CORPORATION LAW CASE MATRIX 5

Section 32
TITLE FACTS ISSUE/S HELD DOCTRINE
Mead v. - Mead, McCullough and three - Whether or not - Yes. It has to be remembered - A majority of the
McCullough others organized the Philippine the remaining that the 5 directors herein are also the stockholders or directors
Engineering and Construction directors have the only stockholders. When the four have the power to sell or
Company. The 5 of them were the power to sell or remaining directors met to resolve for transfer to one of its
only stockholders and also the transfer to one of its the assignment, there was a quorum members the corporate
directors of the company, with general members the assets not only of the directors but also of property, where the
ordinary powers. of the corporation. the stockholders. stockholders or directors
- Mead was elected as the general - McCullough, while he was the have general ordinary
manager of the company. Under him, president of the corporation, did not powers, and where there is
the company failed in their sit in the said meeting as a nothing in the articles of
undertaking to raise sunken Spanish representative of the corporation. The incorporation which
fleet. It became a losing concern and corporation was represented by the 3 prohibit such a sale.
a financial failure. directors who by themselves already
- After 9 mos. as general manager, constituted a quorum. - Whether a private
Mead resigned to accept the position - Hence, McCullough’s vote was corporation remains
of engineer of the Canton and not necessary in this case, nor was his solvent or is insolvent,
Shanghai Railway Company and thus presence needed to have a quorum. there is no reason why a
left for China. - The contact was also fair and director or officer, by
- Thereafter, realizing that reasonable as the company was authority of the majority of
continuing the operations of the already in bad shape. its stockholders or board of
company would mean more losses, managers, may not deal
the remaining directors unanimously with the corporation, loan
assigned all the rights and interests of it money, or buy property
the company to McCullough for value, from it in like manner as a
who also assigned the same for value stranger. But in all cases,
to other people who with McCullough such officer or director
subsequently formed the Manila must act in good faith and
Salvage Association. pay an adequate
- Mead is now alleging that he is consideration.
entitled to receive his salary as
general manager, profits made before
the assignment and the value of his
personal property which he have left
and sold by the defendants. (main
issue but impertinent to the lesson).
Prime White - Prime White (thru its President & - WON the - NO. While it is true that the - A contract of a
Cement v. IAC BOD Chair) and Te (also a director of dealership Board may delegate its powers to the director with his
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 1
 Prime White) entered into a dealership agreement was a President or any of its officers and corporation, if fair and
agreement wherein the former will valid and that contracts entered into by such reasonable, may be ratified
supply Te with 20,000 bags of cement enforceable contract officers are binding upon the by the stockholders
per month at Php 9.70 per bag. corporation, SC held that such general provided a full disclosure of
- Te would open an irrevocable rules apply when the corporation his adverse interest is
letter of credit in a bank each time he deals with a third person. made.
received a delivery. - In this case, Te was also a - See Section 32 also
- Te then started to advertise that director of Prime White. He holds a
he was the exclusive dealer of the position of trust and as such, he owes
white cement, and entered into a duty of loyalty to his corporation.
several written agreements to supply - SC held that the contract was
the said cement with third parties. neither fair nor reasonable. The very
- Te was later on informed by the low price of the cement was meant to
corporate secretary of Prime White benefit Te. He was a businessman and
that the BOD decided to impose the ff. knew of the real market prices of
conditions: cement. (at that time, the price was at
 delivery shall start at the end least Php 14.50 and became Php
Nov. 1970 37.50 in 1975)
 only 8000 bags would be
delivered for a period of 3 months
 price will be Php 13.30 per bag
 price may be unilaterally
adjusted by Prime White
 delivery place is Austutias (sic)
 letter of credit to be opened with
the Makati branch of Prudential
Bank
- Despite demands to enforce the
dealership agreement, Prime White
refused, forcing Te to cancel the
agreements with third parties.
- RTC adjudged Prime White liable
for damages. CA affirmed

Section 36
TITLE FACTS ISSUE/S HELD DOCTRINE
Montelibano v. - The Montelibanos and some - Whether or not - The SC held in the affirmative. - The test to be applied
Bacolod – others are sugar planters with the requested - The resolution is supported by a is whether the act in
Murcia Milling identical milling contracts with increase in the valid consideration and is therefore question is in immediate
Co. Bacolod milling. annual production not a donation ultra vires. furtherance of the
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 2
 - The Montelibanos were originally
granted a share in the resulting
product at a ratio of 45%-55%. (the
55% pertaining to the farmers.) the
contract has a 30-year period.
