1
GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS,
GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO
L. GO, respondents.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Petitioner Grace Christian High School is an educational institution located
at the Grace Village in Quezon City, while Private respondent Grace Village
Association, Inc. ["Association'] is an organization of lot and/or building
owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of
eleven (11) members, shall serve for one (1) year until their successors are
duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a
draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL
representative is a permanent
Director of the ASSOCIATION."
However, this 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.
On 13 February 1990, the association's committee on election sought to
change the by-laws and informed the Petitioner's school principal "the
proposal to make the Grace Christian High School representative as a
permanent director of the association, although previously tolerated in the
past elections should be reexamined."
Following this advice, notices were sent to the members of the association
that the provision on election of directors of the 1968 by-laws of the
association would be observed. Petitioner requested the chairman of the
election committee to change the notice to honor the 1975 by-laws
provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and
Guaranty Corporation (HIGC) to compel the board of directors to recognize
its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC
rendered an opinion to the effect that the practice of allowing unelected
members in the board was contrary to the existing by-laws of the
association and to §92 of the Corporation Code (B.P. Blg. 68). This was
adopted by the association in its Answer in the mandamus filed with the
HIGC.
The HIGC hearing officer ruled in favor of the association, which decision
was affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue: W/N the 1975 provision giving the petitioner a permanent board seat
was valid.
Ruling: No.
Section 23 of the Corporation Code (and its predecessor Section 28 and 29
of the Corporation Law) leaves no room for doubt that the Board of
Directors of a Corporation must be elected from among the stockholders or
members.
There may be corporations in which there are unelected members in the
board but it is clear that in these instances, the unelected members sit as ex
officio members, i.e., by virtue of and for as long as they hold a particular
office (e.g. whoever is the Archbishop of Manila is considered a member of
the board of Cardinal Santos Memorial Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative
 2

to be given a seat in the board. Nor does petitioner claim a right to such
seat by virtue of an office held. In fact it was not given such seat in the
beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.

Since the provision in question is contrary to law, the fact that it has gone
unchallenged for fifteen years cannot forestall a later challenge to its
validity. Neither can it attain validity through acquiescence because, if it is
contrary to law, it is beyond the power of the members of the association to
waive its invalidity.

It is more accurate to say that the members merely tolerated petitioner's

representative and tolerance cannot be considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of
"practice." Practice, no matter how long continued, cannot give rise to any
vested right if it is contrary to law.

MARC II MARKETING, INC. VS. JOSON FACTS
Before petitioner corporation was officially incorporated, respondent has
already been engaged by petitioner Lucila, in her capacity as President of
Marc Marketing, Inc., to work as the General Manager of petitioner
corporation. It was formalized through the execution of a Management
Contract under the letterhead of Marc Marketing, Inc. as petitioner
corporation is yet to be incorporated at the time of its execution. It was
explicitly provided therein that respondent shall be entitled to 30% of its net
income for his work as General Manager. Respondent will also be granted
30% of its net profit to compensate for the possible loss of opportunity to
work overseas. On 15 August 1994, petitioner corporation was officially
incorporated and registered with the SEC. Accordingly, Marc Marketing, Inc.
was made non-operational. Respondent continued to discharge his duties as
General Manager under petitioner corporation. Pursuant to Section 1,
Article IV of petitioner corporation’s by-laws, its corporate officers are as
follows: Chairman, President, one or more Vice-President(s), Treasurer and
Secretary. Its Board of Directors, however, may, from time to time, appoint
such other officers as it may determine to be necessary or proper. Per an
undated Secretary’s Certificate, petitioner corporation’s Board of Directors
conducted a meeting on 29 August 1994 where respondent was appointed
as one of its corporate officers with the designation or title of General
Manager to function as a managing director with other duties and
responsibilities that the Board of Directors may provide and authorized.
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and
cease its operations due to poor sales collection aggravated by the
inefficient management of its affairs. On the same date, it formally informed
respondent of the cessation of its business operation. Concomitantly,
respondent was apprised of the termination of his services as General
Manager since his services as such would no longer be necessary for the
winding up of its affairs. Feeling aggrieved, respondent filed a Complaint for
Reinstatement and Money Claim against petitioners before the Labor
Arbiter. On 1 October 2001, the Labor Arbiter rendered his Decision in favor
of respondent. Aggrieved, petitioners appealed the aforesaid Labor Arbiters
Decision to the NLRC. In its Resolution dated 15 October 2002, the NLRC
3
ruled in favor of petitioners by giving credence to the Secretary’s Certificate,
which evidenced petitioner corporations Board of Directors meeting in
which a resolution was approved appointing respondent as its corporate
officer with
designation as General Manager. Therefrom, the NLRC reversed and set
aside the Labor Arbiters Decision dated 1 October 2001 and dismissed
respondents Complaint for want of jurisdiction. When respondents Motion
for Reconsideration was denied in another Resolution dated 23 January
2003, he filed a Petition for Certiorari with the Court of Appeals ascribing
grave abuse of discretion on the part of the NLRC. On 20 June 2005, the
Court of Appeals rendered its Decision declaring that the Labor Arbiter has
jurisdiction over the present controversy. It upheld the finding of the Labor
Arbiter that respondent was a mere employee of petitioner corporation,
who has been illegally dismissed from employment without valid cause and
without due process. Nevertheless, it ordered the records of the case
remanded to the NLRC for the determination of the appropriate amount of
monetary awards to be given to respondent. Hence, this Petition.
Petitioners fault the Court of Appeals for having sustained the Labor
Arbiters finding that respondent was not a corporate officer under
petitioner corporations by-laws. They insist that there is no need to amend
the corporate by-laws to specify who its corporate officers are. The
resolution issued by petitioner corporations Board of Directors appointing
respondent as General Manager, coupled with his assumption of the said
position, positively made him its corporate officer. More so, respondents
position, being a creation of petitioner corporations Board of Directors
pursuant to its by-laws, is a corporate office sanctioned by the Corporation
Code and the doctrines previously laid down by this Court. Thus,
respondents removal as petitioner corporations General Manager involved
a purely intra-corporate controversy over which the RTC has jurisdiction.
ISSUE Whether the respondent, as the General Manager of petitioner
corporation, is a corporate officer or a mere employee. RULING The
respondent is a mere employee of the respondent corporation. In Easycall
Communications Phils., Inc. v. King, this Court held that in the context of

Presidential Decree No. 902-A, corporate officers are those officers of a
corporation who are given that character either by the Corporation Code or
by the corporations by-laws. Section 25 of the Corporation Code specifically
enumerated who are these corporate officers, to wit: (1) president; (2)
secretary; (3) treasurer; and (4) such other officers as may be provided for
in the by-laws.
The aforesaid Section 25 of the Corporation Code, particularly the phrase
such other officers as may be provided for in the by-laws, has been clarified
and elaborated in this Courts recent pronouncement in Matling Industrial
and Commercial Corporation v. Coros, where it held that a position must be
expressly mentioned in the [b]y-[l]aws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a [b]y-
[l]aw enabling provision is not enough to make a position a corporate office.
Thus, pursuant to the above provision (Section 25 of the Corporation Code),
whoever are the corporate officers enumerated in the by-laws are the
exclusive Officers of the corporation and the Board has no power to create
other Offices without amending first the corporate [b]y-laws. However, the
Board may create appointive positions other than the positions of corporate
Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code
and are not empowered to exercise the functions of the corporate Officers,
except those functions lawfully delegated to them. Their functions and
duties are to be determined by the Board of Directors/Trustees. A careful
perusal of petitioner corporations by-laws would explicitly reveal that its
corporate officers are composed only of: (1) Chairman; (2) President; (3)
one or more VicePresident; (4) Treasurer; and (5) Secretary. The position of
General Manager was not among those enumerated. Paragraph 2, Section
1, Article IV of petitioner corporations by-laws, empowered its Board of
Directors to appoint such other officers as it may determine necessary or
proper. It is by virtue of this enabling provision that petitioner corporations
Board of Directors allegedly approved a resolution to make the position of
General Manager a corporate office, and, thereafter, appointed respondent
thereto making him one of its corporate officers. All of these acts were done
without first amending its by-laws so as to include the General Manager in
4
its roster of corporate officers. With the given circumstances and in
conformity with Matling Industrial and Commercial Corporation v. Coros,
this Court rules that respondent was not a corporate officer of petitioner
corporation because his position as General Manager was not specifically
mentioned in the roster of corporate officers in its corporate by-laws. The
enabling clause in petitioner corporations bylaws empowering its Board of
Directors to create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that effect cannot
make such position a corporate office. Matling clearly enunciated that the
board of directors has no power to create other corporate offices without
first amending the corporate by-laws so as to include therein the newly
created corporate office. Though the board of directors may create
appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officers
under Section 25 of the Corporation Code. In view thereof, this
Court holds that unless and until petitioner corporations by-laws is
amended for the inclusion of General Manager in the list of its corporate
officers, such position cannot be considered as a corporate office within the
realm of Section 25 of the Corporation Code. Definition of Intra-Corporate
Disputes Under Section 5 of Presidential Decree No. 902-A, intra-corporate
controversies are those controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and
the State insofar as it concerns their individual franchise or right to exist as
such entity. It also includes controversies in the election or appointments of
directors, trustees, officers or managers of such corporations, partnerships
or associations. Accordingly, in determining whether the SEC (now the RTC)
has jurisdiction over the controversy, the status or relationship of the
parties and the nature of the question that is the subject of their
controversy must be taken into consideration.

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC.,
petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND
GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO,
respondents.
G.R. No. 117188 August 7, 1997
ROMERO, J.:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized
on 8 February 1983 as the homeoenwers' association for Loyola Grand
Villas. It was also registered as the sole homeowners' association in the said
village with the Home Financing Corporation (which eventually became
Home Insurance Guarantee Corporation ["HIGC"]). However, the association
was not able file its corporate by-laws.
The LGVHAI officers then tried to registered its By-Laws in 1988, but they
failed to do so. They then discovered that there were two other
homeowners' organizations within the subdivision - the Loyola Grand Villas
Homeowners (North) Association, Inc. [North Association] and herein
Petitioner Loyola Grand Villas Homeowners (South) Association, Inc.["South
Association].
Upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was
dissolved for its failure to submit its by-laws within the period required by
the Corporation Code and for its non-user of corporate charter because
HIGC had not received any report on the association's activities. These
paved the way for the formation of the North and South Associations.
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier,
and questioned the revocation of its registration. Hearing Officer Javier
ruled in favor of LGVHAI, revoking the registration of the North and South
Associations.
Petitioner South Association appealed the ruling, contending that LGVHAI's
failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code effectively automatically dissolved the corporation. The
Appeals Board of the HIGC and the Court of Appeals both rejected the
contention of the Petitioner affirmed the decision of Hearing Officer Javier.
5
Issue: W/N LGVHAI's failure to file its by-laws within the period prescribed
by Section 46 of the Corporation Code had the effect of automatically
dissolving the said corporation.
Ruling: No.
The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this Code,
must within one (1) month after receipt of official notice of the issuance of
its certificate of incorporation by the Securities and Exchange Commission,
adopt a code of by-laws for its government not inconsistent with this Code.
Ordinarily, the word "must" connotes an imposition of duty which must be
enforced. However, the word "must" in a statute, like "shall," is not always
imperative. It may be consistent with an ecercise of discretion. If the
language of a statute, considered as a whole with due regard to its nature
and object, reveals that the legislature intended to use the words "shall"
and "must" to be directory, they should be given that meaning.
The legislative deliberations of the Corporation Code reveals that it was not
the intention of Congress to automatically dissolve a corporation for failure
to file the By-Laws on time.
Moreover, By-Laws may be necessary to govern the corporation, but By-
Laws are still subordinate to the Articles of Incorporation and the
Corporation Code. In fact, there are cases where By-Laws are unnecessary
to the corporate existence and to the valid exercise of corporate powers.
The Corporation Code does not expressly provide for the effects of non-
filing of By-Laws. However, these have been rectified by Section 6 of PD
902-A which provides that SEC shall possess the power to suspend or
revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations upon failure to file By-Laws within the required
period.
This shows that there must be notice and hearing before a corporation is
 6

dissolved for failure to file its By-Laws. Even assuming that the existence of a
ground, the penalty is not necessarily revocation, but may only be
suspension.

By-Laws are indispensable to corporations, since they are required by law

for an orderly management of corporations. However, failure to file them
within the period prescribed does not equate to the automatic dissolution
of a corporation.

