing Fortune Cement Corp. Perforce. SO ORDERED. was appointed by respondent corporation's Board of Trustees in its memorandum of October 30. Section 5(c) of Presidential Decree No. 902-A cannot be any clearer. NLRC. NLRC. the Court said: "(t)he question of remuneration involving as it does. the assailed resolutions of the NLRC are hereby REVERSED and the Order of the Labor Arbiter dated 29 December 1992 REINSTATED. set by the same Board. unlike an ordinary employee. 5(c) of said law expressly covers both election and appointment of corporate directors. that the complaint of private respondent for illegal dismissal includes money claims. an integral part. it might be said. likewise. in Lozon v.[13] we declared that: A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action. a person who is not a mere employee but a stockholder and officer. Accordingly. The respondents also attack the SEC's jurisdiction over the instant case on grounds that Guilas was not elected by the Board of Directors but was merely appointed. and therefore interlinked with his relations with the corporation. In the case at bar. Sec. NLRC. trustees. . of the corporation. officers and managers. likewise.

A corporate officers dismissal is always a corporate act. Benjamin Donasco as acting Medical Director and acting Hospital Administrator. Ernesto Naval that in a special meeting held on April 30. an employee usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. or an intra-corporate controversy. and not in the Labor Arbiter or the NLRC. Comptroller/Administrator. petitioner filed a complaint for illegal dismissal and non-payment of wages.PURIFICACION G.000.. respondent NLRC affirmed the dismissal of the case on the additional ground that the position of a Medical Director and Hospital Administrator is akin to that of an executive position in a corporate ladder structure. which are corporate offices. affirming in toto the order of the labor arbiter. Section 5(c) of Presidential Decree No. pursuant to Section 5 of Presidential Decree No. and modern corporation statutes usually designate them as the officers of the corporation. Petitioner opposed the motion to dismiss. or as an employee of private respondent. the labor arbiter issued an order dismissing the complaint for lack of jurisdiction. Similarly.: This is a petition for certiorari which seeks to annul the resolution of the National Labor Relations Commission (NLRC). vs.[9] she is deemed an officer of the corporation. to be without merit. which dismissed petitioners complaint for illegal dismissal with money claims for lack of jurisdiction. Inc. the determination of the rights of petitioner and the concomitant liability of private respondent arising from her ouster as a medical director and/or hospital administrator. 1993. Respondent corporation moved for the dismissal of the complaint on the ground of lack of jurisdiction over the subject matter. NATIONAL COMMISSION and PAMANA GOLDEN CARE FOUNDATION. dated April 26. a non-stock corporation engaged in extending medical and surgical services. 902-A. Petitioner averred that she thereafter received a copy of said board resolution. applies in the present dispute. petitioner filed the instant petition which we find. It argued that petitioners position as Medical Director and Hospital Administrator was interlinked with her position as member of the Board of Trustees. She claimed that there is no intra-corporate controversy involved since she filed the complaint in her capacity as Medical Director and Hospital Administrator. a member of the Board of Trustees. hence. the Board of Trustees passed a resolution relieving her of her position as Medical Director and Hospital Administrator. 1990. but the payment thereof was allegedly stopped in November. As medical director and hospital administrator. 1990. unlike an ordinary employee. The charges against herein private respondent partake of the nature of an intra-corporate controversy. hence.[5] However. J. was appointed by respondent corporations Board of Trustees in its memorandum of October 30. trustees. [4] The president. is an intra-corporate controversy subject to the jurisdiction of the SEC. Article I thereof states that one of the powers of the Board of Trustees is (t)o appoint a Medical Director. Perforce. vice-president. and appointing the latter and Dr. He ruled that the case falls within the jurisdiction of the SEC. On May 1. respondents. secretary and treasurer are commonly regarded as the principal or executive officers of a corporation. [1] Petitioners motion for reconsideration was treated as an appeal by the labor arbiter who consequently ordered the elevation of the entire records of the case to public respondent NLRC for appellate review. however. On April 26. petitioner was allegedly informed personally by Dr.[10] and this cannot be construed other than in reference to her position or capacity as a corporate trustee. officers or managers of corporations. Accordingly. or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. partnerships or associations. 1993. her dismissal is an intra-corporate controversy which falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC). and the nature is not altered by the reason or wisdom with which the Board . the Board of Trustees issued a memorandum appointing petitioner as Medical Director and Hospital Administrator of private respondents Pamana Golden Care Medical Center in Calamba. a medical director and a hospital administrator are considered as corporate officers under the by-laws of respondent corporation. contending that her position as Medical Director and Hospital Administrator was separate and distinct from her position as member of the Board of Trustees. 1995. respectively. petitioner. It states: We hope that you will uphold and promote the mission of our foundation. petitioner was tasked to run the affairs of the aforesaid medical center and perform all acts of administration relative to its daily operations. [7] On the other hand. allowances and 13th month pay before the labor arbiter.00) from private respondent.[6] It has been held that an office is created by the charter of the corporation and the officer is elected by the directors or stockholders. 1993. Although the memorandum was silent as to the amount of remuneration for the position. and the corporate secretary of private respondent Pamana Golden Care Medical Center Foundation. considering that herein petitioner. petitioner claims that she received a monthly retainer fee of five thousand pesos (P5. Contrary to the contention of petitioner.. On June 6. jurisdiction over the same is vested in the SEC. Moreover. Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and duties. TABANG. [8] In the case at bar. [2] On appeal. 1994. LABOR RELATIONS MEDICAL CENTER DECISION REGALADO. 1994. Laguna. dated June 26. the allegation of petitioner that her being a member of the Board of Trustees was not one of the considerations for her appointment is belied by the tenor of the memorandum itself. 902-A. [3] Aggrieved by the decision. 1991. We agree with the findings of the NLRC that it is the SEC which has jurisdiction over the case at bar. INC. which provides that the SEC exercises exclusive jurisdiction over controversies in the election or appointment of directors. The records show that petitioner Purificacion Tabang was a founding member. On October 30. petitioners removal from the said position was an intra-corporate controversy within the original and exclusive jurisdiction of the SEC. other offices are sometimes created by the charter or by-laws of a corporation. Section 2(i).

vs. Inc. among others. an integral part. The provision is broad and covers all kinds of controversies between stockholders and corporations. vs. nor any exemption whatsoever. his relations with the corporation.. Pamana Members. In fact. [12] With regard to the amount of P5. . [14] It is an admitted fact that herein petitioner is a retained physician of Pamana. Inc. even assuming that the monthly payment of P5. qualification. et al. said vouchers can only be considered as proof of payment of retainer fees made by Pamana. SO ORDERED. while respondent Pamana Golden Care Medical Center Foundation.[17] we ruled that (a)lthough the reliefs sought by Chavez appear to fall under the jurisdiction of the labor arbiter as they are claims for unpaid salaries and other remunerations for services rendered. Inc. There is no distinction. Inc. [11] Also. of the corporation. simply. without prejudice to petitioners taking recourse to and seeking relief through the appropriate remedy in the proper forum. a close scrutiny thereof shows that said claims are actually part of the perquisites of his position in. there is no evidence to show that the Pamana Golden Care stated in the vouchers refers to herein respondent Pamana Golden Care Medical Center Foundation. Inc. In the case of Cagayan de Oro Coliseum. a person who is not a mere employee but a stockholder and officer. an intra-corporate controversy is one which arises between a stockholder and the corporation. and therefore interlinked with.. Moreover. at most. the questioned resolution of the NLRC is hereby AFFIRMED. Pamana Golden Care is a division of Pamana.[16]Thus. the Court said: (t)he question of remuneration involving as it does. Inc. et al. Calamba branch. The vouchers[13] submitted by petitioner show that the said amount was paid to her by PAMANA. WHEREFORE.00 was a valid claim against respondent corporation.of Directors may have in taking such action.. Office of the Minister of Labor and Employment. for professional fees and/or retainer fees earned for her treatment of Pamana Golden Care card holders.000. in her complaint[15] filed before the Regional Trial Court of Calamba. the same cannot be considered as compensation for her services rendered as Medical Director and Hospital Administrator. to herein petitioner as a retained physician of Pamana Golden Care. It is stated in the memorandum of petitioner that Pamana. Inc.. whose patients are holders of the Pamana Golden Care Card. etc. Although the payments were considered advances to Pamana Golden Care. Inc.. NLRC. a stock corporation which is separate and distinct from herein private respondent. In Dy. it might be said. non-profit corporation.. herein petitioner is asking. et al. pension and health care.. is a non-stock. is not a simple labor problem but a matter that comes within the area of corporate affairs and management and is in fact a corporate controversy in contemplation of the Corporation Code. is a stock and profit corporation selling pre-need plan for education. this would not operate to effectively remove this case from the jurisdiction of the SEC. The health care plan is called Pamana Golden Care Plan and the holders are called Pamana Golden Care Card Holders or.000.00 formerly received by herein petitioner every month.

passing upon this legal point, the trial court held that the removal of plaintiff was legal
and dismissed the complaint without pronouncement as to costs. Plaintiff appealed to the
Court of Appeals but finding that the question at issue is one of law, the latter certified the
case to us for decision.
Section 33 of the Corporation Law provides: "Immediately after the election, the directors
of a corporation must organize by the election of a president, who must be one of their
number, a secretary or clerk who shall be a resident of the Philippines . . . and such other
officers as may be provided for in the by-laws." The by-laws of the instant corporation in
turn provide that in the board of directors there shall be a president, a vice-president, a
secretary and a treasurer. These are the only ones mentioned therein as officers of the
corporation. The manager is not included although the latter is mentioned as the person
in whom the administration of the corporation is vested, and with the exception of the
president, the by-laws provide that the officers of the corporation may be removed or
suspended by the affirmative vote of 2/3 of the corporation (Exhibit A).

