You are on page 1of 22

J. F. RAMIREZ, plaintiff-appellee,

 THE Petitioners, directors of respondent up to March

ORIENTALIST CO., and RAMON J. FERNANDEZ, 1929, sought to recover 1% (to each plaintiff) of the
defendants- appellants
 (G.R. No. 11897 profits of the company for the year 1929, under and
September 24, 1918)
in accordance with an amendment to the by-laws
Facts: which was made at the general meeting of the
 Orientalist Company was engaged in the stockholders on Feb. 1929, to which the lower court
business of maintaining and conducting a theatre rendered in their favor.
in the city of Manila for the exhibition of
cinematographic films, engaged in the business ISSUE: WON the amendment has a binding effect as
of marketing films for a manufacturer or to grant plaintiffs’ claim?
manufacturers, there engaged in the production
or distribution of cinematographic material. HELD: No. Sec. 20 of the Corporation Law limits the
 In this enterprise the plaintiff was represented in authority of a corporation to adopt by-laws which are
the city of Manila by his son, Jose Ramirez. The
not consistent with the provisions of the law. The
directors of the Orientalist Company became
apprised of the fact that the plaintiff in Paris had appellees contend that the articled in question is
control of the agencies for two different marks of merely a provision of the compensation of directors
films, namely, the “Eclair Films” and the which is not only consistent with but expressly
“Milano Films;” and negotiations were begun with authorized by Sec. 21 of the Corporation Law.
said officials of the Orientalist Company by Jose
Ramirez, as agent of the plaintiff. We cannot agree with this contention. The authority
 The defendant Ramon J. Fernandez, one of the conferred upon corporations in that section refers
directors of the Orientalist Company and also its
only to providing compensation for the future services
treasurer, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference of directors, officers, and employees thereof after the
with all the members of the company’s board of adoption of the by-law or other provisions in relation
directors except one, and with approval of those thereto, and cannot in any sense be held to authorize
with whom he had communicated, addressed a the giving, as in this case, of continuous
letter to Jose Ramirez, in Manila, accepting the compensation to particular directors after their
offer contained in the memorandum the exclusive employment has terminated for part services
agency of the Eclair films and Milano films. rendered gratuitously by them to the corporation. To
 In due time the films began to arrive in Manila, it permit the transaction involved in this case would be
appears that the Orientalist Company was
to create an obligation unknown to law, and to
without funds to meet these obligations. Action
was instituted by the plaintiff to Orientalist countenance a misapplication of the funds of the
Company, and Ramon J. Fernandez for sum of defendant building and loan association to the
money. prejudice of the substantial rights of its shareholders.

Issue: WON the Orientalist Co. is liable for the acts Irrespective of the above, the conclusion is the same.
of its treasurer, Fernandez? The article which the appellees rely upon is merely a
by-law provision adopted by the stockholders of the
Held: Yes. It will be observed that Ramon J.
defendant corporation, without any action having
Fernandez was the particular officer and member of
the board of directors who was most active in the been takin in relation thereto by its board of directors.
effort to secure the films for the corporation. The The law is settled that contracts between a
negotiations were conducted by him with the corporation and third person must be made by or
knowledge and consent of other members of the under the authority of its board of directors and not by
board; and the contract was made with their prior its stockholders. Hence, the action of the
approval. In the light of all the circumstances of the stockholders in such matters is only advisory and not
case, we are of the opinion that the contracts in in any wise binding on the corporation. There could
question were thus inferentially approved by the
not be a contract without mutual consent, and it
company’s board of directors and that the company is
bound unless the subsequent failure of the appears that the plaintiffs did not consent to the
stockholders to approve said contracts had the effect provisions of the by-law in question, but, on the
of abrogating the liability thus created. contrary, they objected to and voted against it in the
stockholders‘ meeting in which it was adopted.
649; Dec. 8, 1932) RAMON C. LEE and ANTONIO DM. LACDAO,
 THE HON. COURT OF The execution of VTA, therefore, may create a
APPEALS, SACOBA MANUFACTURING CORP., dichotomy between the equitable and beneficial
PABLO GONZALES, JR. and THOMAS ownership of the corporate shares of stockholder, on
GONZALES, respondents.
 (GR No. 93695; 205 the one hand and the legal title thereto, on the other
SCRA 752; Feb. 4, 1992) hand.

FACTS: A complaint for a sum of money was filed by By virtue of the VTA, the petitioners are no longer
International Corporate Bank, Inc. against the private directors. Under the old and new Corporation Code,
respondents who, in turn, filed a third-party complaint the most immediate effect of a VTA on the status of a
against Alfa Integrated Textile Mills, Inc. stockholder who is a party to its execution is that he
becomes only an equitable or beneficial owner, from
The trial court ordered the issuance of alias being the legal titleholder or owner of the shares
summons upon Alfa through DBP, who is said to be subject of the VTA.
the transferee of Alfa’s management by virtue of a
voting trust agreement. Under the old code, the eligibility of a director, strictly
speaking, cannot be adversely affected by a VTA
DBP declined to receive the summons saying it is not inasmuch as he remains the owner (although
authorized, Alfa having a personality separate and beneficial or equitable only) of the shares subject of
distinct. The trial court, in turn ordered private the VTA pursuant to which a transfer of the
respondents to take the appropriate steps to serve stockholder’s shares in favor of the trustee is
the summons to Alfa which they made through the required. No disqualification arises by virtue of the
officers and later on, was later on declared to be phrase ―in his own right‖ provided under the Old
proper service of summons. Code, which has been omitted.

After the second motion for reconsideration, the trial Hence, this omission requires that in order to be
court reversed itself, saying that the service of eligible as director, what is material is the legal title
summons upon the petitioners were not proper, them to, not beneficial ownership, of the stock as
not being officers of the corporation anymore. On appearing on the books of the corporation.
appeal, the CA reversed the trial court.
The petitioners ceased to be the owners of at least
ISSUE: WON the petitioners can still be authorized to one share standing in their names on the books of
receive the summons despite the voting trust Alfa as required under Sec. 23 of the new Code.
agreement with DBP? They also ceased to have anything to do with the
management of the enterprise. The petitioners
HELD: No. Sec. 59 of the Code expressly recognizes ceased to be directors.
VTAs and gives a more definitive meaning. By its
very nature, a VTA results in the separation of the Considering the VTA, DBP as trustee, became the
voting right of a stockholder from his other rights such stockholder of record with respect to the said shares
as the right to receive dividends, the right to inspect of stocks.
the books of the corporation, the right to sell certain
interests in the assets of the corporation and other DETECTIVE AND PROTECTIVE BUREAU VS.
rights to which a stockholder may be entitled until the CLORIBEL (26 SCRA 256; Nov. 29, 1968)
liquidation of the corporation. However,
A complaint was filed by herein petitioner-plaintiff
in order to distinguish a VTA from proxies and other Detective and Protective Bureau against defendant-
voting pool and agreements, it must pass three respondent Fausto Alberto, alleging that defendant
criteria or tests, namely: (1) the voting rights of the illegally seized and took control of all the assets as
stock are separated from other attributes or well as the books, records, vouchers and receipt of
ownership; (2) that the voting right granted are the corporation from the accountant- cashier,
intended to be irrevocable for a definite period of concealed them illegally and refused to allow any
time; and (3) that the principal purpose of the grant of member of the corporation to see and examine the
voting rights is to acquire voting control of the same. That on a meeting, the stockholders removed
corporation. defendant as managing director and elected Jose
dela Rosa. person to the extent that authority has been
conferred upon him, and this includes powers which
Alberto, on the other hand, stated that Jose dela have been (1) intentionally conferred, and (2) also
Rosa could not be elected managing director such powers as, in the usual course of business, are
because he did not own any stock in the corporation. incidental thereto, or may be implied therefrom, (3)
powers added by custom and usage, as usually
ISSUE: WON dela Rosa may be elected managing pertaining to the particular officer or agent, and (4)
director? such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe
HELD: No. There is no record showing that Jose dela that it has conferred.
Rosa owned a share of stock in the corporation. If he
did not own any share of stock, certainly he could not While Mr. Maglana was an officer, the by-laws do not
be a director pursuant to Sec. 30 of the Corporation in any way confer upon the president the authority to
Law and consequently he cannot be a managing enter into contracts for the corporation independently
director by virtue of the by-laws of the corporation of the BOD. That power is expressly lodged in the
that the manager shall be elected by the BOD among latter.
its members.
Nevertheless, to expedite or facilitate the execution of
Accordingly, Faustino Alberto could not be compelled the contract, only the President shall sign the contact
to vacate his office and cede the same to dela Rosa for the corporation. No greater power can be implied
because the by-laws provide that the Directors shall from such express, but limited delegated authority.
serve until the election and qualification of their duly Neither can it be logically claimed that any power
qualified successor. greater than that expressly conferred is inherent in
Mr. Maglana’s position as president and chairman of
YAO KA SIN TRADING VS. CA (209 SCRA 763; the corporation.
June 15, 1992)
Although there is authority "that if the president is
Constacio B. Malagna, President and Chairman of given general control and supervision over the affairs
the Board of private respondent Prime White Cement of the corporation, it will be presumed that he has
Corporation (PWCC), sent a letter-offer (Exhibit A) to authority to make contract and do acts within the
Mr. Yao for the delivery of cement, which was course of its ordinary business," We find such
accepted by the latter by delivering a check for inapplicable in this case. We note that the private
P243,000. corporation has a general manager who, under its
By-Laws has, inter alia, the following powers: "(a) to
ISSUE: WON the letter-offer sent by Malagna binds have the active and direct management of the
the corporation? business and operation of the corporation,
conducting the same accordingly to the order,
HELD: No. A corporation can act only through its directives or resolutions of the Board of Directors or
officers and agents, all acts within the powers of said
of the president." It goes without saying then that Mr.
corporation may be performed by agents of his
Maglana did not have a direct and active and in the
selection and except in so far as limitations or management of the business and operations of the
restrictions may be imposed by special charter, by-
law or statutory provisions, the same general
provision of law which govern the relation of agency Petitioner's last refuge then is his alternative
for natural person govern the officer or agent of a proposition, namely, that private respondent had
corporation, of whatever status or rank, in respect to clothed Mr. Maglana with the apparent power to act
his power to act for the corporation; and the agents for it and had caused persons dealing with it to
once appointed, or members acting in their stead, are believe that he was conferred with such power. The
subject to the same rules, liabilities and incapacities rule is of course settled that "[a]lthough an officer or
as are agents of individuals and private persons. agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent
Moreover, a corporate officer or agent may represent
authority with which the corporation has clothed him
and bind the corporation in transactiosn with third
by holding him out or permitting him to appear as
having such authority, the corporation is bound Asuncion and Arturo Lopez, the first two installments
thereby in favor of a person who deals with him in of the gratuity pay of private respondents were paid.
good faith in reliance on such apparent authority, as Also, petitioner corporation had prepared the cash
where an officer is allowed to exercise a particular vouchers and checks for the thir installment. For
authority with respect to the business, or a particular some reason, said voucher was cancelled by
branch of it, continuously and publicly, for a petitioner Asuncion.
considerable time." Also, "if a private corporation
intentionally or negligently clothes its officers or A complaint was filed before the labor arbiter who
agents with apparent power to perform acts for it, the decided in favor of private respondents.
corporation will be estopped to deny that such
apparent authority in real, as to innocent third ISSUE: WON the gratuity pay should be paid?
persons dealing in good faith with such officers or
agents." This "apparent authority may result from (1) HELD: Yes. The general rules is that a corporation,
the general manner, by which the corporation holds through its board of directors, should act in the
out an officer or agent as having power to act or, in manner and within the formalities, if any, prescribed
other words, the apparent authority with which it by its charter or by the general law. Thus, the
clothes him to act in general or (2) acquiescence in directors must act as a body in a meeting called
his acts of a particular nature, with actual or pursuant to the law or the corporation’s by-laws,
constructive knowledge thereof, whether within or otherwise, any action taken therein may be
without the scope of his ordinary powers. questioned by any objecting director or shareholder.