- Sometime in 1936, the farmers
and the Milling Company entered into
a modified Milling Contract which
increased the former’s share to 60%
but also with the condition that the
period of their contract will be
extended for an additional 15 years.,
- In the same year a resolution
was passed by the Board of the milling
company granting the farmers further
concessions over and above the
provisions of the Proposed Amended
Milling Contract.
- It was only days after the passing
of the said resolution that the
proposed milling contract was signed
by both parties.
- Sometime in 1950, 3 of the major
sugar centrals granted an increase in
the share of their workers to the
product yield.
- Montelibanos et.al wanted to
avail of similar increase based on the
provision of the 1936 resolution.
- The Milling company denied such
liability by contending that the
resolution was granted without
consideration and is therefore a
donation ultra vires.
- The resolution being ultra vires, it
is contended to be void ab initio.
Section 37
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
should be granted - It is to be noted that the contract corporation’s business,
the farmers. is signed only after the resolution. fairly incident to the
Thus, such resolution shall be deemed express powers and
as a modification to the proposed reasonably necessary to
Amended Contract. Therefore, that their exercise.
resolution is considered integrated - The acts must have a
with the contract, without which, the logical relation to the
farmers would not have assented to corporate purpose
the said Amended Contract. As such, expressed in the charter.
the consideration for the main
contract is deemed to be the
consideration for the grant of further
concessions in the resolution (e.g. the
extended period of the contract.)
- The directors’ lack of power to
amend would be relevant if the
resolution was passed after the
farmers had already bound
themselves to the terms of the printed
milling contract. In this case, the
resolution was adopted 21 days
before the farmers’ assented to the
contract or while the latter were not
yet bound.
- It could not also be seen as a
novation, since the resolution
modified only a proposal, not yet
binding between the parties.
- In this light, it cannot be gainsaid
that the board has the power to
modify the terms of the proposal. The
standard for such validity is whether
the act is in immediate furtherance of
the corporation’s business, fairly
incident to the express powers and
reasonably necessary to their
exercise. Regardless if it will cause
losses.
- This standard is met in the
adoption of the resolution.
3
 TITLE FACTS
Alhambra - The term of existence of
Cigar v. SEC Alhambra Cigar & Cigarette
Manufacturing Co., (Alhambra) Inc. for
fifty (50) years from incorporation had
expired on January 15, 1962.
- Following the expiration of its
term as provided in its articles of
incorporation, the company
commenced its liquidation and a new
corporation, Alhambra Industries, Inc.,
was formed to carry on the business
of Alhambra.
- On June 20, 1963, within
Alhambra’s three-year statutory
period for liquidation, Republic Act
3531 was enacted into law, amending
Section 18 of the Corporation Law to
the effect that domestic private
corporations were empowered to
extend their corporate life beyond the
period fixed by the articles of
incorporation for a term not to exceed
fifty (50) years in any one instance.
- Thereafter, Alhambra’s board of
directors amended their articles of
incorporation to extend its corporate
life for an additional fifty years.
- Alhambra’s stockholders,
representing more than two-thirds of
the company’s outstanding capital
stock, voted to approve the resolution.
- The amended articles of
incorporation were file with the
Securities and Exchange Commission
(SEC) which rejected the same as it
averred that Alhambra could not avail
of RA 3531 as its term of existence
had already expired when the law
took effect; in short, said law had no
retroactive effect.
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
ISSUE/S HELD
- Whether or not - NO. When Alhambra made its
Alhambra could attempt to extend its corporate
extend the term of existence, its original term of fifty
its corporate hyears had already expired; it was in
existence pursuant the midst of the three-year grace
to RA 3531. period for liquidation.
- As provided in Section 77 of the
Corporation Law, continuance of a
“dissolved” corporation as a body
corporate for three years has for its
purpose the final closure of its affairs,
and no other; the corporation is
specifically enjoined from “continuing
the business for which it was
established.”
- Liquidation of the corporation’s
affairs had become necessary
precisely because its life had ended,
hence, the corporate existence and
juridical personality of that
corporation to do business may no
longer be extended.
- The moment a corporation’s right
to exist as an “artificial person”
ceases, its corporate powers are
terminated “just as the powers of a
natural person to take part in
mundane affairs cease to exist upon
his death”; there is nothing left but to
conduct, as it were, the settlement of
the estate of a deceased juridical
person.
- Under Section 77, no corporation
in a state of liquidation can act in any
way, much less amend its articles, “for
the purpose of continuing the
business for which it was established.”
- Nowhere in RA 3531 could be
found the word “renew” in reference
to the authority given to corporations
to protract their lives; the law limits
DOCTRINE
- Sec. 37, Corporation
Code – A private
corporation may extend or
shorten its term as stated
in the articles of
incorporation when
approved by a majority
vote of the board of
directors or trustees and
ratified at a meeting by the
stockholders representing
at least two-thirds (2/3) of
the outstanding capital
stock or by at least two-
thirds (2/3) of the members
in case of non-stock
corporations.