G.R. No. L-10556

April 30, 1958

RICARDO GURREA, plaintiff-appellant,
vs.
JOSE MANUEL LEZAMA, ET AL., defendants-appellees.
Fulgencio Vega and Felix D. Bacabac for appellant.
Jose Manuel Lezama for appellees.
Jose Manuel Lezama and Genivera F. de Lezama. Domingo B. Lauren for the other
appellees.
BAUTISTA ANGELO, J.:
Plaintiff instituted this action in the Court of First Instance of Iloilo to have Resolution No.
65 of the Board of Directors of the La Paz Ice Plant and Cold Storage Co., Inc., removing
him from his position of manager of said corporation declared null and void and to recover
damages incident thereto. The action is predicated on the ground that said resolution was
adopted in contravention of the provisions of the by-laws of the corporation, of the
Corporation Law and of the understanding, intention and agreement reached among its
stockholders.
Defendant answered the complaint setting up as defense that plaintiff had been removed
by virtue of a valid resolution.
In connection with this complaint, plaintiff moved for the issuance of a writ of preliminary
injunction to restrain defendant Jose Manuel Lezama from managing the corporation
pending the determination of this case, but after hearing where parties presented
testimonial and documentary evidence, the court denied the motion. Thereafter, by
agreement of the parties and without any trial on the merits, the case was submitted for
judgment on the sole legal question of whether plaintiff could be legally removed as
manager of the corporation merely by resolution of the board of directors or whether the
affirmative vote of 2/3 of the paid shares of stocks was necessary for that purpose. And

From the above the following conclusion is clear: that we can only regard as officers of a
corporation those who are given that character either by the Corporation Law or by its bylaws. The rest can be considered merely as employees or subordinate officials. And
considering that plaintiff has been appointed manager by the board of directors and as
such does not have the character of an officer, the conclusion is inescapable that he can
be suspended or removed by said board of directors under such terms as it may see fit
and not as provided for in the by-laws. Evidently, the power to appoint carries with it the
power to remove, and it would be incongruous to hold that having been appointed by the
board of directors he could only be removed by the stockholders.
The above interpretation finds also support in the American authorities. Fletcher, in his
treatise, states the rule in the following wise: "It is sometimes important to determine
whether a person representing a corporation is to be classed as an officer of the company
or merely as an agent or employee, especially in construing statutes renting only to
'officers' of corporations. Generally the officers of a corporation are enumerated in its
charter or by-laws, and include a president, vice-president, secretary, treasurer and
sometimes others. The statutes in most of the states expressly provide for the election of
a president, secretary and treasurer, and then provide, that there shall be such other
officers, agents and factors as the corporation shall authorize for that purpose. If the
charter expressly enumerates who shall be officers of the company, a person whose
position is not enumerated is not an officer as to members of the corporation, since the
charter is conclusive upon them" (Fletcher, Cyclopedia of the Law of Private Corporations,
Vol. II, p. 19). It has been likewise held "that the offices pertaining to a private corporation
are defined in its charter and by-laws, and that no other positions in the service of the
corporation are offices" (Ann. 53 A.L.R., 599).
Indeed, there are authorities galore that hold that a general manager is not an officer of a
corporation, even if his powers and influence may be as great as those of any officer in
said organization.
Officers Distinguished from Mere Employees. — As already stated, both officers
and employees are agents of the corporation and the difference between them is
largely one of degree; the officers are the most important employees exercising
greater authority or power in the management of the business. Ordinarily, too,
the principal offices are designated by statute, charter or by-law provisions, and
specific duties are imposed upon certain officers. Thus the state statute or a bylaw may provide that stock certificates shall be signed by the president and

countersigned by the secretary or treasurer. The general manager of a
corporation is not ordinarily classed as an officer, but his powers and influence
may be quite as great as those of any person in the organization. (Grange,
Corporation Law for Officers and Directors, p. 432; Emphasis supplied.)
One distinction between officers and agents of a corporation lies in the manner
of their creation. An officer is created by the charter of the corporation, and the
officer is elected by the directors or the stockholders. An agency is usually
created by the officers, or one or more of them, and the agent is appointed by
the same authority. It is clear that the two terms officers and agents are by no
means interchangeable. One, deriving its existence from the other, and being
dependent upon that other for its continuation, is necessarily restricted in its
powers and duties, and such powers and duties, are not necessarily the same as
those pertaining to the authority creating it. The officers, as such, are the
corporation. An agent is an employee. "A mere employment, however liberally
compensated, does not rise to the dignity of an office."21 Am and Eng. Enc. Law
(2d Ed.) 836. In Wheeler and Wilson Mfg. Co. vs. Lawson, 57 Wis. 400, 15 N. W.
398, it was held that under a statute requiring an affidavit to be made by an
officer of a corporation, the general agent or managing agent, within the state, of
a foreign corporation is not an officer. In Farmers' Loan and Trust Co. vs. Warring,
20 Wis. 305, service was made upon the "principal agent" of a corporation
holding in trust a railroad, when the statute required service upon a "principal
officer." In answering the question whether or not the agent was a principal
officer the court said: "It is evident he was not, and must be regarded only as an
agent not an officer of any kind, much less a principal officer." A ruling that a
"general manager" of a corporation was not authorized to verify pleadings, under
a statute requiring verification by "an officer" was made in Meton vs. Isham
Wagon Co. (Sup.) 4 N. Y. Supp. 215. In Raleigh, etc. R. Co. vs. Pullman Co., 122
Ga. 704, 5O S.E. 1008 (4), it was held that the term "general manager." as
applied to one representing a corporation, and especially a railroad corporation,
imported an agent of a very extensive authority; but it was not ruled that even
the term "general manager" would import that the person holding that position
was necessarily an officer of the company. One distinction between an officer
and an agent suggested in Commonwealth vs. Christian, 9 Phila. (Pa.) 558, is that
on officer of a corporation, if illegally excluded from his office, may by mandamus
compel the corporation, to reinstate him; while an agent may be dismissed
without cause, and his only remedy would be compensation in damages. It would
not be contended that the "general agent of the defendant at Columbus," in the
event of his discharge, could be reinstated by mandamus. We do not think the
general agent at Columbus was an officer of the defendant company. Therefore
his alleged waiver of a condition in the policy was not binding upon the company.
(Vardeman vs. Penn. Mut. Life Ins. Co. 125 Ga. 117, 54 S.E. P. 66; Emphasis
supplied.)
The plaintiff-predicates this action on said contract, and claims that the same
being signed by the defendant through its "general manager" if admitted
evidence, would show sufficient authority prima facie to do any act which the
directors could authorize or ratify. The instrument in question being signed by
James W. Codle, "General Manager" and no evidence in the trial being produced
showing the duties of said manager or what kind of an office he was general
manager of, the "general manager" without proof as to the nature of services
performed by the persons called "general manager", have no meaning in law,
excepting that the persons bearing the title is an employee who has been
designated with a title. It does not make him an officer of the company

employing him. (Studerbaker Bros. Co. vs. R. M. Rose Co., 119 N.Y.S pp. 970, 97;
Emphasis supplied.)
We therefore hold that plaintiff has been properly removed when the board of directors of
the instant corporation approved its Resolution No. 65 on June 3, 1948.
We will now clarify some of the points raised by the distinguished dissenter in his
dissenting opinion.
The fact that the "manager" of the corporation in the several statutes enacted by
Congress is held criminally liable for violation of any of the penal provisions therein
prescribed does not make him an "officer" of the corporation. This liability flows from the
nature of his duties which are delegated to him by the board of directors. He is paid for
them. Hence, he has to answer for them should he use it in violation of law. In the case of
Robinson vs. Moark-Nemo Consol Mining Co., et al., 163 S. W. 889, in connection with the
liability of the manager, the court said:
Common justice and common sense demand that, where those in charge and
control of the management of a corporation direct it along paths of wrongdoing,
they should be held accountable by law. . . . This doctrine will prevent many
wrongs, and have a salutary influence in bringing about the lawful and orderly
management of corporations.
It is claimed that the cases of Meton vs. Isham Wagon, 4 N.Y.S., 215 and State vs. Bergs,
217 N. W., 736, supporting the theory that a manager is not necessarily an officer, are in
illo tempore.1 It is submitted that we do not adopt a rule just because it is new nor reject
another just because it is old. We adopt a rule because it is a good and sound rule. The
fact however is that they are not the only authorities supporting that theory. Additional
cases are cited by Fletcher in support thereof, such as the cases of Vardeman vs. Penn.
Mut. Life Ins. Co., supraStudebaker Bros. Co. vs. R. M. Rose Co., supra.
The dissenting opinion quotes from Thompson and Fletcher to support the theory that the
general manager of a corporation may be considered as its principal officer even though
not so mentioned in its charter or bylaws. We have examined the cast cited in support of
that theory but we have found that they are not in point. Thus, we have found (1) that the
parties involved are mostly outsiders who press their transactions against the corporation;
(2) that the point raised is whether the acts of the manager bind the corporation; (3) that
the tendency of the courts is to hold the corporation liable for the acts of the manager so
long as they are within the powers granted, hence, the courts emphasized the importance
of the position of manager; and (4) the position of manager was discussed from the point
of view of an outsider and not from the internal organization of the corporation, or in
accordance with its charter or by-laws. In the present case, however, the parties are the
manager and the corporation. And the solution of the problem hinges on the internal
government of the corporation where the charter and the by-laws are necessarily involved
in the determination of the rights of the parties. Indeed, it has been held: "But it is urged
that a corporation may have officers not recognized by the charter and by-laws. It is
possible this may be as to matters arising between strangers and the corporation."
[Com. vs. Christian, 9 Phila. (Pa.) 556; emphasis supplied].
The cases on all fours with the present are those of State ex rel Blackwood vs. Brast, et
al., 127 S. E. 507 and Denton Milling Co. vs. Blewitt, 254 S. W. 236, 238, where the parties
involved are the manager and the corporation. The issue raised is the relation of the

manager towards the corporation. The position of the manager is discussed from the point
of view of its internal government. And the holding of the court is that the manager is the
creation of the board of directors and the agent through whom the corporate duties of the
board are performed. Hence, the manager holds his position at the pleasure of the board.
This stipulation is well expressed in the following words of Thompson:
The word "manager" implies agency, control, and presumptively sufficient
authority to bind a corporation in a case in which the corporation was an actual
party. It has been said that such agent must have the same general supervision
of the corporation as is associated with the office of cashier or secretary. By
whatever name he may be called, such, managing agent is a mere employee of
the board of directors and holds his position subject to the particular contract of
employment; and unless the contract of employment fixes his term of office, it
may be terminated at the pleasure of the board. . . . The manager, like any other
appointed agent, is subject to removal when his term expires and on the request
of the proper officer he should turn over his business to the corporation and,
where he refuses to comply, he may be restrained from the further performance
of work for the corporation. (Thompson on Corporations, Vol. III, 3rd., pp. 209210; Emphasis supplied.)
It is not correct to hold that the theory that a manager is not classed as an officer of a
corporation is only the minority view. If we consider the states that hold that managers
are merely agents or employees as among those that hold the theory that managers are
not necessarily officers, then our theory is supported by the majority view. Indeed, this
view is upheld by nine states,2 whereas only six states adopt the view that managers are
considered principal officers of the corporation.3
The dissenting opinion quotes the provision of the bylaws relative to the administration of
the affairs of the instant corporation. It is there provided that the affairs of the corporation
shall be successively administered by (1) the stockholders; (2) the board of directors;
and(3) the manager. From this it concludes that the manager should be considered an
officer.
The above enumeration only emphasizes the different organs through which the affairs of
the corporation should be administered and the order in which the powers should be
exercised. The stockholders are the entity, composing the whole corporation. The board of
directors is the entity elected by the stockholders to manage the affairs of the
corporation. And the manager is the individual appointed by the board of directors to
carry out the powers delegated to him. In other words, the manager is the creation of the
board of directors. He is an alter egoof the board. As our law provides that only those
enumerated in the charter or in the by-laws are considered officers, the manager who has
not been so enumerated therein, but only incidentally mentioned in the order of
management, cannot be considered an officer of the corporation within their purview.
The mere fact that the directors are not mentioned in the by-laws as officers does not
deprive them of their category as such for their character as officer is secured in the
charter. The same is not true with the manager. Customs and corporate usages cannot
prevail over the express provisions of the charter and the by-laws.
There is no comparison between an appointee of the President, especially one in the
judiciary, and the appointee of the board of directors of a corporation. In the first case,
removal is especially provided for by law and in the second, the appointee holds office at

the pleasure of the board. And with regard to the powers of the board of director, to
remove a manager of the corporation, Thompson has the following to say:
. . . Below the grade of director and such other officers as are elected by the
corporation at large, the general rule is that the officers of private corporations
hold their offices during the will of the directors, and are hence removable by the
directors without assigning any cause for the removal, except so far as their
power may be restrained by contract with the particular officer, — just as any
other employer may discharge his employee. Speaking generally, it may be said
that the power to appoint carries with it the power to remove. . . . the directors
who appoint a ministerial officer may undoubtedly remove him at pleasure, and
he has no remedy other than an action for damages against the corporation for a
breach of contract. . . . The ordinary ministerial and other lesser officers,
however, hold their offices during the pleasure of the directors and may be
removed at will, without assigned cause. Of this class of officers and agents are
the secretary and treasurer of the corporation, the general manager, the
assistant manager, the field manager, the attorney of the company, an assistant
horticulturist, and the bookkeepers. (Thompson on Corporations, Vol. III, 521523.)
Wherefore, the decision appealed from is affirmed, with costs against appellant.

