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1) G.R. No.

L-69259 January 26, 1988

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate
in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila).
The said co-owners leased to Construction Components International Inc. the same property and
providing that during the existence or after the term of this lease the lessor should he decide to sell the
property leased shall first offer the same to the lessee and the letter has the priority to buy under similar
Lessee Construction Components International, Inc. assigned its rights and obligations under the contract
of lease in favor of Hydro Pipes Philippines, Inc.
A deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the leased property.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in
the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.
ISSUE: WON Hydro has better rights over theoption to buy the subject property.
NO. After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing
stock directly from the corporation or from individual owners. In the case at bar, in exchange for their
properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher
Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by
subscription "The essence of the stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p.
430) It is significant that the Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated proportionate interest in the capital stock
measured by value, but only an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot
sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath
a false appearance of a given sum in money, as in the case of par value shares.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control
of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also
belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their properties and at the same time
save on inheritance taxes.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a
third party. The Pacheco family merely changed their ownership from one form to another. The
ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a
light of first refusal under the lease contract.

2 )G.R. Nos. L-48195 and 48196

May 1, 1942


Petitioners purchased the following:

o T.





purchase price to be paid 5% upon the execution of the contract and the remainder in installments of 5%,
payable within the 1st month of each and every quarter startingJuly 1, 1935, w/ interest on deferred
payments at 6%/annum until paid
They also agreed to forfeit in favor of seller in case of default w/o court proceedings.

BOD resolution Aug 1, 1937: rescinding the agreement.

Petitoners filed an action in the CFI against Silang Traffic Co. Inc to recover certain sum of money w/c
they had paid severally to the corp. on account of shares of stock they indiv. agreed to take and pay for
under certain conditions.
Defenses: That the resolution is not applicable to the petitioners Sofronio T. Bayla, Josefa Naval, and Paz
Toledo because on the date thereof "their subscribed shares of stock had already automatically reverted
to the defendant, and the installments paid by them had already been forfeited"
that said resolution of August 1, 1937, was revoked and cancelled by a subsequent resolution
ISSUES: WON under the contract between the parties the failure of the purchaser to pay any of the
quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already
paid and the reversion of the shares to the corporation
NO. The provision regarding interest on deferred payments would not have been inserted if it had been
the intention of the parties to provide for automatic forfeiture and cancelation of the contract.
Contract did not expressly provide that the failure of the purchaser to pay any installment would give rise
to forfeiture and cancelation without the necessity of any demand from the seller.
Art. 1100 of the Civil Code: persons obliged to deliver or do something are not in default until the moment
the creditor demands of them judicially or extrajudicially the fulfillment of their obligation, unless 1) the
obligation or the law expressly provides that demand shall not be necessary in order that default may
arise or 2) by reason of the nature and circumstances of the obligation it shall appear that the
designation of the time at which that thing was to be delivered or the service rendered was the principal
inducement to the creation of the obligation.

Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.

GR L-21601
December 28, 1968
By: Karen P. Lustica
FACTS: Before World War II, an operating agreement was executed between
Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. whereby the
former operated and managed the mining properties owned by the latter for
a management fee of P2,500.00 a month and a 10% participation in the net
profits resulting from the operation of the mining properties, for a period of 5
Lepanto modified a pertinent provision of the contract. This time, Nielson will
receive (1) 10% of the dividends declared and paid, when and as paid, during
the period of the contract and at the end of each year, (2) 10% of any
depletion reserve that may be set up, and (3) 10% of any amount expended
during the year out of surplus earnings for capital account.
Both parties agreed to renew the contract for a period of 5 years. But the
operation of the mining properties was disrupted on account of the war.
After the mining properties were liberated from the Japanese forces, the mine
operation was under Lepantos exclusive management. Lepanto declared
stock dividends worth one million in 1949 and two million in 1950. This was

during the period covered by an extension in the management contract.