China Banking Corporation vs. Court of Appeals
[GR 117604, 26 March 1997]
Facts: On 21 August 1974, Galicano Calapatia, Jr., a stockholder of Valley
Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate 1219 to
China Banking Corporation (CBC). On 16 September 1974, CBC wrote VGCCI
requesting that the pledge agreement be recorded in its books. In a letter
dated 27 September 1974, VGCCI replied that the deed of pledge executed
by Calapatia in CBC's favor was duly noted in its corporate books. On 3
August 1983, Calapatia obtained a loan of P20,000.00 from CBC, payment of
which was secured by the pledge agreement still existing between Calapatia
and CBC. Due to Calapatia's failure to pay his obligation, CBC, on 12 April
1985, filed a petition for extrajudicial foreclosure before Notary Public
Antonio T. de Vera of Manila, requesting the latter to conduct a public
auction sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of
the foreclosure proceedings and requested that the pledged stock be
transferred to its name and the same be recorded in the corporate books.
However, on 15 July 1985, VGCCI wrote CBC expressing its inability to
accede to CBC's request in view of Calapatia's unsettled accounts with the
club. Despite the foregoing, Notary Public de Vera held a public auction on
17 September 1985 and CBC emerged as the highest bidder at P20,000.00
for the pledged stock. Consequently, CBC was issued the corresponding
certificate of sale.
On 21 November 1985, VGCCI sent Calapatia a notice demanding full
payment of his overdue account in the amount of P18,783.24. Said notice
was followed by a demand letter dated 12 December 1985 for the same
amount and another notice dated 22 November 1986 for P23,483.24. On 4
December 1986, VGCCI caused to be published in the newspaper Daily
Express a notice of auction sale of a number of its stock certificates, to be
held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's
own share of stock (Stock Certificate 1219). Through a letter dated 15
December 1986, VGCCI informed Calapatia of the termination of his
membership due to the sale of his share of stock in the 10 December 1986
auction. On 5 May 1989, CBC advised VGCCI that it is the new owner of
Calapatia's Stock Certificate 1219 by virtue of being the highest bidder in the
17 September 1985 auction and requested that a new certificate of stock be
issued in its name. On 2 March 1990, VGCCI replied that "for reason of
delinquency" Calapatia's stock was sold at the public auction held on 10
December 1986 for P25,000.00. On 9 March 1990, CBC protested the sale by
7
VGCCI of the subject share of stock and thereafter filed a case with the
Regional Trial Court of Makati for the nullification of the 10 December 1986
auction and for the issuance of a new stock certificate in its name. On 18
June 1990, the Regional Trial Court of Makati dismissed the complaint for
lack of jurisdiction over the subject matter on the theory that it involves an
intra-corporate dispute and on 27 August 1990 denied CBC's motion for
reconsideration. On 20 September 1990, CBC filed a complaint with the
Securities and Exchange Commission (SEC) for the nullification of the sale of
Calapatia's stock by VGCCI; the cancellation of any new stock certificate
issued pursuant thereto; for the issuance of a new certificate in petitioner's
name; and for damages, attorney's fees and costs of litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision
in favor of VGCCI, stating in the main that considering that the said share is
delinquent, VGCCI had valid reason not to transfer the share in the name of
CBC in the books of VGCCI until liquidation of delinquency. Consequently,
the case was dismissed. On 14 April 1992, Hearing Officer Perea denied
CBC's motion for reconsideration. CBC appealed to the SEC en banc and on 4
June 1993, the Commission issued an order reversing the decision of its
hearing officer; holding that CBC has a prior right over the pledged share
and because of pledgor's failure to pay the principal debt upon maturity,
CBC can proceed with the foreclosure of the pledged share; declaring that
the auction sale conducted by VGCCI on 10 December 1986 is declared NULL
and VOID; and ordering VGCCI to issue another membership certificate in
the name of CBC. VGCCI sought reconsideration of the order. However, the
SEC denied the same in its resolution dated 7 December 1993. The sudden
turn of events sent VGCCI to seek redress from the Court of Appeals. On 15
August 1994, the Court of Appeals rendered its decision nullifying and
setting aside the orders of the SEC and its hearing officer on ground of lack
of jurisdiction over the subject matter and, consequently, dismissed CBC's
original complaint. The Court of Appeals declared that the controversy
between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and
dismissing CBC’s complaint. CBC moved for reconsideration but the same
was denied by the Court of Appeals in its resolution dated 5 October 1994.
CBC filed the petition for review on certiorari.
Issue: Whether CBC is bound by VGCCI's by-laws.
Held: In order to be bound, the third party must have acquired knowledge
of the pertinent by-laws at the time the transaction or agreement between
 8

said third party and the shareholder was entered into. Herein, at the time owed the corporation were merely the monthly dues. Hence, Section 63
the pledge agreement was executed. VGCCI could have easily informed CBC does not apply.
of its by-laws when it sent notice formally recognizing CBC as pledgee of one
of its shares registered in Calapatia's name. CBC's belated notice of said by-
laws at the time of foreclosure will not suffice. By-laws signifies the rules
and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders
or members and directors and officers with relation thereto and among
themselves in their relation to it. In other words, by-laws are the relatively
permanent and continuing rules of action adopted by the corporation for its
own government and that of the individuals composing it and having the
direction, management and control of its affairs, in whole or in part, in the
management and control of its affairs and activities. The purpose of a by-
law is to regulate the conduct and define the duties of the members
towards the corporation and among themselves. They are self-imposed and,
although adopted pursuant to statutory authority, have no status as public
law. Therefore, it is the generally accepted rule that third persons are not
bound by by-laws, except when they have knowledge of the provisions
either actually or constructively. For the exception to the general accepted
rule that third persons are not bound by by-laws to be applicable and
binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws
must be acquired at the time the pledge agreement was contracted.
Knowledge of said provisions, either actual or constructive, at the time of
foreclosure will not affect pledgee's right over the pledged share. Article
2087 of the Civil Code provides that it is also of the essence of these
contracts that when the principal obligation becomes due, the things in
which the pledge or mortgage consists maybe alienated for the payment to
the creditor. Further, VGCCI's contention that CBC is duty-bound to know its
by-laws because of Article 2099 of the Civil Code which stipulates that the
creditor must take care of the thing pledged with the diligence of a good
father of a family, fails to convince. CBC was never informed of Calapatia's
unpaid accounts and the restrictive provisions in VGCCI's by-laws.
Furthermore, Section 63 of the Corporation Code which provides that "no
shares of stock against which the corporation holds any unpaid claim shall
be transferable in the books of the corporation" cannot be utilized by
VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from
unpaid subscription, and not to any indebtedness which a subscriber or
stockholder may owe the corporation arising from any other transaction."
Herein, the subscription for the share in question has been fully paid as
evidenced by the issuance of Membership Certificate 1219. What Calapatia

MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its
Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION v.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his
capacity as the Deputy Sheriff of RTC, Branch 3, Iligan City; and the
REGISTER OF DEEDS of Cagayan de Oro City, Respondent
2010 Oct 20 2nd Division G.R. No. 178618 NACHURA, J.:
FACTS
First Iligan Savings and Loan Association, Inc. (FISLAI) and Davao
Savings and Loan Association, Inc. (DSLAI) are entities duly registered with
the SEC primarily engaged in the business of granting loans and receiving
deposits from the general public, and treated as banks. In 1985, FISLAI and
DSLAI entered into a merger, with DSLAI as the surviving corporation but
their articles of merger were not registered with the SEC due to incomplete
documentation. DSLAI changed its corporate name to MSLAI by way of an
amendment to its Articles of Incorporation which was approved by the SEC.
In 1986, the Board of Directors of FISLAI passed and approved Board
Resolution assigning its assets in favor of DSLAI which in turn assumed the
former’s liabilities. The business of MSLAI, however, failed. Hence, the
Monetary Board of the Central Bank of the Philippines ordered its
liquidation with PDIC as its liquidator.
Prior to the closure of MSLAI, Uy filed with the RTC of Iligan City, an
action for collection of sum of money against FISLAI. The RTC issued a
summary decision in favor of Uy, directing FISLAI to pay. As a consequence,
6 parcels of land owned by FISLAI were levied and sold to Willkom. In 1995,
MSLAI, represented by PDIC, filed before the RTC a complaint for the
annulment of the Sheriff’s Sale alleging that the sale on execution of the
subject properties was conducted without notice to it and PDIC.
Respondents, in its answer, averred that MSLAI had no cause of action
because MSLAI is a separate and distinct entity from FISLAI on the ground
that the “unofficial merger” between FISLAI and DSLAI (now MSLAI) did not
take effect considering that the merging companies did not comply with the
formalities and procedure for merger or consolidation as prescribed by the
Corporation Code of the Philippines. RTC dismissed the case for lack of
jurisdiction. CA affirmed but ruled that there was no merger between FISLAI
and MSLAI (formerly DSLAI) for their failure to follow the procedure laid
down by the Corporation Code for a valid merger or consolidation.
ISSUE
9
Was the merger between FISLAI and DSLAI (now MSLAI) valid and effective?
HELD
NO. In merger, one of the corporations survives while the rest are
dissolved and all their rights, properties, and liabilities are acquired by the
surviving corporation. Although there is a dissolution of the absorbed or
merged 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 well as their liabilities.
The merger, however, does not become effective upon the mere
agreement of the constituent corporations. Since a merger or consolidation
involves fundamental changes in the corporation, as well as in the rights of
stockholders and creditors, there must be an express provision of law
authorizing them. The steps necessary to accomplish a merger or
consolidation, as provided for in Sections 76,[24] 77,[25] 78,[26] and 79[27]
of the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or
consolidation. Such plan must include any amendment, if necessary,
to the articles of incorporation of the surviving corporation, or in
case of consolidation, all the statements required in the articles of
incorporation of a corporation;
(2) Submission of plan to stockholders or members of each
corporation for approval. A meeting must be called and at least two
(2) weeks’ notice must be sent to all stockholders or members,
personally or by registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the members or of
stockholders representing two-thirds of the outstanding capital
stock will be needed. Appraisal rights, when proper, must be
respected;
(3) Execution of the formal agreement, referred to as the articles of
merger or consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of
incorporation of the consolidated corporation, or amend the articles
of incorporation of the surviving corporation;
(4) Submission of said articles of merger or consolidation to the SEC
for approval;
(5) If necessary, the SEC shall set a hearing, notifying all
corporations concerned at least two weeks before;
(6) Issuance of certificate of merger or consolidation.
 10

Clearly, the merger shall only be effective upon the issuance of a

certificate of merger by the SEC, subject to its prior determination that the
merger is not inconsistent with the Corporation Code or existing laws. In this
case, it is undisputed that the articles of merger between FISLAI and DSLAI
were not registered with the SEC due to incomplete documentation.
Consequently, the SEC did not issue the required certificate of merger. Even
if it is true that the Monetary Board of the Central Bank of the Philippines
recognized such merger, the fact remains that no certificate was issued by
the SEC. Such merger is still incomplete without the certification. The
issuance of the certificate of merger is crucial because not only does it bear
out SEC’s approval but it also marks the moment when 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. There being no merger between FISLAI and DSLAI
(now MSLAI), for third parties such as respondents, the two corporations
shall not be considered as one but two separate corporations. Being
separate entities, the property of one cannot be considered the property of
the other.

Thus, in the instant case, as far as third parties are concerned, the
assets of FISLAI remain as its assets and cannot be considered as belonging
to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein
FISLAI assigned its assets and properties to DSLAI, and the latter assumed all
the liabilities of the former. As provided in Article 1625 of the Civil Code, “an
assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is
recorded in the Registry of Property in case the assignment involves real
property.” The certificates of title of the subject properties were clean and
contained no annotation of the fact of assignment. Respondents cannot,
therefore, be faulted for enforcing their claim against FISLAI on the
properties registered under its name. Accordingly, MSLAI, as the successor-
in-interest of DSLAI, has no legal standing to annul the execution sale over
the properties of FISLAI. With more reason can it not cause the cancellation
of the title to the subject properties of Willkom and Go.