[G.R. No. L-58468. February 24, 1984.]
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, MANILA, ANTONIO M.
MAGTALAS, JOSE ARANAS, JUAN D. LIM, JOSE F. PERALTA and BENJAMIN P.
PAULINO, Petitioners, v. LABOR ARBITER LACANDOLA S. LEANO of the National
Labor Relations Commission and RUFINO R. TAN, Respondents.
De Santos, Balgos and Perez Law Office, for Petitioners.
The Solicitor General for respondent Arbiter.
Caparas, Ilagan, Alcantara & Gatmaytan Law Office for Private Respondent.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND EXCHANGE COMMISSION;
JURISDICTION THEREOF VIS-A-VIS THE NATIONAL LABOR RELATIONS COMMISSION; CASE
AT BAR. — The jurisdiction of the Securities and Exchange Commission (SEC) vis-a-vis the
National Labor Relations Commission (NLRC) is in issue. An intracorporate controversy
would call for SEC jurisdiction. A labor dispute, that of the NLRC.
2. ID.; ID.; INTRA-CORPORATE CONTROVERSIES; LEGALITY OF ELECTION OF CORPORATE
DIRECTORS, IN THE NATURE OF; CASE AT BAR. — Basically, therefore, the question is
whether the election of directors on August 1, 1981 and the election of officers on
September 5, 1981, which resulted in TAN’s failure to be re-elected, were validly held. This
is the crux of the question that TAN has raised before the SEC. Even in his position paper
before the NLRC, TAN alleged that the election on August 1, 1981 of the three directors
was in contravention of the PSBA By-Laws providing that any vacancy in the Board shall
be filled by a majority vote of the stockholders at a meeting specially called for the
purpose. Thus, he concludes, the Board meeting on September 5, 1981 was tainted with
irregularity on account of the presence of illegally elected directors without whom the
results could have been different. TAN invoked the same allegations in his complaint filed
with the SEC. So much so, that on December 17, 1981, the SEC (Case No. 2145) rendered
a Partial Decision annulling the election of the three directors and ordered the convening
of a stockholders’ meeting for the purpose of electing new members of the Board. 9 The
correctness of said conclusion is not for us to pass upon in this case. TAN was present at
said meeting and again sought the issuance of injunctive relief from the SEC. The
foregoing indubitably show that, fundamentally, the controversy is intra-corporate in
nature.
3. ID.; ID.; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION; ORIGINAL AND
EXCLUSIVE OVER INTRA-CORPORATE CONTROVERSIES UNDER PRESIDENTIAL DECREE NO.
902-A; CASE AT BAR. — Presidential Decree No. 902-A vests in the Securities and
Exchange Commission original and exclusive jurisdiction to hear and decide controversies
involving the election of directors, officers, or managers of corporations registered with
the Commission, the relation between and among its stockholders, and between them and
the corporation. The instant case is not a case of dismissal. The situation is that of a
corporate office having been declared vacant, and of TAN’s not having been elected
thereafter. The matter of whom to elect is a prerogative that belongs to the Board, and
involves the exercise of deliberate choice and the faculty of discriminative selection.

and at the same time elected a new set of officers. for illegal and oppressive removal (Civil Case No. and petitioners. 1981 that all corporate positions were declared vacant in order to effect a reorganization. falling within the jurisdiction of the NLRC. and the director or directors so chosen hold office for the unexpired term. 1981 of the three directors was in contravention of the PSBA By-Laws providing that any vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting specially called for the purpose. cited in 19 Am. We issued a Temporary Restraining Order. the Executive Vice-President. 7 The By-Laws likewise provide that should the position of any officer of the corporation become vacant by reason of death. the Board declared all corporate positions vacant except those of the Chairman and President. DECISION MELENCIO-HERRERA." 4 TAN counter-argues that his sole and exclusive cause of action is illegal dismissal. 1981. enjoining respondent Labor Arbiter from proceeding in any manner with the Labor Case.ph It was at a board regular monthly meeting held on August 1. three members were elected to fill vacancies in the seven-man body. invoking the principle against split jurisdiction. NCR9-20-81) (the Labor Case. 1981.chanrobles lawlibrary : rednad "1. Even in his position paper before the NLRC. the relationship of a person to a corporation. 2145). investigation or notice" (NLRC Case No. 1981. the Board meeting on September 5. respondent Labor Arbiter also issued a subpoena duces tecum to submit the same books and documents. TAN filed with the National Labor Relations Commission (NLRC) (National Capital Region) a complaint for Illegal Dismissal against petitioners alleging that he was "summarily.chanroblesvirtualawlibrary TAN is one of the principal stockholders of PSBA.. he was a Director and the Executive Vice President enjoying salaries and allowances. An intracorporate controversy would call for SEC jurisdiction. and subsequently gave due course to the Petition. TAN was not re-elected as Executive VicePresident. the Philippine School of Business Administration (PSBA). . 1981 and September 5. for he was dismissed suddenly and summarily without cause in violation of his constitutional rights to due process and security of tenure. among them. illegally. books and records.Generally speaking. 3 Before the NLRC.: This Petition for Certiorari questions the jurisdiction of respondent Labor Arbiter over the present controversy (No. 1981. and majority of its Directors. 2d 526). in brief). he concludes. 1981 and the election of officers on September 5. Thus. by a majority vote. petitioners moved for the dismissal of TAN’s complaint. Jur. 1981. and at the ensuing election of officers. therefore. Co. On August 1. So much so. On September 21. A labor dispute. 1981. He prays that his dismissal be declared illegal and that his reinstatement be ordered with full backwages and without loss of other benefits. who serve until the election and qualification of their successors.chanrobles lawlibrary : rednad On October 13. . that on . 5 Corporate officers are provided for. petitioners availed of this Petition contending mainly that:jgc:chanrobles. at the PSBA Board of Directors’ regular meeting. On September 5. Before September 5. the question is whether the election of directors on August 1. a domestic corporation. Basically. that of the NLRC. 1981. TAN also filed a one-million-peso damage suit against petitioners before the then Court of First Instance of Rizal. TAN was not re-elected as Executive Vice-President. 8 On September 16. TAN invoked the same allegations in his complaint filed with the SEC. 1981 was tainted with irregularity on account of the presence of illegally elected directors without whom the results could have been different. 1981. 1981. 1981. is not determined by the nature of the services performed. without cause. Rufino R. General management is vested in a Board of seven directors elected annually by the stockholders entitled to vote. may choose a successor or successors who shall hold office for the expired term of his predecessor. 266 F2d 781. or otherwise. the Board of Directors. On October 22. TAN lodged before the Securities and Exchange Commission (SEC) another complaint against petitioners essentially questioning the validity of the PSBA elections of August 1. And. Q-33444). irregularly and improperly removed from his position as Executive Vice-President . Tan (TAN). it was at the regular Board Meeting of September 5. This is the crux of the question that TAN has raised before the SEC. who is elected by the Board of Directors from their own number. whether as officer or as agent or employee. (Bruce v. 1 Relevant and pertinent it is to note that the PSBA is a domestic corporation duly organized and existing under our laws. The jurisdiction of the SEC vis-a-vis the NLRC is in issue. NCR-9-20-81) involving private respondent-complainant. resignation. The respondent labor arbiter illegally assumed jurisdiction over the complaint for ‘Illegal Dismissal’ because the failure of the private respondent to be re-elected to the corporate position of Executive Vice-President was an intra-corporate question over which the Securities and Exchange Commission had already assumed jurisdiction. 6 The officers receive such salaries or compensation as the Board of Directors may fix. Quezon City. The issuance by the respondent labor arbiter of a subpoena duces tecum was likewise without jurisdiction especially if considered in the light of procedural and substantial requirements therefor such that it is imperative that the supervising authority of this Honorable Court should be exercised to prevent a substantial wrong and to do substantial justice. And.com. on September 28. SEC issued a subpoena duces tecum commanding the production of corporate documents. but by the incidents of the relationship as they actually exist. 1981. which resulted in TAN’s failure to be reelected. Any vacancy in the Board of Directors is filled by a majority vote of the subscribed capital stock entitled to vote at a meeting specially called for the purpose. and of his "ouster" as Executive Vice-President (SEC Case No. that three directors were elected to fill vacancies. J. also during a regular meeting. 2 On October 15. "2. TAN alleged that the election on August 1. 1981. Travelers Ins. were validly held. disqualification.

members or associates. judgment is hereby rendered (1) ordering respondent Labor Arbiter to dismiss the complaint in NLRC Case No. Vis-avis the NLRC. the relationship of a person to a corporation. and between such corporation. or associates. respondents. dismissed the petitioners appeal from the decision of the Labor Arbiter in NLRC NCR Case No. vs. INC. 2145) rendered a Partial Decision annulling the election of the three directors and ordered the convening of a stockholders’ meeting for the purpose of electing new members of the Board. and involves the exercise of deliberate choice and the faculty of discriminative selection.com. officers or managers of the PSBA. (2) nullifying the subpoena duces tecum issued by him in said case. With the foregoing conclusion. (S. it follows that the issuance of a subpoena duces tecum by the Labor Arbiter will have to be set aside. is not determined by the nature of the services performed. respectively. 9 The correctness of said conclusion is not for us to pass upon in this case. between and among stockholders. the petitioner seeks the annulment of the decision of 22 April 1993 [1] and order of 25 November 1993[2] of public respondent National Labor Relations Commission (NLRC) in NLRC CA No. Presidential Decree No. original and exclusive jurisdiction to hear and decide cases involving:jgc:chanrobles. these matters fall within the jurisdiction of the SEC.com. The foregoing indubitably show that. . partners. It claims that the matter is intra-corporate and thus falls within the exclusive jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Section 5(c) of P. JR. 902-A vests in the Securities and Exchange Commission:jgc:chanrobles. the relation between and among its stockholders. fundamentally. petitioner. officers or managers of such corporations. NCR-9-20-81 for lack of jurisdiction. amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or stockholders. and (3) declaring the Temporary Restraining Order heretofore issued permanent. Generally speaking. the Office of the Solicitor General agrees with the petitioner that the NLRC has no jurisdiction over the private respondents complaint for illegal dismissal and prays that the NLRC be granted a new period within which to file its own comment should it desire to do so. members. and between them and the corporation.000. J.ph ".ph "a) Devices or schemes employed by or any acts. 10 DAVIDE.D. WHEREFORE.00 a . . trustees. the controversy is intra-corporate in nature. its officers or partners. The petitioner insists that the Labor Arbiter and the NLRC do not have jurisdiction over the private respondents complaint for illegal dismissal arising out of his removal as Managing Director of the petitioner due to his non-reelection and the abolition of the said position. 0034-07-92 which.December 17. respectively. but by the incidents of the relationship as they actually exist. ASIA). DECISION "c) Controversies in the election or appointments of directors. SO ORDERED. TAN was present at said meeting and again sought the issuance of injunctive relief from the SEC. of the board of directors. "b) Controversies arising out of intra-corporate or partnership relations. business associates. 11 In this special civil action for certiorari under Rule 65 of the Rules of Court. the SEC (Case No. members of associations or organizations registered with the Commission. The matter of whom to elect is a prerogative that belongs to the Board. 00-04-02127-90 and denied the petitioners motion for reconsideration. whether as officer or as agent or employee. and of TAN’s not having been elected thereafter. No. In a Manifestation submitted in lieu of the required comment on the petition.. 902-A. No costs. partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity.: This is not a case of dismissal. between any or all of them and the corporation. The situation is that of a corporate office having been declared vacant.E. The NLRC filed its own comment contending that it has jurisdiction over the case because the private respondent was not just an incorporator but also a Managing Director and a line officer or an employee of the petitioner with a salary of P33. 1981. PEARSON & GEORGE. partnerships or associations. It revolves around the election of directors. partnership or association of which they are stockholders. Private respondent also contends that his "ouster" was a scheme to intimidate him into selling his shares and to deprive him of his just and fair return on his investment as a stockholder received through his salary and allowances as Executive Vice-President. NATIONAL LABOR RELATIONS COMMISSION and LEOPOLDO LLORENTE.