However, a disagreement arose between the parties.
Nielson claims
his share in the stock dividends. 0n its motion for
reconsideration, Lepanto contends that the payment to Nielson of stock
dividends as compensation for its services under the management contract
is a violation of the Corporation Law, and that it was not, and it could not be,
the intention of the parties that the services of Nielson should be paid in
shares of stock taken out of stock dividends declared by Lepanto.
ISSUE: WON Nielson is entitled to his share in the stock dividends.
RATIO: Stock dividends cannot be issued to a person who is not a
stockholder in payment of services rendered.
Section 16 of the Corporation Law, in part, provides as follows:
No corporation organized under this Act shall create or issue bills,
notes or other evidence of debt, for circulation as money, and no
corporation shall issue stock or bonds except in exchange for actual
cash paid to the corporation or for: (1) property actually received by it
at a fair valuation equal to the par or issued value of the stock or
bonds so issued; and in case of disagreement as to their value, the
same shall be presumed to be the assessed value or the value
appearing in invoices or other commercial documents, as the case may
be; and the burden or proof that the real present value of the property
is greater than the assessed value or value appearing in invoices or
other commercial documents, as the case may be, shall be upon the
corporation, or for (2) profits earned by it but not distributed among its
stockholders or members; Provided, however, That no stock or bond
dividend shall be issued without the approval of stockholders
representing not less than two-thirds of all stock then outstanding and
entitled to vote at a general meeting of the corporation or at a special
meeting duly called for the purpose.
In the case at bar, Nielson cannot be paid in shares of stock which form part
of the stock dividends of Lepanto for services it rendered under the
management contract. We sustain the contention of Lepanto that the
understanding between Lepanto and Nielson was simply to make the cash
value of the stock dividends declared as the basis for determining the
amount of compensation that should be paid to Nielson, in the proportion of
10 % of the cash value of the stock dividends declared. In other words,

Nielson must still be paid his 10% fee using as the basis for computation the
cash value of the stock dividends declared.
Moreover, from the above-quoted provision of Section 16 of the Corporation
Law, the consideration for which shares of stock may be issued are cash,
property; and undistributed profits. Shares of stock are given the special
name, stock dividends, only if they are issued in lieu of undistributed
profits. If shares of stocks are issued in exchange of cash or property then
those shares do not fall under the category of stock dividends. A
corporation may legally issue shares of stock in consideration of services
rendered to it by a person not a stockholder, or in payment of its
indebtedness. But a share of stock issued to pay for services rendered is
equivalent to a stock issued in exchange of property, because services is
equivalent to property. Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a
share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the
increase of the capitalization of a corporation is properly authorized. In other
words, it is the shares of stock that are originally issued by the corporation
and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the original capitalization or from
the increased capitalization. Those shares of stock may be issued to a person
who is not a stockholder, or to a person already a stockholder in exchange
for services rendered or for cash or property. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
A stock dividend is any dividend payable in shares of stock of the
corporation declaring or authorizing such dividend.
So, a stock dividend is actually two things. - a dividend and the enforced use
of the dividend money to purchase additional shares of stock at par. When a
corporation issues stock dividends, it shows that the corporation
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer. Far from being a realization of profits for the
stockholder, it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to assets
and no longer available for actual distribution. Thus, it is apparent that stock
dividends are issued only to stockholders. This is so because only
stockholders are entitled to dividends. They are the only ones who have a
right to a proportional share in that part of the surplus which is declared as
dividends. % stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the same.
If a stockholder is deprived of his stock dividends - and this happens if the