It was incumbent upon the petitioner to prove that Be that as it may, jurisprudence tells us that an action
indeed the private respondent had clothed Mr. of the board of directors during a meeting, which was
Maglana with the apparent power to execute Exhibit illegal for lack of notice, may be ratified either (1)
"A" or any similar contract. This could have been expressly, by the action of the directors in
easily done by evidence of similar acts executed subsequent legal meeting, or (2) impliedly, by the
either in its favor or in favor of other parties. corporations‘ subsequent conduct.
Petitioner miserably failed to do that. Upon the other
hand, private respondent's evidence overwhelmingly Ratification by directors may be by an express
shows that no contract can be signed by the resolution or vote to that effect, or it may be implied
president without first being approved by the Board of from adoption of the act, acceptance or
Directors; such approval may only be given after the acquiescence. Moreover, the unauthorized acts of an
contract passes through, at least, the comptroller, officer of a corporation may be ratified by the
who is the NIDC representative, and the legal corporation by conduct implying approval and
counsel. adoption of the act in question. Such ratification may
be expressed or may be inferred from silence and
183; Aug. 11, 1995)
In the case at bench, it was established that
Petitioner corporation approved two resolutions petitioner corporation did not issue any resolution
providing for the gratuity pay of its employees. Except revoking nor nullifying the board resolution granting
for Asuncion Lopez-Gonzales, who was then abroad, gratuity pay to private respondents. Instead, they
the remaining member of the board convened a paid the gratuity pay, particularly, the first two
special meeting and passed a resolution adopting the installments thereof.
above-mentioned resolutions. Private respondents
requested for the full payment of the gratuity pay Despite lack of notice to Asuncion, we can glean from
which was granted. the records that she was aware of the corporation’s
obligations under the said resolution. More
At that time, however, petitioner Asuncion was still importantly she acquiesced thereto by affixing her
abroad, and allegedly sent a cablegram objecting to signature on two cash vouchers. The conduct of
certain matters taken up by the board in her absence. petitioners had estopped them from assailing the
validity of the said board resolutions.
Notwithstanding a corporate squabble between
PUA CASIM & CO. VS. NEUMARK AND CO. (46 HELD: No. The general rule is that the power to bind
Phil. 242; Oct. 2, 1924) a corporation by contract lies with its board of
directors or trustees, but this power may either be
W. Neumark, president of defendant corporation expressly or impliedly be delegated to other officers
borrowed P15000 from plaintiff which was delivered or agents of the corporation, and it is well settled that
by means of a check in favor of defendant and except where the authority of employing servants and
deposited in BPI and the amount of it credited to the agents is expressly vested in the BOD/T, an officer or
corporation’s current account. agent who has general control and management of
the corporation‘s business, or a specific part thereof,
ISSUE: WON the corporation is responsible for the may bind the corporation as are usual and necessary
money borrowed by its president? in th conduct of such business. But the contracts of
employment must be reasonable.
HELD: Yes. W. Neumark is the principal stockholder,
president and general business manager of the Chen, as general manager of Kong Li Po, had
defendant corporation. On behalf of the corporation, implied authority to bind the defendant corporation by
he solicited a loan and was given a check, which was a reasonable and usual contract of employment with
endorsed by him in his capacity as president and the plaintiffs, but we do not think that contract here in
deposited to the corporation’s account. It may be true question can be so considered. Not only is the term
that a large part of the amount so deposited was of employment usually long, but the conditions are
diverted by Neumark to his own use, but that does otherwise so onerous to the defendant that the
not alter that the money was borrowed for the possibility of the corporation being thrown into
corporation and was placed in its possession. insolvency thereby is expressly contemplated in the
same contract. This fact, in itself was, in our opinion,
It is conceded that Neumark was not expressly sufficient to put the plaintiffs upon inquiry as to the
authorized by the board of directors to borrow the extent of the business manager’s authority; they had
money in question and the general rule is that a not the right to presume that he or any other single
business manager or other officer of a corporation, officer or employee of that corporation had implied
has no implied power to borrow money on its behalf. authority to enter into a contract of employment which
But much depends upon the circumstances of each might bring about its ruin.
particular case and the rule state is subject to
important exceptions. Thus, where a general TRINIDAD J. FRANCISCO VS. GSIS (7 SCRA 557;
business manager of a corporation is clothed with March 30, 1963)
apparent authority to borrow money and the amount
borrowed does not exceed the ordinary requirements Trinidad Francisco, in consideration of loan extended
of the business, it has often been held that the by GSIS, mortgaged her property in QC. For being in
authority is implied and that the corporation is bound. arrears in her installments, GSIS extrajudicially
foreclosed the mortgage.
YU CHUCK VS. KONG LI PO (46 Phil. 608; Dec. 3,
1924) Plaintiff’s father, Atty. Vicente Francisco sent a letter
to Rodolfo Andal, general manager of GSIS, offering
CC Chen or TC Chen, General Manager of defendant to redeem the property which was replied to by Andal
corporation Kong Li Po, entered into an agreement through a telegram saying ―GSIS BOARD
with the plaintiffs by which the latter bound APPROVED YOUR REQUEST RE REDEMTPION
themselves to do the necessary printing for the OF FORECLOSED PROPERTY OF YOUR
newspaper. Later on, the new general manager, Tan DAUGHTER‖
Tian Hong, discharged plaintiffs with no special
reasons. Aggrieved, plaintiffs sought to recover full Later, inasmuch as, according to the defendant
payment of the remaining term of the contract, which GSIS, the remittances made by Atty. Francisco were
was originally for 3 years, as stated therein. allegedly not sufficient to pay off her daughter’s
arrears, the one year redemption period has expired,
ISSUE: WON Chen had the power to bind the said defendant consolidated title to the property in its
corporation under a contract of that character? name.
ISSUE: WON the telegram sent by the Andal binds were settled. Louis Dreyfus & Co. Ltd. Actually sued
the corporation? but was also culminated in an out-of-court settlement.