THE NLRC COMMITTED SERIOUS ERRORS AND ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE REMOVAL FROM OFFICE BY NON-REELECTION OF PRIVATE RESPONDENT IS ONE OF ILLEGAL DISMISSAL CASE WHEREIN IT HAS JURISDICTION TO TRY AND DECIDE. the petitioner sent Llorente a letter requiring him to explain the acts enumerated therein which he allegedly committed. this petition for certiorari in support of which the petitioner asserts as follows: THE NLRC ACTED WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN ASSUMING JURISDICTION OVER THE PRESENT CONTROVERSY BETWEEN PETITIONER AND PRIVATE RESPONDENT WHO IS ADMITTEDLY ONE OF ITS INCORPORATORS/STOCKHOLDERS AND A CORPORATE OFFICER. To pay complainant moral damages in the amount of Fifty Thousand (P50. and illegal suspension alleging therein that he was dismissed without due process of law. Upon receipt of the summons. This Office is cognizant of the fact that due to the instant case. we resolved to give due course to this petition and to require the parties to submit their respective memoranda. 1990 to date or in the amount of Nine Hundred Twelve Thousand Seven Hundred Eighty (P912. (3) the petition is defective because it does not allege when the petitioner received the NLRC decision. (3) for purposes of showing the timeliness of the petition. which were prejudicial to the interest of the petitioner. The petitioner appealed to the NLRC from the said decision. with pay. vs. the petitioner filed a Motion to Dismiss alleging therein that the case falls within the jurisdiction of the SEC and not of the NLRC. and disposed as follows: WHEREFORE. National Labor Relations Commission. judgment is hereby rendered finding the suspension and the eventual dismissal as illegal and ordering respondent to: 1. the petitioners counsel informed Llorente of his non-reelection. the Labor Arbiter denied the said motion on the ground that Llorente was not merely acting as a Director but was likewise doing the functions of a manager or line officer of the corporation. the relations between the parties is so strained that the reinstatement may no longer be feasible. Llorente was not reelected.000. II. On 12 March 1990.month. and his termination for cause. . Relying on our decision in LEP International Philippines. premises considered. 2. and delivery of his stock certificates for 9. hence. as it did. In its Reply. The case was docketed as NLRC-NCR Case No. Hence. it was necessary to state the factual circumstances of the case. Besides. On the same day. viz. by reason of alleged anomalous transactions entered by him. Llorente filed with the Labor Arbiter a complaint for unfair labor practice. and (4) in order to resolve the main issue raised in this petition. The parties thereafter filed their respective position papers. the Labor Arbiter found for Llorente. The factual antecedents as culled from the pleadings are not in dispute: Private respondent Leopoldo Llorente (hereinafter Llorente) was a member of the Board of Directors of the petitioner. but to no avail.. After deliberating on the pleadings submitted by the parties. the petitioner has only to state. protested his suspension and requested an examination of the supporting documents to enable him to explain the accusations leveled against him. and 4. 00-04-0212790. the Board of Directors elected among themselves the corporate officers. which must be filed within a reasonable time from receipt of the resolution denying the motion for reconsideration of the decision of the Commission. On 17 February 1990. the stockholders of the petitioner elected a new set of directors. the new Board of Directors held a meeting wherein it elected a new set of officers and abolished the position of Managing Director. It likewise denied the petitioners motion for reconsideration.00) Pesos. there may be no equivalent positionas the Office of the Managing Director had been abolished. and (4) the petition raises factual issues. his complaint for illegal dismissal as such employee is within the jurisdiction of the NLRC. Inc. compensation for his suspension or termination. Llorente was elected as Vice-Chairman of the Board and as Managing Director for a term of one year and until his successor should have been duly elected pursuant to the petitioners by-laws. 3. At the regular stockholders meeting on 5 March 1990. In a letter dated 1 February 1990. the abolition of the position of Managing Director. In its organizational meeting on 12 January 1989. illegal dismissal. Pay the complainant his full backwages from January 29.00) Pesos. In his order of 1 March 1991. the petitioner refutes the foregoing arguments of the private respondent by stating that (1) this Court may take cognizance of petitions questioning the decisions of the NLRC on the ground of lack or excess of jurisdiction or grave abuse of discretion inspite of Article 223 of the Labor Code making final the said decisions after ten calendar days from receipt thereof. On 27 February 1990. Llorente.998 shares.780. through his counsel. Llorente demanded from the petitioner access to his room which the latter allegedly sealed. (2) the only way by which a labor case may reach this Court is through a petition for certiorari. On 29 January 1990. the date the order denying the motion for reconsideration was received.[3] the NLRC dismissed the petitioners appeal and affirmed the decision of the Labor Arbiter. The private respondent does not meet the substantive issues raised by the petitioner but merely sets up the following defenses: (1) the petition was filed long after the lapse often days provided for in Article 223 of the Labor Code. ruled that he was illegally terminated from employment. On 11 April 1990. whether the NLRC has jurisdiction over this case. Llorente was preventively suspended. To pay complainant attorneys fees equivalent to ten (10%) percent of his backwages. In a decision dated 18 May 1992. (2) a special civil action for certiorari under Rule 65 is not the proper remedy because of the aforementioned provision.

Llorente was not dismissed. The challenged decision of 22 April 1993 and order of 25 November 1993 of public respondent National Labor Relations Commission in NLRC Case No. it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx (b) Controversies arising out of intra-corporate or partnership relations. the Board meeting on September 5. 5. that on December 17. The office of Managing Director presupposes that its occupant is a Director. who was not a stockholder. The pith issue thus raised is whether it is the SEC or the NLRC which has jurisdiction over the complaint for illegal dismissal which the private respondent had filed with the NLRC. Any question relating or incident to the election of the new Board of Directors. the relationship of a person to a corporation. between and among stockholders. it was primarily because he was not reelected as Director during the regular stockholders meeting on5 March 1990. . 2145) rendered a Partial Decision annulling the election of the three directors and ordered the convening of a stockholders meeting for the purpose of electing new members of the Board. is not determined by the nature of the services performed. So much so. officers or managers of such corporations. THAT PRIVATE RESPONDENT WAS ILLEGALLY DISMISSED FROM SERVICE. and in Fortune Cement Corporation vs. Disputes arising therefrom are intra-corporate disputes which. In reality. No. Elsewise stated. We agree with both the petitioner and the Office of the Solicitor General that the removal of Llorente as Managing Director is purely an intra-corporate dispute which falls within the exclusive jurisdiction of the SEC and not of the NLRC. Even in his position paper before the NLRC. [4] which provide as follows: SEC. and between such corporation. were validly held. the question is whether the election of directors on August 1. 1981. the controversy is intracorporate in nature. [5] we ruled that a complaint for illegal dismissal arising from a Board of Directors action declaring vacant all corporate positions except that of Chairman and President. such as non-reelection as in the case of Liorente. or the abolition of the said office are intra-corporate matters. members or associates. fundamentally. [7] which involved a complaint for illegal dismissal instituted by an Executive Vice-President of the corporation who lost that position when he was dismissed as such by the Board of Directors for loss of trust and confidence. THE NLRC COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION. The foregoing indubitably show that. the non-reelection of Liorente as a Director. members. his loss of the position of Managing Director.D. or associates. and of TANs not having been elected thereafter. TAN invoked the same allegations in his complaint filed with the SEC. National Labor Relations Commission. ASSUMING WITHOUT CONCEDING THAT IT HAS JURISDICTION OVER THE PRESENT CONTROVERSY. Vis-a-vis the NLRC. Section 5 of P. appointment. and between them and the corporation. WHEREFORE. What was challenged in that case was not the jurisdiction of the respondent Commission but its act of upholding the validity of the dismissal of LEPs Chief Executive. much less a director. one who is not a Director of the petitioner or who has ceased to be a Director cannot be elected or appointed as a Managing Director. the holding of the position of Director is a prerequisite for the election. It revolves around the election of directors.Pertinent portions of our opinion therein read as follows: Basically. between any or all of them and the corporation. which resulted in TANs failure to be re-elected. but by the incidents of the relationship as they actually exist. may be resolved in an appropriate action only by the SEC pursuant to its authority under paragraphs (b) and (c). 0034-07-92 and the decision of 18 May 1992 of the Labor Arbiter in NLRC NCR Case No. Leano. respectively. hence. partnership or associations. vs. these matters fall within the jurisdiction of the SEC. Generally speaking. if unresolved within the corporate structure of the petitioner. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. Inc. and involves the exercise of deliberate choice and the faculty of discriminative selection. The reliance by the NLRC on LEP International Philippines. We reiterated this rule in Dy vs. Then too. such loss is not dismissal but failure to qualify or to maintain a prerequisite for that position. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. the relation between and among its stockholders. The matter of whom to elect is a prerogative that belongs to the Board. xxx x x x xxx This is not a case of dismissal. therefore. National Labor Relations Commission is misplaced. trustees. 1981of the three directors was in contravention of the PSBA By-Laws providing that any vacancy in the Board shall be filled by a majority vote of the stockholders at a meeting specially called for the purpose. Thus. the SEC (Case No. the position of Managing Director was abolished. SO ORDERED. TAN alleged that the election on August 1. [6] which involved an action for illegal dismissal filed by a bank manager who was not reelected as such. 902-A. 1981 and the election of officers on September 5. The correctness of said conclusion is not for us to pass upon in this case. and from the non-reelection of the former Executive Vice-President during the ensuing election of officers is not cognizable by the NLRC. Private respondent also contends that his ouster was a scheme to intimidate him into selling his shares and to deprive him of his just and fair return on his investment as a stockholder received through his salary and allowances as Executive VicePresident. in Philippine School of Business Administration vs. officers or managers of the PSBA. No pronouncement as to costs. National Labor Relation Commission. 00-04-02 127-90 are hereby ANNULLED and SET ASIDE for having been rendered without jurisdiction. The situation is that of a corporate office having been declared vacant. (c) Controversies in the election or appointments of directors. or designation of Managing Director. partnership or association of which they are stockholders.III. 1981. of LEP but was merely a managerial employee of the said company. TAN was present at said meeting and again sought the issuance of injunctive relief from the SEC. This is the crux of the question that TAN has raised before the SEC. he concludes. the instant petition is GRANTED. partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. whether as officer or as agent or employee. If a Managing Director should lose his position because he ceased to be a Director for any reason. 1981 was tainted with irregularity on account of the presence of illegally elected directors without whom the results could have been different. Thus. If he lost the position of Managing Director.