shares of stock forming part of the stock dividends are issued to a nonstockholder - then the proportion of the stockholders interest changes
radically. Stock dividends are civil fruits of the original investment, and to the
owners of the shares belong the civil fruits.
G.R. No. 118043 July 23, 1998
By: Karen P. Lustica
FACTS: Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a
domestic corporation engaged in the life insurance business. In 1984, it
issued 50,000 shares of stock as stock dividends, with a par value of P 100 or
a total of P 5 million. Petitioner paid documentary stamp taxes on each
certificate on the basis of its par value.
Respondent took the view that the book value of the shares, amounting to
P19,307,500.00, should be used as basis for determining the amount of the
documentary stamp tax. Respondent issued a deficiency documentary stamp
tax assessment in the amount of P 78,991.25 in excess of the par value of
the stock dividends.
Petitioner argued that in determining the amount to be paid as documentary
stamp tax, it is the par value of the certificates of stock or the book value of
the shares which should be considered.
ISSUE: WON the amount to be paid as documentary stamp tax is the par
value of the certificates of stock or the book value of the shares
HELD: It should be the par value of the certificates of stock.
RATIO: Apparently, the Court of Appeals treats stock dividends as distinct
from ordinary shares of stock for purposes of the then 224 of the National
Internal Revenue Code. There is, however, no basis for considering stock
dividends as a distinct class from ordinary shares of stock since under this
provision only certificates of stock are required to be distinguished (into
either one with par value or one without) rather than the classes of shares
SEC. 224 of the NIRC provides that,
Stamp tax on original issues of certificates of stock. -- On every
original issue, whether on organization, reorganization or for any lawful
purpose, of certificates of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of one

peso and ten centavos on each two hundred pesos, or fractional part
thereof, of the par value of such certificates
A stock certificate is merely evidence of a share of stock and not the share
itself. This distinction is clear in the Corporation Code, to wit:
SEC. 63. Certificate of stock and transfer of shares. - The capital stock
of stock corporations shall be divided into shares for which certificates
signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. 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.
No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of
shares transferred.
Moreover, the documentary stamp tax here is not levied upon the specific
transaction which gives rise to such original issuance but on the privilege of
issuing certificates of stock. As held in several cases:
A documentary stamp tax is in the nature of an excise tax. It is not
imposed upon the business transacted but is an excise upon the
privilege, opportunity or facility offered at exchanges for the
transaction of the business. It is an excise upon the facilities used in
the transaction of the business separate and apart from the business
DISPOSITION: The decision of the Court of Appeals is REVERSED insofar as
the deficiency tax assessment on stock dividends is concerned.

FACTS: In the hope-filled but problem-laden aftermath of the EDSA Revolution, President Corazon
C. Aquino issued Executive Order (EO) No. 1, creating the Presidential Commission on Good
Government (PCGG) tasked with, among others, the recovery of all ill-gotten wealth accumulated by
former President Ferdinand Marcos, his immediate family, relatives, subordinates and close
associates. This was followed by EO Nos. 2 and 14, respectively freezing all assets and properties in
the Philippines in which the former President, his wife, their close relatives, subordinates, business
associates, dummies, agents or nominees have any interest or participation, and defining the

jurisdiction over cases involving the ill-gotten wealth. Pursuant to the executive orders, several writs
of sequestration were issued by the PCGG in pursuit of the reputedly vast Marcos fortune.
The Republic then instituted before the Sandiganbayan on July 29, 1987, a complaint for
reconveyance, reversion, accounting, restitution and damages entitled "Republic of the Philippines v.
Emilio T. Yap, Manuel G. Montecillo, Eduardo M. Cojuangco, Jr., Cesar C. Zalamea, Ferdinand E.
Marcos and Imelda R. Marcos" and docketed as Civil Case No. 0022. The complaint substantially
averred that Yap knowingly and willingly acted as the dummy, nominee or agent of the Marcos
spouses in appropriating shares of stock in domestic corporations such as the Bulletin, and for the
purpose of preventing disclosure and recovery of illegally obtained assets. It also averred that Cesar
Zalamea (Zalamea) acted, together with Cojuangco, as dummies, nominees and/or agents of the
Marcos spouses in acquiring substantial shares in Bulletin in order to prevent disclosure and
recovery of illegally obtained assets, and that Zalamea established, together with third persons,
HMHMI which acquired Bulletin.
The complaint was amended joining Cojuangco as Zalameas co-actor instead of mere collaborator.
The complaint was amended for the second time on October 17, 1990. The amendment consisted of
dropping Zalamea as defendant in view of the Deed of Assignment dated October 15, 1987 which he
executed, assigning, transferring and ceding to the Government the 121,178 Bulletin shares
registered in his name.The Second Amended Complaint also included the Estate of Hans M. Menzi
(Estate of Menzi), through its executor, Atty. Manuel G. Montecillo (Atty. Montecillo), as one of the
ISSUE: WON The delivery of a duly indorsed stock certificate is sufficient to transfer ownership of
shares of stock in stock corporations.