Lee vs. CA Case Digest
Lee vs. Court of Appeals
[GR 93695, 4 February 1992]
Facts: On 15 November 1985, a complainant for sum of money was filed by
the International Corporate Bank, Inc. against Sacoba Manufacturing Corp.,
Pablo Gonzales Jr., and Tomas Gonzales who, in turn, filed a third party
complaint against Alfa Integrated Textile Mills (ALFA), Ramon C. Lee (ALFA's
president) and Antonio DM. Lacdao (ALFA's vice president) on 17 March
1986. On 17 September 1987, Lee and Lacdao filed a motion to dismiss the
third party complaint which the Regional Trial Court of Makati, Branch 58
denied in an Order dated 27 June 1988. On 18 July 1988, Lee and Lacdao
filed their answer to the third party complaint. Meanwhile, on 12 July 1988,
the trial issued an order requiring the issuance of an alias summons upon
ALFA through the DBP as a consequence of Lee and Lacdao's letter
informing the court that the summons for ALFA was erroneously served
upon them considering that the management of ALFA had been transferred
to the DBP. In a manifestation dated 22 July 1988, the DBP claimed that it
was not authorized to receive summons on behalf of ALFA since the DBP
had not taken over the company which has a separate and distinct
corporate personality and existence. On 4 August 1988, the trial court
issued an order advising Sacoba Manufacturing, et. al. to take the
appropriate steps to serve the summons to ALFA. On 16 August 1988,
Sacoba Manufacturing, et. al. filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted on
17 August 1988.
On 12 September 1988, Lee and Lacdao filed a motion for reconsideration
submitting that the Rule 14, section 13 of the Revised Rules of Court is not
applicable since they were no longer officers of ALFA and Sacoba
Manufacturing, et. al. should have availed of another mode of service under
Rule 14, Section 16 of the said Rules, i.e., through publication to effect
proper service upon ALFA. On 2 January 1989, the trial court upheld the
validity of the service of summons on ALFA through Lee and Lacdao, thus,
denying the latter's motion for reconsideration and requiring ALFA to file its
answer through Lee and Lacdao as its corporate officers. On 19 January
1989, a second motion for reconsideration was filed by Lee and Lacdao
reiterating their stand that by virtue of the voting trust agreement they
ceased to be officers and directors of ALFA, hence, they could no longer
11
receive summons or any court processes for or on behalf of ALFA. In support
of their second motion for reconsideration, Lee and Lacdao attached
thereto a copy of the voting trust agreement between all the stockholders
of ALFA (Lee and Lacdao included), on the one hand, and the DBP, on the
other hand, whereby the management and control of ALFA became vested
upon the DBP. On 25 April 1989, the trial court reversed itself by setting
aside its previous Order dated 2 January 1989 and declared that service
upon Lee and Lacdao who were no longer corporate officers of ALFA cannot
be considered as proper service of summons on ALFA. On 15 May 1989,
Sacoba Manufacturing, et. al. moved for a reconsideration of the Order
which was affirmed by the court in is Order dated 14 August 1989 denying
Sacoba Manufacturing, et. al.'s motion for reconsideration.
On 18 September 1989, a petition for certiorari was belatedly submitted by
Sacoba Manufacturing, et. al. before the Court of Appeals which,
nonetheless, resolved to give due course thereto on 21 September 1989. On
17 October 1989, the trial court, not having been notified of the pending
petition for certiorari with the appellate court issued an Order declaring as
final the Order dated 25 April 1989. Sacoba Manufacturing, et. al. in the said
Order were required to take positive steps in prosecuting the third party
complaint in order that the court would not be constrained to dismiss the
same for failure to prosecute. Subsequently, on 25 October 1989 Sacoba
Manufacturing, et. al. filed a motion for reconsideration on which the trial
court took no further action. On 19 March 1990, after Lee and Lacdao filed
their answer to Sacoba Manufacturing, et. al.'s petition for certiorari, the
appellate court rendered its decision, setting aside the orders of trial court
judge dated 25 April 1989 and 14 August 1989. On 11 April 1990, Lee and
Lacdao moved for a reconsideration of the decision of the appellate court
which resolved to deny the same on 10 May 1990. Lee and Lacdao filed the
petition for certiorari. In the meantime, the appellate court inadvertently
made an entry of judgment on 16 July 1990 erroneously applying the rule
that the period during which a motion for reconsideration has been pending
must be deducted from the 15-day period to appeal. However, in its
Resolution dated 3 January 1991, the appellate court set aside the
aforestated entry of judgment after further considering that the rule it
relied on applies to appeals from decisions of the Regional Trial Courts to
the Court of Appeals, not to appeals from its decision to the Supreme Court
pursuant to the Supreme Court's ruling in the case of Refractories
Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA
539 [1989].

Issue:
1. Whether the execution of the voting trust agreement by Lee and
Lacdao whereby all their shares to the corporation have been
transferred to the trustee deprives the stockholder of their
positions as directors of the corporation.
2. Whether the five-year period of the voting trust agreement in
question had lapsed in 1986 so that the legal title to the stocks
covered by the said voting trust agreement ipso facto reverted to
Lee and Lacdao as beneficial owners pursuant to the 6th paragraph
of section 59 of the new Corporation Code.
3. Whether there was proper service of summons on ALFA through
Lee and Lacdao, to bind ALFA.
Held:
1. Lee and Lacdao, 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, Lee and Lacdao 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. Lee and Lacdao ceased to be
directors. Hence, the transfer of their shares to the DBP created vacancies in
their respective positions as directors of ALFA. The transfer of shares from
the stockholders of ALFA to the DBP is the essence of the subject voting
trust agreement. 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 because 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, Lee and Lacdao 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 is no dispute from the records that DBP has taken over full control
and management of the firm.
2. The 6th paragraph of section 59 of the new Corporation Code reads that
"Unless expressly renewed, all rights granted in a voting trust agreement
shall automatically expire at the end of the agreed period, and the voting
12
trust certificates as well as the certificates of stock in the name of the
trustee or trustees shall thereby be deemed cancelled and new certificates
of stock shall be reissued in the name of the transferors." However, it is
manifestly clear from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the agreement is contingent upon
the fulfillment of certain obligations of ALFA with the DBP. Had the five-year
period of the voting trust agreement expired in 1986, the DBP would not
have transferred an its rights, titles and interests in ALFA "effective June 30,
1986" to the national government through the Asset Privatization Trust
(APT) as attested to in a Certification dated 24 January 1989 of the Vice
President of the DBP's Special Accounts Department II. In the same
certification, it is stated that the DBP, from 1987 until 1989, had handled s
account which included ALFA's assets pursuant to a management
agreement by and between the DBP and APT. Hence, there is evidence on
record that at the time of the service of summons on ALFA through Lee and
Lacdao on 21 August 1987, the voting trust agreement in question was not
yet terminated so that the legal title to the stocks of ALFA, then, still
belonged to the DBP.
3. It is a basic principle in Corporation Law that a corporation has a
personality separate and distinct from the officers or members who
compose it. Thus, the role on service of processes on a corporation
enumerates the representatives of a corporation who can validly receive
court processes on its behalf. Not every stockholder or officer can bind the
corporation considering the existence of a corporate entity separate from
those who compose it. The rationale of the rule is that service must be
made on a representative so integrated with the corporation sued as to
make it a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him. Herein, Lee and
Lacdao do not fall under any of the enumerated officers. The service of
summons upon ALFA, through Lee and Lacdao, therefore, is not valid. To
rule otherwise will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or
agent's authority.

Republic vs. Cocofed Case Digest
Republic of the Philippines vs. Cocofed
[GRs 147062-64, 14 December 2001]
Facts: Immediately after the 1986 EDSA Revolution, then President Corazon
C. Aquino issued Executive Orders 1, 5 2 6 and 14. On the explicit premise
that vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad, the Presidential Commission on Good
Government (PCGG) was created by Executive Order 1 to assist the
President in the recovery of the ill-gotten wealth thus accumulated whether
located in the Philippines or abroad. Executive Order 2 stated that the ill-
gotten assets and properties are in the form of bank accounts, deposits,
trust accounts, shares of stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world. Executive
Order 14, on the other hand, empowered the PCGG, with the assistance of
the Office of the Solicitor General and other government agencies, inter alia,
to file and prosecute all cases investigated by it under EOs 1 and 2. Pursuant
to these laws, the PCGG issued and implemented numerous sequestrations,
freeze orders and provisional takeovers of allegedly ill-gotten companies,
assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock
in the United Coconut Planters Bank (UCPB) registered in the names of the
alleged “one million coconut farmers,” the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Eduardo Cojuangco Jr. In
connection with the sequestration of the said UCPB shares, the PCGG, on 31
July 1987, instituted an action for reconveyance, reversion, accounting,
restitution and damages (Case 0033) in the Sandiganbayan. On 15
November 1990, upon Motion of COCOFED, the Sandiganbayan issued a
Resolution lifting the sequestration of the subject UCPB shares on the
ground that COCOFED and the so-called CIIF companies had not been
impleaded by the PCGG as parties-defendants in its 31 July 1987 Complaint
for reconveyance, reversion, accounting, restitution and damages. The
Sandiganbayan ruled that the Writ of Sequestration issued by the
Commission was automatically lifted for PCGG’s failure to commence the
corresponding judicial action within the six-month period ending on 2
August 1987 provided under Section 26, Article XVIII of the 1987
13
Constitution. The anti-graft court noted that though these entities were
listed in an annex appended to the Complaint, they had not been named as
parties-respondents. The Sandiganbayan Resolution was challenged by the
PCGG in a Petition for Certiorari (GR 96073) in the Supreme Court.
Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the
holding of elections for the Board of Directors of UCPB. However, the PCGG
applied for and was granted by this Court a Restraining Order enjoining the
holding of the election. Subsequently, the Court lifted the Restraining Order
and ordered the UCPB to proceed with the election of its board of directors.
Furthermore, it allowed the sequestered shares to be voted by their
registered owners. The victory of the registered shareholders was fleeting
because the Court, acting on the solicitor general’s Motion for
Clarification/Manifestation, issued a Resolution on 16 February 1993,
declaring that “the right of COCOFED, et. al. to vote stock in their names at
the meetings of the UCPB cannot be conceded at this time. That right still
has to be established by them before the Sandiganbayan. Until that is done,
they cannot be deemed legitimate owners of UCPB stock and cannot be
accorded the right to vote them.” On 23 January 1995, the Court rendered
its final Decision in GR 96073, nullifying and setting aside the 15 November
1990 Resolution of the Sandiganbayan which lifted the sequestration of the
subject UCPB shares.
A month thereafter, the PCGG — pursuant to an Order of the
Sandiganbayan — subdivided Case 0033 into eight Complaints (Cases 0033-
A to 0033-H). Six years later, on 13 February 2001, the Board of Directors of
UCPB received from the ACCRA Law Office a letter written on behalf of the
COCOFED and the alleged nameless one million coconut farmers,
demanding the holding of a stockholders’ meeting for the purpose of,
among others, electing the board of directors. In response, the board
approved a Resolution calling for a stockholders’ meeting on 6 March 2001
at 3 p.m. On 23 February 2001, “COCOFED, et al. and Ballares, et al.” filed
the “Class Action Omnibus Motion” in Sandiganbayan Civil Cases 0033-A,
0033-B and 0033-F, asking the Sandiganbayan to enjoin the PCGG from
voting the UCPB shares of stock registered in the respective names of the
more than one million coconut farmers; and to enjoin the PCGG from voting
the SMC shares registered in the names of the 14 CIIF holding companies
including those registered in the name of the PCGG. On 28 February 2001,
the Sandiganbayan, after hearing the parties on oral argument, issued the
Order, authorizing COCOFED, et. al. and Ballares, et. al. as well as
Cojuangco, as are all other registered stockholders of the United Coconut
 14

Planters Bank, until further orders from the Court, to exercise their rights to
vote their shares of stock and themselves to be voted upon in the United
Coconut Planters Bank (UCPB) at the scheduled Stockholders’ Meeting on 6
March 2001 or on any subsequent continuation or resetting thereof, and to
perform such acts as will normally follow in the exercise of these rights as
registered stockholders. The Republic of the Philippines represented by the
PCGG filed the petition for certiorari.
prima facie public funds, the Court believes that the government should be
allowed to vote the questioned shares, because they belong to it as the
prima facie beneficial and true owner. The Sandiganbayan committed grave
abuse of discretion in grossly contradicting and effectively reversing existing
jurisprudence, and in depriving the government of its right to vote the
sequestered UCPB shares which are prima facie public in character.

Issue: Whether the PCGG can vote the sequestered UCPB shares.