for brevity and clarity. respondents allege that sometime in 1986.00/day and was given living quarters inside the premises as he requested.. et. 1990. P90. et al. CENITA and BENEDICTO A.25 per bottle of beer sold to or consumed by the customers and that they work ten (10) hours a day without being paid overtime. a certain Ms. However.200. Domingo were turned over to respondent Reah's. increase in the rental cost and the failure of Meralco to reconnect the electrical services in the establishment.R. "exempts establishment(s) from payment of termination pay when the closure of business is due to serious business losses or financial reverses". No. 85286. 13th month pay and separation pay. al.200. Neither did respondents present any evidence to prove that Reah's closure was really due to SERIOUS business losses or financial reverses. the sole proprietress and operator of Rainbow Sauna located at 316 Araneta Avenue. G. Soledad Domingo. EDNA WAHINGON. Susan dela Cruz. All were paid on commission basis at the rate of twenty (20%) percent of the service fee paid by the customers. ROMEO PASCUA.00 respectively. Petitioners appealed the labor arbiter's decision to the NLRC. Article 283 of the Labor Code provides that '[T]he employer may x x x terminate the employment of any employee due to x x x the closing or cessation of operation of the establishment or undertaking x x x by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. x x x. petitioners. which affirmed the decision of the Labor arbiter holding individual petitioners jointly and severally liable with petitioner Reah's Corporation to pay private respondents' claims for underpayment of wages. SONIA DELA CRUZ. VICTORIA PADILLA. J. September 29. SUSAN R. Pascua and Valenzuela. for ordinary and VIP service. August 24.". 1977 to November 6. these must be sufficiently proved by the employer. J. The facts. may be simplified as follows: . Sonia dela Cruz and Victoria Padilla claims [sic] working as attendants and were hired on different dates until November 6. with a salary of P50. that due to poor business.) that 'Under Article 283 of the Labor Code. 1990 in the same establishment with a salary of P26. SUSAN DE LA CRUZ." [1] On 6 May 1993.R. all the assets of Ms. vs.' This. the closure of a business establishment or reduction of personnel is a ground for the termination of the services of any employee unless the closing or retrenching is for the purpose of circumventing the provision of the law. In the present petition. that petitioners Castulo. All eight (8) private respondents were awarded separation pay. offered to sell her business to respondent Reah's Corporation. 1990 that complainant Red returned and was re-hired under the same terms and conditions of his previous employment with the understanding that he will have to refund the P1. 1990 up to November 6. that the said establishment was closed by respondents on November 6. 178 SCRA 168). 1989. and DANIEL VALENZUELA.00 cash advance given to him. et. separation pay and other benefits under the law.' Thus. The labor arbiter further awarded attorney's fees to private respondents Bonifacio Red and Benedicto Tulabing amounting to ten (10%) percent of their adjudged money claims. Complainant Nancy Cenita and Susan Calwit alleges [sic] that they were hired as waitresses on May 20. as culled by the labor arbiter from the position papers of both parties. NANCY B. board member and accountant acting manager respectively of Reah's Corporation. Quezon City. 1990. al. TULABING. and was given an advance money of P1. On the other hand. We only have respondents' mere say-so on the matter. SEVERO CASTULO. CALWIT. 1990 and paid on commission basis at P0. MA.REAHS CORPORATION. (Indino vs. NATIONAL LABOR RELATIONS COMMISSION. 1990. that complainant Red started his employment on the first week of December 1988 as a roomboy at P50. 80352. Complainant Benedicto Tulabing alleges that he started on December 16. v. DECISION PADILLA. underpayment of wages. are as follows: "Complainant Bonifacio Red alleges that he started working as a supervisor at the health and sauna parlor of respondents from September 5. (G.: This is a petition for certiorari under Rule 65 of the Rules of Court to annul and set aside the decision dated 29 April 1994 rendered by the National Labor Relations Commission (NLRC) in NLRC Case No. and that the closure of the health parlor was illegal as they were not notified. only Bonifacio Red and Benedicto Tulabing were declared entitled to the claimed labor standard benefits as the rest were found to have been employed on commission basis. that sometime in March 1989. BONIFACIO RED. which put a sing-along coffee shop and massage clinic. The Supreme Court held in Basilio Balasbas vs. respondents. the labor arbiter rendered judgment dismissing private respondents' complaints for unfair labor practice and illegal dismissal but upholding the claims for separation pay. Complainants Edna Wahingon. that they render(ed) eleven (11) hours of work a day without being paid overtime. 005024-93 entitled "Bonifacio Red. that it was only on January 1.00 a day.00 and P110.00 to bring some girls from the province to work as attendants at the respondent's massage clinic. After the sale. that he works thirteen (13) hours a day without payment of overtime pay. contending mainly that Article 283 of the Labor Code. while admittedly the acting chairman of the board. holiday pay. which was granted. Reah's Corporation. holiday pay and 13th month pay. But while business reverses can be a just cause for terminating employees. 1986 up to November 6.00. NLRC. it suffered losses leading to its closure. without any notice and without paying his wages. complainant Red asked permission to go to Bicol for a period of ten (10) days."[2] Petitioners filed a motion for reconsideration but this was denied by the NLRC on 30 August 1994. respondents failed to comply. No. 3rd Division. petitioners raise three (3) issues which." The NLRC dismissed the appeal based on the following dispositions: "Anent the issue on separation pay. 1992. cannot be held jointly and severally liable with Reah's "unless there is evidence to show that the cause of the closure of the business was due to the criminal negligence of the [respondent] officers. NLRC. we cannot but agree that complainants are entitled to the payment of separation pay. and that he works a minimum of twelve (12) hours a day without being paid overtime. Romero.

is a statutory obligation on the part of the employer and a demandable right on the part of the employee. duly proved. said the Court. The basis. when they used their business judgment to close the establishment because of serious business losses. A fraction of at least six (6) months shall be considered as one (1) whole year. The rule. x x x. they cannot be held solidarily liable with the corporation for the payment of separation pay and labor standard benefits to private respondents. Article 283 provides as an authorized cause in the termination of employment the "closing or cessation of operation of the establishment or undertaking".They contend that even if they were the top corporate officers of Reah's corporation at the time they closed the business. to compel the latter to operate at a continuing loss. Petitioners further maintain that the corporation also cannot be held liable because Article 283 of the Labor Code "orders payment of separation pay only when the closure of the business is due to causes other than serious business losses or financial reverses". [4] If the business closure is due to serious losses or financial reverses." It is not the function of the law nor its intent to supplant the prerogative of management in running its business. NLRC. 31 of the Corporation Code [3] they cannot be held solidarily liable with the corporation.C. however. Ransom) to reinstate its dismissed employees with back wages was declared to be a continuing solidary liability of the company president and all who may have thereafter succeeded to said office after the records failed to identify the officer or agents directly responsible for failure to pay the back wages of its employees. it must have an officer who can be presumed to be the employer. .CCLU v. NLRC. where the most ranking officer of Commart. Thus. In the absence of such proof of serious business losses or financial reverses. and in Gudez v. NLRC[9] an illegal dismissal case. Chua v. In the case at bar. However. petitioner therein. Petitioners have obviously resorted to a misreading of the last sentence of Article 283 which provides that " x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses.""Since Ransom is an artificial person. the employer closing his business is obligated to pay his employees and workers their separation pay. WHETHER OR NOT THE OFFICERS OF REAH'S CORPORATION CAN BE HELD JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN PAYMENT OF THE MONETARY CLAIMS AWARDED PRIVATE RESPONDENTS IN THE ABSENCE OF ANY FINDING OF UNFAIR LABOR PRACTICES OR ILLEGAL DISMISSAL. such as. for instance. it must show proof that the cessation of or withdrawal from business operations was bona fide in character. [6] The exception is when the closure of business or cessation of operations is due to serious business losses or financial reverses. officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. when a corporation violates a provision declared to be penal in nature. as a vehicle for the evasion of an existing obligation. and to confuse legitimate issues". directly or indirectly.[10] also an illegal dismissal case. We now proceed to rule on the corollary issue of whether or not individual petitioners Castulo. Pascua and Valenzuela should be held liable in solidum with the corporation (REAH's) in the payment to private respondents of separation pay and labor standard benefits. the burden of proving that the termination was for a valid or authorized cause shall rest on the employer. is found in Article 212(c) of the Labor Code which provides that "an employer includes any person acting in the interest of an employer. argues that the doctrine laid down in the case of A. Petitioners argue that since the charges of illegal dismissal and unfair labor practices were dismissed by the labor arbiter. the employer must present sufficient proof of its actual or imminent losses. The corporation only in the technical sense is the employer. the corporation has a personality separate and distinct from its officers. III. The Court noted Ransom's subterfuge in organizing another family corporation while the case was on litigation with the intent to phase out the existing corporation in case of an adverse decision. except only where the closure or cessation of operations was due to serious business losses or financial reverses and there is sufficient proof of this fact or condition. the affected employee is entitled to separation pay. WHETHER OR NOT THERE IS LEGAL BASIS FOR THE NLRC TO AFFIRM THE AWARD OF 10% ATTORNEY'S FEES TO PRIVATE RESPONDENTS. where the vicepresident of a corporation was held solidarily liable with the corporation for the payment of the unpaid salaries of its president. can be pierced by the very same law which created it when "the notion of the legal entity is used as a means to perpetrate fraud. in behalf of private respondents. Hence. as what actually happened when it ceased operations a few months after the labor arbiter ruled in favor of Ransom's employees. as an incidence of termination of employment under Article 283. the penalty shall be imposed upon the guilty officer or officers of the corporation. Under the Labor Code.C. the right of affected employees to separation pay is lost for obvious reasons.I." This ruling was eventually applied by the Court in the following cases: Maglutac v. II. This is consistent with the state policy of treating labor as a primary social economic force. an illegal act. Since there was no finding that they violated Sec. As a general rule established by legal fiction.[5] The grant of separation pay. was held solidarily liable with the corporation which thereafter became insolvent and suspended operations. stockholders and members.[11] where the president and treasurer were held solidarily liable with the corporation which had ceased operations but failed to pay the wage and money claims of its employees. whichever is higher. In that case. the corporation has a personality that is separate and distinct from its officers and stockholders. the corporation's alleged serious business losses and financial reverses were not amply shown or proved.[7] The Solicitor General. is that in all cases of business closure or cessation of operation or undertaking of the employer. affording full protection to its rights as well as its welfare. NLRC [8] should be applied to the case at bar. in which case. WHETHER OR NOT PETITIONERS-OFFICERS CAN BE HELD JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN THE PAYMENT OF SEPARATION PAY TO PRIVATE RESPONDENTS UNDER ARTICLE 283 OF THE LABOR CODE. This fictional veil. a judgment against a corporation (A. Ransom Labor Union . therefore. the separation pay shall be equivalent to one (1) month pay or at least () month pay for every year of service.