The delivery of a duly indorsed stock certificate is sufficient to transfer ownership of

shares of stock in stock corporations; The absence of a deed of assignment is not a
fatal flaw which renders the transfer invalid.The Corporation Code acknowledges that the delivery of a duly indorsed stock
certificate is sufficient to transfer ownership of shares of stock in stock corporations.
Such mode of transfer is valid between the parties. In order to bind third persons,
however, the transfer must be recorded in the books of the corporation. Clearly
then, the absence of a deed of assignment is not a fatal flaw which renders the
transfer invalid as the Republic posits. In fact, as has been held in Rural Bank of Lipa
City, Inc. v. Court of Appeals, the execution of a deed of sale does not necessarily
make the transfer effective.
G.R. No. 95696 March 3, 1992
ALFONSO S. TAN, Petitioner,


FACTS: Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had
four hundred (400) shares of the capital stock standing in his name at the par value of P100.00 per
share, evidenced by Certificate of Stock No. 2. He was elected as President and subsequently
reelected, holding the position as such until 1982 but remained in the Board of Directors until April
19, 1983 as director.
while petitioner was still the president of the respondent corporation, two other incorporators,
namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares, represented
by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate
Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent
Patricia Aguilar by virtue of Resolution No. 1981 (b), which was passed and approved while
petitioner was still a member of the Board of Directors of the respondent corporation.
Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the
five (5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to
his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of
capital stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan
was elected director and on March 27, 1981, the minutes of said meeting was filed with the SEC.
These facts stand unchallenged.
Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on
April 16, 1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6
and 8 were issued, signed by the newly elected fifth member of the Board, Angel S. Tan as Vicepresident, upon instruction of Alfonso S. Tan who was then the president of the Corporation.
During the annual meeting of the corporation, respondent Tan Su Ching was elected as President
while petitioner was elected as Vice-president. He, however, did not sign the minutes of said meeting
which was submitted to the SEC.
When petitioner was dislodged from his position as president, he withdrew from the corporation. on
condition that he be paid with stocks-in-trade equivalent to 33.3% in lieu of the stock value of his
shares in the amount of P35,000.00.
ISSUE: WON A certificate of stock is not necessary to render one a stockholder in corporation.
There is a necessity to delineate the function of the stock itself from the actual delivery or
endorsement of the certificate of stock itself as is the question in the instant case. A certificate of
stock is not necessary to render one a stockholder in corporation.

a certificate of stock is the paper representative or tangible evidence of the stock itself and of the
various interests therein. The certificate is not stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the share represented thereby, but is
not in law the equivalent of such ownership. It expresses the contract between the corporation and
the stockholder, but is not essential to the existence of a share in stock or the nation of the relation of
shareholder to the corporation.
Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised
his rights and prerogatives as stockholder and was even elected as member of the board of directors
in the respondent corporation with the full knowledge and acquiescence of petitioner. Due to the
transfer of fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of
the respondent corporation when he was elected as officer thereof.
Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it
is sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it
without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may
have under the law, except insofar as such rights or defenses are subject to the limitations imposed
by the principles governing estoppel."
Moreover, it is safe to infer from the facts deduced in the instant case that, there was already
delivery of the unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock
Certificate Nos. 6 and 8 to angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the
problem was the return of the cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and
his deliberate non-endorsement.