Held: The registered owner of the shares of a corporation exercises the right
and the privilege of voting. This principle applies even to shares that are
sequestered by the government, over which the PCGG as a mere
conservator cannot, as a general rule, exercise acts of dominion. On the
other hand, it is authorized to vote these sequestered shares registered in
the names of private persons and acquired with allegedly ill-gotten wealth,
if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v.
Calpo and PCGG v. Cojuangco Jr. Two clear “public character” exceptions
under which the government is granted the authority to vote the shares
exist (1) Where government shares are taken over by private persons or
entities who/which registered them in their own names, and (2) Where the
capitalization or shares that were acquired with public funds somehow
landed in private hands. The exceptions are based on the common-sense
principle that legal fiction must yield to truth; that public property
registered in the names of non-owners is affected with trust relations; and
that the prima facie beneficial owner should be given the privilege of
enjoying the rights flowing from the prima facie fact of ownership. In short,
when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the
two-tiered test is applied. However, when the sequestered shares in the
name of private individuals or entities are shown, prima facie, to have been
(1) originally government shares, or (2) purchased with public funds or
those affected with public interest, then the two-tiered test does not apply.
Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr.
v. Roxas prevail; that is, the government shall vote the shares. Herein, the
money used to purchase the sequestered UCPB shares came from the
Coconut Consumer Stabilization Fund (CCSF), otherwise known as the
coconut levy funds. The sequestered UCPB shares are confirmed to have
been acquired with coco levies, not with alleged ill-gotten wealth. As the
coconut levy funds are not only affected with public interest, but are in fact
 15

8.)Nestor Ching and Andrew Wellington vs. Subic Bay Golf And Country and board of directors on the ground of the latter’s alleged lack of
Club,Inc., Hu Ho Hsiu Lien alias Susan Hu, Hu Tsung Chieh alias Jack Hu, Hu TsungHui, Hu qualification to manage a golf course. The legal standing of the petitioners is
Tsung Tzu and Reynald R. Suarez, G.R. No. 174353,September 10, not a statutory right, there being no provision in theCorporation Code or
2014FACTS: related statutes, but is instead a product of jurisprudence based on equity.
Petitioners Nestor Ching and Andrew Wellington own stocks of the Subic However,a derivative suit cannot prosper without first complying with the
Bay Golf and Country Club, Inc.(SBGCCI). On June 27, 1996, Securities and legalrequisites for its institution:Interim Rules Governing Intra-Corporate
Exchange Commission (SEC) approved amendments toSBGCCI Articles of Controversies.Petitioners failed to comply with secondrequisite: “…exerted
Incorporation which the petitioners allege make their shares non- all reasonable efforts, and alleges the same withparticularity in the
proprietary.Petitioners allege that this change was made without the complaint, to exhaust all remedies available under thearticles of
appropriate disclosure of SBGCCI to itsshareholders.Furthermore, incorporation, by-laws, laws or rules governing the corporation
petitioners allege several instances of fraud committed by SBGCCI’s board orpartnership to obtain the relief he desires…”
of directors in itsFebruary 26, 2003 complaint.Respondent’s answered the Thus, a complaint which contained no allegation whatsoever of any effort to availof intra-
complaint by refuting allegations made by petitioners. As a way of corporate remedies allows the court to dismiss it, even motu proprio.Indeed, even if
defense,respondents underscored petitioners’failure to:show that it was petitioners thought it was futile to exhaust intra-corporateremedies, they should have
authorized by SBGSI to file complaint on said company’s behalscomply with stated the same in the Complaint and specified thereasons for such opinion. The
the requisites for filing a derivative suit and an action for receivership justify requirement of this allegation in the Complaint isnot a useless formality which may
their prayer for injunctive relief since the complaint may be considered a be disregarded at will.
nuisance or harassmentsuitThus, respondents prayed for dismissal of the
complaint.On July 28, 2003, the RTC held that the action is a derivative suit
and issued an order dismissing thecomplaint.Petitioners elevated the case
to the Court of Appeals but the appellate court affirmed the RTC decision.
ISSUE:
WON the petitioners are proper party in interest WON the complaint is a
derivative suit
RULING:
Petitioners did not offer proof that they were authorized to represent
SBGSI.The Court ruling in Cua, Jr. v. Tan elaborated the three (3) types of
suit:individual, class orrepresentative, and derivative suit.The reliefs prayed
for by petitioners, to wit: (i) enjoining defendants from acting as officers and
Board of Directors of the corporation, (ii) the appointment of receiver, (iii)
damages, clearly show that thecomplaint was filed to curb the alleged
mismanagement of SBGCCI. The cause of action pleaded by petitioners do
not accrue to a single shareholder or a class of shareholders but to the
corporation itself. While there were allegations of fraud in the subscription,
petitioners do not wish to have theirsubscription rescinded. Instead, the
petitioners asked that the respondents be removed from themanagement
of the corporation. Petitioner’s only possible causeof action as the minority
shareholderagainst the actions of the board is to file the common law right
to file a derivative suit. As minority shareholders, petitioners do not have
any statutory right to override the business judgements of SBGCCI’sofficers
 16

 filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement
 SEC: confirmed recission of Tius
 Ongs filed reconsideration that their P70M was not a premium on
capital stock but an advance loan
 SEC en banc: affirmed it was a premium on capital stock
 CA: Ongs and the Tius were in pari delicto (which would not have
legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was best
to separate the two groups by rescinding the Pre-Subscription
Agreement, returning the original investment of the Ongs and
awarding practically everything else to the Tius.
corporation, regardless of the existence of unrestricted retained
earnings,25 and (3) dissolution and eventual liquidation of the
corporation.
 They want this Court to make a corporate decision for FLADC.
 The Ongs' shortcomings were far from serious and certainly less
than substantial; they were in fact remediable and correctable
under the law. It would be totally against all rules of justice, fairness
and equity to deprive the Ongs of their interests on petty and
tenuous grounds.

ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES. Ongs granted.

 did not justify the rescission of the contract

 providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-
President and Treasurer, respectively, had no bearing on their
obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself
 failure of the Ongs to credit shares of stock in favor of the Tius for
their property contributions also pertained to the corporation and
not to the Ongs
 the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190 million
 law requires that the breach of contract should be so "substantial or
fundamental" as to defeat the primary objective of the parties in
making the agreement
 since the cash and other contributions now sought to be returned
already belong to FLADC, an innocent third party, said remedy may
no longer be availed of under the law.
 Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding the
fact that the parties refer to it as a purchase or some other contract
 allows the distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce the
authorized capital stock,24 (2) purchase of redeemable shares by the

Rural Bank of Lipa City vs CA Case Digest
The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals
[GR 124535, 28 September 2001]
Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment, wherein he assigned his shares, as well as
those of 8 other shareholders under his control with a total of 10,467
shares, in favor of the stockholders of the Bank represented by its directors
Bernardo Bautista, Jaime Custodio and Octavio Katigbak. Sometime
thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an
Agreement wherein they acknowledged their indebtedness to the Bank in
the amount of P4,000,000.00, and stipulated that said debt will be paid out
of the proceeds of the sale of their real property described in the
Agreement. At a meeting of the Board of Directors of the Bank on 15
November 1993, the Villanueva spouses assured the Board that their debt
would be paid on or before December 31 of that same year; otherwise, the
Bank would be entitled to liquidate their shareholdings, including those
under their control. In such an event, should the proceeds of the sale of said
shares fail to satisfy in full the obligation, the unpaid balance shall be
secured by other collateral sufficient therefor. When the Villanueva spouses
failed to settle their obligation to the Bank on the due date, the Board sent
them a letter demanding: (1) the surrender of all the stock certificates
issued to them; and (2) the delivery of sufficient collateral to secure the
balance of their debt amounting to P3,346,898.54.
The Villanuevas ignored the bank's demands, whereupon their shares of
stock were converted into Treasury Stocks. Later, the Villanuevas, through
their counsel, questioned the legality of the conversion of their shares. On
15 January 1994, the stockholders of the Bank met to elect the new
directors and set of officers for the year 1994. The Villanuevas were not
notified of said meeting. In a letter dated 19 January 1994, Atty. Amado
17
Ignacio, counsel for the Villanueva spouses, questioned the legality of the
said stockholders' meeting and the validity of all the proceedings therein. In
reply, the new set of officers of the Bank informed Atty. Ignacio that the
Villanuevas were no longer entitled to notice of the said meeting since they
had relinquished their rights as stockholders in favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the stockholders' meeting
and election of directors and officers on 15 January 1994, with damages and
prayer for preliminary injunction (SEC Case 02-94-4683_. Joining them as co-
petitioners were Catalino Villanueva, Andres Gonzales, Aurora Lacerna,
CelsoLaygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named
respondents were the newly-elected officers and directors of the Rural
Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak,
Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas'
application for the issuance of a writ of preliminary injunction was denied
by the SEC Hearing Officer on the ground of lack of sufficient basis for the
issuance thereof.
However, a motion for reconsideration was granted on 16 December 1994,
upon finding that since the Villanuevas' have not disposed of their shares,
whether voluntarily or involuntarily, they were still stockholders entitled to
notice of the annual stockholders' meeting was sustained by the SEC.
Accordingly, a writ of preliminary injunction was issued enjoining Bautista,
et. al. from acting as directors and officers of the bank. Thereafter, Bautista,
et al. filed an urgent motion to quash the writ of preliminary injunction,
challenging the propriety of the said writ considering that they had not yet
received a copy of the order granting the application for the writ of
preliminary injunction. With the impending 1995 annual stockholders'
meeting only 9 days away, the Villanuevas filed an Omnibus Motion praying
that the said meeting and election of officers scheduled on 14 January 1995
be suspended or held in abeyance, and that the 1993 Board of Directors be
allowed, in the meantime, to act as such. 1 day before the scheduled
stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion
 18

by issuing a temporary restraining order preventing Bautista, et al. from

holding the stockholders meeting and electing the board of directors and
officers of the Bank. A petition for Certiorari and Annulment with Damages
was filed by the Rural Bank, its directors and officers before the SEC en
banc. On 7 June 1995, the SEC en banc denied the petition for certiorari. A
subsequent motion for reconsideration was likewise denied by the SEC en
banc in a Resolution dated 29 September 1995. A petition for review was
filed before the Court of Appeals (CA-GR SP 38861), assailing the Order
dated 7 June 1995 and the Resolution dated 29 September 1995 of the SEC
en banc in SEC EB 440. The appellate court upheld the ruling of the SEC.
Bautista, et al.'s motion for reconsideration was likewise denied by the
Court of Appeals in an Order dated 29 March 1996. The bank, Bautista, et al.
filed the instant petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must
be delivery of the stock certificate: (b) The certificate must be endorsed by
the owner or his attorney-in-fact or other persons legally authorized to
make the transfer; and (c) To be valid against third parties, the transfer
must be recorded in the books of the corporation. As it is, compliance with
any of these requisites has not been clearly and sufficiently shown. Still,
while the assignment may be valid and binding on the bank, et al. and the
Villanuevas, it does not necessarily make the transfer effective.
Consequently, the bank et al., as mere assignees, cannot enjoy the status of
a stockholder, cannot vote nor be voted for, and will not be entitled to
dividends, insofar as the assigned shares are concerned. Parenthetically, the
Villanuevas cannot, as yet, be deprived of their rights as stockholders, until
and unless the issue of ownership and transfer of the shares in question is
resolved with finality.