the decision of respondent National Labor Relations Commission is hereby AFFIRMED in so far as it holds petitioners Castulo. As the NLRC aptly stated: "Neither did respondents (petitioners) present any evidence to prove that Reah's closure was really due to SERIOUS business losses or financial reverses. instead. as a vehicle for the evasion of existing obligations. coffee shop. that the "company totally folded for lack of patrons. at the same time.These cases. SO ORDERED. or a showing that the officers indiscriminately stopped its business to perpetrate an illegal act. . In the case at bar. we cannot allow labor to go home with an empty victory. Pascua and Valenzuela solidarily liable with Reah's Corporation because the law presumes that they have acted in the latter's interest when they obstinately refused to grant the labor standard benefits and separation pay due private respondent-employees.000 to P20.000. among others. they abruptly closed business. We only have respondents mere say-so on the matter. In fine. and massage clinic in November 1990. [15] or under Article 222 those arising from collective bargaining negotiations that may be charged against union funds in an amount to be agreed upon by the parties. as if the entity were an automaton designed to perform functions at the push of a button.[12] to justify solidary liability. But in its petition. petitioners are bound by the allegations contained in their pleading. these officers were conscious that the corporation was violating labor standard provisions but they did not act to correct these violations. however. knowing fully well that they had no substantial proof in their hands to prove such losses. (disconnection of) light and discontinuance of the leased premises [sic] for failure to pay the increased monthly rentals from P8. At the very least. NLRC. the thrust of petitioners' arguments was aimed at confining liability solely to the corporation. as what we held in Pabalan v. the Court presumes that Reah's Corporation had become insolvent and therefore would be unable to satisfy the judgment in favor of its employees. 10% attorneys fees may be assessed only in cases where there is an unlawful withholding of wages. Neither would it be oppressive to capital to hold petitioners Castulo."[13] This uncaring attitude on the part of the officers of Reah's gives credence to the supposition that they simply ignored the side of the workers who. should be construed still as exceptions to the doctrine of separate personality of a corporation which should remain as the guiding rule in determining corporate liability to its employees. is not limited to payment of separation pay under Article 283 but also payment of labor standard benefits such as underpayment of wages."[14] Under the Rules of Evidence. The findings of the NLRC did not indicate whether or not Reah's Corporation has continued its personality after it had stopped operations when it closed its sing-along. The issue. Pascua. and Valenzuela jointly and severally liable with Reah's Corporation to pay all private respondents separation pay and private respondents Red and Tulabing other monetary benefits but the award of ten percent (10%) attorneys fees is hereby DELETED for lack of factual and legal basis. in circumvention of statutes. Under these circumstances. petitioners have opted to abstain from presenting sufficient evidence to establish the serious and adverse financial condition of the company. The Court finds this portion of the assailed decision to have been rendered with grave abuse of discretion as both the labor arbiter and the NLRC failed to make an express finding of fact and cite the applicable law to justify the grant of such award. Since petitioners themselves have admitted that they have dissolved the corporation de facto. None of these situations exists in the case at bar. Neither did they offer separation pay to the employees as they conveniently resorted to a lame excuse that they suffered serious business losses. While there is no sufficient evidence to conclude that petitioners have indiscriminately stopped the entity's business. holiday pay and 13th month pay to two of the private respondents. more or less. and to confuse legitimate issues. "there must be an allegation or showing that the officers of the corporation deliberately or maliciously designed to evade the financial obligation of the corporation to its employees". Under Article 111 of the Labor Code. petitioners aver. however. The last issue raised by petitioners is whether there is legal basis for the payment of 10% attorney's fees out of the total amount awarded to private respondents Red and Tulabing. WHEREFORE. were only demanding what is due them in accordance with law.

with a total annual production exceeding one-third of the production of all the sugar central mills in the province. being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt. 1937. it was proposed to execute amended milling contracts. Originally executed in 1919. On August 20. and the Limited co-partnership Gonzaga and Company. 11 SESSION DE LA JUNTA DIRECTIVA AGOSTO 20. xxx xxx 9. and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. L-15092 May 18.. acuerda enmendar el contrato de molienda enmendado medientelas siguentes: xxx G. had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. Teehankee and Carreon for plaintiffs-appellants.. de Negros Occidental. Appellants signed and executed the printed Amended Milling Contract on September 10.5%) to their planters. vs.a printed Amended Milling Contract form was drawn up. INC. adopted a resolution (Acts No.R. Alejandro Montelibano. besides other concessions. To this effect. 1962 ALFREDO MONTELIBANO. la Junta en consideracion a una peticion de los plantadores hecha por un comite nombrado por los mismos. Inc.. otorgado por — y la Bacolod-Murcia Milling Co. defendant-appellee.. said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop. — Previa mocion debidamente secundada.. with the notation — Las enmiendas arriba transcritas forman parte del contrato de molienda enmendado.33%. J. Thereupon. concedieren a sus plantadores mejores condiciones que la estipuladas en el presente contrato. in its Civil Case No. entonces esas mejores condiciones se concederan y por el presente se entenderan concedidas a los platadores que hayan otorgado este Contrato de Molienda Enmendado. After trial. Tañada. BACOLOD-MURCIA MILLING CO. Acuerdo No.: Appeal on points of law from a judgment of the Court of First Instance of Occidental Negros. lascentrales azucareras. 1.B. that the resolution in question was. 1936. had already granted increased participation (of 62. . resisted the claim. inc. REYES. from 60% to 62. No.a Que si durante la vigencia de este contrato de Molienda Enmendado. In 1953.L. was not attached to the printed contract until April 17. Alfredo Montelibano. 1936.1äwphï1. signed by the Central's General Manager. 1936. ET AL. and defended by urging that the stipulations contained in the resolution were made without consideration. heretofore quoted. plaintiffs duly appealed to this Court. cuya produccion anual de azucar centrifugado sea mas de una tercera parte de la produccion total de todas lascentrales azucareras de Negros Occidental. The bone of contention is paragraph 9 of this resolution... that reads as follows: ACTA No. Inc. and that under paragraph 9 of the resolution of August 20. dismissing plaintiff's complaint that sought to compel the defendant Milling Company to increase plaintiff's share in the sugar produced from their cane.ñët It is undisputed that plaintiffs-appellants. but a copy of the resolution of August 10. The appellee Bacolod-Murcia Milling Co. the Board of Directors of the appellee Bacolod-Murcia Milling Co. J. contending that three Negros sugar centrals (La Carlota.. 1936. increasing the planters' share to 60% of the manufactured sugar and resulting molasses. 2603. the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). 1) granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. Binalbagan-Isabela and San Carlos). Hilado and Hilado for defendant-appellee. plaintiffs-appellants. null and void ab initio. but extending the operation of the milling contract from the original 30 years to 45 years. starting from the 1951-1952 crop year. 1936 xxx xxx xxx Acuerdo No. the court below rendered judgment upholding the stand of the defendant Milling company. therefore. and dismissed the complaint. the appellants initiated the present action. Sometime in 1936. 11..

save as modified by its resolution of August 20. They hold such office charged with the duty to act for the corporation according to their best judgment. the proposed milling contract. the corporation has the power to do it. since it was conditioned on other centrals granting better concessions to their planters. the appellants were not yet obligated by the terms of the printed contract. The rule is that — It is a question. the planters having agreed to the 60-40 sharing of the sugar set forth in the printed "amended milling contracts". or not at all. that paragraph was not yet in effect. Stress is placed on the fact that the text of the Resolution of August 20. the President of the Planters Association (Exhibit 4. Vol. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. 1936 (Exhibit 4) only made mention of 90%. There was no reason in 1936 to emphasize a concession that was not yet. It follows from the foregoing that the terms embodied in the resolution of August 20. But a reading of this report shows that it was not intended to inventory all the details of the amended contract. Since there is no rational explanation for the company's assenting to the further concessions asked by the planters before the contracts were signed. and that it was approved on August 20. is further shown by the fact that a copy of the resolution was simply attached to the printed contract without special negotiations or agreement between the parties. 1936. and we are satisfied that such was also the understanding of appellants herein. and. And the fact that the addendum is only signed by the General Manager of the milling company emphasizes that the addition was made solely in order that the memorial of the terms of the agreement should be full and complete. Otherwise there would have been no consent or "meeting of the minds". and not a separate bargain. is done for the purpose of serving corporate ends. . There can be no novation unless two distinct and successive binding contracts take place. except in the case of statutory forms or solemn agreements (and it is not claimed that this is one). But the conduct of the parties indicates that they assumed. The Directors of the appellee Milling Company had no reason at the time to call attention to the provisions of the resolution in question. and the appellee actually modified it by adopting the resolution in question. signed on September 10. 1936. and might never be. 1936. pp. it is valid and binding. that the signing of the contract on September 10. Corp. p. the promises and obligations undertaken thereunder by the planters. Much is made of the circumstance that the report submitted by the Board of Directors of the appellee company in November 19. on September 10. the court has no authority to review them.We agree with appellants that the appealed decisions can not stand.. 6. and they do not now deny. the printed form was no more than a proposal that either party could modify at its pleasure. 1936. and the court is without authority to substitute its judgment of the board of directors. 1936. But. of the Amended Milling Contract itself. or close down at a smaller loss. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business. in each case of the logical relation of the act to the corporate purpose expressed in the charter. 1950. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation. It must be remembered that the controverted resolution was adopted by appellee corporation as a supplement to. but when the report was made. the appellants should reject them or consider them as separate and apart from the main amended milling contract. Vol. in the face of such concessions. and so long as it acts in good faith its orders are not reviewable by the courts. to allow the company now to retract such concessions would be to sanction a fraud upon the planters who relied on such additional stipulations. 1937. and the only major change was paragraph 9 heretofore quoted. Ed. twenty-one days prior to the signing by appellants on September 10. at the time. 2. Whether the business of a corporation should be operated at a loss during depression. and not otherwise prohibited. p. otherwise. not. 1936. That agreement had to exist on the basis of the printed terms as modified by the resolution of August 20. it may fairly be considered within charter powers. and not in a remote and fanciful sense. If that act is one which is lawful in itself. is a purely business and economic problem to be determined by the directors of the corporation and not by the court. it is the assent and concurrence (the "meeting of the minds") of the parties. and whether or not it will cause losses or decrease the profits of the central. 1936. So that by September 10. No reason appears of record why. fairly incident to the express powers and reasonably necessary to their exercise. the board is the business manager of the corporation. or further amendment of. The same considerations apply to the "void innovation" theory of appellees. When the resolution was adopted and the additional concessions were made by the company. (Fletcher Cyc. Hence. therefore. the concessions granted by the disputed resolution had been already incorporated into its terms. and is reasonably tributary to the promotion of those ends. If so. and did not make any reference at all to the terms of the resolution of August 20. and that the minds of the parties met upon that basis. except as further inducement for the planters to agree to the extension of the contract period. specially taking into account that appellant Alfredo Montelibano was. (Fletcher on Corporations. since it contained mostly modifications in detail of the printed terms. the conclusion of the court below that the resolution constituted gratuitous concessions not supported by any consideration is legally untenable. 390). did give rise to a binding agreement. and not the setting down of its terms. particularly. 1936 defendant corporation already understood that the printed terms were not controlling. 1936 were supported by the same causa or consideration underlying the main amended milling contract. i. with the later designed to replace the preceding convention. Modifications introduced before a bargain becomes obligatory can in no sense constitute novation in law. since they admittedly did not sign it until twenty-one days later. 1936 was not attached to the printed contract until April 17. 11) that had agitated for the concessions embodied in the resolution of August 20. and that did not happen until after 1950. and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. the extension of its operative period for an additional 15 years over and beyond the 30 years stipulated in the original contract. in effective operation. That the resolution formed an integral part of the amended milling contract. and no binding contract at all. Before that date. But this was not the case. numerous provisions of the printed terms are alao glossed over. Rev.. in a substantial.e. All disquisition concerning donations and the lack of power of the directors of the respondent sugar milling company to make a gift to the planters would be relevant if the resolution in question had embodied a separate agreement after the appellants had already bound themselves to the terms of the printed milling contract. that constitutes a binding contract. so that when the Milling Contract was executed. 266-268) As the resolution in question was passed in good faith by the board of directors.