The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc and that the respondent,
Ignacio Ferrer, as acting secretary of the said company, has refused to permit the petitioner or his agent to inspect the
records and business transactions of the said Hercules Lumber Company, Inc., at times desired by the petitioner. No
serious question is of course made as to the right of the petitioner, by himself or proper representative, to exercise
the right of inspection conferred by section 51 of Act No. 1459. Said provision was under the consideration of this
court in the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), 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.
The main ground upon which the defense 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." It is further averred that at the
directors' meeting of the respondent corporation held on February 16, 1924, 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, 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, in appropriate hours, and The contention for the respondent is that this
resolution of the board constitutes a lawful restriction on the right conferred by statute; 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, his right to inspection and examination is lost, at least for this year.

WON the board resolution constitutes a lawful restriction on the right conferred by statute regarding
inspection of documents?

The general right given by the statute may not be lawfully abridged to the extent attempted in this
resolution. 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; but neither the executive officers nor the board of directors have
the power to deprive a stockholder of the right altogether. A by-law unduly restricting the right of inspection is
undoubtedly invalid. Authorities to this effect are too numerous and direct to require extended comment.
It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours."
This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period
of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of the respondents calls in
question the motive which is supposed to prompt the petitioner to make inspection; 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. 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. These
suggestions are entirely apart from the issue, as, generally speaking, the motive of the shareholder exercising the
right is immaterial.


The petitioner requested from the respondent that he be allowed to examine the records of the latter.
Petitioner claimed that he wanted to determine the veracity of reports that the respondent has
guaranteed the obligation of another corporation in the purchase of a sugar mill and that the
respondent financed the construction of a bridge and a sugar mill. When the respondent de nied his
request, the petitioner sought mandamus from the CFI of Manila, adding that he acquired one (1)
share of stock in PNB and was thus entitled to examine the respondents records. The CFI dismissed
the petition on the ground that the petitioner had improper motives and his purpose was not germane
to his interest as a stockholder. The petitioner argued that his right was unconditional.
The issue was whether the petitioner could examine the records of the respondent.
NO. The former Corporation Law was already replaced by the Corporation Code which requires that
the person requesting the examination of a corporations records must be acting in good faith and for
a legitimate purpose. Examination could not be granted on the ground of mere curiosity. The
petitioner acquired only one share of stock and did so only after making a request to examine acts
done by the respondent when the former was still a stranger to the same. The circumstances
showed that the petitioners purpose was not germane to his interest as a stockholder. Lastly, the

right to examine the records of a corporation under the Corporation Code was violative of the PNBs
charter. The petition was dismissed.


Veraguth, director and stockholder of Isabela Sugar Company, Inc. required the
respondent to show cause why they refuse to notify the petitioner, as director, of the regular and
special meetings of the BOD and to place at his disposal at reasonable hours the minutes,
documents, and books of said corporation for his inspection as director and stockholder, and to
issue immediately, upon payment of the fees, certified copies of any documentation in
connection with said minutes, documents, and the books of the aforesaid corporation.
WON a director has the unqualified right to inspect the books and records of the
Yes. Section 51 of the Corporation Law, provides that: All business corporations shall
keep and carefully preserve a record of all business transactions, and a minute of all meetings of
directors, members, or stockholders, in which shall be set forth in detail the time and place of
holding the meeting was regular or special, if special its object, those present and absent, and
every act done or ordered done at the meeting. . . . The record of all business transactions of the
corporation and the minutes of any meeting shall be open to the inspection of any director,
member, or stockholder of the corporation at reasonable hours. Thus, Directors of a corporation
have the unqualified right to inspect the books and records of the corporation at all reasonable
times. However, a director or stockholder has no absolute right to secure certified copies of the
minutes of the corporation until these minutes have been written up and approved by the
In this case, when Veraguth telegraphed the secretary, asking the latter to forward a certified copy
of the resolution of the BOD concerning the payment of attorney's fees in a certain case against
Isabela Sugar Company and others, the secretary answered stating that, since the minutes of the
meeting in question had not been signed by the directors present, 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 Isabela Sugar Company. It 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." 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 BOD, and that while so much of the last resolution of the BOD 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, that resolution, so far as
we are aware, has not been enforced to the detriment of anyone.