MR Holdings Ltd. vs. Sheriff Bajar Case Digest
MR Holdings Ltd. vs. Sheriff Bajar
[GR 138104, April 11, 2002]
Facts: Under a "Principal Loan Agreement" and "Complementary Loan
Agreement," both dated 4 November 1992, Asian Development Bank (ADB),
a multilateral development finance institution, agreed to extend to
Marcopper Mining Corporation (Marcopper) a loan in the aggregate amount
of US$40,000,000.00 to finance the latter's mining project at Sta. Cruz,
Marinduque. The principal loan of US$15,000,000.00 was sourced from
ADB's ordinary capital resources, while the complementary loan of
US$25,000,000.00 was funded by the Bank of Nova Scotia, a participating
finance institution. On even date, ADB and Placer Dome, Inc., (Placer
Dome), a foreign corporation which owns 40% of Marcopper, executed a
"Support and Standby Credit Agreement" whereby the latter. agreed to
provide Marcopper with cash flow support for the payment of its
obligations to ADB. To secure the loan, Marcopper executed in favor of ADB
a "Deed of Real Estate and Chattel Mortgage" dated 11 November 1992,
covering substantially all of its (Marcopper's) properties and assets in
Marinduque.
It was registered with the Register of Deeds on 12 November 1992. When
Marcopper defaulted in the payment of its loan obligation, Placer Dome, in
fulfillment of its undertaking under the "Support and Standby Credit
Agreement," and presumably to preserve its international credit standing,
agreed to have its subsidiary corporation, MR Holding, Ltd., assumed
Marcopper's obligation to ADB in the amount of US$18,453,450.02.
Consequently, in an "Assignment Agreement" dated 20 March 1997 ADB
assigned to MR Holdings all its rights, interests and obligations under the
principal and complementary loan agreements, ("Deed of Real Estate and
Chattel Mortgage," and "Support and Standby Credit Agreement"). On 8
December 1997, Marcopper likewise executed a "Deed of Assignment" in
favor of MR Holdings. Under its provisions, Marcopper assigns, transfers,
cedes and conveys to MR Holdings, its assigns and/or successors-in-interest
all of its (Marcopper's) properties, mining equipment and facilities.
Meanwhile, it appeared that on 7 May 1997, Solidbank Corporation
(Solidbank) obtained a Partial Judgment against Marcopper from the RTC,
Branch 26, Manila, in Civil Case 96-80083, ordering Marcopper to pay
Solidbank he amount if PHP 52,970,756.89, plus interest and charges until
fully paid; to pay an amount equivalent to 10% of above-stated amount as
19
attorney's fees; and to pay the costs of suit. Upon Solidbank's motion, the
RTC of Manila issued a writ of execution pending appeal directing Carlos P.
Bajar, sheriff, to require Marcopper "to pay the sums of money to satisfy
the Partial Judgment." Thereafter, Bajar issued two notices of levy on
Marcopper's personal and real properties, and over all its stocks of scrap
iron and unserviceable mining equipment. Together with sheriff Ferdinand
M. Jandusay of the RTC, Branch 94, Boac, Marinduque, Bajar issued two
notices setting the public auction sale of the levied properties on 27 August
1998 at the Marcopper mine site. Having learned of the scheduled auction
sale, MR Holdings served an "Affidavit of Third-Party Claim" upon the
sheriffs on 26 August 1998, asserting its ownership over all Marcopper's
mining properties, equipment and facilities by virtue of the "Deed of
Assignment." Upon the denial of its "Affidavit of Third-Party Claim" by the
RTC of Manila, MR Holdings commenced with the RTC of Boac, Marinduque,
presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of
properties, etc., with prayer for preliminary injunction and temporary
restraining order against Solidbank, Marcopper, and sheriffs Bajar and
Jandusay (Civil Case 98-13).
In an Order dated 6 October 1998, Judge Ansaldo denied MR Holdings'
application for a writ of preliminary injunction on the ground that (a) MR
Holdings has no legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license; (b) an injunction will amount "to
staying the execution of a final judgment by a court of co-equal and
concurrent jurisdiction;" and (c) the validity of the "Assignment Agreement"
and the "Deed of Assignment" has been "put into serious question by the
timing of their execution and registration." Unsatisfied, MR Holdings
elevated the matter to the Court of Appeals on a Petition for Certiorari,
Prohibition and Mandamus (CA-GR SP 49226). On 8 January 1999, the Court
of Appeals rendered a Decision affirming the trial court's decision. MR
Holdings filed the Petition for Review on Certiorari.
Issue: Whether MR Holdings' participation under the "Assignment
Agreement" and the "Deed of Assignment" constitutes “doing business.”
Held: Batas Pambansa 68, otherwise known as "The Corporation Code of
the Philippines," is silent as to what constitutes doing" or "transacting"
business in the Philippines. Fortunately, jurisprudence has supplied the
deficiency and has held that the term "implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
 20

performance of acts or works or the exercise of some of the functions ADB. Plainly, MR Holdings' payment of US$18,453,450.12 to ADB was more
normally incident to, and in progressive prosecution of, the purpose and of a fulfillment of an obligation under the "Support and Standby Credit
object for which the corporation was organized." The traditional case law Agreement" rather than an investment. That MR Holdings had to step into
definition has metamorphosed into a statutory definition, having been the shoes of ADB as Marcopper's creditor was just a necessary legal
adopted with some qualifications in various pieces of legislation in consequence of the transactions that transpired. Also, the "Support and
Philippine jurisdiction, such as Republic Act 7042 (Foreign Investment Act of Standby Credit Agreement" was executed 4 years prior to
1991), and Republic Act 5455. There are other statutes defining the term Marcopper'sinsolvency, hence, the alleged "intention of MR Holdings to
"doing business," and as may be observed, one common denominator continue Marcopper's business" could have no basis for at that time,
among them all is the concept of "continuity." The expression "doing Marcopper's fate cannot yet be determined. In the final analysis, MR
business" should not be given such a strict and literal construction as to Holdings was engaged only in isolated acts or transactions. Single or isolated
make it apply to any corporate dealing whatever. At this early stage and acts, contracts, or transactions of foreign corporations are not regarded as a
with MR Holdings' acts or transactions limited to the assignment contracts, doing or carrying on of business. Typical examples of these are the making
it cannot be said that it had performed acts intended to continue the of a single contract, sale, sale with the taking of a note and mortgage in the
business for which it was organized. Herein, at this early stage and with MR state to secure payment therefor, purchase, or note, or the mere
Holdings' acts or transactions limited to the assignment contracts, it cannot commission of a tort. In these instances, there is no purpose to do any other
be said that it had performed acts intended to continue the business for business within the country.
which it was organized. It may not be amiss to point out that the purpose or
business for which MR Holdings was organized is not discernible in the
records. No effort was exerted by the Court of Appeals to establish the
nexus between MR Holdings' business and the acts supposed to constitute
"doing business." Thus, whether the assignment contracts were incidental
to MR Holdings' business or were continuation thereof is beyond
determination. The Court of Appeals' holding that MR Holdings was
determined to be "doing business" in the Philippines is based mainly on
conjectures and speculation. In concluding that the "unmistakable
intention" of MR Holdings is to continue Marcopper's business, the Court of
Appeals hangs on the wobbly premise that "there is no other way for
petitioner to recover its huge financial investments which it poured into
Marcopper's rehabilitation without it (petitioner) continuing Marcopper's
business in the country." Absent overt acts of MR Holdings from which we
may directly infer its intention to continue Marcopper's business, the
Supreme Court cannot give its concurrence. Significantly, a view subscribed
upon by many authorities is that the mere ownership by a foreign
corporation of a property in a certain state, unaccompanied by its active use
in furtherance of the business for which it was formed, is insufficient in itself
to constitute doing business. Further, long before MR Holdings assumed
Marcopper's debt to ADB and became their assignee under the two
assignment contracts, there already existed a "Support and Standby Credit
Agreement" between ADB and Placer Dome whereby the latter bound itself
to provide cash flow support for Marcopper's payment of its obligations to
 21

G.R. No. 154291 November 12, 2014 f. Augusto de Leon (Augusto) – 1 share; and

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES, Petitioners, g. Leo Rivera (Leo) – 1 share4
vs.
SPOUSES REYNALDO TANJANGCO and MARIA LUISA ARGUELLES- Except for Arturo and Teresita, the rest of the stockholders were members
TANJANGCO, Respondents. of the Board of Directors.5 Asuncion was LRI’s Corporate Secretary.

DECISION
REYES, J.:
This is a Petition for Review1 under Rule 45 of the Rules of Court from the
Decision2 dated February 22, 2002 of the Court of Appeals (CA) in CA-G.R.
CV No. 63519 which reversed and set aside the Decision3 dated June 25,
1997 of the Regional Trial Court (RTC) of Manila, Branch 25, in Civil Case No.
144667.
In a special meeting of the stockholders held on July 27, 1981, the sale of
the one-half share of LRI in the Trade Center Building was discussed:
MINUTES OF SPECIAL MEETING OF STOCKHOLDERS OF LOPEZ REALTY[,]
INCORPORATED ON JULY 27, 1981 AT 3:00 P.M.
STOCKHOLDERS PRESENT:
TERESITA L. MARQUEZ - 7,830 shares

Antecedents Facts ASUNCION F. LOPEZ - 7,831 shares

ARTURO F. LOPEZ - 7,830 shares

Lopez Realty, Inc. (LRI) and Dr. Jose Tanjangco (Jose) were the registered co-
owners of three parcels of land and the building erected thereon known as ROSENDO DE LEON - 5 share[s]
the "Trade Center Building", which were covered by Transfer Certificates of
Title (TCT) Nos. 127778, 127779 and 127780 (subject properties) of the BENJAMIN B. BERNARDINO - 1 share
Register ofDeeds of Manila. Jose’s one-half share in the subject properties LEO R. RIVERA - 1 share
were later transferred and registered in the name of his son Reynaldo
Tanjangco and daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).
TOTAL 23,498 Shares
At the time material to this case,the stockholders of record of LRI were the
following:
II. Sale of One-Half (1/2) Share of Lopez Realty, Inc. in Trade Center Building
a. Asuncion Lopez-Gonzalez (Asuncion) – 7,831 shares;
The matter of the sale of ½ share of Lopez Realty, Inc., in the Trade Center
Building was taken up. Atty. Benjamin B. Bernardino informed the body that
b. Arturo F. Lopez (Arturo) – 7,830 shares; the selling price is pegged at 4 Million Pesos, and the Tanjangcos are
offering 3.6 Million Pesos plus 50% of the receivablesor a total of 3.8 Million
c. Teresita Lopez-Marquez (Teresita) – 7,830 shares; Pesos payable under the following terms:

d. Rosendo de Leon (Rosendo) – 5 shares 1) 50% - upon registration 50% - 30 days thereafter

e. Benjamin Bernardino (Benjamin) – 1 share;


2) All expenses and documentary stamp tax to be born[e] by the
Tanjangcos.
3) Transfer Tax and Reserve Fund to be borne by Lopez Realty, Inc.
ASUNCION F. LOPEZ countered for a selling price of 5 Million Pesos, LOPEZ
REALTY, INC., clean and of everything. At this point, TERESITA L. MARQUEZ
and BENJAMIN B. BERNARDINO offered to ASUNCION F. LOPEZ that they
(she) accept (equal) the TANJANGCO’s offer as stated above. At this
juncture, ASUNCION F. LOPEZ x x x called and talked with TANJANGCO over
the phone three (3) times and offered the selling price at 5 Million Pesos but
the latter did not move from their original offer as above-stated.
It was finally agreed by the body that ASUNCION F. LOPEZ x x x be given the
priority to accept [equal] the TANJANGCO offer and the same to be
exercised within ten (10 accept) days. Failure on her part to act on the offer,
the said offer will be deemed accepted.6 (Emphasis in the original)
On July 28, 1981, Teresita died.7
Asuncion failed to exercise her option to purchase the subject properties
within the stated period. Thus, on August 17, 1981, while Asuncion was
abroad, the remaining directors: Rosendo, Benjamin and Leo convened in a
special meeting, where the following resolution was passed and approved:8
III. Upon motion duly seconded, Mr. ARTURO F. LOPEZ had been authorized
by the Board to immediately negotiate with the Tanjangcos on the matter of
the latter’s offer to purchase ½ of the Trade Center Building and in
connection there with he is given full power and authority by the Boardto
carry out the complete termination of the sale terms and conditions as
embodied in the Resolution of July 27, 1981 and in connection therewith is
likewise authorized to sign for and in behalf of Lopez Realty Incorporated.
RESOLUTION
Series of 1981
RESOLVED, as it is hereby resolved that ARTURO F. LOPEZ negotiate with the
Tanjangcos on the matter of the sale of 1/2 of Trade Center Bldg., in
accordance with the terms and conditions embodied in the Minutes of the
22
Special Meeting of July 27, 1981.9 (Emphasis in the original) On August 25,
1981, on the strength ofthe foregoing board resolution, Arturo executed a
Deed of Sale selling LRI’s one-half interest in the subject properties to Jose,
who was represented by his son, Manuel Tanjangco (Manuel). The price was
fixed at ₱3,600,000.00, payable in the following manner: 50% or
₱1,800,000.00 upon registration of the Deed of Sale and the other 50%
within 30 days from such registration.10
Upon learning of the above developments, Asuncion sent cablegrams to
Rosendo and Jose on August 25, 1981,requesting them not to proceed with
the sale.11 Consequently, on September 1, 1981, the Board had a special
meeting where the following resolution was passed and approved:
RESOLUTION
Series of 1981
"In view of the cable of Ms. Asuncion Lopez, the [B]oard decided to
postpone [the] final action on the sale of Lopez Realty, Inc. share in Trade
Center Building to the Tanjangcosso that she can be enlightened on all
proceedings of the Board during her absence.
UNANIMOUSLY APPROVED."12
Upon Asuncion’s arrival, the Board had a meeting on September 16, 1981,
where she moved for the repeal and/or amendment of the August 17, 1981
and August 24, 1981 Board Resolutions. While Benjamin opposed
Asuncion’s motion, the members of the Board agreed to defer action on the
matter until such time when Arturo and Asuncion have conferred or settled
the matter.13
As Jose’s one-half interest in the subject properties had already been
transferred to the spouses Tanjangco,it was requested that LRI execute
another deed of sale, where the spouses Tanjangco shall be designated as
buyers. Thus, on October 5, 1981, Arturoexecuted a Deed ofSale similar to
that which was executed on August 25,1981 in favor of the spouses
Tanjangco.14
The spouses Tanjangco paid LRI the amount of ₱1,800,000.00, which the
latter accepted by issuing Official Receipt No. 723.15 The spouses Tanjangco