4.: Appeal on points of law from a judgment of the Court of First Instance of Occidental Negros. 1. 11. de Negros Occidental. for the 1951-1952 crop year. la Junta en consideracion a una peticion de los plantadores hecha por un comite nombrado por los mismos... The bone of contention is paragraph 9 of this resolution. defendant-appellee. but extending the operation of the milling contract from the original 30 years to 45 years. increasing the planters' share to 60% of the manufactured sugar and resulting molasses.1äwphï1. had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. acuerda enmendar el contrato de molienda enmendado medientelas siguentes: xxx xxx xxx 9. but a copy of the resolution of August 10.3% for the 1953-1954 crop year. WHEREFORE. Sometime in 1936. 1936. over and in addition to the 60% expressed in the printed Amended Milling Contract. Appellants signed and executed the printed Amended Milling Contract on September 10. J.33%.B. 1936 xxx xxx xxx Acuerdo No. under the terms of its Resolution of August 20. 1936. or the value thereof when due. Bacolod-Murcia Milling Co.333% to appellant Gonzaga & Co.5% for 1954-55. with interest at the legal rate on the value of such differential during the time they were withheld. 2. 1953. the Board of Directors of the appellee Bacolod-Murcia Milling Co. G. 64.R.And it appearing undisputed in this appeal that sugar centrals of La Carlota. BACOLOD-MURCIA MILLING CO. Originally executed in 1919. No. and the Limited co-partnership Gonzaga and Company. from 60% to 62. that reads as follows: ACTA No. lascentrales azucareras.5% for the 1955-1956 crop year. besides other concessions. and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. it was proposed to execute amended milling contracts. adopted a resolution (Acts No. 2603.2% for 1952-53. 4.. entonces esas mejores condiciones se concederan y por el presente se entenderan concedidas a los platadores que hayan otorgado este Contrato de Molienda Enmendado. To this effect. concedieren a sus plantadores mejores condiciones que la estipuladas en el presente contrato. said appellants having received an additional 2% corresponding to said year in October. Alfredo Montelibano. in its Civil Case No. Hilado and Hilado for defendant-appellee. 64. Acuerdo No.333% for the 1951-52 crop year. dismissing plaintiff's complaint that sought to compel the defendant Milling Company to increase plaintiff's share in the sugar produced from their cane. signed by the Central's General Manager.5% for the 1954-1955 crop year. 1962 ALFREDO MONTELIBANO. and 63. and judgment is decreed sentencing the defendant-appellee to pay plaintiffs-appellants the differential or increase of participation in the milled sugar in accordance with paragraph 9 of the appellee Resolution of August 20. the appellee Bacolod-Murcia Milling Company is. 11 SESSION DE LA JUNTA DIRECTIVA AGOSTO 20. On August 20. 3. the decision under appeal is reversed and set aside. San Carlos and Binalbagan (which produce over one-third of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their adhered planter at an average rate of 62. L-15092 May 18. said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop.3% for 1953-54. 1937. INC. Costs against appellee.. and to all appellants thereafter — 4. 1936. Inc. J. — Previa mocion debidamente secundada.. vs. ET AL.. a printed Amended Milling Contract form was drawn up. 1) granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. REYES.L. Alejandro Montelibano. Tañada. and the right is reserved to plaintiffs-appellants to sue for such additional increases as they may be entitled to for the crop years subsequent to those herein adjudged. with the notation — .5% for 1955-56. Teehankee and Carreon for plaintiffs-appellants. cuya produccion anual de azucar centrifugado sea mas de una tercera parte de la produccion total de todas lascentrales azucareras de Negros Occidental. Hawaiian Philippines. 64. plaintiffs-appellants. as follows: 0. 1936.ñët It is undisputed that plaintiffs-appellants.. starting from the 1951-1952 crop year. 1936.a Que si durante la vigencia de este contrato de Molienda Enmendado.2% for the 1952-1953 crop year. was not attached to the printed contract until April 17. duty bound to grant similar increases to plaintiffs-appellants herein.333% to appellants Montelibano for the 1951-1952 crop year.

But the conduct of the parties indicates that they assumed. and the only major change was paragraph 9 heretofore quoted. and that did not happen until after 1950. it is the assent and concurrence (the "meeting of the minds") of the parties. The appellee Bacolod-Murcia Milling Co. that the resolution in question was. It must be remembered that the controverted resolution was adopted by appellee corporation as a supplement to. the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). But.. When the resolution was adopted and the additional concessions were made by the company. twenty-one days prior to the signing by appellants on September 10. and that it was approved on August 20. Modifications introduced before a bargain becomes obligatory can in no sense constitute novation in law. and not otherwise prohibited. So that by September 10. 11) that had agitated for the concessions embodied in the resolution of August 20. is done for the purpose of serving corporate ends. in the face of such concessions. and defended by urging that the stipulations contained in the resolution were made without consideration. the corporation . or further amendment of. and is reasonably tributary to the promotion of those ends. the extension of its operative period for an additional 15 years over and beyond the 30 years stipulated in the original contract. contending that three Negros sugar centrals (La Carlota. is further shown by the fact that a copy of the resolution was simply attached to the printed contract without special negotiations or agreement between the parties. Before that date.e.Las enmiendas arriba transcritas forman parte del contrato de molienda enmendado. 1936. But this was not the case. the appellants initiated the present action. and not the setting down of its terms. or not at all. and that under paragraph 9 of the resolution of August 20. Thereupon. Since there is no rational explanation for the company's assenting to the further concessions asked by the planters before the contracts were signed. We agree with appellants that the appealed decisions can not stand. had already granted increased participation (of 62. fairly incident to the express powers and reasonably necessary to their exercise. save as modified by its resolution of August 20. That the resolution formed an integral part of the amended milling contract. 1936. the promises and obligations undertaken thereunder by the planters. Binalbagan-Isabela and San Carlos). and might never be. the appellants were not yet obligated by the terms of the printed contract. inc. and. If so. The rule is that — It is a question. p. that constitutes a binding contract. otorgado por — y la Bacolod-Murcia Milling Co. since it was conditioned on other centrals granting better concessions to their planters. with the later designed to replace the preceding convention. The Directors of the appellee Milling Company had no reason at the time to call attention to the provisions of the resolution in question. did give rise to a binding agreement. therefore. 1936 defendant corporation already understood that the printed terms were not controlling. the appellants should reject them or consider them as separate and apart from the main amended milling contract. of the Amended Milling Contract itself. the printed form was no more than a proposal that either party could modify at its pleasure. at the time. There was no reason in 1936 to emphasize a concession that was not yet. 1936. It follows from the foregoing that the terms embodied in the resolution of August 20. Otherwise there would have been no consent or "meeting of the minds". i. And the fact that the addendum is only signed by the General Manager of the milling company emphasizes that the addition was made solely in order that the memorial of the terms of the agreement should be full and complete. since it contained mostly modifications in detail of the printed terms. That agreement had to exist on the basis of the printed terms as modified by the resolution of August 20.5%) to their planters... 1936. Much is made of the circumstance that the report submitted by the Board of Directors of the appellee company in November 19. But a reading of this report shows that it was not intended to inventory all the details of the amended contract. Inc. the court below rendered judgment upholding the stand of the defendant Milling company. No reason appears of record why. the conclusion of the court below that the resolution constituted gratuitous concessions not supported by any consideration is legally untenable. therefore. 1937. 1936. except in the case of statutory forms or solemn agreements (and it is not claimed that this is one). plaintiffs duly appealed to this Court. In 1953. There can be no novation unless two distinct and successive binding contracts take place. numerous provisions of the printed terms are alao glossed over. particularly. the concessions granted by the disputed resolution had been already incorporated into its terms. specially taking into account that appellant Alfredo Montelibano was. and dismissed the complaint. All disquisition concerning donations and the lack of power of the directors of the respondent sugar milling company to make a gift to the planters would be relevant if the resolution in question had embodied a separate agreement after the appellants had already bound themselves to the terms of the printed milling contract. After trial. since they admittedly did not sign it until twenty-one days later. 1936. so that when the Milling Contract was executed. that paragraph was not yet in effect. 1936 (Exhibit 4) only made mention of 90%. resisted the claim. and the appellee actually modified it by adopting the resolution in question. but when the report was made. heretofore quoted. and not a separate bargain. 1936 was not attached to the printed contract until April 17. in a substantial. with a total annual production exceeding one-third of the production of all the sugar central mills in the province. The same considerations apply to the "void innovation" theory of appellees. the planters having agreed to the 60-40 sharing of the sugar set forth in the printed "amended milling contracts". and not in a remote and fanciful sense. If that act is one which is lawful in itself. and they do not now deny. the proposed milling contract. on September 10. signed on September 10. Stress is placed on the fact that the text of the Resolution of August 20. 1936 were supported by the same causa or consideration underlying the main amended milling contract. to allow the company now to retract such concessions would be to sanction a fraud upon the planters who relied on such additional stipulations. Hence. that the signing of the contract on September 10. in each case of the logical relation of the act to the corporate purpose expressed in the charter. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. null and void ab initio. and did not make any reference at all to the terms of the resolution of August 20. and that the minds of the parties met upon that basis. in effective operation. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business. being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.. 1936. the President of the Planters Association (Exhibit 4. 1936. and we are satisfied that such was also the understanding of appellants herein. it may fairly be considered within charter powers. and no binding contract at all. except as further inducement for the planters to agree to the extension of the contract period.