HELD: Yes. The terms of the offer were clear and NACOCO now seeks to recover the sum paid to
over the signature of Andnal, plaintiff was informed Louis from general manager and board chairman
that the proposal has been accepted. There was Kalaw and the other members who approved the
nothing in the telegram that hinted at any anomaly, or contracts. It charges Kalaw with negligence and bad
gave grounds to suspect its veracity, and the plaintiff, faith and/or breach of trust for having approved the
therefore, cannot be blamed for relying upon it. There contracts, which was dismissed by the trial court.
is no denying that the telegram was within Andal’s
apparent authority, but eh defense is that he did not ISSUE: WON the contracts executed by Kalaw binds
sign it, but that it was sent by the board secretary in the corporation?
his name and without his knowledge. Assuming this
to be true, how was appellee to know it? Corporate HELD: Yes. A rule that has gained acceptance
transactions would speedily come to a standstill were through the years is that a corporate officer
every person dealing with a corporation were held ―entrusted‖ with the general management and
duty-bound to disbelieve every act of its responsible control of its business, has implied authority to make
officers, no matter how regular they should appear on any contract or do any other act which is necessary
their face. or appropriate to the conduct of the ordinary business
of the corporation. As such officer, he may, without
Indeed, it is well-settled that If a private corporation any special authority from the BOD perform all acts of
intentionally or negligently clothes its officers or an ordinary nature, which by usage or necessity are
agents with apparent power to perform acts for it, the incident to his office, and may bind the corporation by
corporation will be estopped to deny that such contracts in matters arising in the usual course of
apparent authority is real, as to innocent third business.
persons dealing in good faith with such officers or
agents. Long before the disputed contracts came into being,
Kalaw contracted by himself alone as general
Hence, even if it were the board secretary who sent manager – for forward sales of corpra (which is a
the telegram, the corporation could not evade the necessity in the business) which were profitable. So
binding effect produced by the telegram. pleased was NACOCO;s BOD that it voted to grant
Kalaw special bonus in recognition of the signal
The error in the wording cannot be taken seriously. achievement rendered by him.
All the while GSIS pocketed the various remittances,
and kept silent as to the true facts as it now alleges. These previous contacts, it should be stressed, were
This silence, taken together with the unconditional signed by Kalaw without prior authority from the
acceptance of three other subsequent remittances board. Said contracts were known all along to the
from plaintiff constitutes in itself a binding ratification board members. Nothing was said by them. The
of the original agreement. aforesaid contracts stand to prove one thing.
Obviously, NACOCO’s board met difficulties
THE BOARD OF LIQUIDATORS VS. KALAW (20 attendant to forward sales by leaving the adoption of
SCRA 987; Aug. 10, 1965) means to end, to the sound discretion of NACOCO’s
general manager Maximo Kalaw.
National Coconut Corporation (NACOCO) embarked
on copra trading activities led by its General Manager Where similar acts have been approved by the
Maximo Kalaw and the other defendants as members directors as a matter of general practice, custom, and
of the board. Due to natural calamities, the business policy, the general manager may bind the company
of copra became unprofitable. Kalaw made a full without formal authorization of the BOD. In varying
disclosure of the situation and apprised the baord of language, existence of such authority is established,
the impending losses on the contracts already by proof of the course of business, the usages and
entered into, but no action was taken. But later on, practices of the company and by the knowledge
the contracts were unanimously approved by the which the BOD has, or must be presumed to have, of
Board. The buyers threated damage suits, but some acts and doings of its subordinates in and about the
affairs of the corporation. Although the plaintiff is a stockholder of the
corporation he does not, however, claim a share of
In the case at bar, the practice of the corporation has the profits as such stockholder, but under the
been to allow its general manager to negotiate and agreement between him and the president of the
execute contracts in its copra trading activities for corporation which has been impliedly ratified by the
and in NACOCO’s behalf without prior board BOD.
approval. If the by- laws were to be literally followed,
the board should give its stamp of prior approval on
all corporate contracts. But the Board itself, by its
acts and through acquiescence, practically laid aside
the by-law requirement of prior approval.


464; Dec. 29, 1969)

As a consequence of P200,000 worth of ECA

allocated to the Bowen & Co., Inc., it required a letter
of credit in the amount of P100,000 with the PNB. As
the corporation did not have at the time the
necessary funds to put up the required cash marginal
deposit of P60,000, its president Geoffrey Bowen,
obligating the corporation and himself in his personal
capacity, offered to pay Fracisco Buenaseda 37 1⁄2%
of the profits to be realized from the sale of the ECA
procurement materials, should he be able to obtain
and produce the amount necessary to cover the cash
marginal deposit – which Buenaseda was able to do.

The corporation refused to pay, Buenaseda filed an

action in the CFI to recover the same.

ISSUE: WON the agreement was binding?

HELD: Yes. It is not here pretended that the BOD of

the defendant corporation had no knowledge of the
agreement between Bowen and plaintiff. Indeed, at
the time the said Agreement was made, the BOD of
the corporation was composed of Bowen himself, his
wife, Buenaseda and two others, with Bowen and his
wife controlling the majority of the stocks of the
corporation. The Board did not repudiate the
agreement but on the contrary, acquiesced in and
took advantage of the benefits afforded by said
agreement. Such acts are equivalent to an implied
ratification of the agreement by the BOD and bound
the corporation even without formal resolution passed
and recorded.

It is agreed by the respondents, defendants below,

that the profits of the corporation form part of its
assets and payment of a certain percentage of the
profits requires a declaration of dividends and/or
resolution of the BOD. The agreement is untenable.
CENTRAL COOPERATIVE EXCHANGE (CCE) VS. Villasis, Reginald Villasis and Dimas Enriquez filed
TIBE, JR. (33 SCRA 593; June 30, 1970) – This is a an affidavit- complaint for falsification of public
complaint filed by herein petitioner CCE for the documents (for submission of an income reflecting
refund of certain amounts received by respondent the resolution as passed on 1985, when in fact it was
when he served as member of the board of directors passed in 1986) and estafa (for the disbursement of
of CCE, which were said t be per diems and funds by effecting payment to the aforesaid salaries)
transportation expenses, representation expenses against herein respondents who were members of
and cummutable discretionary funds. the Board of Trustees who were also officers of the
corporation. The trial court acquitted respondents in
ISSUE: WON the BOD had the power to appropriate both charges without civil liability. The motion for
funds for the expenses claimed by respondent? reconsideration on the civil aspect being denied,
petitioners filed this petition.
HELD: No. The by-laws expressly reserved unto the
stockholders the power to determine the ISSUE: WON the resolution granting compensation
compensation of the members of the BOD, and the to OFFICERS of the corporation is valid?
stockholders did restrict such compensation to (1)
actual transportation expenses plus (2) per diems of HELD: Yes. The proscription under Sec. 30, is
P30 and (3) actual expenses while waiting. Even against granting compensation to directors/trustees
without the express prohibition, the directors are not of a corporation is not a sweeping rule. Worthy of
entitled to compensation for ―The law is well- note is the clear phraseology of Sec 30 which states
settled that directors of corporations ―... [T]he directors shall not receive any
presumptively serve without compensation and compensation, as such directors, ...‖ The phrase as
in the absence of an express agreement or a such directors is not without significance for it
resolution thereto, no claim can be asserted delimits the scope of the prohibition to
therefor. Thus it has been held that there can be compensation given to them for services
no recovery of compensation, unless expressly performed purely in their capacity as directors or
provided for, when director serves as president trustees. The unambiguous implication is that
or vice-president, as secretary or treasurer or members of the board may receive compensation, in
cashier, as member of an executive committee, addition to reasonable per diems, when they render
as chairman of a building committee, or similar services to the corporation in a capacity other than
offices. as directors/trustees. In the case at bench, the
Resolution granted monthly compensation to private
Thus, the directors, in assigning themselves respondents not in their capacity as members of the
additional duties, such as the visitation of FACOMAS, board, but rather as officers of the corporation, more
acted within their power, but, by voting for particularly as Chairman, Vice-Chairman, Treasurer
themselves compensation for such additional duties, and Secretary of WIT.
they acted in excess of their authority, as express in
the by-laws. Clearly Sec. 30 is not violated. Consequently, the last
sentence limiting the compensation to 10% of the net
WESTERN INSTITUTE OF TECHNOLOGY, INC., income before income tax does not likewise find
HOMERO L. VILLASIS, DIMAS ENRIQUEZ, application in this case since the compensation is
PRESTON F. VILLASIS & REGINALD F. VILLASIS, being given to private respondents in their capacity
 vs. as officers of WIT and not as board members.

SOLEDAD SALAS- TUBILLEJA, ANTONIO S. 399; July 14, 1927) – The members of the board of El
SALAS, RICHARD S. SALAS & HON. JUDGE Hogar Filipino receives 5% of the net profit as shown
PORFIRIO PARIAN, respondents
 (GR No. 113032; in the balance sheet and is distributed in proportion to
278 SCRA 216; Aug. 21, 1997) their attendance to meetings of the board. A
complaint was filed against the, and the sixth cause
FACTS: In a special board meeting, a resolution was of action alleged that the directors, instead of serving
passed providing for compensation of officers. A few without pay, or receiving nominal pay or a fixed
years later, petitioners Homero Villasis, Prestod salary - as the complainant supposes would be
proper – have been receiving large compensation in and severally liable with TRAMAT to de la Cuesta
varying amounts. under the questioned transaction. Ong had there so
acted, not in his personal capacity, but as an officer
ISSUE: WON the courts may declared the by-law of a corporation, TRAMAT, with a distinct and
provision null and void? separate personality. As such, it should only be the
corporation, not the person acting for and on its
HELD: No. The Corporation Law does not behalf, that properly could be made liable thereon.
undertake to prescribe the rate of compensation
for the directors of corporations. The power to Personal liability of a corporate director, trustee
fixed the compensation they shall receive, if any, is or officer along (although not necessarily) with
left to the corporation, to be determined in its by-laws the corporation may so validly attach, as a rule,
(Act No. 1459, sec. 21). Pursuant to this authority the only when —
compensation for the directors of El Hogar Filipino
has been fixed in section 92 of its by-laws, as already 1. He assents (a) to a patently unlawful act of the
stated. The justice and propriety of this provision corporation, or (b) for bad faith, or gross negligence
was a proper matter for the shareholders when in directing its affairs, or (c) for conflict of interest,
the by-laws were framed; and the circumstance resulting in damages to the corporation, its
that, with the growth of the corporation, the stockholders or other persons;
amount paid as compensation to the directors
has increased beyond what would probably be 2. He consents to the issuance of watered stocks or
necessary to secure adequate service from them who, having knowledge thereof, does not forthwith
is matter that cannot be corrected in this action; file with the corporate secretary his written objection
nor can it properly be made a basis for depriving the thereto;
respondent of its franchise, or even for enjoining it
from compliance with the provisions of its own by- 3. He agrees to hold himself personally and solidarily
laws. If a mistake has been made, or the rule liable with the corporation;
adopted in the by-laws has been found to work
harmful results, the remedy is in the hands of the 4. He is made, by a specific provision of law, to
stockholders who have the power at any lawful personally answer for his corporate action.
meeting to change the rule. The remedy, if any,
seems to lie rather in publicity and competition, rather In the case at bench, there is no indication that
than in a court proceeding. The sixth cause of action petitioner David Ong could be held personally
is in our opinion without merit. accountable under any of the abovementioned cases.

14; Nov. 7, 1994) – Melchor dela Cuesta, doing OF APPEALS and PEOPLE OF THE PHILIPPINES,
business under the name Farmers Machineries, sold respondents (GR No. 99032; 270 SCRA 423; March
a tractor to Tramat Mercantile, Inc. In payment, David 26, 1997)
Ong, Tramat’s president and manager issued a
FACTS: Private complainant Leon Gaw delivered to
check for P33,500. Tramat sold the tractor, together
with an attached lawn mower fabricated by it, to the accused Ricardo Llamado and Jacinto Pascual
the amount of P180,000 which is to be repaid in 6
NAWASA. David Ong put a stop payment on the
months with 12% interest. As security, the accused
check when NAWASA refused to pay on the account
that aside from the defects on the lawn mower, the issued and signed a postdated check which was later
on stopped and dishonored for being drawn against
engine (sold by dela Costa) was a reconditioned unit.
insufficient funds. Gaw filed a complaint for violation
De la Costa filed an action for recovery of money of BP Blg. 22. Pascual remained at large and the trial
which was granted by the court. on the merits against Llamado was conducted. The
trial court convicted Llamado.
ISSUE: WON Ong should be held jointly and
severally liable? ISSUE: WON petitioner, treasurer of Pan Asia
Finance Corporation could be held civilly and
HELD: No. It was an error to hold David Ong jointly criminally liable?
HELD: Yes. Petitioner denies knowledge of the HELD: Yes. A corporation is a juridical entity with
issuance of the check without sufficient funds and legal personality separate and distinct from those
involvement in the transaction with private acting for and in its behalf and, in general, from the
complainant. However, knowledge involves a state of people comprising it. The general rule is that
mind difficult to establish. Thus, the statute itself obligations incurred by the corporation, acting
creates a prima facie presumption, i.e., that the through its directors, officers and employees, are its
drawer had knowledge of the insufficiency of his sole liabilities. There are times, however, when
funds in or credit with the bank at the time of the solidary liabilities may be incurred but only when
issuance and on the check's presentment for exceptional circumstances warrant such as in the
payment. Petitioner failed to rebut the presumption by following cases:
paying the amount of the check within five (5)
banking days from notice of the dishonor. His claim ―1. When directors and trustees or, in appropriate
that he signed the check in blank which allegedly is cases, the officers of a corporation: (a) vote for or
common business practice, is hardly a defense. If as assent to patently unlawful acts of the corporation; (b)
he claims, he signed the check in blank, he made act in bad faith or with gross negligence in directing
himself prone to being charged with violation of BP the corporate affairs; (c) are guilty of conflict of
22. It became incumbent upon him to prove his interest to the prejudice of the corporation, its
defenses. As Treasurer of the corporation who stockholders or members, and other persons;
signed the check in his capacity as an officer of the
corporation, lack of involvement in the negotiation for 2. When a director or officer has consented to the
the transaction is not a defense. issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with
Petitioner's argument that he should not be held the corporate secretary his written objection
personally liable for the amount of the check because thereto; 

it was a check of the Pan Asia Finance Corporation
and he signed the same in his capacity as Treasurer 3. When a director, trustee or officer has contractually
of the corporation, is also untenable. The third agreed or stipulated to hold himself
paragraph of Section 1 of BP Blg. 22 states: personally and solidarily liable with the
corporation; or 

―Where the check is drawn by a corporation,
company or entity, the person or persons who 4. When a director, trustee or officer is made, by
actually signed the check in behalf of such specific provision of law, personally liable for
drawer shall be liable under this Act‖ his corporate action.‖i 

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA In labor cases, particularly, corporate directors
F. BASILIO, petitioners,
 NATIONAL LABOR and officers are solidarily liable with the
RELATIONS COMMISSION, LUZVIMINDA corporation for the termination of employment of
SANTOS, SHIRLEY PORRAS, CARMEN corporate employees done with malice or in bad
ELIZARDE, ET. AL., respondents faith. In this case, it is undisputed that petitioners
have a direct hand in the illegal dismissal of
(GR No. 121434; 273 SCRA 35; June 2, 1997) respondent employees. They were the ones, who as
high- ranking officers and directors of Crispa, Inc.,
FACTS: Private respondents were employees of signed the Board Resolution retrenching the private
Crispa, Inc. who were dismissed due to alleged respondents on the feigned ground of serious
retrenchment. They filed an illegal dismissal business losses that had no basis apart from an
complaint with the NLRC against Crispa, Inc., unsigned and unaudited Profit and Loss Statement
Valeriano Floro (major stockholder, incorporation and which, to repeat, had no evidentiary value
director of Crispa) and petitioners, who were high whatsoever. This is indicative of bad faith on the part
ranking officials and directors of Crispa. The Lbor of petitioners for which they can be held jointly and
Arbiter dismissed the complaint but ordered severally liable with Crispa, Inc. for all the money
petitioners, Floro and Crispa to pay separation pay. claims of the illegally terminated respondent
employees in this case.
ISSUE: WON petitioners can be held liable?
ALFREDO MONTELIBANO, ET AL., plaintiffs- operated at a loss during depression, or close down
 BACOLOD-MURCIA MILLING CO., at a smaller loss, is a purely business and economic
INC., defendant-appellee. (GR No. L-15092; 5 SCRA problem to be determined by the directors of the
36; May 18, 1962) corporation and not by the court. It is a well-known
rule of law that questions of policy or of management
FACTS: Appellants have been sugar planter adhered are left solely to the honest decision of officers and
to defendat-appellees sugar central mill under directors of a corporation, and the court is without
identical milling contracts with a 55% share of the authority to substitute its judgment of the board of
resulting product. There was a proposal to increase directors; the board is the business manager of the
the planter’s share to 60% which was adopted by corporation, and so long as it acts in good faith its
defendant in an Amended Milling Contract and orders are not reviewable by the courts. (Fletcher on
consequently a Board Resolution. Corporations, Vol. 2, p. 390).‖

In 1953, the appellants initiated the present action, And it appearing undisputed in this appeal that sugar
contending that three Negros sugar centrals (La centrals of La Carlota, Hawaiian Philippines, San
Carlota, Binalbagan-Isabela and San Carlos), with a Carlos and Binalbagan (which produce over one-
total annual production exceeding one-third of the third of the entire annual sugar production in
production of all the sugar central mills in the Occidental Negros) have granted progressively
province, had already granted increased participation increasing participations to their adhered planter at
(of 62.5%) to their planters, and that under paragraph an average rate of
9 of the resolution of August 20, 1936, heretofore
quoted, the appellee had become obligated to grant 62.333% for the 1951-52 crop year;
similar concessions to the plaintiffs (appellants
herein). The appellee Bacolod-Murcia Milling Co., 5. 64.2% for 1952-53; 

inc., resisted the claim, and defended by urging that
the stipulations contained in the resolution were 6. 64.3% for 1953-54; 

made without consideration; that the resolution in
question was, therefore, null and void ab initio, being 64.5% for 1954-55; and
in effect a donation that was ultra vires and beyond
the powers of the corporate directors to adopt. The 63.5% for 1955-56,
trial court decided in favor of defendant, thus the
the appellee Bacolod-Murcia Milling Company is,
present appeal.
under the terms of its Resolution of August 20, 1936,
ISSUE: WON the resolutions passed by the bard are duty bound to grant similar increases to plaintiffs-
valid and binding? appellants herein.

HELD: Yes. There can be no doubt that the directors STRONG VS. REPIDE (41 Phil. 947; May 3, 1909) –
of the appellee company had authority to modify the the Governor of the Philippine Islands, on behalf of
proposed terms of the Amended Milling Contract for the government, made an offer of purchase for the
the purpose of making its terms more acceptable to total sum of $6,,043,219.47 in gold for all the friar
the other contracting parties. lands, though owned by different owners.

As the resolution in question was passed in good While this state of things existed, and before the final
faith by the board of directors, it is valid and offer had been made by the Governor, the defendant,
binding, and whether or not it will cause losses or although still holding out for a higher price for the
decrease the profits of the central, the court has lands, took steps to purchase the 800 shares of stock
no authority to review them. in his own company from Mrs. Strong, which he knew
were in the possession of F. Stuart Jones, as her
―They hold such office charged with the duty to act agent. The defendant employed Krauffman and the
for the corporation according to their best judgment, latter employed Mr. Sloan, a broker, to purchase the
and in so doing they cannot be controlled in the stock for him. Mr. Sloan, the husband, did not know
reasonable exercise and performance of such duty. who wanted to buy the shares nor did Jones when he
Whether the business of a corporation should be was spoken to. Jones would not have sold at the
price he did had he known it was the defendant who PRIME WHITE CEMENT CORPORATION,
was purchasing, because, as he said, it would show petitioner, vs.
increased value, as the defendant would not be likely respondents
 (GR No. L-68555; 220 SCRA 103;
to purchase ore stock unless the price was going up. March 19, 1993)

ISSUE: WON it was the duty of the defendant to FACTS: Respondent Alejandro Te, a director of
disclose to the agent of the plaintiff the facts bearing petitioner corporation, was awarded a dealership
upon or which might affect the value of the stock? agreement whereby Te would be the exclusive dealer
and/or distributor of the corporation in the entire
HELD: Yes. A director upon whose action the value Mindanao. As a consequence, Te entered into
of the shares depends cannot avail of his knowledge different contracts for selling white cement. Laer on,
of what his own action will be to acquire shares from defendant corporation decided to impose certain
those whom he intentionally keeps in ignorance of his conditions upon the dealership agreement.
expected action and the resulting value of the shares.
Several demands to comply with the agreement were
Even though a director may not be under the made by Te to the corporation but was refused and
obligation of a fiduciary nature to disclose to a Te was constrained to cancel the contracts he
shareholder his knowledge affecting the value of the entered into.
shares, that duty may exist in special cases, and did
exist upon the facts in this case. Defendant corporation entered into an exclusive
dealership agreement with Napoleon Co for the
In this case, the facts clearly indicate that a director marketing of white cement in Mindanao. Hence, this
of a corporation owning friar lands in the Philippine suit.
Islands, and who controlled the action of the
corporation, had so concealed his exclusive ISSUE: WON the dealership agreement entered into
knowledge of the impending sale to the government by Te with his own corporation is valid and binding?
from a shareholder from whom he purchased,
through an agent, shares in the corporation, that the HELD: No. In the instant case respondent Te was not
concealment was in violation of his duty as a director an ordinary stockholder; he was a member of the
to disclose such knowledge, and amounted to deceit Board of Directors and Auditor of the corporation as
sufficient to avoid the sale; and, under such well. He was what is often referred to as a "self-
circumstances, it was immaterial whether the dealing" director.
shareholder's agent did or did not have power to sell
the stock. A director of a corporation holds a position of trust
and as such, he owes a duty of loyalty to his
In addition to his ownership of almost three-fourths of corporation. In case his interests conflict with those of
the shares of the stock of the company, the the corporation, he cannot sacrifice the latter to his
defendant was one of the five directors of the own advantage and benefit. As corporate managers,
company, and was elected by the board the agent directors are committed to seek the maximum
and administrator general of such company, "with amount of profits for the corporation. This trust
exclusive intervention in the management" of its relationship "is not a matter of statutory or technical
general business. law. It springs from the fact that directors have the
control and guidance of corporate affairs and
Concealing his identity when procuring the purchase property and hence of the property interests of the
of stock, by his agent, was in itself stock evidence of stockholders.
fraud on the part of the defendant. The concealment
was not a mere inadvertent omission but was a Granting arguendo that the "dealership agreement"
studied and intentional omission, to be characterized involved here would be valid and enforceable if
as part of the deceitful machination to obtain the entered into with a person other than a director or
purchase without giving information whatever as to officer of the corporation, the fact that the other party
the state and probable result of the negotiations, to to the contract was a Director and Auditor of the
the vendor of the stock, and to, in that way, obtain the petitioner corporation changes the whole situation.
same at a lower price. First of all, We believe that the contract was neither
fair nor reasonable. The "dealership agreement" CHARLES W. MEAD, plaintiff-appellant,
 E. C.
entered into in July, 1969, was to sell and supply to McCULLOUGH, ET AL., and THE PHILIPPINE
respondent Te 20,000 bags of white cement per ENGINEERING AND CONSTRUCTION COMPANY,
month, for five years starting September, 1970, at the defendant-appellants
 (GR No. 6217; 21 Phil. 95;
fixed price of P9.70 per bag. Respondent Te is a Dec. 26, 1911)
businessman himself and must have known, or at
least must be presumed to know, that at that time, FACTS: Herein plaintiff-appellant Mead with
prices of commodities in general, and white cement defendant McCullough formed the Philippine
in particular, were not stable and were expected to Engineering and Construction Company, the
rise. At the time of the contract, petitioner corporation incorporators being the only stockholders and
had not even commenced the manufacture of white directors of the company. When Mead left for China,
cement, the reason why delivery was not to begin the other directors entered into an agreement where
until 14 months later. He must have known that within all the rights in a ―wrecking contract‖ with the naval
that period of six years, there would be a authorities were sold to defendant. The defendant, in
considerable rise in the price of white cement. In fact, turn, sold these rights with R.W. Brown, HDC jones,
respondent Te's own Memorandum shows that in John Macleod and TH Twentyman, and retaining one
September, 1970, the price per bag was P14.50, and sixth interest, formed Manila Salvage Association.
by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the ISSUE: WON officers or directors of the corporation
"dealership agreement" to allow for an increase in may purchase the corporate property?
price mutually acceptable to the parties. Instead, the
price was pegged at P9.70 per bag for the whole five HELD: Yes. While a corporation remains solvent, we
years of the contract. Fairness on his part as a can see no reason why a director or officer, by the
director of the corporation from whom he was to buy authority of a majority of the stockholders or board of
the cement, would require such a provision. In fact, managers, may not deal with the corporation, loan it
this unfairness in the contract is also a basis which money or buy property from it, in like manner as a
renders a contract entered into by the President, stranger. So long as a purely private corporation
without authority from the Board of Directors, void or remains solvent, its directors are agents or trustees
voidable, although it may have been in the ordinary for the stockholders. They owe no duties or
course of business. We believe that the fixed price of obligations to others. But the moment such a
P9.70 per bag for a period of five years was not fair corporation becomes insolvent, its directors are
and reasonable. Respondent Te, himself, when he trustees of all the creditors, whether they are
subsequently entered into contracts to resell the members of the corporation or not, and must manage
cement to his "new dealers" Henry Wee and its property and assets with strict regard to their
Gaudencio Galang stipulated as follows: interest; and if they are themselves creditors while
the insolvent corporation is under their management,
The price of white cement shall be mutually they will not be permitted to secure to themselves by
determined by us but in no case shall the same be purchasing the corporate property or otherwise any
less than P14.00 per bag (94 lbs) personal advantage over the other creditors.
Nevertheless, a director or officer may in good faith
As director, especially since he was the other party in and for an adequate consideration purchase from a
interest, respondent Te's bounden duty was to act in majority of the directors or stockholders the property
such manner as not to unduly prejudice the even of an insolvent corporation, and a sale thus
corporation. In the light of the circumstances of this made to him is valid and binding upon the minority.
case, it is to Us quite clear that he was guilty of (Beach et al. vs. Miller, supra; Twin-Lick Oil Company
disloyalty to the corporation; he was attempting in vs. Marbury, supra; Drury vs. Cross, 7 Wall., 299;
effect, to enrich himself at the expense of the Curran vs. State of Arkansas, 15 How., 304; Richards
corporation. There is no showing that the vs. New Hamphshire Insurance Company, 43 N. H.,
stockholders ratified the "dealership agreement" or 263; Morawetz on Corporations (first edition), sec.
that they were fully aware of its provisions. The 579; Haywood vs. Lincoln Lumber Company et al., 64
contract was therefore not valid and this Court cannot Wis., 639; Port vs. Russels, 36 Ind., 60; Lippincott vs.
allow him to reap the fruits of his disloyalty. Shaw Carriage Company, 21 Fed. Rep., 577.)
In the case of the Twin-Lick Oil Company vs. thing for them to do. They acted in perfectly good
Marbury, he court said: faith and for the best interests of all the stockholders.
"It would be a harsh rule that would permit one
That a director of a joint-stock corporation occupies stockholder, or any minority of stockholders to hold a
one of those fiduciary relations where his dealings majority to their investment where a continuation of
with the subject-matter of his trust or agency, and the business would be at a loss and where there was
with the beneficiary or party whose interest is no prospect or hope that the enterprise would be
confided to his care, is viewed with jealousy by the profitable."
courts, and may be set aside on slight grounds, is a
doctrine founded on the soundest morality, and which We therefore conclude that the sale or transfer made
has received the clearest recognition in this court and by the quorum of the board of directors — a majority
others. (Koehler vs. Iron., 2 Black, 715; Drury vs. of the stockholders — is valid and binding upon the
Cross, 7 Wall., 299; R.R. Co. vs. Magnay, 25 Beav., majority-the plaintiff.
586; Cumberland Co vs. Sherman, 30 Barb., 553;
Hoffman S. Coal Co. vs. Cumberland Co., 16 Md., CANDIDO PASCUAL, plaintiff-
456.) The general doctrine, however, in regard to appellant,
contracts of this class, is, not that they are absolutely AL, defendants-appellees (GR No. L-5174; 19 Phil.
void, but that they are voidable at the election of the 83; March 17, 1911)
party whose interest has been so represented by the
party claiming under it. We say, this is the general FACTS: During 1903-1907, the defendant-appellees,
rule; for there may be cases where such contracts without the knowledge and acquiescence of the
would be void ab initio; as when an agent to sell buys stockholders deducted their compensation from gross
of himself, and by his power of attorney conveys to income instead of from the net profits of the bank, the
himself that which he was authorized to sell. but even same with their predecessors for the years 1899-
here, acts which amount t a ratification by the 1902.
principal may validate the sale
Plaintiff-appellant brings this action in his own right as
The sale or transfer of the corporate property in the a stockholder of the bank, for the benefit of the bank
case at bar was made by three directors who were at and all the stockholders, in behalf of the corporation,
the same time a majority of stockholders. If a majority which, even though, nominally a defendant, is to all
of the stockholders have a clear and a better right to intents and purposes the real plaintiff in this case as
sell the corporate property than a majority of the shown in the prayer of the complaint.
directors, then it can be said that a majority of the
stockholders made this sale or transfer to the ISSUE: WON plaintiff has capacity to sue?
defendant McCullough.
HELD: Yes. In suits of this character the corporation
What were the circumstances under which said sale itself and not the plaintiff stockholder is the real party
was made? The corporation had been going from in interest. The rights of the individual stockholder are
bad to worse. The work of trying to raise the sunken merged into that of the corporation. It is a universally
Spanish fleet had been for several months recognized doctrine that a stockholder in a
abandoned. The corporation under the management corporation has no title legal or equitable to the
of the plaintiff had entirely failed in this undertaking. It corporate property; that both of these are in the
had broken its contract with the naval authorities and corporation itself for the benefit of all the
the $10,000 Mexican currency deposited had been stockholders. Text writers illustrate this rule by the
confiscated. It had no money. It was considerably in familiar example of one person or entity owning all
debt. It was a losing concern and a financial failure. the stock and still having no greater or essentially
To continue its operation meant more losses. different title than if he owned but one single share.
Success was impossible. The corporation was civilly Since, therefore, the stockholder has no title, it is
dead and had passed into the limbo of utter evident that what he does have, with respect to the
insolvency. The majority of the stockholders or corporation and his fellow stockholder, are certain
directors sold the assets of this corporation, thereby rights sui generis. These rights are generally
relieving themselves and the plaintiff of all enumerated as being, first, to have a certificate or
responsibility. This was only the wise and sensible other evidence of his status as stockholder issued to
him; second, to vote at meetings of the corporation; It is alleged that the plaintiff became a stockholder on
third, to receive his proportionate share of the profits the 13th of November, 1903; that the defendants, as
of the corporation; and lastly, to participate members of the board of directors and board of
proportionately in the distribution of the corporate government, respectively, during each and all the
assets upon the dissolution or winding up. (Purdy's years 1903, 1904, 1905, 1906, and 1907, did
Beach on Private Corporations, sec. 554.) fraudulently, and to the great prejudice of the bank
and its stockholders, appropriate to their own use
The right of individual stockholders to maintain suits from the profits of the bank sums of money
for and on behalf of the corporation was denied until amounting approximately to P20,000 per annum.
within a comparatively short time, but his right is now
no longer doubted. Accordingly, in 1843, in the It is self-evident that the plaintiff in the case at bar
leading case of Foss vs. Harbottle, a stockholder was not, before he acquired in September, 1903, the
brought suit in the name of himself and other shares which he now owns, injured or affected in any
defrauded stockholders, and for the benefit of the manner by the transactions set forth in the second
corporation, against the directors, for a breach of cause of action. His vendor could have complained of
their duty to the corporation. This case was decided these transactions, but he did not choose to do so.
against the complaining stockholder, on the ground The discretion whether to sue to set them aside, or to
that the complainant had not proved that the acquiesce in and agree to them, is, in our opinion,
corporation itself was under the control of the guilty incapable of transfer. If the plaintiff himself had been
parties, and had not proved that it was unable to injured by the acts of defendants' predecessors that
institute suit. The court, however, broadly intimated is another matter. He ought to take things as he
that a case might arise when a suit instituted by found them when he voluntarily acquired his ten
defrauded stockholders would be entertained by the shares. If he was defrauded in the purchase of these
court and redress given. Acting upon this suggestion, shares he should sue his vendor. (Thus, he may sue
and impelled by the utter inadequacy of suits for the second half of 1903 to 1907 but not for the
instituted by the corporation, defrauded stockholders years 1989 to the first half of 1903.)
continued to institute these suits and to urge the
courts of equity to grant relief. These efforts were So it seems to be settled by the Supreme Court of
unsuccessful in clearly establishing the right of the United States, as a matter of substantive law, that
stockholders herein until the cases of Atwol against a stockholder in a corporation who was not such at
Merriwether, in England, 1867, and of Dodge vs. the time of the transactions complained of, or whose
Woolsey, in this country, in 1855. These two great shares had not devolved upon him since by operation
and leading cases have firmly established the law for of law, cannot maintain suits of this character, unless
England and America, that where corporate such transactions continue and are injurious to the
directors have committed a breach of trust either stockholder, or affect him especially and specifically
by their frauds, ultra vires acts, or negligence, in some other way.
and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS
stockholder may institute that suit, suing on H. TEAL and GEORGE W. ROBINSON, plaintiffs-
behalf of himself and other stockholders and for appellants,
the benefit of the corporation, to bring about a CORPORATION, NICHOLAS E. MULLEN, ERIC
redress of the wrong done directly to the BARCLAY, ALFRED F. KELLY, JOHN W. MEARS
corporation and indirectly to the stockholders. and CHARLES D. MACINTOSH, defendants-
So it is clear that the plaintiff, by reason of the fact
that he is a stockholder in the bank (corporation) has (GR No. L-25241; 49 Phil. 512; Nov. 3, 1926)
a right to maintain a suit for and on behalf of the
bank, but the extent of such a right must depend FACTS: Plaintiffs, stockholders (together with
upon when, how, and for what purpose he acquired Barclay) of Teal and Company (Company), entered
the shares which he now owns. In the determination into a Memorandum of Agreement and Voting Trust
of these questions we can not see how, if it be true Agreement with defendant Asia Banking Corporation
that the bank is a quasi-public institution, it can affect (Bank) with the understanding that it was intended for
in any way the final result. the protection of all parties thereto from outside
creditors, but that they were not intended to be The conclusion of the court below that the plaintiffs,
enforced according to the letter thereof, and that they not being stockholders in the Philippine Motors
did not contain the true agreement between the Bank Corporation, had no legal right to proceed against
and the Company which was to finance the company that corporation in the manner suggested in the
without interference from the above-named creditors. complaint evidently rest upon a misconception of the
character of the action. In this proceeding it was
That shortly after, Mullen caused the removal of the necessary for the plaintiffs to set forth in full the
plaintiffs as directors of the Company and their history of the various transactions which eventually
replacement. The defendants thereafter gave led to the alleged loss of their property and, in making
pledges and mortgages from the Company to the a full disclosure, references to the Philippine Motors
Bank and entered into contracts as directed by the Corporation appear to have been inevitable. It is to
Bank, and permitted the Bank to foreclose the same be noted that the plaintiffs seek no judgment against
and to sell the property of the Company itself and the corporation itself at this stage of the proceedings.
permitted the Bank to institute suits against the
Company, in which the Company was not In our opinion the plaintiffs state a good cause of
represented by anyone having its interest at heart action for equitable relief and their complaint is not in
and in which reason the Bank occupied both plaintiff any respect fatally defective. The judgment of the
and defendant and tricked and deluded the courts court below is therefore reversed, the defendants
into giving judgment in which the rights of the real demurrer is overruled, and it is ordered that the return
parties were concealed and unknown to the courts. of the record to the Court within ten days from the
return of the record to the Court of First Instance. So
Thereafter, defendants incorporated Philippine ordered
Motors Corporation where all the assets and goodwill
of the Company were transferred by the Bank. REPUBLIC BANK, represented in this action by
DAMASO P. PEREZ, etc., plaintiff-
ISSUE: WON the plaintiffs have the legal capacity to appellant,
HELD: Yes. Invoking the well-known rule that AND THE MONETARY BOARD OF THE CENTRAL
shareholders cannot ordinarily sue in equity to BANK OF THE PHILIPPINES, defendants-appellees
redress wrongs done to the corporation, but that the (GR No. L-22399; 19 SCRA 671; March 30, 1967)
action must be brought by the Board of Directors, the
appellees argue — and the court below held — that FACTS: Damaso Perez, a stockholder of Republic
the corporation Teal and Company is a necessary Bank, instituted a derivative suit against defendant
party plaintiff and that the plaintiff stockholders, not Pablo Roman, then President of the Bank, for
having made any demand on the Board to bring the granting certain loans to fictitious and non-existing
action, are not the proper parties plaintiff. But, like persons and to their close friends, relatives and/or
most rules, the rule in question has its exceptions. It employees, who were in reality their dummies on the
is alleged in the complaint and, consequently, basis of fictitious or inflated appraised value of real
admitted through the demurrer that the corporation estate properties, in connivance with other officials.
Teal and Company is under the complete control
of the principal defendants in the case, and, in The complaint alleged that Miguel Cuaderno, then
these circumstances, it is obvious that a demand Central Bank Governor, acting upon the complaint,
upon the Board of Directors to institute an action and the Monetary Board ordered an investigation and
and prosecute the same effectively would have found violations of the General Banking Act, but no
been useless, and the law does not require information was filed until his retirement; that to
litigants to perform useless acts. (Exchange bank neutralize the impending action against him, Pablo
of Wewoka vs. Bailey, 29 Okla., 246; Fleming and Roman engaged Miguel Cuaderno as technical
Hewins vs. Black Warrior Copper Co., 15 Ariz., 1; consultant and selected Bienvenido Dizon as
Wickersham vs. Crittenden, 106 Cal., 329; Glenn vs. Chairman of the Board of the Bank; that such
Kittaning Brewing Co., 259 Pa., 510; Hawes vs. appointment was done in bad faith and without
Contra Costa Water Company, 104 U. S., 450.) intention to protect the interest of the Bank but were
only prompted to protect Pablo Roman.
The complaint, therefore, prayed for a writ of in favor of Cuaderno and Dizon would be an unlawful
preliminary injunction against eh Monetary Board in wastage or diversion of corporate funds, since the
confirming such appointments, but was dismissed by Republic Bank would have no interest in shielding
the lower court. Roman, and the directors in approving the
appointments would be committing a breach of trust;
ISSUE: WON the court below erred in dismissing the the Bank, therefore, could sue to nullify the
complaint? appointments, enjoin disbursement of its funds to pay
them, and recover those paid out for the purpose, as
HELD: Yes. The defendants mainly controvert the prayed for in the complaint in this case (Angeles vs.
right of plaintiff to question the appointment and Santos, supra.).
selection of defendants Cuaderno and Dizon, which
they contend to be the result of corporate acts with Defendants urge that the action is improper because
which plaintiff, as stockholder, cannot interfere. the plaintiff was not authorized by the corporation to
Normally, this is correct, but Philippine jurisprudence bring suit in its behalf. Any such authority could not
is settled that an individual stockholder is be expected as the suit is aimed to nullify the action
permitted to institute a derivative or taken by the manager and the board of directors of
representative suit on behalf of the corporation the Republic Bank; and any demand for intra-
wherein he holds stock in order to protect or corporate remedy would be futile, as expressly
vindicate corporate rights, whenever (1) the pleaded in the complaint. These circumstances
officials of the corporation refuse to sue, or (2) permit a stockholder to bring a derivative suit
are the ones to be sued or (3) hold the control of (Evangelista vs. Santos, 86 Phil. 394). That no other
the corporation. In such actions, the suing stockholder has chosen to make common cause
stockholder is regarded as a nominal party, with with plaintiff Perez is irrelevant, since the
the corporation as the real party in interest smallness of plaintiff's holdings is no ground for
(Pascual vs. Del Saz Orozco, 19 Phil. 82, 85; Everett denying him relief (Ashwander vs. TVA, 80 L. Ed.
vs. Asia Banking Corp., 45 Phil. 518; Angeles vs. 688). At any rate, it is yet too early in the proceedings
Santos, 64 Phil. 697; Evangelista vs. Santos, 86 Phil. for the absence of other stockholders to be of any
388). Plaintiff-appellant's action here is precisely in significance, no issues having even been joined.
conformity, with these principles. He is neither
alleging nor vindicating his own individual ISSUE2: WON the Corporation should be a plaintiff
interest or prejudice, but the interest of the or defendant?
Republic Bank and the damage caused to it. The
action he has brought is a derivative one, HELD2: The English practice is to make the
expressly manifested to be for and in behalf of corporation a party plaintiff, while in the United
the Republic Bank, because it was futile to States, the usage leans in favor of its being joined as
demand action by the corporation, since its party defendant (see Editorial Note, 51 LRA [NS]
Directors were nominees and creatures of 123). Objections can be raised against either method.
defendant Pablo Roman (Complaint, p. 6). The (1) Absence of corporate authority would seem to
frauds charged by plaintiff are frauds against the militate against making the corporation a party
Bank that redounded to its prejudice. plaintiff, while (2) joining it as defendant places
the entity in the awkward position of resisting an
The complaint expressly pleads that the appointment action instituted for its benefit. What is important
of Cuaderno as technical consultant, and of is that the corporation' should be made a party, in
Bienvenido Dizon to head the Board of Directors of order to make the Court's judgment binding upon
the Republic Bank, were made only to shield Pablo it, and thus bar future relitigation of the issues.
Roman from criminal prosecution and not to further On what side the corporation appears loses
the interests of the Bank, and avers that both men importance when it is considered that it lay within
are Roman's alter egos. There is no denying that the the power of the trial court to direct the making of
facts thus pleaded in the complaint constitute a cause such amendments of the pleadings, by adding or
of action for the bank: if the questioned appointments dropping parties, as may be required in the
were made solely to protect Roman from criminal interest of justice (Revised Rule 3, sec. 11).
prosecution, by a Board composed by Roman's Misjoinder of parties is not a ground to dismiss
creatures and nominees, then the moneys disbursed an action. (Ibid.)
ISSUE3: WON the action of the plaintiff amounts to a failed to impose any civil liability against the private
quo warranto proceeding? respondents. By no amount of equity considerations,
if at all deserved, can a mere appeal on the civil
HELD: No. Plaintiff Perez is not claiming title to aspect of a criminal case be treated as a derivative
Dizon's position as head of the Republic Bank's suit.
board of directors. The suit is aimed at preventing the
waste or diversion of corporate funds in paying Granting, for purposes of discussion, that this is a
officers appointed solely to protect Pablo Roman derivative suit as insisted by petitioners, which it is
from criminal prosecution, and not to carry on the not, the same is outrightly dismissible for having been
corporation's bank business. Whether the complaint's wrongfully filed in the regular court devoid of any
allegations to such effect are true or not must be jurisdiction to entertain the complaint. The ease
determined after due hearing. should have been filed with the Securities and
Exchange Commission (SEC) which exercises
WESTERN INSTITUTE OF TECHNOLOGY, INC., original and exclusive jurisdiction over derivative
vs. SALAS (supra, under Compensation of Directors) suits, they being intra-corporate disputes, per Section
– Petitioners assert that the motion for 5 (b) of P.D. No. 902-A.
reconsideration of the civil aspect of the RTC
decision acquitting respondents is a derivative suit SAN MIGUEL CORPORATION, represented by
brought by them as minority stockholders of WIT for EDUARDO DE LOS ANGELES,
and on behalf of the corporation petitioners,
ISSUE: WON the appeal may be considered as a ROXAS, ANTONIO PRIETO, FRANCISCO
HELD: No. A derivative suit is an action brought respondents.
by minority shareholders in the name of the
corporation to redress wrongs committed against (GR No. 85339; 176 SCRA 447; Aug. 11, 1989)
it, for which the directors refuse to sue. It is a
remedy designed by equity and has been the FACTS: Eduardo de los Angeles was a director
principal defense of the minority shareholders appointed by PCGG who sequestered the shares of
against abuses by the majority. Here, however, the Andres Soriano III claiming it to belong to Eduardo
case is not a derivative suit but is merely an appeal Conjuangco, a close associate and dummy of then
on the civil aspect of Criminal Cases Nos. 37097 and President Marcos. De los Angeles initiated a
37098 filed with the RTC of Iloilo for estafa and derivative suit against herein respondents, in behalf
falsification of public document. Among the basic of SMC, for the revocation of a Board Resolution
requirements for a derivative suit to prosper is adopted to assume the loans incurred by Neptunia
that the minority shareholder who is suing for Corporation, a foreign company, said to be a wholly-
and on behalf of the corporation must allege in owned subsidiary of SMC. The action was dismissed
his complaint before the proper forum that he is by the SEC on the grounds that De los Angeles does
suing on a derivative cause of action on behalf of not have adequate shares to represent the interest of
the corporation and all other shareholders the stockholders and that his assumed role as a
similarly situated who wish to join. This is PCGG appointed director is inconsistent with his
necessary to vest jurisdiction upon the tribunal in line assumed role as a representative of minority
with the rule that it is the allegations in the complaint stockholders.
that vests jurisdiction upon the court or quasi-judicial
body concerned over the subject matter and nature of ISSUE: WON De Los Angeles can institute a
the action. This was not complied with by the derivative suit?
petitioners either in their complaint before the court a
quo nor in the instant petition which, in part, merely HELD: Yes. The theory that de los Angeles has no
states that "this is a petition for review on certiorari on personality to bring suit in behalf of the corporation —
pure questions of law to set aside a portion of the because his stockholding is minuscule, and there is a
RTC decision in Criminal Cases Nos. 37097 and "conflict of interest" between him and the PCGG —
37098" since the trial court's judgment of acquittal cannot be sustained.
It is claimed that since de los Angeles 20 shares aspect be deemed to be "beholden" to the PCGG, his
(owned by him since 1977) represent only. ownership of these shares being precisely what he
00001644% of the total number of outstanding invokes as the source of his authority to bring the
shares (1 21,645,860), he cannot be deemed to fairly derivative suit.
and adequately represent the interests of the minority
stockholders. The implicit argument — that a
stockholder, to be considered as qualified to bring a
derivative suit, must hold a substantial or significant
block of stock — finds no support whatever in the
law. The requisites for a derivative suit are as ELTON W. CHASE, as minority Stockholder and on
follows: behalf of other Stockholders similarly situated and for
a) the party bringing suit should be a shareholder MANUFACTURING, INC., plaintiff-appellant,
as of the time of the act or transaction complained of,
the number of his shares not being material; DR. VICTOR BUENCAMINO, SR., VICTOR
b) he has tried to exhaust intra-corporate DOLORES A. BUENCAMINO, respondents.
remedies, i.e., has made a demand on the board of No. L-20395; 136 SCRA 365; May 13, 1985)
directors for the appropriate relief but the latter has
failed or refused to heed his plea; and
 c) the cause FACTS: Herein plaintiff-appellant Elton Chase,
of action actually devolves on the corporation, entered into an agreement with Dr. Buencamino and
the wrongdoing or harm having been, or being William Cranker (already business partners) for the
caused to the corporation and not to the particular establishment of a factory in Manila called American
stockholder bringing the suit. Machinery Engineering Parts, Inc. (Amparts), where
chase was to transfer his tractor plant, ship his
The bona fide ownership by a stockholder of machineries from his former plant in America to
stock in his own right suffices to invest him with Manila, install said machineries at Amparts plant and
standing to bring a derivative action for the he is to be the production manager of Amparts.
benefit of the corporation. The number of his
shares is immaterial since he is not suing in his For some time the three maintained harmonious
own behalf, or for the protection or vindication of relations until Chase tendered his resignation which
his own particular right, or the redress of a wrong was accepted by Buencamino and Cranker. Chase
committed against him, individually, but in behalf initially filed a case in California against Cranker for
and for the benefit of the corporation. the recovery of the purchase price of his plant, but
this died a natural death. Eventually, he filed a case
Neither can the "conflict-of-interest" theory be upheld. before the CFI alleging various acts of frauds
From the conceded premise that de los Angeles now allegedly committed by the other two.
sits in the SMC Board of Directors by the grace of the
PCGG, it does not follow that he is legally obliged to ISSUE: WON Chase has capacity to institute a
vote as the PCGG would have him do, that he cannot derivative suit?
legitimately take a position inconsistent with that of
the PCGG, or that, not having been elected by the HELD: Yes. The evidence of defendants proves very
minority stockholders, his vote would necessarily clearly that right from the start, Chase was by them
never consider the latter's interests. The proposition recognized as a stockholder and initial incorporator
is not only logically indefensible, non sequitur, but with 600 paid up shares representing a 1/3 interest in
also constitutes an erroneous conception of a Amparts, and that would be enough for Chase to
director's role and function, it being plainly a director's have the correct personality to institute this derivative
duty to vote according to his own independent suit; the second place, it also appears apparently
judgment and his own conscience as to what is in the undenied that Chase did not win in California so that
best interests of the company. Moreover, it is he did not recover the $150,000.00 that he had
undisputed that apart from the qualifying shares prayed for there against Overseas, which if he had
given to him by the PCGG, he owns 20 shares in his would really in the mind of the Court have put him in
own right, as regards which he cannot from any estoppel to intervene in any manner as incorporator
or stockholder of Amparts; and in the third place and An action for the appointment of a receiver was filed
most important it should not be forgotten that Chase before the trial court after the BOD refused to
has filed the present case not for his personal benefit, proceed against Dalamal, which was granted.
but for the benefit of Amparts, so that to the Court the
argument of estoppel as against him would appear to ISSUE: WON Justiniani may be allowed to institute
be out of place; the estoppel to be valid as a defense the case for receivership and damages?
must be an estoppel against Amparts itself; the long
and short of it is that the Court is impelled and HELD: Yes. It is not denied by petitioner that the
constrained to discard all the other defenses set up allocation of dollars to the corporation for the
by Dr. Buencamino on the principal complaint; the importation of raw materials was suspended. In the
result of all these would be to sustain so far, the eyes of the court below, as well as in our own, the
position of Chase that Dr. Buencamino must account importation of textiles instead of raw materials, as
for the P570,000.00 used to pay the second series of well as the failure of the Board of Directors to take
payment on the subscription, the P330,000.00 used action against those directly responsible for the
in paying the lsst series on the subscription, plus misuse of dollar allocations constitute fraud, or
another sum of P245,000.00 entered as loan on his consent thereto on the part of the directors.
favor and against Amparts, for the sum of Therefore, a breach of trust was committed which
P434,000.00 earned in the blackmarketing of the justified the derivative suit by a minority stockholder
excess of $140,000.00 dollars on the forwarding on behalf of the corporation.
costs and promotional expenses, for the sum of
P391,200.00 earned in the blackmarketing of the ―It is well settled in this jurisdiction that where
excess of $117,000.00 in the transaction with Bertoni corporate directors are guilty of a breach of trust
and Cotti, and all these would reach a total of — not of mere error of judgment or abuse of
P1,970,200.00; and as the appropriation of the profits discretion — and intracorporate remedy is futile
for himself was a quasi-delict, the liability therefore or useless, a stockholder may institute a suit in
assuming that it had been done with the cooperation behalf of himself and other stockholders and for
of Cranker would have to be solidary, 2194 New Civil the benefit of the corporation, to bring about a
Code. redress of the wrong inflicted directly upon the
corporation and indirectly upon the stockholders.
CATALINA R. REYES, petitioner,
 HON. An illustration of a suit of this kind is found in the case
BIENVENIDO A. TAN, as Judge of the Court of First of Pascual vs. Del Saz Orozco (19 Phil. 82), decided
Instance of Manila, Branch XIII and FRANCISCA R. by this Court as early as 1911. In that case, the
JUSTINIANI, respondents.
 (GR No. L-16982; 3 Banco Español-Filipino suffered heavy losses due to
SCRA 198; Sept. 30, 1961) fraudulent connivance between a depositor and an
employee of the bank, which losses, it was
FACTS: Several purchases were made by Roxas- contended, could have been avoided if the president
Kalaw Textile Mills in New York for raw materials but and directors had been more vigilant in the
were found out to consist of already finished product administration of the affairs of the bank. The
for which reason the Central Bank of the Philippines stockholders constituting the minority brought a suit
stopped all dollar allocations for raw materials for the in behalf of the bank against the directors to recover
corporation which necessarily led to the paralyzation damages, and this over the objection of the majority
of the operations. It was alleged that the supplier of of the stockholders and the directors. This court held
the said finished goods was United Commercial that the suit could properly be maintained.‖ (64 Phil.,
Company of New York in which Dalamal, appointed Angeles vs. Santos [G.R. No. L-43413, prom. August
by the BOD of the Textile Mills as co-manager, had 31, 1937] p. 697).
inrterests and that the letter of credit for said goods
were guaranteed by the Indian Commercial Company The claim that respondent Justiniani did not take
and Indian Traders in which Dalamal likewise has steps to remedy the illegal importation for a period of
interests. It was further alleged that the sale of the two years is also without merit. During that period of
finished products was the business of Indian time respondent had the right to assume and expect
Commercial Company of Manila who cannot obtain that the directors would remedy the anomalous
dollar allocations for imporations of finished goods. situation of the corporation brought about by their
own wrong doing. Only after such period of time had
elapsed could respondent conclude that the directors of the corporation. In such actions, the suing
were remiss in their duty to protect the corporation stockholder is regarded as a nominal party, with the
property and business. corporation as the real party in interest. In the case
at bar, however, the plaintiffs are alleging and
We are led to agree with the judge below that the vindicating their own individual interests or
appointment of a receiver was not only expedient but prejudice, and not that of the corporation. At any
also necessary to restore the faith and confidence of rate, it is yet too early in the proceedings since the
the Central Bank authorities in the administration of issues have not been joined. Besides, misjoinder of
the affairs of the corporation, thus ultimately leading parties is not a ground to dismiss an action.
to a restoration of the dollar allocation so essential to
the operation of the textile mills. JUAN D. EVANGELISTA, et. al., plaintiff-appellant
VS. RAFAEL SANTOS, defendant-appelle (86 Phil.
RICARDO L. GAMBOA, LYDIA R. GAMBOA, 387; May 19, 1950) – Juan D. Evangelista, et. al. are
HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, minority stockholders of the Vitali Lumber Company,
and the HEIRS OF MERCEDES DE LA RAMA- Inc., while Rafael Santos holds more than 50% of the
BORROMEO, petitioners,
 vs. stocks of said corporation and also is and always has
been the president, manager, and treasurer thereof.
HON. OSCAR R. VICTORIANO as Presiding Judge Santos, in such triple capacity, through fault, neglect,
of the Court of First Instance of Negros Occidental, and abandonment allowed its lumber concession to
Branch II, BENJAMIN LOPUE, SR., BENJAMIN lapse and its properties and assets, among them
LOPUE, JR., LEONITO LOPUE, and LUISA U. machineries, buildings, warehouses, trucks, etc., to
DACLES respondents.
 (GR No. -40620; 90 SCRA disappear, thus causing the complete ruin of the
40; May 6, 1979) corporation and total depreciation of its stocks.

FACTS: A writ of prelimiary injunction was filed by Evangelista, et. al. therefore prays for judgment
herein respondents as purchasers of 1,328 shares of requiring Santos: (1) to render an account of his
stock of Inocented De La Rama, inc. after herein administration of the corporate affairs and assets: (2)
petitioners surreptitiously met and authorized the sale to pay plaintiffs the value of their respective
of 823 shares to forestall the petitioner’s takeover participation in said assets on the basis of the value
from the previous president and vice- president of the stocks held by each of them; and (3) to pay the
(sellers of the 1,328 shares), in violation of their pre- costs of suit. Evangelista, et. al. also ask for such
emptive right. The trial court ruled in favor of other remedy as may be and equitable. The trial court
respondents. Later on, private respondents entered dismissed the action on the ground of improper
into a compromise agreement with the recipients for venue and lack of cause of action.
the transfer of the 823 shares, against which the
petitioners filed a motion to dismiss which was ISSUE: WON plaintiffs have a right to bring the action
denied. for their benefit?

ISSUE: WON a derivative suit is the more proper HELD: No. The complaint shows that the action is for
action that should have been filed by respondents? damages resulting from mismanagement of the
affairs and assets of the corporation by its principal
HELD: No. The petitioners contend that the proper officer, it being alleged that defendant's
remedy of the plaintiffs would be to institute a maladministration has brought about the ruin of the
derivative suit against the petitioners in the name of corporation and the consequent loss of value of its
the corporation in order to secure a binding relief stocks. The injury complained of is thus primarily to
after exhausting all the possible remedies available that of the corporation, so that the suit for the
within the corporation. damages claimed should be by the corporation rather
than by the stockholders (3 Fletcher, Cyclopedia of
An individual stockholder is permitted to institute a Corporation pp. 977-980). The stockholders may
derivative suit on behalf of the corporation wherein he not directly claim those damages for themselves
holds stock in order to protect or vindicate corporate for that would result in the appropriation by, and
rights, whenever the officials of the corporation refuse the distribution among them of part of the
to sue, or are the ones to be sued or hold the control corporate assets before the dissolution of the
corporation and the liquidation of its debts and without prejudice to the filing of the proper action in
liabilities, something which cannot be legally which the venue shall be laid in the proper province.
done in view of section 16 of the Corporation Appellant's shall pay costs. So ordered

But while it is to the corporation that the action should

pertain in cases of this nature, however, if the officers
of the corporation, who are the ones called upon to
protect their rights, refuse to sue, or where a demand
upon them to file the necessary suit would be futile
because they are the very ones to be sued or
because they hold the controlling interest in the
corporation, then in that case any one of the
stockholders is allowed to bring suit (3 Fletcher's
Cyclopedia of Corporations, pp. 977-980). But in that
case it is the corporation itself and not the plaintiff
stockholder that is the real property in interest, so
that such damages as may be recovered shall pertain
to the corporation (Pascual vs. Del Saz Orosco, 19
Phil. 82, 85). In other words, it is a derivative suit
brought by a stockholder as the nominal party plaintiff
for the benefit of the corporation, which is the real
property in interest (13 Fletcher, Cyclopedia of
Corporations, p. 295).

In the present case, the plaintiff stockholders have

brought the action not for the benefit of the
corporation but for their own benefit, since they ask
that the defendant make good the losses occasioned
by his mismanagement and pay to them the value of
their respective participation in the corporate assets
on the basis of their respective holdings. Clearly, this
cannot be done until all corporate debts, if there be
any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of
the Corporation Law.

It results that plaintiff's complaint shows no cause of

action in their favor so that the lower court did not err
in dismissing the complaint on that ground.

While plaintiffs ask for remedy to which they are not

entitled unless the requirement of section 16 of the
Corporation Law be first complied with, we note that
the action stated in their complaint is susceptible of
being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such
amendment, however, is not possible now, since the
complaint has been filed in the wrong court, so that
the same last to be dismissed.

The order appealed from is therefore affirmed, but