Poliand is an assignee of the of the rights of Asian Hardwood over the outstanding obligation of
National Development Corporation (NDC), the latter being the owner of Galleon which previously
secured credit accommodations from Asian Hardwood for its expenses on provisions, oil, repair,
among others.
Galleon also obtained loans from Japanese lenders to finance acquisition of vessels which was
guaranteed by DBP in consideration of a promise by Galleon to secure a first mortgage on the
vessels. DBP later transferred ownership of the vessel to NDC.
A collection suit was filed after repeated demands of Poliand for the satisfaction of the obligation
from Galleon, NDC and DBP went unheeded.
ISSUE: Whether NDC or DBP or both are liable to POLIAND on the loan accommodations and credit
advances incurred by GALLEON.
NDC, not liable under the Corporation Code
The Court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155, NDC ipso facto
acquired the interests in GALLEON without disregarding applicable statutory requirements governing
the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of
the combining corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.[35]
The merger, however, does not become effective upon the mere agreement of the constituent
As specifically provided under Section 79[37] of said Code, the merger shall only be effective upon
the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject
to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a
party to the merger is a special corporation governed by its own charter, the Code particularly
mandates that a favorable recommendation of the appropriate government agency should first be
obtained. The issuance of the certificate of merger is crucial because not only does it bear out SECs
approval but also marks the moment whereupon the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its
rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the
surviving corporation.[38]
The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions
were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans.
Compliance with the statutory requirements is a condition precedent to the effective transfer of the
shareholdings in GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the
President could not have intended that the parties disregard the requirements of law. In the absence
of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence,

NDC did not acquire the rights or interests of GALLEON, including its liabilities.
DBP, not liable under LOI No. 1155
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the
obligations of GALLEON.[39] DBP argues that POLIAND has no cause of action against it under LOI
No. 1155 which is void and unconstitutional.[40]
The Court affirms the appellate courts ruling that POLIAND does not have any cause of action
against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a
valid source of obligation because it did not create any privity of contract between DBP and
POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a
grant of authority by the President on DBP to enter into certain transactions for the satisfaction of
GALLEONs obligations. There is, however, nothing from the records of the case to indicate that DBP
had acted as surety or guarantor, or had otherwise accommodated GALLEONs obligations to
POLIAND or its predecessors-in-interest.


G.R. NO. 123793. JUNE 29, 1998
FACTS: Associated Banking Corporation and Citizens Bank and Trust Company merged to form just
banking corporation known as Associated Citizens Bank, the surviving bank. Lorenzo Sarmiento JR.
executed in favor of Associated Bank a promissory note whereby the former undertook to pay the
the sum of P2,500,000.00. Despite repeated demands the Sarmiento failed to pay the amount due.
alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action;
the plaintiff is not the proper party in interest because the promissory note was executed in favor of
Citizens Bank and Trust Company.
Accordingly the court ruled that the earlier merger between the two banks could not have vested
Associated Bank with any interest arising from the promissory note executed in favor of CBTC after
ISSUE: In a merger, does the surviving corporation have a right to enforce a contract entered into by
absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a
certificate of merger by the Securities and Exchange Commission?

RULING: YES. Ordinarily, in the merger of two or more existing corporations, one of the combining
corporations survives and continues the combined business, while the rest are dissolved and all
rights, properties and liabilities are acquired by the surviving corporation. Although there is a
of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all their rights, privileges and powers, as
as their liabilities.
The merger, however, does not become effective upon the mere agreement of the constituent
corporations. The procedure to be followed is prescribed under the Corporation Code. Section 79 of
Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of
which, in turn, must have been duly approved by a majority of the respective stockholders of the
constituent corporations. The same provision further states that the merger shall be effective only
the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for
determining when the merged or absorbed corporation ceases to exist; and when its rights,
properties as well as liabilities pass on to the surviving corporation.