Mr. the board is the business manager of the corporation. not.333% to appellant Gonzaga & Co. the court has no authority to review them. the judgment appealed from is hereby affirmed in toto. Hawaiian Philippines. as follows: 0.: 62. in view of the foregoing. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation. Whether the business of a corporation should be operated at a loss during depression. vs. Trazo. commencing September. respondents.70. otherwise. 4.000 bags (94 lbs/bag) of white cement per month. 64. as found by the trial court and as adopted by the respondent Court are hereby quoted. said appellants having received an additional 2% corresponding to said year in October. under the terms of its Resolution of August 20. 1 The facts. 1953. 2. Rev.2% for the 1952-1953 crop year.333% to appellants Montelibano for the 1951-1952 crop year. 1936.. petitioner. and the right is reserved to plaintiffs-appellants to sue for such additional increases as they may be entitled to for the crop years subsequent to those herein adjudged. for the 1951-1952 crop year.. Ed. and to all appellants thereafter — 4. Bacolod-Murcia Milling Co. is a purely business and economic problem to be determined by the directors of the corporation and not by the court. or the value thereof when due. Vol.3% for 1953-54. as Chairman of the Board.5% for 1955-56. (Fletcher on Corporations. 1969. G. 1970. and so long as it acts in good faith its orders are not reviewable by the courts. 64. L-68555 March 19. HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE.333% for the 1951-52 crop year. pp. sell to and supply the plaintiff. and judgment is decreed sentencing the defendant-appellee to pay plaintiffs-appellants the differential or increase of participation in the milled sugar in accordance with paragraph 9 of the appellee Resolution of August 20. or close down at a smaller loss. 6. (Fletcher Cyc. as dealer with 20. FOB Davao and Cagayan de Oro ports.2% for 1952-53. it is valid and binding.5% for the 1954-1955 crop year. p. San Carlos and Binalbagan (which produce over one-third of the entire annual sugar production in Occidental Negros) have granted progressively increasing participations to their adhered planter at an average rate of 2. and whether or not it will cause losses or decrease the profits of the central. with interest at the legal rate on the value of such differential during the time they were withheld. 4. JR. per bag of white cement. the appellee Bacolod-Murcia Milling Company is. and the court is without authority to substitute its judgment of the board of directors. The corporation shall. CAMPOS. Zosimo Falcon and Justo C. And it appearing undisputed in this appeal that sugar centrals of La Carlota. . 1993 PRIME WHITE CEMENT CORPORATION. 1950.3% for the 1953-1954 crop year. to wit: On or about the 16th day of July.. 266-268) As the resolution in question was passed in good faith by the board of directors. duty bound to grant similar increases to plaintiffs-appellants herein. Philippine Currency. J. Vol. entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years and proving (sic) among others that: a.5% for 1954-55. the dispositive portion of which reads as follows: WHEREFORE. and 63.has the power to do it. 64. They hold such office charged with the duty to act for the corporation according to their best judgment. 1936. 3. b. plaintiff and defendant corporation thru its President. and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement Corporation seeking the reversal of the decision * of the then Intermediate Appellate Court. No.5% for the 1955-1956 crop year. Costs against appellee. The plaintiff shall pay the defendant corporation P9. 390). over and in addition to the 60% expressed in the printed Amended Milling Contract. the decision under appeal is reversed and set aside.R. WHEREFORE. Corp.

The price of white cement is subject to readjustment unilaterally on the part of the defendant. Right after the plaintiff entered into the aforesaid dealership agreement. Neither is the genuineness of the said agreement contested. defendant refused to comply with the same. so much so. plaintiff sometime in the months of September. 1969 (Exhibits R and R-1) and was even congratulated by his business associates. in the Manila Chronicle dated August 16. Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting. the defendant corporation.000. The price of white cement was priced at P13. I. they were the President and Chairman of the Board.000 bags of white cement per month for only a period of three (3) months will be delivered. b. g. (Exhibit C). 1970 (Exhibit B). more particularly. 1970 (Exhibits O. Q. replied that the board of directors of the said defendant decided to impose the following conditions: a. O2. by September.30 per bag. Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. Only 8. the trial court adjudged the corporation liable to Alejandro Te in the amount of P3. 3 In this petition for review. this suit. October. and December. (Plaintiff's Record on Appeal. 2 After trial. The plaintiff shall. P-2. he placed an advertisement in a national.c. circulating newspaper the fact of his being the exclusive dealer of the defendant corporation's white cement products in Mindanao area. The place of delivery of white cement shall be Austurias (sic). The appellate court affirmed the said decision mainly on the following basis. In reply to the aforesaid letter of the plaintiff. which were concluded in anticipation of. looking forward to the defendant corporation's duty to comply with the dealership agreement. G. P-1. Trazo signed the dealership agreement Exhibit "A". 1969.00 as and for attorney's fees and costs. Makati Branch. the defendant corporation thru its corporate secretary. unconditional.000 bags regular supply of the said commodity.000 bags of white cement can be disposed of. and P10. and irrevocable letter of credit in favor of the corporation and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped. P. 1970.400. entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20. of defendant-appellant corporation.302. As a matter of fact. petitioner Prime White Cement Corporation made the following assignment of errors. open with any bank or banking institution a confirmed. After the plaintiff was assured by his supposed buyer that his allocation of 20.000. however. When they. he informed the defendant corporation in his letter dated August 18. he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area. Q-1 and Q-2). and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties. R. Delivery of white cement shall commence at the end of November. 4 I . xxx xxx xxx Several demands to comply with the dealership agreement (Exhibits D. 86-90). 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September. and with evident intention not to be bound by the terms and conditions thereof. L. The letter of credit may be opened only with the Prudential Bank. d. Falcon and Justo B. f. O-1. in violation of. therefore. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. c. entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao (Exhibit T) hence. pp. it appears on the face of the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of the corporation. and pursuant to the said dealership agreement.00 as actual damages.00 as moral damages. P100. entered into the said transaction they created the impression that they were duly clothed with the authority to do so. respectively. and N) were made by the plaintiff to the defendant. every time the defendant corporation is ready to deliver the good. and We quote: There is no dispute that when Zosimo R. e. Relying heavily on the dealership agreement. E.

For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement. As corporate managers. In the instant case respondent Te was not an ordinary stockholder. 5 as well as under the present Corporation Code. which was then in force at the time this case arose. PRINCIPLE AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL CODE. That the contract is fair and reasonable under the circumstances. directors are committed to seek the maximum amount of profits for the corporation. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly." 10 In the case ofGokongwei v. Litton. 9 In case his interests conflict with those of the corporation. 2. Implied ratification may take various forms — like silence or acquiescence. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. purportedly acting for the corporation. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. thus: There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. . he owes a duty of loyalty to his corporation. provided the same is reasonable under the circumstances. it may be ratified by the stockholders provided a full disclosure of his adverse interest is made.. a person outside the corporation. 8 These rules are basic. He was what is often referred to as a "self-dealing" director. and . This trust relationship "is not a matter of statutory or technical law. Dealings of directors. He cannot utilize his inside information and his strategic position for his own preferment. is dealing with a third person. 11 thus: . . . — A contract of the corporation with one or more of its directors or trustees or officers is voidable. We do not agree with the conclusion of the respondent Court that it is. or advantage of the fiduciary to the exclusion or detriment of the cestuis. may still bind the corporation if the board should ratify the same expressly or impliedly. 7 Furthermore. . at the option of such corporation. 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. . . 6Although it cannot completely abdicate its power and responsibility to act for the juridical entity. he cannot sacrifice the latter to his own advantage and benefit. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. preference. The situation is quite different where a director or officer is dealing with his own corporation. That the vote of such director or trustee was not necessary for the approval of the contract. Securities and Exchange Commission. on behalf of the corporation. Section 32 of the Corporation Code provides. even in the absence of express or implied authority by ratification. or by acceptance and retention of benefits flowing therefrom. Sec. On the other hand. If the contract is fair and reasonable under the circumstances. as a general rule. COURSE OF JUDICIAL PROCEEDINGS. . In the absence of such express delegation. . he was a member of the Board of Directors and Auditor of the corporation as well. but are all general and thus quite flexible. unless all the following conditions are present: Under the Corporation Law. the Board may expressly delegate specific powers to its President or any of its officers. a director's contract with his corporation is not in all instances void or voidable. bind the 1. this Court quoted with favor from Pepper v. a contract entered into by its President. all corporate powers shall be exercised by the Board of Directors. A director of a corporation holds a position of trust and as such. except as otherwise provided by law. . by acts showing approval or adoption of the contract. 3. the President as such may.THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS. II THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE. III THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE. PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION. corporation by a contract in the ordinary course of business. IV THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER. i. 32. e. V IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED USUAL. They apply where the President or other officer. trustees or officers with the corporation.

prices of commodities in general. or at least must be presumed to know. Despite this. the price was pegged at P9. 1969. such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided. the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes the whole situation.000 bags of white cement per month. the contract with the officer has been previously authorized by the Board of Directors. he was attempting in effect. In the light of the circumstances of this case. Where any of the first two conditions set forth in the preceding paragraph is absent. 1970. petitioner corporation had not even commenced the manufacture of white cement. In fact. why did the President and the Chairman of the Board not do so either? As director.70 per bag. for five years starting September. Why did he not protect the corporation in the same manner when he entered into the "dealership agreement"? For that matter. The contract was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty. He must have known that within that period of six years. and by the middle of 1975. the reason why delivery was not to begin until 14 months later. 12 Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person other than a director or officer of the corporation. when he subsequently entered into contracts to resell the cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as follows: The price of white cement shall be mutually determined by us but in no case shall the same be less than P14. are hereby SET ASIDE. We believe that the contract was neither fair nor reasonable. 1984. would require such a provision.50. 1970. Yet. it is to Us quite clear that he was guilty of disloyalty to the corporation. on October 13. .00 for attorney's fees. was to sell and supply to respondent Te 20. As a result of this action which has been proven to be without legal basis. the Decision and Resolution of the Intermediate Appellate Court dated March 30.70 per bag for the whole five years of the contract. respondent Te's own Memorandum shows that in September.00 per bag (94 lbs). There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. in the case of a contract with a director or trustee. In fact. were not stable and were expected to rise. In view of the foregoing. there would be a considerable rise in the price of white cement. there can be no award for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation. the contracts were for only two years from October. However. petitioner corporation's reputation and goodwill have been prejudiced. 15 All of these contracts were entered into soon after his "dealership agreement" with petitioner corporation. this unfairness in the contract is also a basis which renders a contract entered into by the President. and that with Gaudencio Galang. however. The "dealership agreement" entered into in July. to enrich himself at the expense of the corporation. Fairness on his part as a director of the corporation from whom he was to buy the cement. At the time of the contract.50 per bag.70 per bag for a period of five years was not fair and reasonable. respondent Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. himself. 1970. without authority from the Board of Directors. specially since he was the other party in interest.4. void or voidable. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided. Private respondent Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20. Although the old Corporation Law which governs the instant case did not contain a similar provision. respectively. Respondent Te is a businessman himself and must have known. We believe that the fixed price of P9. the price per bag was P14. A similar contract with Prudencio Lim was made on December 29. 1984 and August 6. although it may have been in the ordinary course of business. it was already P37. First of all. that at that time. That the contract is fair and reasonable under the circumstances. Respondent Te. plus the cost of suit and expenses of litigation. and white cement in particular.000. yet the cited provision substantially incorporates well-settled principles in corporate law. The contract with Henry Wee was on September 15. and in each one of them he protected himself from any increase in the market price of white cement. Instead. 1967. 1969. 1969. SO ORDERED. at thefixed price of P9. That in the case of an officer. except for the contract with Henry Wee. no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties.