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FACTS: Pampanga Bus Co (PAMBUSCO) was the original owner of 3 lots covered by TCTs which it
mortgaged to the DBP in consideration of P935,000. The mortgage was forclosed and the properties
were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in favor of her and
registered. The board of directors of PAMBUSCO through 3/5 of its directors, resolved to assign its
right of redemption over the foreclosed lots and authorized one of its members (Atty. Briones) to
execute and sign a Deed of Assignment on behalf of PAMBUSCO. Atty. Briones executed a deed of
assignment in favor of Marcelino Enriquez who redeemed the said properties. A day after the certificate
of redemption was issued, Enriques sold the properties to Spouses Rising T. Yap and Catalina Lugue.

[A levy of attachment in favor of Capitol Allied Trading and a Notice of a pending consulta was
annotated on the titles of the lots, the later concerning the Allied Trading case entitled Dante
Gutierrez, et al. vs. PAMBUSCO in which the registrability of the aforesaid lots in the name of the
spouses Yap was sought to be resolved (no trial was held on this case, it was later dismissed w/o
prejudice). All previous mentioned transactions on the lot including the deed of assignment were also

Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void
deed of assignment. She then requested the recall of the said redemption and a restraint on any
registration or transaction regarding the lots in question. Pea, through counsel, wrote the Sheriff
asking for the execution of a deed of final sale in her favor on the ground that 'the one (1) year period
of redemption has long elapsed without any valid redemption having been exercised;' hence she 'will
now refuse to receive the redemption money.

Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 'for the use and
occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga,' and informing her of
an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum
collection suit. The lots were registered in Yap's name with an annotation of a levy on attachment in
favor of Capitol Allied Trading.

Despite the foregoing, defendant-appellee Pea remained in possession of the lots in question; hence,
the spouses Yap were prompted to file the instant case to recover possession of the lots on the ground
that being registered owners, they have to enforce their right to possession against defendants who have
been allegedly in unlawful possession thereof. Pea argued in her answer that she is now the legitimate
owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the
DBP with no valid redemption having been effected during the period prescribed by law.

The defense was that since the deed of assignment executed by PAMBUSCO in favor of Enriquez was
void ab initio for being an ultra vires act of its board of directors and, for being without any valuable
consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the
rights and obligations which derived from the aforesaid void deed are likewise void and without any
legal effect. She also alleged the spouses were buyers in bad faith.

TRIAL COURT DECISION: In favor of Pea, declared the deed of assignment and all rights and
obligations derived from it as void. TC's reason: PAMBUSCO's by-laws required the presence of 4/5 of
the directors but in this case there were only 3 members present.

CA DECISION (on appeal): Reversed the trial court's ruling. CA's reason: There is no evidence that
said provision of the by-laws applies to this case. Further, there is no categorical declaration in the by-
laws that a failure to comply with the attendance requirement in a special meeting should make all the
acts of the board therein null and void ab initio. A cursory reading of the subject provision, as
aforequoted, would show that its framers only intended to make voidable a board meeting held without
the necessary compliance with the attendance requirement in the by-laws. More significantly, it should
be noted that even if the subject special meeting is itself declared void, it does not follow that the acts
of the board therein are ipso facto void and without any legal effect.

ISSUE: Whether the board resolution authorizing Atty. Briones to execute a deed of assignment on
behalf of PAMBUSCO was valid

HELD: NO, it was invalid, CA ruling reversed. The by-laws of a corporation are its own private laws
which substantially have the same effect as the laws of the corporation. Any number less than the
number provided in the articles or by-laws therein cannot constitute a quorum and any act therein
would not bind the corporation; all that the attending directors could do is to adjourn.

Moreover, the records show that PAMBUSCO has ceased to operate, Being a dormant corporation for
several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing
themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only
remaining asset of the corporation in favor of a former corporate officer. As a matter of face, the 3
alleged directors were not even listed as directors or stockholders in the latest general information sheet
and latest list of stockholders of PAMBUSCO.

Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share
in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said
law, the sale or disposition of all and/or substantially all properties of the corporation requires, in
addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-
thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt,
the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the
purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting
power in the corporation. The same requirement is found in Section 40 of the present Corporation

Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned
resolution was not approved by the required number of stockholders under the law, the said resolution,
as well as the subsequent assignment, assigning to respondent Enriquez the said right of redemption,
should be struck down as null and void.

As correctly argued by the petitioner, the deed of assignment was in fact a deed of donation Since
undeniably the deed of assignment shows that there was no acceptance of the donation in the same and
in a separate document (as required by Art. 725 of the Civil Code), the said deed of assignment is thus
void ab initio and of no force and effect.


FACTS: Fausto Alberto (respondent) was the managing director of Detective Protective Bureau Inc.
(petitioner) from 1952-1964. Petitioner filed a complaint with the CFI against Alberto alleging that on
1963, he had illegally seized and took control of all the assets as well as the books, records, vouchers
and receipts of the corporation from the accountant-cashier, concealed them illegally and refused to
allow any member of the corporation to see and examine the same. They claimed that on January 1964,
the stockholders, in a meeting, removed defendant as managing director and elected Jose de la Rosa in
his stead, but not only did Alberto refuse to vacate his office and deliver the assets to de la Rosa, but he
also continued to perform unauthorized acts for and in behalf of the petitioner corporation. Alberto was
also required to submit a financial statement and to render an accounting of his administration from
1952 but he failed to do so. Alberto has been, contrary to the resolution adopted by the Board of
Directors, illegally disposing of corporate funds.

Respondent Judge Cloribel issued a writ of preliminary injuction as prayed for by the petitioner,
however, when Alberto filed a motion to admit a counter-bond for the purpose of lifting said writ,
Judge Cloribel issued an order admitting the counter-bond and setting aside the writ of preliminary
injuction. Thus this petition for certiorari.

ISSUE: Whether Judge Cloribel gravely abused his discretion

HELD: NO, he did not.

One of the reasons petitioners allege Judge Cloribel gravely abused his discretion is that Alberto had
arrogated to himself the powers 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. This assertion, however, 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

There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he
did not own any share of stock, certainly he could not be a director pursuant to the mandatory provision
of Section 30 of the Corporation Law, which in part provides: "Sec. 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
stock shall stand in his name on the books of the corporation .." If he could not be a director, he could
also not be a managing director of the corporation, pursuant to Article V, Section 3 of the By-Laws of
the Corporation.

If the managing director-elect was not qualified to become managing director, 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, Section 1 that "Directors shall serve until
the election and qualification of their duly qualified successor."

[there were four other grounds alleged namely: (1) 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; (2 & 3) 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; (4) the 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. All of these were set aside by the court]

FACTS: International Corporate Bank, Inc. filed a complaint for a sum of money against private
respondents (Sacoba Manufacturing Corp., Pablo Gonzales, Jr. and Tomas Gonzales) who, in turn, filed
a 3rd party complaint against Alfa Integrated Textile Mills (ALFA) and petitioners Lee and Lacdao.The
RTC issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a
consequence of the petitioners' 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. They
claim that the voting trust agreement dated March 11, 1981 divested them of their positions as president
and executive vice-president of ALFA. 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.

The trial court upheld the validity of the service of summons on ALFA through the petitioners, thus,
denying the latter's motion for reconsideration and requiring ALFA to file its answer through the
petitioners as its corporate officers. However, petitioners filed a motion for reconsideration attaching a
copy of the voting trust agreement to it, and the trial court reversed itself. Petitioners filed a petition for
certiorari to the CA. The CA set aside the trial court's decision.

Thus this petition.

The petitioners maintain that with the execution of the voting trust agreement between them and the
other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and
transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue of the voting trust
agreement the petitioners can no longer be considered directors of ALFA. In support of their
contention, the petitioners invoke section 23 of the Corporation Code.

The private respondents, on the contrary, 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

ISSUE: Whether the voting trust agreement dated March 11, 1981 divested petitioners of their
positions as president and executive vice-president of ALFA, thus summons cannont be served to ALFA
through them

HELD: YES, SC sided with petitioner's argument.

A voting trust is defined under Section 59 of the Corporation Code. 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. 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.

In order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it
must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the
other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a
definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire
voting control of the corporation.
In the instant case, the point of controversy arises from the effects of the creation of the voting trust
agreement. 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 title-holder or owner of the shares subject of the voting trust agreement, he
becomes the equitable or beneficial owner.

The question, therefore, 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" from Sec. 30 of the old Code. With the omission of the phrase "in his own right" the election
of trustees and other persons who in fact are not the beneficial owners of the shares registered in their
names on the books of the corporation becomes formally legalized. Hence, this is a clear indication that
in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the
stock as appearing on the books of the corporation.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and delivery in favor of the DBP, as trustee .
Consequently, the petitioners ceased to own at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to
do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of
the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA.

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of
the stocks covered by the agreement to the DBP as trustee, the latter became the stockholder of record
with respect to the said shares of stocks. 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, 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. There appears to be no dispute from the
records that DBP has taken over full control and management of the firm.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on
ALFA through the petitioners is readily answered in the negative.


FACTS: Premium Marble Resources, Inc. (Premium) filed an action for damaged against International
Corporate Bank (ICB). They alleged hat Ayala Investment and Development Corporation issued 3
checks payable to Premium and drawn against Citibank. Former officers of Premium headed by
Saturnino Belen Jr., without any authority whatsoever from Premium, deposited the checks to the
current account of his conduit corporation, Intervest Merchant Finance (Intervest) which the latter
maintained with the defendant Bank (ICB). Although the checks were clearly payable to Premium and
crossed on their face and for Premium's account only, ICB accepted the checks to be deposited to the
current account of Intervest and presented the same for collection with Citibank which subsequently
cleared the same. Premium demanded restitution of the amount but ICB refused and continues to refuse
Premium's demands.

In the meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna,
Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing
of the case was without authority from its duly constituted board of directors as shown by the excerpt
of the minutes of the Premium's board of directors' meeting.

In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who
signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation
and were allegedly former officers and stockholders of Premium who were dismissed for various
irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles
and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and
Reyes are not majority stockholders.

The trial court ruled that that the officers represented by Atty. Dumadag do not as yet have the legal
capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action by
them before Case No. 2688 of the SEC could be decided is a premature exercise of authority or
assumption of legal capacity for and in behalf of Premium. The trial court was of the opinion that
before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag
nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute
cases in the name of the plaintiff corporation. The CA affirmed the decision on appeal, hence this

ISSUE: Whether the filing of the case for damages against private respondent was authorized by a duly
constituted Board of Directors of Premium

HELD: No, it was not. While the Minutes of the Meeting of the Board on April 1, 1982 states that the
newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo
Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry
in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in
March 1981.

The SC agreed with the CA that "in the absence of any board resolution from its board of directors the
authority to act for and in behalf of the corporation, the present action must necessarily fail. The power
of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its
corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription
which is still pending, is a matter that is also addressed, considering the premises, to the sound
judgment of the Securities & Exchange Commission."

By the express mandate of the Corporation Code (Section 6), all duly organized pursuant thereto are
required to submit within the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors, trustees and officers elected.

Sec. 26 of the Corporation Code provides, thus: "Sec. 26. Report of election of directors, trustees and
officers . Within thirty (30) days after the election of the directors, trustees and officers of the
corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors, trustees and officers
elected. . ."

[Evidently, the objective sought to be achieved by Section 26 is to give the public information, under
sanction of oath of responsible officers, of the nature of business, financial condition and operational
status of the company together with information on its key officers or managers so that those dealing
with it and those who intend to do business with it may know or have the means of knowing facts
concerning the corporation's financial resources and business responsibility.]
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the
incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the
board of directors, no person, not even the ofcers of the corporation, can validly bind the corporation.


FACTS: Binalbagan Estate, Inc., 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.
The possessors of a majority of the share of the Binalbagan Estate, Inc., formed a voting trust
composed of 3 members (Salvador Laguda, Segundo Monteblanco, and Arthur Fisher) as trustees. The
document constituting this voting trust authorized the trustees to represent and vote the shares
pertaining to their constituents, and to this end the shareholders undertook to assign their shares to the
trustees on the books of the company. The total number of outstanding shares of the corporation is
somewhat over 5,500, while the number of shares controlled by the voting trust is less than 3,000.

The general annual meeting of the shareholders of the Binalbagan Estate, Inc., took place, at which Mr.
J. P. Heilbronn appeared as representative of the voting trust, his authority being recognized by the
holders of all the other shares present at this meeting. Upon said occasion Heilbronn, by virtue of
controlling the majority of the shares, was able to nominate and elect a board of directors to his own
liking, without opposition from the minority. After the board of directors had been thus elected and had
qualified, they chose a set of officers. Said officials immediately entered upon the discharge of their
duties and have continued in possession of their respective offices until the present time.

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, with the result that various substitutions have been
made in the personnel of the voting trust. At the present time the petitioners Roxas, Echaus, and Lacson
presumably constitute its membership. Although the present officers of the Binalbagan Estate, Inc.,
were elected by the representative of the voting trust, the present trustees want to oust the said officiers
without awaiting the termination of their official term at the expiration of one year from the date of
their election. They caused the secretary of the Binalbagan Estate Inc. to issue a notice calling for a
general hearing for the election of the board of directors, for the amendment of the by-laws and other

Because of this, Agustin Corua, as member of the existing board, and Mauro Ledesma, as a simple
shareholder of the corporation, instituted a civil action in the CFI against the trustees for the purpose of
enjoining the meeting. Respondent Judge issued a writ of preliminary injunction preventing the
meeting from taking place. Petitioners now assert this was beyond the powers of the Judge.

ISSUE: Whether the meeting to replace the current directors can be held

HELD: NO. Upon examining into the number of shares controlled by the voting trust, it will be seen
that, while the trust controls a majority of the stock, it does not have a clear two-third majority. The
intention of the planned meeting is obviously to replace the current board of directors as if the
directorate had been vacant. The law contemplates and intends that there shall be one set of directors at
a time and that new directors shall be elected only as vacancies occur in the directorate by death,
resignation, removal, or otherwise.There is insiunuation that there was some irregularity in the election
of the present directorate, but there is no evidence of this. The present board of the directors are then
the de facto incumbents whose acts will be valid until they are lawfully removed/discharged.

FACTS: On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), the VVCC Board of Directors were elected including Eduardo Makalintal
(Makalintal) among others. In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite
quorum for the holding of the stockholders meeting could not be obtained. Consequently, the directors
continued to serve in the VVCC Board in a hold-over capacity. Later, Makalintal resigned as member
of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining
members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a member of VVCC,
questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court
(RTC), respectively. Africa claimed that a year after Makalintals election as member of the VVCC
Board in 1996, his [Makalintals] term as well as those of the other members of the VVCC Board
should be considered to have already expired. Thus, according to Africa, the resulting vacancy should
have been filled by the stockholders in a regular or special meeting called for that purpose, and not by
the remaining members of the VVCC Board, as was done in this case.

The RTC ruled in favor of Africa and declared the election of Ramirez, as Makalintal's replacement, to
the VVCC Board as null and void. Thus this petition

VVCC's argument: Under Section 29 of the Corporation Code, a vacancy occurring in the board of
directors caused by the expiration of a member's term shall be filled by the corporation's stockholders.
Correlating Section 29 with Section 23 of the same law, VVCC alleges that a member's term shall be
for one year and until his successor is elected and qualified ; otherwise stated, a member's term expires
only when his successor to the Board is elected and qualified. As the vacancy in this case was caused
by Makalintal's resignation, not by the expiration of his term, VVCC insists that the board rightfully
appointed Ramirez to fill in the vacancy.

ISSUE: Whether the remaining directors of the corporation's Board, still constituting a quorum, can
elect another director to fill in a vacancy caused by the resignation of a hold-over director

HELD: NO, the SC rejects the VVCC's argument. In several cases, we have defined "term" as the time
during which the officer may claim to hold the office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The term of office is not affected by the holdover. The
term is fixed by statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to the fact that a successor
has not been elected and has failed to qualify. Term is distinguished from tenure in that an officer's
"tenure" represents the term during which the incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the

Given this, when Section 23 of the Corporation Code declares that "the board of directors . . . shall hold
office for one (1) year until their successors are elected and qualified", we construe the provision to
mean that the term of the members of the board of directors shall be only for one year; their term
expires one year after election to the office. The holdover period that time from the lapse of one year
from a member's election to the Board and until his successor's election and qualification is not part
of the director's original term of office, nor is it a new term; the holdover period, however, constitutes
part of his tenure. Corollary, when an incumbent member of the board of directors continues to serve in
a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.
When the remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no
more unexpired term to speak of, as Makalintals one-year term had already expired. Pursuant to law,
the authority to fill in the vacancy caused by Makalintals leaving lies with the VVCCs stockholders,
not the remaining members of its board of directors. To assume as VVCC does that the vacancy is
caused by Makalintals resignation in 1998, not by the expiration of his term in 1997, is both illogical
and unreasonable. His resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintals term had been created long before his resignation.

Also, VVCC's construction of Section 29 of the Corporation Code on the authority to fill up vacancies
in the board of directors, in relation to Section 23 thereof, effectively weakens the stockholders' power
to participate in the corporate governance by electing their representatives to the board of directors. The
board of directors is the directing and controlling body of the corporation. It is a creation of the
stockholders and derives its power to control and direct the affairs of the corporation from them.

This theory of delegated power of the board of directors similarly explains why, under Section 29 of the
Corporation Code, in cases where the vacancy in the corporation's board of directors is caused not by
the expiration of a member's term, the successor "so elected to fill in a vacancy shall be elected only for
the unexpired term of the his predecessor in office". The law has authorized the remaining members of
the board to fill in a vacancy only in specified instances, so as not to retard or impair the corporation's
operations; yet, in recognition of the stockholders' right to elect the members of the board, it limited the
period during which the successor shall serve only to the "unexpired term of his predecessor in office".

It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring within
the director's term of office. When a vacancy is created by the expiration of a term, logically, there is no
more unexpired term to speak of. Hence, Section 29 declares that it shall be the corporation's
stockholders who shall possess the authority to fill in a vacancy caused by the expiration of a member's


FACTS: Grace Christian High School is an educational institution at the Grace Village in Quezon City
while private respondent Grace Village Association, Inc., is an organization of lot and/or building
owners, lessees and residents at Grace Village. On December 20, 1975, a committee of the board of
directors of the Association prepared a draft of an amendment to the 1968 by-laws of the Association
providing, among others, that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION," but the draft was never presented to the general membership for
approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of
directors of the Association. However, on February 13, 1990, the Association's committee on election
informed the principal of the school that all directors should be elected by members of the Association
and that making the School representative as a permanent director of the Association should be
reexamined. The School then brought suit to compel the board of directors of the Association to
recognize its right to a permanent seat in the board.

The hearing officer of the HIGC held that the amended by-laws upon which the claim was merely a
proposed by-laws which had not yet been ratified by the members of the association nor approved by
competent authority. The appeals board of the HIGC affirmed the decision of the hearing officer citing
Section 92 of the Corporation Code.
Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February
9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid
amendment of the association's by-laws because of failure to comply with the requirement of its
existing by-laws.

ISSUE: Whether or not the representative from Grace Christian High School should be allowed to
have a permanent seat in the board of directors.

HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation
must be elected by the stockholders (stock corporation) or the members (non-stock corporation).
Admittedly, there are corporations who allow some of their directors to sit in the board without being
elected but such practice cannot prevail over provisions of law. Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to
why a representative from GCHS should be given an automatic seat. It should therefore go through the
process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when
GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was
merely a draft and even if passed and approved by the general membership, it cannot be given effect
because it is void and contrary to the law. GCHS seat in the corporate board is at best merely tolerated
by GVAI.

(I dont know why this is under vacancies, the only time vacancies was discussed was when the HIGC
appeals board cited Section 92 of the Corporation Code which states: Election and term of trustees.
Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-
stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of
one-third (1/3) of the number shall expire every year; 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. Trustees thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.)


(this is pretty long but the fifth cause of action is the only one that's relevant to the topic in the syllabus)

FACTS: The Philippine Commission enacted Act No. 1459, also known as the Corporation Law, on
March 1, 1906. El Hogar Filipino, organized in 1911 under the laws of the Philippine Islands, was the
first corporation organized under Sec. 171-190 Act No. 1459, devoted to the subject of building and
loan associations, their organization and administration. In the said law, the capital of the corporation
was not permitted to exceed P3M, but Act No. 2092 amended the statute, permitting capitalization to
the amount of ten millions.

El Hogar took advantage of the amendment of Act No. 1459 and amended its AOI as a result thereof,
stating that the amount of capital must not exceed what has been stated in Act No. 2092. This resulted
to El Hogar having 5,826 shareholders, 125,750 shares with paid-up value of P8.7M. The corporation
paid P7.16M to its withdrawing stockholders.

The Government of the Philippine Islands filed an action against El Hogar due to the alleged illegal
holding title to real property for a period exceeding five (5) years after the same was bought in a
foreclosure sale. Sec. 13(5) of the Corporation Law states that corporations must dispose of real estate
obtained within 5 years from receiving the title. The Philippine Government also prays that El Hogar
be excluded from all corporate rights and privileges and effecting a final dissolution of said

It appears from the records that El Hogar was the holder of a recorded mortgage on the San Clemente
land as security for a P24K loan to El Hogar. However, shareholders and borrowers defaulted in
payment so El Hogar foreclosed the mortgage and purchased the land during the auction sale. A deed of
conveyance in favor of El Hogar was executed and sent to the Register of Deeds of Tralac with a
request that the certificate of title be cancelled and a new one be issued in favor of El Hogar from the
Register of Deeds of Tarlac. However, no reply was received. El Hogar filed a complaint with the Chief
of the General Land Registration Office. The certificate of title to the San Clemente land was received
by El Hogar and a board resolution authorizing Benzon to find a buyer was issued. Alcantara, the buyer
of the land, was given extension of time to make payment but defaulted so the contract treated
rescinded. Efforts were made to find another buyer. Respondent acquired title in December 1920 until
the property was finally sold to Felipa Alberto in July 1926. The interval exceeded 5 years but the
period did not commence to run until May 7, 1921 when the register of deeds delivered the new
certificate of title. It has been held that a purchaser of land registered under the Torrens system cannot
acquire the status of an innocent purchaser for value unless the vendor is able to place the owners
duplicate in his hands showing the title to be in the vendor. During the period before May 1921, El
Hogar was not in a position to pass an indefeasible title to any purchaser. Therefore, El Hogar cannot
be held accountable for this delay which was not due to its fault. Likewise, the period from March 25,
1926 to April 20, 1926 must not be part of the five-year period because this was the period where
respondent was under the obligation to sell the property to Alcantara prior to the contracts rescission
due to Alcantaras non-payment.

Another circumstance causing the delay is the fact that El Hogar purchased the property in the full
amount of the loan made by the former owner which is nearly P24K when it was subsequently found
that the property was not salable and later sold for P6K notwithstanding El Hogars efforts to find a
purchaser upon better terms.

ISSUE: Whether the acts of respondent corporation merit its dissolution or deprivation of its corporate
franchise and to exclude it from all corporate rights and privileges

HELD: SUSTAINED only as to administering of real property not owned by it and when permitted by

Causes of action:
(1) Alleged illegal holding of real property for a period exceeding five years from receipt of title-
Cause of delay is not respondents fault

(2) That respondent is owning and holding a business lot with the structure thereon in excess of its
reasonable requirements and in contravention of Sec. 13(5) of Corpo. Law- WITHOUT MERIT
Every corporation has the power to purchase, hold and lease such real property as the
transaction would of the lawful business may reasonably and necessarily require.

(3) That respondent is engaged in activities foreign to the purposes for which the corporation was
created and not reasonably necessary to its legitimate ends-VALID
The administration of property, payment of real estate taxes, causing necessary repairs,
managing real properties of non-borrowing shareholders is more befitting to the
business of a real estate agent or a trust company than a building and loan association.
(4) That the by-laws of the association stating that, the board of directors by the vote of an
absolute majority of its members is empowered to cancel shares and to return the balance to the
owner by reason of their conduct or any other motive or liquidation is in direct conflict with
Sec. 187 of the Corporation Law which provides that the board of directors shall not have the
power to force the surrender and withdrawal of unmatured stock except in case of liquidation or
forfeiture of stock for delinquency-WITHOUT MERIT
There is no provision of law making it a misdemeanor to incorporate an invalid
provision in the by-laws of a corporation; and if there were such, the hazards incident to
corporate effort would be largely increased.

(5) It is supposed in the statement of the fifth cause of action in the complaint that the failure of the
corporation to hold annual meetings and the filling of vacancies in the directorate in the manner
described constitute misdemeanors on the part of the respondent which justify the resumption of
the franchise by the Government and dissolution of the corporation; and in this connection it is
charged that the board of directors of the respondent has become a permanent and self
perpetuating body composed of wealthy men instead of wage earners and persons of moderate
means. We are unable to see the slightest merit in the charge. No fault can be imputed to the
corporation on account of the failure of the shareholders to attend the annual meetings; and their
non-attendance at such meetings is doubtless to be interpreted in part as expressing their
satisfaction at the way in which things have been conducted. Upon failure of a quorum at any
annual meeting the directorate naturally holds over and continues to function until another
directorate is chosen and qualified.

Unless the law or the charter of a corporation expressly provides that an office shall
become vacant at the expiration of the term of office for which the officer was elected, the
general rule is to allow the officer to hold over until his successor is duly qualified. Mere
failure of a corporation to elect officers does not terminate the terms of existing officers nor
dissolve the corporation. The doctrine above stated finds expression in article 66 of the by-laws
of the respondent which declares in so many words that directors shall hold office "for the term
of one year or until their successors shall have been elected and taken possession of their

It results that the practice of the directorate of filling vacancies by the action of the directors
themselves is valid. Nor can any exception be taken to the personality of the individuals chosen
by the directors to fill vacancies in the body. Certainly it is no fair criticism to say that they have
chosen competent businessmen of financial responsibility instead of electing poor persons to so
responsible a position. The possession of means does not disqualify a man for filling positions
of responsibility in corporate affairs.

(6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have
been receiving large compensation, varying in amount from time to time, out of respondents
With the growth of the corporation, the amount paid as compensation to the directors
has increased beyond what would probably be necessary is a matter that cannot be
corrected in this action. Nor can it properly be made a basis for depriving respondent of
its franchise or enjoining it from compliance with the provisions of its own by-laws. If a
mistake has been made, the remedy is to lie rather in publicity and competition.
(7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early
stages of the organization of the association, the board of directors authorized the association to
make a contract with him and that the royalty given to him as founder is unconscionable,
excessive and out of proportion to the services rendered-NOT SUSTAINED
The mere fact that compensation is in excess of what may be considered appropriate is
not a proper consideration for the court to resolve. That El Hogar is in contact with its
promoter did not affect the associations legal character. The court is of the opinion that
the traditional respect for the sanctity of the contract obligation should prevail over the
radical and innovating tendencies.

(8) That Art. 70 of El Hogars by-laws, requiring persons elected as board of directors to be holders
of shares of the paid up value of P5,000 which shall be held as security, is objectionable since a
poor member or wage earner cannot serve as a director irrespective of other qualifications-
Corpo. Law expressly gives the power to the corporation to provide in its by-laws for
the qualification of its directors and the requirement of security from them for the proper
discharge of the duties of their pffice in the manner prescribed in Art. 70 is highly
prudent and in conformity with good practice.

(9) That respondent abused its franchise in issuing special shares alleged to be illegal and
inconsistent with the plan and purposes of building and loan associations- WITHOUT MERIT
The said special shares are generally known as advance payment shares which were
evidently created for the purpose of meeting the condition caused by the prepayment of
dues that is permitted. Sec. 178 of Corpo Law allows payment of dues or interest to be
paid in advance but the corporation shall not allow interest on advance payment grater
than 6% per annum nor for a period longer than one year. The amount is satisfied by
applying a portion of the shareholders participation in the annual earnings.The mission
of special shares does not involve any violation of the principle that the shares must be
sold at par.

(10) That in making purchases at foreclosure sales constituting as security for 54 of the
loans, El Hogar bids the full amount after deducting the withdrawal value, alleged to be pusuing
a policy of depreciating at the rate of 10 percent per annum, the value of the real properties it
acquired and that this rate is excessive-UNSUSTAINABLE
The board of directors possess discretion in this matter. There is no provision of law
prohibiting the association from writing off a reasonable amount for depreciation on its
assets for the purpose of determining its real profits. Art. 74 of its by-laws expressly
authorizes the board of directors to determine each year the amount to be written down
upon the expenses for the installation and the property of the corporation. The court
cannot control the discretion of the board of directors about an administrative matter as
to which they have no legitimate power of action.

(11) That respondent maintains excessive reserve funds-UNFOUNDED

The function of this fund is to insure stockholders against losses. When the reserves
become excessive, the remedy is in the hands of the Legislature.
No prudent person would be inclined to take a policy in a
company which had so improvidently conducted its affairs that it only retained a fund
barely sufficient to pay its present liabilities and therefore was in a condition where any
change by the reduction of interest upon or depreciation in the value of securities or
increase of mortality would render it insolvent and subject to be placed in the hands of a

12) That the board of directors has settled upon the unlawful policy of paying a straight annual
dividend of 10 percent per centum regardless of losses suffered and profits made by the
corporation, in contravention with the requirements of Sec. 188 of the Corpo law- UNFOUNDED
As provided in the previous cause of action, the profits and losses shall be determined
by the board of directors and this means that they shall exercise the usual discretion of
good businessmen in allocating a portion of the annual profits to purposes needful of the
welfare of the association. The law contemplates distribution of earnings and losses after
legitimate obligations have been met.

13) That El Hogar has made loans to the knowledge of its officers which were intended to be used
by the borrowers for other purposes than the building of homes and no attempt has been made to
control the borrowers with respect to the use made of the borrowed funds- UNFOUNDED
There is no statute expressly declaring that loans may be made by these associations
SOLELY for the purpose of building homes. The building of himes in Sec. 171 of Corpo
Law is only one among several ends which building and loan associations are designed
to promote and Sec. 181 authorizes the board of directors of the association to fix the
premium to be charged.

14) That the loans made by defendant for purposes other than building or acquiring homes have
been extended in extremely large amounts and to wealthy persons and large companies- WITHOUT
The question of whether the making of large loans constitutes a misuser of the franchise
as would justify the court in depriving the association of its corporate life is a matter
confided to the discretion of the board of directors. The law states no limit as to the size
of the loans to be made by the association. Resort should be had to the legislature
because it is not a matter amenable to judicial control

15) That when the franchise expires, supposing the corporation is not reorganized, upon final
liquidation of the corporation, a reserve fund may exist which is out of all proportion to the
requirements that may fall upon it in the liquidation of the company-NO MERIT
This matter may be left to the discretion of the board of directors or to legislative action
if it should be deemed expedient to require the gradual suppression of reserve funds as
the time for dissolution approaches. It is no matter for judicial interference and much
less could the resumption of the franchise be justified on this ground.

16) That various outstanding loans have been made by the respondent to corporations and
partnerships and such entities subscribed to respondents shares for the sole purpose of obtaining
such loans-NO MERIT
Sec. 173 of Corpo Law declares that any person may become a stockholder in
building and loan associations. The phrase ANY PERSON does not prevent a finding
that the phrase may not be taken in its proper and broad sense of either a natural or
artificial person.

17) That in disposing real estate purchased by it, some of the properties were sold on credit and the
persons and entities to which it was sold are not members nor shareholders nor were they made
members or shareholders, contrary to the provision of Corpo Law requiring requiring loans to be
stockholders only- NOT SUSTAINED
The law does not prescribe that the property must be sold for cash or that the purchaser
shall be a shareholder in the corporation. Such sales can be made upon the terms and
conditions approved by the parties.

Respondent is enjoined in the future from administering real property not owned by itself, except as
may be permitted to it by contract when a borrowing shareholder defaults in his obligation. In all other
respects, the complaint is DISMISSED.


FACTS: Jose Topacio Nueno, Manuel De La Fuente, Eustaquio Balagtas and Carmen Planas were
elected as members of the Municipal Board in the general election on Dec 1940, and qualified on Jan.
1941. Nueno and Planas subsequently resigned from their office to run for the House of
Representatives on Nov. 1941, but they were not elected. The President of the Commonwealth then
appointed Nueno to fill the vacancy he created because of his resignation, and Delia Dino to fill the
vacancy created by Carmen Planas, since they were both from the same political party, The Young

On 1942, the Japanese Army invaded the country. The regular election as provided in the Election Code
could not be held because the Japanese still occupied the country. The special election likewise could
not be held after the restoration of the Commonwealth due to physical impossibility. Therefore the
President of the Commonwealth appointed the six respondents to the Municipal Board.

The four petitioners instituted an action quo warranto against six respondents, averring that their term
of office of three years has not yet expired since they have not served for such period due to the
Japanese occupation. They also assert their right to hold-over, or their right to continue in office until a
successor has been elected. Also, that their appointments are in contravention of Sec. 16, Act 357 since
the party of Dino has not been represented, and that such appointments were not submitted to the
Commission on Appointments.

Respondents contend that petitioners have no right to hold public office since their term expired on Dec
1943, and that term of office must be distinguished from tenure. Also that the appointments are valid
under the emergency powers granted upon the President.

(1) Whether or not the petitioners have a right to hold-over of office
(2) Whether or not the appointments of the President are valid

(1) NO. The term of office must be distinguished from the tenure of the incumbent. The term means the
time during which the officer may claim to hold the office as of right and fixes the interval after the
several incumbents shall succeed one another. The tenure represents the term during which the
incumbent actually holds office. The term of office is not affected by hold-over, and the tenure may be
shorter than the term for reasons within or beyond the power of the incumbent. There is no principle,
law or doctrine by which the term of an office may be extended by reason of war.

The hold-over rule is, as enunciated in 46 Corpus Juris, 968, that "in the absence of an express or
implied constitutional or statutory provision to the contrary, an officer is entitled to hold his office until
his successor is appointed or chosen and has qualified." Sec. 27 and 2177 of the Revised
Administrative Code provided for the right to hold-over of a municipal and provincial officer: the
incumbent shall hold-over until a successor shall be duly qualified. Such phrase was suppressed by a
subsequent amendment (Act No. 2774), but was provided by a different section in the act, so it was still
in effect. However, the foregoing provisions were all repealed by Sec. 184 of the Commonwealth Act
No. 357. It provided: The officers elected shall assume office on the first day of January next

The repeal of all prior provisions for holding over by the provincial, city and municipal elective
officers by Commonwealth Act No. 357, and the enactment of section 16 thereof which provides for
the filling of all vacancies, temporary or otherwise, which might occur during and after the expiration
of a term of office, so as to avoid the necessity and even the occasion for holding over, clearly show the
manifest intention of Congress to suppress the hold-over.

(2) YES. Sec. 16 of the Commonwealth Act provides for the appointments to be done by the President
in case of vacancy in an elective or municipal office. The vacancies enumerated thereof may be
immediately filled in the manner provide, therefore there will be no interregnum during which the
office may be temporarily without an incumbent.

The act provides for appointment during temporary vacancy of office under subsection (a). Subsections
(b), (c), (d) and (e) provides for appointment to fill in a vacancy. Subsection (a) cannot be applied in
this case since no vacancy, temporary or otherwise, exists in this case. Temporary absence is not the
same as vacancy since in vacancy, there is no incumbent in public office. The petitioners were also not
appointed under subsection (f), which provides for the appointed officer to serve for the unexpired
term of office. Their terms, therefore, expired already on Dec. 1943, and the subsequent appointments
of the respondents are valid under Sec. 16 of Commonwealth Act 357.


FACTS: Daguhoy Enterprises, Inc., was a duly registered corporation. On April 1951 a meeting was
called where the voluntary dissolution of the corporation and the appointment of Potenciano Gapol as
receiver were agreed upon. Instead of filing a petiton for voluntary dissolution however, the respondent
Potenciano Gapol, who is the largest stockholder of the corporation, changed his mind and filed a
complaint to compel the petitioners to render an accounting of the funds and assets of the corporation,
to reimburse it, jointly and severally such sum as may be found after the accounting shall have been
rendered to have been misspent, misapplied, misappropriated and converted by the petitioner Domingo
Ponce (the president of the company) to his own use and benefit. Gapol filed an action with the TC and
prayed 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.

TC granted their petition and gave an order granting Potenciano Gapol authority, pursuant to section
26, Act No. 1459, otherwise known as the Corporation Law, to call a meeting of the stockholders of the
Dagunoy Enterprises, Inc. and to preside at such meeting by giving proper notice to the stockholders,
as required by law or by laws of the corporation, 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.

The subsequent motions to set aside the order was denied. Thus this is a petition for a writ of certiorari.
ISSUE: Whether the TC can validly call for a stockholders meeting under the Corporation Code

HELD: YES it can. On the showing of good cause therefor, the court may authorize a stockholder to
call a meeting and to preside thereat until the majority stockholders representing a majority of the stock
present and permitted to be voted shall have chosen one among them to preside it. 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 the call
for such meeting has not been done.

The requirement that "on the showing of good cause therefor, " the court may grant to a stockholder the
authority to call such meeting and to preside thereat does not mean that the petition for such authority
must be set for hearing with notice served upon the board of directors. 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, because the chairman of the board of directors called upon to do so had
failed, neglected, or refused to perform his duty. It may be likened to a writ of preliminary injunction or
of attachment which may be

It may be likened to a writ of preliminary injunction or of attachment may be issued ex-parte upon
compliance with the requirements of the rules and upon the court being satisfied that the same should
issue. Such provisional reliefs have not been deemed and held as violative of the due process of law
clause of the Constitution. Petitioners claim they were deprived of due process, but they had no right to
continue as directors of the corporation unless reelected by the stockholders in a meeting called for that
purpose every even year. They had no right to a hold-over brought about by the failure to perform the
duty incumbent upon one of them.


FACTS: The Philippine International Convention Center, Inc. (PICCI) is a government corporation
whose sole stockholder is the Bangko Sentral ng Pilipinas (BSP). Petitioner Araceli E. Villanueva was
then a member of the PICCI Board of Directors and Officer-in-Charge (OIC) of PICCI, while co-
petitioners Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra
C. Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes were then
members of the PICCI Board of Directors and officials of the BSP. By virtue of the PICCI By-Laws,
petitioners were authorized to receive P1,000.00 per diem each for every meeting attended. Pursuant to
its Monetary Board (MB) Resolution No. 15 as amended the BSP MB granted additional monthly
RATA, in the amount of P1,500.00, to each of the petitioners, as members of the Board of Directors of
PICCI. Consequently, from January 1996 to December 1998, petitioners received their corresponding
RATA in the total amount of P1,565,000.00.

On June 7, 1999, then PICCI Corporate Auditor Adelaida A. Aldovino issued Notice of Disallowance
addressed to petitioner Araceli E.Villanueva disallowing in audit the payment of petitioners' RATA in
the total amount of P1,565,000.00, and directing them to settle immediately the said disallowances.
They alleged that there was double payment which was in violation of Section 8, Article IX-B of the
1987 Constitution and PICCI By-laws.

Petitioners sought reconsideration of the Notice of Disallowance, but the PICCI Corporate Auditor
Aldovino denied it. They filed a notice of appleal but Director Sunico of the Corporate Audit Office I
of COA affirmed the disallowance based upon the principle expression unius est exclusio alterius (the
express mention of one thing in a law means the exclusion of others not expressly mentioned). Neither
can the payment of RATA be legally founded on Section 30 of the Corporation Code. The power to fix
the compensation which the directors shall receive, if any, is left to the corporation, to be determined in
its by-laws or by the vote of stockholders. The PICC By-Laws allows only the payment of per diem to
the directors. Thus, the BSP board resolution granting RATA of P1,500.00 to petitioners violated the
PICCI By-Laws.

Director Sunico also explained that although MB Resolution No. 15, dated January 5, 1994, as
amended by MB Resolution No. 34, dated January 12, 1994, would have the effect of amending the
PICCI By-laws, and may render the grant of RATA valid, such amendment, however, had no effect
because it failed to comply with the procedural requirements set forth under Section 48 of the
Corporation Code. On petition for review by petitioners, the COA rendered the assailed decision
affirming the COA I decision. Thus this petiton.

Petitioners contend that since PICCI was incorporated with the Securities and Exchange Commission
(SEC) (SEC Regulation No. 68840) and has no original charter, it should be governed by Section 30 of
the Corporation Code. According to petitioners, their receipt of RATA as directors of PICCI was
sanctioned by PICCI's sole stockholder, BSP. Respondent counters that said provision does not apply to
petitioners as Section 8 of the PICCI By-laws provides that the compensation of the members of the
PICCI Board of Directors shall be given only through per diems.

ISSUE: Whether petitioners' right to compensation as members of the PICCI Board of Directors is
limited only to per diem of P1,000.00 or is it P1,500

HELD: It's limited only to per diem of P1,000, BUT they don't need to refund the amount.

Section 30 of the Corporation Code, which authorizes the stockholders to grant compensation to its
directors, states: "In the absence of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors, except for reasonable per diems;
Provided, however, that any such compensation (other than per diems) may be granted to directors by
the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular
or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of the corporation during the
preceding year.

In construing the said provision, it bears stressing that the directors of a corporation shall not receive
any compensation for being members of the board of directors, except for reasonable per diems. The
two instances where the directors are to be entitled to compensation shall be when it is fixed by the
corporation's by-laws or when the stockholders, representing at least a majority of the outstanding
capital stock, vote to grant the same at a regular or special stockholder's meeting, subject to the
qualification that, in any of the two situations, the total yearly compensation of directors, as such
directors, shall in no case exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year.

Section 8 of the Amended By-Laws of PICCI, in consonance with Section 30 of the Corporation Code,
restricted the scope of petitioners' compensation by fixing their per diem at P1,000.00. However, the
Board of Directors may increase or decrease the amount of per diems, when the prevailing
circumstances shall warrant. No other compensation may be given to them, except only when they
serve the corporation in another capacity.
Section 8, Article IX-B of the Constitution provides that no elective or appointive public officer or
employee shall receive additional, double or indirect compensation, unless specifically authorized by
law, nor accept without the consent of the Congress, any present emolument, office or title of any kind
from any foreign government. Pensions and gratuities shall not be considered as additional, double or
indirect compensation. This provision, however, does not apply to the present case as there was no
double compensation of RATA to the petitioners.

The Court upholds the findings of respondent that petitioners' right to compensation as members of the
PICCI Board of Directors is limited only to per diem of P1,000.00 for every meeting attended, by
virtue of the PICCI By-Laws. In the same vein, we also clarify that there has been no double
compensation despite the fact that, apart from the RATA they have been receiving from the BSP,
petitioners have been granted the RATA of P1,500.00 for every board meeting they attended, in their
capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 15 dated
January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994, of the Bangko Sentral
ng Pilipinas. In this regard, we take into consideration the good faith of petitioners.

As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every board
meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to
MB Resolution No. 15 as amended the Court sees no need for them to refund their RATA respectively.


Facts: Private respondents are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc. a stock corporation engaged in the operation, among others, of an
educational institution. Then, the board of directors amended their by laws giving the members of
board of directors a compensation. The ten per centum of the net profits shall be distributed equally
among the ten members of the Board of Trustees. Few years later, the private respondents were
charged of falsification of public documents and estafa. The charge for falsification of public document
was anchored on the private respondents submission of WITs income statement for the fiscal year
1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of
corporate funds making it appear that the same was passed by the board on March 30, 1986, when in
truth, the same was actually passed on June 1, 1986, a date not covered by the corporations fiscal year
1985-1986. After a full-blown hearing TC handed down a verdict of acquittal on both counts without
imposing any civil liability against the accused therein.

Issue: WON the compensation of the board of directors as stated in their by laws violates the
corporation code?

Held: NO. There is no argument that directors or trustees, as the case may be, are not entitled to salary
or other compensation when they perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and
that the return upon their shares adequately furnishes the motives for service, without compensation.

Under the foregoing section, 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 by-laws
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. In the case at bench,
Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity
as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-
Chairman, Treasurer and Secretary of Western Institute of Technology. Clearly, therefore, the
prohibition with respect to granting compensation to corporate directors/trustees as such under Section
30 is not violated in this particular case.


It is a general rule that `Bonuses to employees made in good faith and as additional compensation for
the services actually rendered by the employees are deductible, provided such payments, when added to
the stipulated salaries, do not exceed a reasonable compensation for the services rendered.

The condition precedents to the deduction of bonuses to employees are: (1) the payment of the bonuses
is in fact compensation; (2) it must be for personal services actually rendered; and (3) bonuses, when
added to the salaries, are `reasonable ... when measured by the amount and quality of the services
performed with relation to the business of the particular taxpayer. Here it is admitted that the bonuses
are in fact compensation and were paid for services actually rendered.


1. Kuenzle & Streiff for the years 1953, 1954 and 1955 filed its income tax return, declaring losses.

2. CIR filed for deficiency of income taxes against Kuenzle & Streiff Inc. for the said years in the
amounts of P40,455.00, P11,248.00 and P16,228.00, respectively, arising from the disallowance, as
deductible expenses, of the bonuses paid by the corporation to its officers, upon the ground that they
were not ordinary, nor necessary, nor reasonable expenses within the purview of Section 30(a) (1) of
the National Internal Revenue Code.

3. The corporation filed with the Court of Tax Appeals a petition for review contesting the assessments.
CTA favored the CIR, however lowered the tax due on 1954. The corporation moved for
reconsideration, but still lost.

4. The Corporation contends that the tax court, in arriving at its conclusion, acted "in a purely arbitrary
manner", and erred in not considering individually the total compensation paid to each of petitioner's
officers and staff members in determining the reasonableness of the bonuses in question, and that it
erred likewise in holding that there was nothing in the record indicating that the actuation of the
respondent was unreasonable or unjust.

ISSUE: Whether or not the bonuses in question was reasonable and just to be allowed as a deduction?

HELD: No. It is a general rule that `Bonuses to employees made in good faith and as additional
compensation for the services actually rendered by the employees are deductible, provided such
payments, when added to the stipulated salaries, do not exceed a reasonable compensation for the
services rendered. The condition precedents to the deduction of bonuses to employees are: (1) the
payment of the bonuses is in fact compensation; (2) it must be for personal services actually rendered;
and (3) bonuses, when added to the salaries, are `reasonable ... when measured by the amount and
quality of the services performed with relation to the business of the particular taxpayer. Here it is
admitted that the bonuses are in fact compensation and were paid for services actually rendered. The
only question is whether the payment of said bonuses is reasonable.
There is no fixed test for determining the reasonableness of a given bonus as compensation. This
depends upon many factors, one of them being the amount and quality of the services performed with
relation to the business. Other tests suggested are: payment must be 'made in good faith'; the character
of the taxpayer's business, the volume and amount of its net earnings, its locality, the type and extent of
the services rendered, the salary policy of the corporation'; 'the size of the particular business'; 'the
employees' qualifications and contributions to the business venture'; and 'general economic conditions.
However, 'in determining whether the particular salary or compensation payment is reasonable, the
situation must be considered as a whole.

It seems clear from the record that, in arriving at its main conclusion, the tax court considered, inter
alia, the following factors:

1) The paid officers, in the absence of evidence to the contrary, that they were competent, on the other
the record discloses no evidence nor has petitioner ever made the claim that all or some of them were
gifted with some special talent, or had undergone some extraordinary training, or had accomplished any
particular task, that contributed materially to the success of petitioner's business during the taxable
years in question.

2) All the other employees received no pay increase in the said years.

3) The bonuses were paid despite the fact that it had suffered net losses for 3 years. Furthermore the
corporation cannot use the excuse that it is 'salary paid' to an employee because the CIR does not
question the basic salaries paid by petitioner to the officers and employees, but disallowed only the
bonuses paid to petitioner's top officers at the end of the taxable years in question.


FACTS: Petitioners Gregg Harbutt (Harbutt) and Bill Percy (Percy) are the General Manager and
owner, respectively, of Park Hotel. Percy, Harbutt and Atty. Roberto Enriquez are also the officers and
stockholders of Burgos Corporation (Burgos), a sister company of Park Hotel.

Respondent Manolo Soriano (Soriano) was hired by Park Hotel in July 1990 as Maintenance
Electrician, and then transferred to Burgos in 1992. Respondent Lester Gonzales (Gonzales) was
employed by Burgos as Doorman, and later promoted as Supervisor. Respondent Yolanda Badilla
(Badilla) was a bartender of J's Playhouse operated by Burgos.

In October of 1997, Soriano, Gonzales and Badilla were dismissed from work for allegedly stealing
company properties. As a result, respondents filed complaints for illegal dismissal, unfair labor
practice, and payment of moral and exemplary damages and attorney's fees, before the Labor Arbiter
(LA). In their complaints, respondents alleged that the real reason for their dismissal was that they were
organizing a union for the company's employees.

Petitioners alleged that aside from the charge of theft, Soriano and Gonzales have violated various
company rules and regulations contained in several memoranda issued to them. After dismissing
respondents, Burgos filed a case for qualified theft against Soriano and Gonzales before the Makati
City Prosecutor's Office, but the case was dismissed for insufficiency of evidence.
LA rendered a Decision finding that there was illegal dismissal. They appealed to the NLRC, it was
remanded again to the LA which again ruled against petitioners. They appealed again to the NLRC
which affired the LA's decision. Petitioners filed a petition for certiorari with the CA which affirmed
the NLRC ruling, thus this petition.

ISSUE: Whether Park Hotel, Percy and Harbutt are jointly and severally liable with Burgos for the
dismissal of respondents

HELD: Park Hotel cannot, but Percy and Harbutt can.

There is no question that the respondents were illegally dismissed. However, the SC found that the
CA's finding is clearly contrary to the evidence presented. The documents merely show that Soriano
was employed by Park Hotel before he was transferred to Burgos in 1992. Nowhere in these documents
does it state that Soriano continued to work for Park Hotel in 1992 and onwards. Clearly therefore,
Park Hotel cannot be made liable for illegal dismissal as it no longer had Soriano in its employ at the
time he was dismissed from work. As to whether Park Hotel may be held solidarily liable with Burgos,
the Court rules that before a corporation can be held accountable for the corporate liabilities of another,
the veil of corporate fiction must first be pierced.

In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel was a mere
instrumentality, agency, conduit or adjunct of Burgos, or that its separate corporate veil had been used
to cover any fraud or illegality committed by Burgos against the respondents. Accordingly, Park Hotel
and Burgos cannot be considered as one and the same entity, and Park Hotel cannot be held solidary
liable with Burgos.

Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it does not
necessarily mean that Percy and Harbutt are exempt from liability towards respondents. Verily, a
corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, while acting as corporate agents, are not their personal liability but the
direct accountability of the corporation they represent.

However, corporate officers may be deemed solidarily liable with the corporation for the termination of
employees if they acted with malice or bad faith. In the present case, the lower tribunals unanimously
found that Percy and Harbutt, in their capacity as corporate officers of Burgos, acted maliciously in
terminating the services of respondents without any valid ground and in order to suppress their right to

Section of the Corporation Code makes a director personally liable for corporate debts if he willfully
and knowingly votes for or assents to patently unlawful acts of the corporation. It also makes a director
personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the
corporation. Thus, Percy and Harbutt, having acted in bad faith in directing the affairs of Burgos, are
jointly and severally liable with the latter for respondents' dismissal.


FACTS: It was in 1994 that Isabel Company,Inc. (ISCI) sold the land to Urban Bank Inc. (UBI). The
cost of the land is P 240 million. Since the land was occupied by illegal tenants, the ISCI lawyer, Atty.
Magdaleno Pena had to make some effort in negotiating with the illegal tenants just to vacate the land.
But the illegal tenants will not vacate since they know that the new owner was the Urban Bank and not
the ISCI. So the ISCI ask Urban Bank to make a document authorizing Atty. Magdaleno to negotiate
with them. But Atty. Magdaleno through their conversation in the phone with Teodoro Borlongan,
President of Union Bank, told him that it is not easy to negotiate with the illegal tenants since the local
cops are in their side. So Atty. Magdaleno, in order for him to negotiate under Urban Bank, is asking
for a 10% of the total price of the land sold and to be put in writing. It was then agreed by Toedoro
Borlongan through phone conversation. But the authorization made by Teodora Borlongan of Urban
Bank did not include the 10% fee of Atty. Pena. Meanwhile, Atty. Pena settled the illegal tenants but he
give the illegal tenants 1,500,000.00 and he also paid for the security guards which cost for about P
3,000,000.00. But Urban Bank refuses to pay so Atty. Pena filed a complaint against the recovery of the
costs he spend just to relocate the illegal tenants. He also asking for the 10% attorneys fee as what they
have agreed through telephone conversation.


The trial court agrees on the payment for the services of Atty. Pena on the amount of P 28,500,000.00
In the eyes of trial court, it should believed the testimony of Atty. Pena and President of Urban Bank
thru telephone conversation in which it was agreed that the latter will pay for the 10% of the value of
the property worth P 240,000,000.00.

The Regional Trial Court of Makati City, to which the case shall be raffled, is hereby designated as the
court that will fully implement the restorative directives of this Decision with respect to the execution
of the final judgment, return of properties wrongfully executed, or the payment of the value of
properties that can no longer be restored, in accordance with Section 5, Rule 39 of the Rules of Court.
The parties are directed to address the implementation of this part of the Decision to the sala to which
the case will be raffled.


It agrees on the payment for the services of Atty. Pena on the amount of P 3,000,000.00. Under the
legal principle against unjust enrichment. In which there has no contract of agency exists between Atty.
Pena and urban Bank. Where the former shall be paid accordingly.


The Urban Bank is entitled to complete restoration and return of the properties levied on execution
considering the absolute reversal of the award of damages, upon the payment of the judgment debt
herein amounting to PhP4,500,000, with interest as indicated in the dispositive portion. With respect to
individual petitioners, they are entitled to the absolute restitution of their executed properties, except
when restitution has become impossible, in which case Pea shall be liable for the full value of the
property at the time of its seizure, with interest. Whether Urban Bank and the bank officers and
directors are entitled to any claim for damages against Pea and his indemnity bond is best ventilated
before the trial court, as prescribed under the procedural rules on execution pending appeal.
It was therefore denies the petition of Atty. Magdaleno and affirms with modification the Court of
Appeals. While the RTC of Bago City gravely abused its discretion in awarding unconscionable
damages against Urban Bank,Inc.,and its officers. Therefore the decision of RTC is vacated.

Whether or not Atty. Magdaleno Pea is entitled to receive the P28 million.

No. Atty. Magdaleno is not entitled to receive the P28 million but he is entitled only for the payment of
compensation for his services rendered as agent of Urban Bank. On the basis of the principles of unjust
enrichment and quantum meruit. Since there is no supporting evidence to present, Atty. Pena cannot
insist the 10% attorneys fee since the amount is already unconscionable. In the absence of such
agreements, the principle of quantum meruit is applied. He is entitled only to receive the merit of his
services, and for the reimbursement of his expenses in securing the property and relocating the illegal
tenants. For a total of P 4.5 million. It must be put in mind that lawyering is not a business; it is a
profession in which duty to public service, not money, is the primary consideration.