then registered the Deed of Sale with the Register of Deeds of Manila,
causing the cancellation of TCT Nos. 127778,127779 and 127780 and the
issuance of TCT Nos. 145983, 145984 and 145985 in their name.16
Consequently, on November 4, 1981, LRI and Asuncion (herein petitioners)
filed with the then Court of First Instance of Manila, a Complaint17 for
annulment of sale, cancellation of title, reconveyance and damages with
prayer for the issuance of temporary restraining order (TRO) and/or writ of
preliminary injunction against the spouses Tanjangco, Arturo and the
Registrar of Deeds of Manila. The complaint was docketed as Civil Case No.
144667 and raffled to Branch 25.Essentially, it was alleged that the sale is
not binding on LRI as the August 17, 1981 Board Resolution, authorizing
Arturo to sell the corporation’s one-half interest in the subject properties, is
invalid for lack of notice to Asuncion. It was also alleged that the said board
resolution had already been revoked by the Board of Directors in their
September 1, 1981 and September 16, 1981 Resolutions.
On November 11, 1981, the trial court issued a TRO, enjoining the spouses
Tanjangco from paying the balance of the purchase price and Arturo from
accepting payment.18
On November 13, 1981, Manuel, in representation of the spouses
Tanjangco, wrote LRI, enclosing a manager’s check for ₱1,743,000.00
covering the balance of the purchase price less the transfer tax, LRI’s share
in the common fund and payables to the Bureau of Internal Revenue (BIR).
Rosendo, however, deferred acceptance in view of the pendency of the
cases filed by the directors of LRI against eachother and the order of the
Security and Exchange Commission (SEC), restraining him from acting on LRI
matters.19 Apparently, several cases were pending with the SEC involving
the directors and shareholders of LRI, one of which is Asuncion’s complaint
for the nullification of the August 17, 1981 Board Resolution.
On November 21, 1981, the spouses Tanjangco filed a motion for the
production of a copy of the board resolution authorizing Asuncion to file the
complaint on LRI’s behalf. In her Comment, Asuncion claimed that the
action is a derivative suit she initiated as LRI’s minority stockholder, for
which no authorization from LRI’s Board of Directors is necessary.20
On December 7, 1981, Arturo moved to dismiss the complaint on the
grounds of lack of jurisdiction and litis pendentia. With regard to the first
ground, Arturo alleged that the case essentially involves an intra-corporate
23
dispute, which falls within the exclusive jurisdiction of the SEC. As to the
second ground, Arturo alleged that Asuncion filed a complaint with the SEC,
which was docketed as SEC Case No. 2164, against him and Benjamin,
seeking to annul the August 17, 1981 Board Resolution.21
On July 30, 1982, the stockholders of LRI had a meeting where they voted
on whether to ratify and confirm the sale of the subject properties to the
spouses Tanjangco. The minutes of such meeting state:
At this juncture, Juanito Santos moved for the ratification and confirmation
of the sale of Trade Center Building to the [spouses Tanjangco] and thereby
ratifying and confirming all minutes relative to the sale made to the
[spouses Tanjangco], and the same being seconded, it was placed to a vote
amongst the stockholders and Directors present and the votes were as
follows:
Leo Rivera - yes
Rosendo de Leon - yes
Juanito Santos - yes
Benjamin Bernardino - yes
After the ratification and confirmation of the sale of Trade Center Building,
Asuncion Lopez stated that she is not preparing the minutes of today’s
meeting as well as that of June 29, 1982 and prior ones, but she was
reminded that if she refuses to do what is incumbent upon her as Secretary,
the same would be prepared and if she refuses to sign, that’s up to her, for
the corporation is governed by the Board of Directors coupled by the
majority of the stockholders who ratify the acts of the Board.
That the sale of Trade Center Building in point of stockholders and in point
of the Board of Directors had been duly ratified and confirmed and likewise
it was moved and seconded that the votes will be submitted to the
Securities and Exchange Commission (SEC) in order that the said office may
be properly apprised of the situation of Lopez Realty, Inc.

There being no further business to take up, upon motion and duly
seconded, the meeting [is] adjourned.22
On November 11, 1982, the executor of Teresita’s estate, Juanito L. Santos
(Juanito), moved to intervene, stating among others that the case is
"basically an intra-corporate contest among the stockholders of LRI in
respect to the sale or disposition of corporate property and the distribution
of the proceeds thereof."23
On February 6, 1984, the trial court issued an order, denying the spouses
Tanjangco’s, Juanito’s and Arturo’s respective motions.24
On March 1, 1985, Asuncion and Arturo filed a Joint Motion to Dismiss in
SEC Case No. 2164 on the ground that a "final settlement has been arrived
at and that they hereby waive and renounce any further claim or
counterclaim that they may have against each other x x x." This was granted
by the SEC.25
The petitioners then filed a supplemental complaint, claiming that the
negotiations between the parties to settle the case resulted in an
agreement where the spouses Tanjangco would sell to the petitioners their
interest in the subject properties for ₱6,000,000.00 on the condition that
the petitioners would return the ₱1,800,000.00 the spouses Tanjangco paid
to LRI. According to the petitioners, in order for Asuncion to meet her
obligations under the agreement, she borrowed ₱4,000,000.00 from a bank
at a high interest, sold her house at Magallanes for less than its market
value and disposed several pieces of her jewelry. However, during the
formal signing of the agreement, the spouses Tanjangco refused to sign for
no apparent reason. The petitioners thus prayedthat the spouses Tanjangco
be compelled to sign and indemnify Asuncion for the damages she
incurred.26
During the trial, the petitioners, among others, attempted to establish that
the subject sale had not been validly ratified during the July 30, 1982
stockholders’ meeting in view of the failure to meet the required number of
votes. Asuncion testified that Juanito was not qualified to sit as a director
during the said meeting there being no evidence that he owned at least one
share. Asuncion likewise testified that Leo actually voted against the
ratification of the sale, contrary to what is stated in the minutes, which she
and Leo did not sign.27
24
After trial on the merits, the trial court issued a Decision28 on June 25,
1997, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered, thus:
1. Declaring null and void the Deed of Sale, dated 5 October 1981,
signed by defendant Arturo Lopez, in behalf of Lopez Realty[,] Inc.,
and defendants Spouses Reynaldo and Maria Luisa Tanjangco,
involving the interest of Lopez Realty, Inc. in the Trade Center
Building;
2. Directing the Register of Deeds of Manila to cancel Transfer
Certificate of Title Nos. 145983, 145984 and 145985 in the name of
Maria Luisa Arguelles married to Reynaldo Tanjangco and to
reinstate Transfer Certificates of Title Nos. 127778, 127779 and
127780 in the names of Lopez Realty, Inc. and Maria Luisa Arguelles
married to Reynaldo Tanjangco;
3. Directing defendants Spouses Reynaldo and Maria Luisa
Tanjangco to make an accounting of all the rentals they collected
from the Trade Center Building from 5 October 1981 and,
thereafter, to remit to plaintiff, Lopez Realty, Inc., one-half (1/2) of
the net amount (after deducting reasonable expenses), plus yearly
interest in the amount of 12% until fully paid, all within 90 days
from the finality of this decision;
4. Directing plaintiff Lopez Realty, Inc. to return to defendants
spouses Reynaldo and Maria Luisa Tanjangco the amount of
₱1,800,000.00; and,
5. Directing defendants, SpousesReynaldo and Maria Luisa
Tanjangco to pay plaintiff the amount of ₱150,000.00 as attorney’s
fees.
SO ORDERED.29
Finding the sale null and void, the trial court ruled that Arturo lacked the
authority to sell LRI’s interest on the subject properties to the spouses

Tanjangco on LRI’s behalf in view of the procedural infirmities which
attended the meeting held on August 17, 1981. Specifically:
On this issue, the Court rules in favor of the plaintiff. There is merit in
plaintiff’s contention that the 17 August 1981 meeting of the Board of
Directors of Lopez Realty was illegal. Section 53 of the Corporation Code of
the Philippines categorically provides:
"Sec. 53. Regular and Special Meeting[s] of Directors [or] Trustees —
Regular meeting of the board of directors or trustees of every corporation
[shall be] held monthly[,] unless the by-lawsprovides [sic] otherwise.
xxxx
Meeting[s] of directors or trustees of corporations may be held [anywhere]
in or outside [of] the Philippines, unless the by-laws provides [sic]
otherwise. Notice of the regular or special meeting[s] stating the date, time
and place of the meeting must be sent to every director or trustee, at least,
one (1) day prior to the scheduled meeting[,] unless otherwise provided by
the by-laws. A director or trustee may waive this requirement, either
expressly or impliedly."
Plaintiff alleged that no notice was sent to her prior to the 17 August 1981
meeting. The Court is inclined to give credit to this allegation considering
that defendants never contested the same. Hence, the said meeting was
illegal and the resolution adopted during the meeting would not produce
the effect of binding the corporation, Lopez Realty.30
The trial court likewise ruled thatthe sale between LRI and the spouses
Tanjangco was not validly ratified in the absence of the required number of
votes. Thus:
Notwithstanding the assertions of the defendants, the Court gives credit to
plaintiff[’s] claim. The claim, which was made under oath, has not been
contested by defendants. Besides, the copy of the minutes itself x x x
corroborates it. From a physical examination of said minutes, it appears that
among the five alleged directors present[,]only de Leon, Bernardino and
Santos signed over their names at the bottom of the minutes. Gonzalez and
Rivera, whose names are also written thereon do not have their signatures
25
on. Since the vote of Santos does not count, he not being qualified to sit as
director, only the two votes de Leon and Bernardino count for ratification.
But that did not constitute a majority vote. Consequently, there was no
validratification of the sale of Lopez Realty’s interest in the Trade Center
Building. The sale has remained invalid and not binding upon the
corporation.31
Nonetheless, the trial court denied Asuncion’s claim for damages as there is
no legal compulsion for the spouses Tanjangco to honor a compromise
agreement that was not perfected prior to its reduction into writing. Thus:
Concerning the third issue, the Court finds no valid reason to compel
defendants to sign the alleged compromise agreement.1âwphi1 Granting
that defendants Tanjangcos did signify initially their conformity with the
terms and conditions of the compromise agreement as alleged by plaintiff,
the same did not reach maturity prior to its execution in writing. Hence,
defendants did not commit breach of contract when, afterwards, they
refused to sign the compromise agreement.32
On both parties’ appeal to the CA, the trial court’s Decision dated June 25,
1997 was reversed. In its Decision dated February 22, 2002, the CA
recognized Arturo’s authority tosell LRI’s interest on the subject properties,
holding that this Court had earlier declared the August 17, 1981 Board
Resolution as valid in Lopez Realty, Inc. v. Fontecha.33 Thus:
It is to be recalled that the validity of the board meeting of August 17, 1981
has already been challenged before the high court, albeit, on another
matter. In Lopez Realty, Inc. vs. Fontecha, 247 SCRA 183 [1995], the same
plaintiffs-appellants challenged the validity of the board resolution granting
gratuity pay and other benefits to some of the company’s employees on the
ground that the meeting was allegedly convened without prior notice to the
directors. The high court, citing American jurisprudence, ruled that the [sic]
"an action of the board of directors during a meeting, which was illegal for
lack of notice, may be ratified either expressly, by the action of the directors
in subsequent legal meeting, or impliedly, by the corporation’s subsequent
course of conduct." x x x In holding the meeting to have been valid, the
same Court, among others, considered the following circumstances:
petitioner corporation did not issue any resolution revoking or nullifying the
board resolutions granting gratuity pay; and, petitioner therein Asuncion
Lopez-Gonzales was aware of the said obligations and even acquiesced
 26

thereto by signing two of the checks for gratuity pay. In the case at bench, it Mr. ROSENDO DE LEON 5 shares
was duly established that the matter of the sale of the property to the
Tanjangcos has been taken up in the subsequent meetings of the
corporation culminating in the meeting of July 30, 1982, where the 23,499
stockholders ratified and confirmed not only the sale of Trade Center TOTAL SHARES REPRESENTED shares
Building to the appellants Tanjan[g]cos but also all minutes relative to the
said sale. It likewise appears that in the aforesaid July 30, 1982 meeting,
xxxx
appellant Gonzales was present and was clearly outvoted by the other
stockholders.34
while the minutes of the meeting shows that there were instances when the
attendees were asked to vote as directors x x x.
The CA likewise ruled that whatever infirmity attended the August 17, 1981
Board Resolution was cured by ratification of the majority of the directors in
Under Section 40 of the Corporation Code-
the joint stockholders and directors meeting held on July 30, 1982.
Furthermore, the CA figured that even if Juanito’s vote is disregarded, the
Section 40. Sale or other disposition of assets.– Subject to the provisions of
ratification was approved by the majority of the board, including Leo, whose
existing laws on illegal combinations and monopolies, a corporation may, by
signatureis nowhere on the minutes:
a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its
Based on a perusal of the title ofthe minutes, "MINUTES OF THE MEETING
property and assets, including its goodwill, upon such terms and conditions
OF THE STOCKHOLDERS AND BOARD OF DIRECTORS OF LOPEZ REALTY,
and for such consideration, which may be money, stocks, bonds or other
INCORPORATED HELD AT ITS PRINCIPAL OFFICE AT RM. 404 DON. PAQUITO
instruments for the payment of money or other property or consideration,
BUILDING, 99 DASMARINAS STREET, BINONDO, MANILA ON FRIDAY, JULY
as its board of directors or trustees may deem expedient, when authorized
30, 1982 AT 2:00 P.M.," x x x it is immediately apparent that the meeting
by the vote of the stockholders representing at least two-thirds (2/3) of the
was a joint board and stockholders’ meeting. The manner of taking the roll
outstanding capital stock, or in case of non-stock corporation, by the vote of
of attendance likewise confirms the participation of the attendees as
at least to two-thirds (2/3) of the members, in a stockholders’ or members’
stockholders,-
meeting duly called for the purpose. Written notice of the proposed action
and of the time and place of the meeting shall be addressed to each
"PRESENT:
stockholder or member at his place of residence as shown on the books of
the corporation and deposited to the addressee in the post office with
Ms. SONY LOPEZ 7,831 shares postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions provided
Mr. BENJAMIN B. BERNARDINO 1 share in this Code.
and representing Arturo F.Lopez 7,831
shares A sale or other disposition shall be deemed to cover substantially all the
corporate property and assets if thereby the corporation would be rendered
Mr. JUANITO L. SANTOS (representing the 7,830 shares incapable of continuing the business or accomplishing the purpose for
Estate which it was incorporated.
of Teresita Lopez Marquez)
After such authorization or approval by the stockholders or members, the
Mr. LEO RIVERA 1 share
board of directors or trustees may, nevertheless, in its discretion, abandon

such sale, lease, exchange, mortgage, pledge or other disposition of
property and assets, subject tothe rights of third parties under any contract
relating thereto, without further action or approval by the stockholders or
members.
xxxx
the sale of the company assets requires the majority vote of the board of
directors and vote of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock. In the minutes of the July 30, 1982
meeting, the matter of the sale of the subject property was put to a vote
"among stockholders and Directors present" x x x jointly assembled, hence,
a joint vote. Going back to the board of directors, even excluding the
affirmative vote of Juanito Santos whose qualification as director was
questioned by appellant Gonzales, the votes of Leo Rivera, Benjamin
Bernardino and Rosendo de Leon, as directors, forms the majority required
for the ratification of the sale, as contemplated in the abovequoted
provision of the Corporation Code. Although the tally of votes did not
indicate the capacity under which the votes were taken[.] We follow the
high court’s ruling in Zamboanga Transportation Co. vs. Bachrach Motor
Co.,52 Phil. 244, 259-[2]60 [1928], thus:
"We therefore conclude that when the president of the corporation, who is
one ofthe principal stockholders and at the same time its general manager,
auditor, attorney or legal adviser, is empowered by its by-laws to enter into
chattel mortgage contracts, subject to the approval of the board of
directors, and enters into such contracts with the tacit approval of two
other members of the board of directors, one of whom is alsoa principal
shareholder, both of whom, together with the president, form a majority,
and said corporation takes advantage of the benefits afforded by said
contract, such acts are equivalent to an implied ratification of said contract
by the board of directors and binds the corporation even if not formally
approved by said board of directors as required by the by-laws of the
aforesaid corporation."
When therefore the aforementioned three directors voted in favor of the
ratification, their votes are, at the very least, tacit approval sufficient for the
application of the aforequoted ruling. It is of no moment that the signature
of only two directors appears at the bottom of the minutes, for it does not
refer to the results of the voting.
27
On the part of the stockholders, it appears that Leo Rivera, Rosendo De
Leon, Juanito Santos and Benjamin Bernardino, two of them representing
two principal stockholders, voted to ratify the sale of the property to the
appellants Tanjangcos. The cumulation of their votes constitute sixty-seven
per cent [sic] or two-thirds of the capital stock of the appellant company.
The contract has thus, been validly ratified.35
The CA nonetheless upheld the trial court’s jurisdiction over the petitioners’
complaint and Asuncion’s right to bring an action on LRI’s behalf in this
wise:
Assailing the trial court’s jurisdiction over the complaint filed in the court
below, the following grounds were adduced to assail it, to wit: first, it
involves an intra-corporate controversy falling under the original and
exclusive jurisdiction of the Securities and Exchange Commission under
Section 5(b) of P.D. No. 902-A; and, second, appellant Gonzales has no legal
personality to institute the case.
In the determination of whether the Securities and Exchange Commission
("SEC") shall have jurisdiction over the complaint, there must be a
concurrence of [the] following elements, to wit: "(1) the status or
relationship of the parties; and (2) the nature of the question that is the
subject of their controversy." x x x The Court further explained it in this
wise:
"The first element requires that the controversy must arise out of
intracorporate or partnership relations between and among stockholders,
members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or
association and the State insofar as it concerns their individual franchises.
The second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation, partnership
or association or dealwith the internal affairs of the corporation,
partnership or association. After all, the principal function of the SEC is the
supervision and control of corporations, partnerships and associations with
the end in view that investments in these entities may be encouraged and
protected, and their activities pursued for the promotion of economic
development." x x x Reading the title of the Complaint, dated October 31,
1981, designated as one for annulment ofsale, cancellation of title,

reconveyance and damages with prayer for the issuance of a writ of
preliminary prohibitory injunction x x x, it is immediately apparent that the
principal defendants being sued are not "stockholders, members of
associates" of the appellant Lopez Realty, Inc., but rather vendees of the
subject property. x x x In Dee vs. Securities and Exchange Commission, 199
SCRA 238, 250 [1991], the Supreme Court summarized Section 5 of
P.D. No. 902-A in the following manner:
"In other words, in order that the SEC can take cognizance of a case, the
controversy must pertain to any of the following relationships: (a) between
corporation, partnership or association and the public; (b) between the
corporation, partnership or association and its stockholders, partners,
members, or officers;(c) between the corporation, partnership or
association and the state insofar as its franchise, permit or license to
operate is concerned; and (d) among the stockholders, partners or
associates themselves.["] x x x
Since the principal defendants-appellants, the Spouses Tanjangcos, are not
connected, in the above described manner,to appellant Lopez Realty, Inc.,
then the SEC has no jurisdiction overthe case. Moreover, upon a further
reading of the body of the complaint, it appears that the annulment of the
sale to the appellants Tanjangcos was being sought on the ground of the
lack of valid consent on the part of Lopez Realty, Inc., the vendor. The
internal affairs of the corporation were being brought into the controversy
merely to prove that it never authorized appellant Arturo Lopez to execute
the deed of sale. Hence, the controversy is not intrinsically connected to the
regulation or operation of the corporation, negating the existence of the
second element as required in Lozano vs. delos Santos, x x x.
As to the alleged legal personality of appellant Asuncion Lopez- Gonzalez, to
file the action in the court below, although the Corporation Code does not
contain any provision granting such right, the Supreme Court has recognized
derivative suits, as valid, provided the following requisites are complied
with, to wit:
"a) the party bringing suit be a shareholder as of the time of the act or
transaction complained of; b) he has exhausted intra-corporate remedies,
i.e., has made a demand on the board of directors for the appropriate relief
butthe latter has failed or refused to heed his plea; and
28
c) the cause of action actually devolves on the corporation, the wrongdoing
or harm having been caused to the corporation and not to the particular
stockholder bringing the suit[.]" x x x Appellant Gonzales has been duly
established to be a major stockholder in appellant company and she
registeredher opposition to the sale, by cable sent on August 25, 1981, as
reflected in the Minutes of the Meeting of the Board of Directors on
September 16, 1981 x x x on the ground that the corporation would be
prejudiced by the extremely low price.
The rationale for vesting the appellant Gonzales with the legal personality to
file the suit may be found in the following summary of the two leading cases
on derivative suits, Atwol vs. Merriwether, 1867, and Dodge vs. Woolsey,
1855, respectively promulgated in England and America: "that where
corporate directors have committed a breach of trust either by their frauds,
[ultra] viresacts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single stockholder may institute that
suit, suing on behalf of himself and other stockholders and for the benefit of
the corporation, to bring about a redress for the wrong done directly to the
corporation and indirectly to the stockholders." x x x36
The CA also concurred with the trial court’s finding that the parties never
arrived at a perfected compromise agreement. Thus:
We are persuaded that the trial court did not commit any error in
determining that there was no perfected compromise agreement between
the appellants. It is noted that based on the aforequoted testimony,
appellant Gonzales was herself aware of the negotiation stage of the
proceedings when she allowed the appellants Tanjangcos to add conditions
to the option she has chosen. The counsel of appellant Gonzales was
likewise of the same opinion when he took the liberty of suggesting the
additional provision on tax clearance, although [t]he latter removed it upon
conferring with the counsel of appellants Tanjangcos. The aforesaid
proceedings are consistent with the process of making reciprocal
concessions, characteristic of entering into a compromise. x x x Hence, in
Sanchez vs. Court of Appeals, 279 SCRA 647, 676 [1997], the High Court
acknowledged the long and tedious process of negotiations undergone by
the parties and declared, to wit: "Since this compromise agreement was the
result of a long drawn out process, with all the parties ably striving to
protect their respective interests and to come out with the best they could,
there can beno doubt that the parties entered into it freely and voluntarily.

Accordingly, they should be bound thereby. To be valid, it is merely required
under the law to be based on real claims and actually agreed upon in good
faith by the parties thereto." x x x Unfortunately, in the case at bench, the
parties never came to an agreement due to the fact that the appellants
Tanjangcos backedout. x x x When the appellants Tanjangcos "backed out"
or refused tosign the final draft, there was no meeting of the minds or
actual agreement between the parties. x x x.
Resolving the claim of damages allegedly sustained when appellant
Gonzales sold some of her assets and contracted a sizable loan to cover the
consideration of the compromise agreement[.] We find no legal basis for its
award. She acted based on an optimistic expectation that the final draft of
the compromise agreement would be acceptable to the appellants
Tanjangcos. Hence, she testified that she sold her house and lot, as far back
as December 1, 1987, orlong before the alleged meeting at the chambers of
Judge Paguio x x x. Upon further questioning, she revealed that she sold it:
"because even prior to March 1, 1988, we have been already negotiating
about the compromise and knew beforehand that I have to be ready, and I
even thought that the price was a good one reason why I sold it because I
knew then thatit was a sacrifice price. I would say, that it was a sacrifice
price because after a few days someone who live nearby, at the corner,
came to me and was even buying the property [at] a higher price." x x x She
thus, acted based on the expectation of a settlement and not on the alleged
belief that there was already a perfected compromise agreement between
her and the appellants Tanjangcos. She even admitted that the negotiations
took some time because the parties could not come up with agreeable
terms and she herself had to do study the matter. x x x It follows then that
the sale of her properties and the loans obtained from the banks were
merely tactical errors on her part for which she has no recourse under the
law.37
The Petitioner’s Case
Arguing for the nullity of the sale and the existence of a perfected
compromise agreement, the petitionersclaim that: (a) the August 17, 1981
meeting, where the Resolution authorizing Arturo to negotiate for the sale
of the subject properties was approved, is illegal for lack of notice to
Asuncion as required under Section 50 of the Corporation Code; (b)
Fontecha does not constitute res judicata insofar as the issue on the validity
of the August 17, 1981 meeting and all the resolutions passed therein,
29
including the grant of authority to Arturo, are concerned; (c) in Fontecha,
what was ruled as having been ratified was the resolution granting gratuity
pay to its retiring employees and there was nothing mentioned about the
resolution on the sale of the subject properties and Arturo’s authority to act
on LRI’s behalf; (d) it cannot be rightfully claimed that the August 17, 1981
Board Resolution had been ratified as Asuncion immediately registered her
objections to its validity. The Board of Directors responded to this by issuing
the September 1, 1981 and September 16, 1981 Board Resolutions that held
the subject sale on abeyance; (e) the August 17, 1981 Board Resolution
merely authorized Arturo to "negotiate" for the sale of the subject
properties and the way it was worded does not indicate that this include the
authority to conclude a sale with the spouses Tanjangco; (f) even if the July
27, 1981 and August 17, 1981 Board Resolution are read together to
support the claim of the spouses Tanjangco that Arturo had been duly
authorized to sell the subject properties, the latter acted beyond the
authority granted to him when he entered into a sale with the former the
terms of which substantially depart from those provided in the July 27, 1981
Resolutions; (g) there was not enough votes to ratify the subject salesince
Juanito’s qualification as director had been effectively challenged and Leo
actually voted against such ratification; (h) there was a perfected
compromise agreement between the parties and there is no need for the
same to be in writing for it to be considered as such; and (i) even assuming
that there was no perfected compromise agreement, the spouses Tanjangco
abused their right for having backed out and withdrawn their offer without
reason resulting in damage to Asuncion.
The Spouses Tanjangco’s Case
On the other hand, the spouses Tanjangco assert the validity of the subject
sale, Arturo’s authority to represent LRI in such a sale and the absence of a
perfected compromise agreement, alleging that: (a) as clearly stated in the
July 27, 1981 Board Resolution, the sale was perfected when Asuncion failed
to match or outdo the offer of the spouses Tanjangco within the provided
period; (b) reading the August 17, 1981 Board Resolution in conjunction
with the July 27, 1981 Board Resolution, Arturo’s mandate was to carry out
or implement the July27, 1981 Board Resolution and his authority was not
limited to negotiating with the sale of the subject properties; (c) the
petitioners do not dispute the validity of the July 27, 1981 Board Resolution
and Asuncion’s failure to match the offer of the spouses Tanjangco; (d) the
spouses Tanjangco are buyers in good faith and they cannot be prejudiced

by the corporate squabbles among the directors and stockholders of LRI; (e)
the provisions ofthe Deed of Sale are in accordance with the July 27, 1981
Board Resolution;(f) under the doctrine of apparent authority, the
petitioners are barred from questioning LRI’s consent to the subject sale
and Arturo’s authority to represent LRI in such transaction; (g) the spouses
Tanjangco have the right torely on the minutes of the July 27, 1981 and
August 17, 1981 Board Resolutions which appear to be regular on their face;
(h) SEC Case No. 2164, a case filed by Asuncion against Arturo questioning
the validity of August 17, 1981 Board Resolution, was dismissed on joint
motion of Arturo and Asuncion on the ground that "a final settlement has
been arrived at"; (i) contrary to the petitioner’s claim, the August 17, 1981
Board Resolution had not been revoked; (j) the sale had been ratified during
July 30, 1982 meeting of the stockholders and by LRI’s acceptance of the
spouses Tanjangco’s payment; and (k) withrespect to the compromise
agreement, the evidence on record shows that the parties never went
beyond the negotiation phase.
Ruling of the Court
Ratification of the August 17, 1981
Board Resolution
The Court agrees with the petitioners that the August 17, 1981 Board
Resolution did not give Arturo the authority to act as LRI’s representative in
the subject sale, as the meeting of the board of directors where such was
passed was conducted without giving any notice to Asuncion. Section 53 of
the Corporation Code provides for the following:
SEC. 53. Regular and special meetings of directors or trustees.—Regular
meetings of the board of directors or trustees of every corporation shall be
held monthly, unless the by-laws provide otherwise.
Special meetings of the board of directors or trustees may be held at any
time upon call of the president oras provided in the by-laws.
Meetings of directors or trustees of corporations may be held anywhere in
or outside of the Philippines, unless the by-laws provide otherwise. Notice
of regular or special meetings stating the date, time and place of the
30
meeting must be sent to every director or trustee at least one (1) day prior
to the scheduled meeting, unless otherwise provided by the by-laws. A
director or trustee may waive this requirement, either expressly or
impliedly. (Emphasis ours)
The Court took this matter up in Fontecha, involving herein parties, where it
was held that a meeting of the board of directors is legally infirm if there is
failure to comply with the requirements or formalities of the law or the
corporation’s by laws and any action taken on such meeting may be
challenged as a consequence:
The general rule is that a corporation, through its board of directors, should
act in the manner and within the formalities, if any, prescribed by its charter
or by the general law. Thus, directors must act as a body in a meeting called
pursuant tothe law or the corporation’s bylaws, otherwise, any action taken
therein may be questioned by any objecting director or shareholder.38
However, the actions taken in such a meeting by the directors or trustees
may be ratified expressly or impliedly. "Ratification means that the principal
voluntarily adopts, confirms and gives sanction to some unauthorized act of
its agent on its behalf. It is this voluntary choice, knowingly made, which
amounts to a ratification of what was theretofore unauthorized and
becomes the authorized act of the party so making the ratification. The
substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ratification can be made either expressly or
impliedly. Implied ratification may take various forms — like silence or
acquiescence, acts showing approval or adoption of the act, or acceptance
and retention of benefits flowing therefrom."39
The Court's decision in Fontecha concerns the implied ratification of one of
the resolutions passed on August 17, 1981 by the board of directors of LRI
despite of the lack of notice of meeting to Asuncion. This was owing to the
subsequent actions taken therein by the stockholders, including Asuncion
herself, as cited by the CA in its decision. On the other hand, the sale of the
property to the spouses Tanjangco was ratified, not because of implied
ratification as was the case in Fontecha but through the passage of the July
30, 1982 Board Resolution.
In the present case, the ratification was expressed through the July 30, 1982
Board Resolution. Asuncion claims that the July 30, 1982 Board Resolution
did not ratify the Board Resolution dated August 17, 1981 for lack of the

required number of votes because Juanito is not entitled to vote while Leo
voted "no" to the ratification ofthe sale even if the minutes stated
otherwise. Asuncion assails the authority of Juanito to vote because he was
not a director and he did not own any share of stock which would qualify
him to be one. On the contrary, Juanito defends his right to vote as the
representative of Teresita’s estate. Upon examination of the July 30, 1982
minutes of the meeting, it can be deduced that the meeting is a joint
stockholders and directors’ meeting. The Court takes into account that
majority of the board of directors except for Asuncion, had already
approved of the sale to the spouses Tanjangco prior to this meeting. As a
consequence, the power to ratify the previous resolutions and actions of
the board of directors in this case lies inthe stockholders, not in the board of
directors. It would be absurd to require the board of directors to ratify their
own acts—acts which the same directors already approved of beforehand.
Hence, Juanito, as the administrator of Teresita’s estate even though not a
director, is entitled to vote on behalf of Teresita’s estate as the
administrator thereof. The Court reiterates its ruling in Tan v. Sycip,40 viz:
In stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and entitled
to vote it. Until a settlement and division of the estate is effected, the stocks
of the decedent are held by the administrator or executor.41 (Citation
omitted and emphasis ours)
On the issue that Leo votedagainst the ratification of sale, the Court notes
that only Juanito, Benjamin and Rosendo signed the minutes of the meeting.
It was also not stated who prepared the minutes, given that Asuncion as the
corporate secretary refused to record the same. Also, it was not explained
why Leo was not able to affix his signature on the said minutes if he really
voted in favor ofthe ratification of the sale. What’s more, Leo was not
presented to testify onthe witness stand. Hence, contrary to the position
adopted by the CA, only those whose signatures appear on the minutes of
the meeting can be said to have voted in favor of the ratification. This case
must be differentiated from the Court’s ruling in People v. Dumlao, et al.42
In Dumlao, the Court ruled that the signing of the minutes by all the
directors is not a requisite and that the lack of signatures on the minutes
does not mean that the resolution was not passed by the board. However,
there is a notable disparity between the facts in Dumlaoand the instant
31
case. In Dumlao, the corporate secretary therein recorded, prepared and
certified the correctness of the minutes of the meeting despite the fact that
not all directors signed the minutes. In this case, it could not even be
established who recorded the minutes in view of Asuncion’s refusal to do
so, as demonstrated during the cross examination of Benjamin by the
petitioners’ counsel:
Q: I am showing to you Exhibit 14, I noticed that Exhibit 14 which is the
minutes of the meeting of the stockholders on July 30, 1982 was not
prepared by a secretary but was prepared by some members of the board.
A: I cannot recall anymore. I cannot give you an opinion on that, because I
will be guessing.
Q: From the minutes itself?
A: That is why I told you I cannot be certain if it was prepared by the
secretary or members of the board. This came into existence. Eleven years
ago is not a very short period.
Q: So you cannot remember now who prepared the minutes of the meeting
on July 17, 1982? A: I cannot be accurate - - I said that.43
It is the signature of the corporate secretary, as the one who is tasked to
prepare and record the minutes, that gives the minutes of the meeting
probative value and credibility, as the Court explained in Dumlao, to wit:
The non-signing by the majority of the members of the GSIS Board of
Trustees of the said minutes does not necessarily mean that the supposed
resolution was not approved by the board. The signing of the minutes by all
the members of the board is not required. There is no provision in the
Corporation Code of the Philippines that requires that the minutes of the
meeting should be signed by all the members of the board.
The proper custodian of the books, minutes and official records of a
corporation is usually the corporate secretary. Being the custodian of
corporate records, the corporate secretary has the duty to record and
prepare the minutes of the meeting. The signature of the corporate
secretary gives the minutes of the meeting probative value and credibility.

In this case, Antonio Eduardo B. Nachura, Deputy Corporate Secretary,
recorded, prepared and certified the correctness of the minutes of the
meeting of 23 April 1982; and the same was confirmed by Leonilo M.
Ocampo, Chairman of the GSIS Board of Trustees. Said minutes contained
the statement that the board approved the sale of the properties, subject
matter of this case, to respondent La’o.44 (Citations omitted and emphasis
ours)
Thus, without the certification of the corporate secretary, it is incumbent
upon the other directors or stockholders as the case may be, to submit
proof that the minutes of the meeting is accurate and reflective of what
transpired during the meeting. Conformably to the foregoing, in the
absence of Asuncion’s certification, only Juanito, Benjamin and Rosendo,
whose signatures appeared on the minutes, could be considered as to have
ratified the sale to the spouses Tanjangco.
Yet, notwithstanding the lack of Leo’s signature to prove that he indeed
voted in favor of the ratification,the results are just the same for he owns
one share of stock only. Pitted against the shares of the other stockholders
who voted in favor of ratification, Asuncion and Leo were clearly outvoted:
Ms. [ASUNCION] LOPEZ 7, 831 shares
Mr. BENJAMIN B. BERNARDINO 1 share
and representing Arturo F. Lopez 7, 831 shares
Mr. JUANITO L. SANTOS
(representing the Estate of Teresita Lopez Marquez) 7, 830 shares
Mr. LEO RIVERA 1 share
Mr. ROSENDO DE LEON 5 shares
TOTAL SHARES REPRESENTED 23, 499 shares45
In sum, whatever defect there was on the sale to the spouses Tanjangco
pursuant to the August 17, 1981 Board Resolution, the same was cured
through its ratification in the July 30, 1982 Board Resolution. It is of no
moment whether Arturo was authorized to merely negotiate or to enter
32
into a contract of sale on behalf of LRI as all his actions in connection to the
sale were expressly ratified by the stockholders holding 67% of the
outstanding capital stock.1âwphi1
In Cua, Jr. et al. v. Tan, et al.,46 the Court held that by virtue of ratification,
the acts of the board of directors become the acts of the stockholders
themselves, even if those acts were, at the outset, unauthorized:
Clearly, the acquisition by PRCI of JTH and the constitution of the JTH Board
of Directors are no longer just the acts of the majority of the PRCI Board of
Directors, but also of the majority of the PRCI stockholders. By ratification,
even an unauthorized act of an agent becomes the authorized act of the
principal. To declare the Resolution dated 26 September 2006 of the PRCI
Board of Directors null and void will serve no practical use or value, or affect
any of the rights of the parties, because the Resolution dated 7 November
2006 of the PRCI stockholders - approving and ratifying said acquisition and
the manner in which PRCI shall constitute the JTH Board of Directors – will
still remain valid and binding.47 (Citation omitted and emphasis ours)
Compromise agreement
The remaining issue is whether the spouses Tanjangco could be held liable
for damages for reneging on an alleged verbal compromise agreement.
There is no reason for the Court to disturb the unanimous findings of the CA
and the trial court that no compromise agreement was perfected between
the parties. The existence of a perfected contract is a finding of fact that the
Court will not disturb if there is substantial evidence supporting it. "Basic is
the rule that factual findings of trial courts, including their assessment of the
witnesses' credibility, are entitled to great weight and respect by this Court,
particularly when the [CA] affirms the findings."48 For this reason, the
spouses Tanjangco may not be compelled to honor a compromise
agreement that never left the negotiation phase and be held liable for the
alleged damages Asuncion incurred as a result of her attempts to comply to
the provisions thereof.
WHEREFORE, the instant petition is DENIED. The Decision dated February
22, 2002 of the Court of Appeals in CA-G.R. CV No. 63519 is hereby
AFFIRMED.
 33

SO ORDERED.
34