- As provided in Section
77 of the Corporation Law,
continuance of a
“dissolved” corporation as
a body corporate for three
years has for its purpose
the final closure of its
affairs, and no other; the
corporation is specifically
enjoined from “continuing
the business for which it
was established.”
- To renew a charter is
to revive a charter which
has expired, or, in other
words, ‘to give a new
existence to one which has
been forfeited, or which
has lost its vitality by lapse
of time’.
- To extend a charter is
‘to increase the time for
the existence of one which
would otherwise reach its
4
 itself to extension of corporate limit at an earlier period.
existence; as such extension may be
made only before the term provided in
the corporate charter expires.
- Allowing Alhambra to extend its
corporate existence in view of he
circumstances would open the gates
for all defunct corporations – whose
charters have expired even long
before RA 3531 came into being – to
resuscitate their corporate existence.
- At the time of the passage of RA
3531, Alhambra’s corporate life had
already expired. It had overstepped
the limits of its limited existence; no
life there is to prolong.
- With the creation of Alhambra
Industries, Inc., the word Alhambra,
the name that counts (it has goodwill),
remains.

Section 38
TITLE FACTS
Phil. Trust v. - Cooperativa Naval Filipina was
Rivera duly incorporated under the laws of
the Philippine Islands, with a capital of
P100,000, divided into one thousand
shares of a par value of P100 each.
Among the incorporators of this
company was Mariano Rivera, who
subscribed for 450 shares
representing a value of P45,000, the
remainder of the stock being taken by
other persons.
- The articles of incorporation were
duly registered in the Bureau of
Commerce and Industry on October
30 of the same year.
- In the course of time the
company became insolvent and went
into the hands of the Philippine Trust
Company, as assignee in bankruptcy;
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
ISSUE/S HELD
- Whether or not the - YES. The resolution releasing the
resolution was ineffectual shareholders from their obligation to
pay 50 per centum of their respective
subscriptions was an attempted
withdrawal of so much capital from
the fund upon which the company's
creditors were entitled ultimately to
rely and, having been effected without
compliance with the statutory
requirements, was wholly ineffectual.
DOCTRINE
- It is established
doctrine that subscription
to the capital of a
corporation constitute a
find to which creditors
have a right to look for
satisfaction of their claims
and that the assignee in
insolvency can maintain an
action upon any unpaid
stock subscription in order
to realize assets for the
payment of its debts.
- A corporation has no
power to release an
original subscriber to its
capital stock from the
obligation of paying for his
shares, without a valuable
5
 and by it this action was instituted to consideration for such
recover one-half of the stock release; and as against
subscription of Rivera , which creditors a reduction of the
admittedly has never been paid. capital stock can take
- The reason given for the failure place only in the manner
of the Rivera to pay the entire an under the conditions
subscription is, that not long after the prescribed by the statute
Cooperativa Naval Filipina had been or the charter or the
incorporated, a meeting of its articles of incorporation.
stockholders occurred, at which a Moreover, strict
resolution was adopted to the effect compliance with the
that the capital should be reduced by statutory regulations is
50 per centum and the subscribers necessary.
released from the obligation to pay
any unpaid balance of their
subscription in excess of 50 per
centum of the same. As a result of this
resolution it seems to have been
supposed that the subscription of the
various shareholders had been
cancelled to the extent stated; and
fully paid certificate were issued to
each shareholders for one-half of his
subscription.
- It does not appear that the
formalities prescribed in section 17 of
the Corporation Law, as amended,
relative to the reduction of capital
stock in corporations were observed,
and in particular it does not appear
that any certificate was at any time
filed in the Bureau of Commerce and
Industry, showing such reduction.
Madrigal & Co. - Petitioner was engaged in the mgmt. of - WON the NLRC - No. As a general rule, findings of - Section 38 of the
v. Zamora Rizal Cement Co., Inc. In fact, the 2 are sister was incorrect with its administrative agencies are accorded not only corporation code talks about the
companies because both are owned by the same findings. respect but even finality. In no way can the power of the corporation to
or practically the same stockholders. questioned decisions be seen as arbitrary. The increase or decrease capital stock
- Respondent Zamora of the Madrigal decisions themselves show why. or create or increase bonded
Central Office Employees Union sought for the - There was no substantial compliance with indebtedness. For such to happen,
renewal of its CBA with petitioner; but the latter the clearance requirement to terminate. The it needs the vote of the majority of
requested for a deferment in the negotiations. letter was unverified, not even a single the Board, approved by 2/3 of
- Then, petitioner on 2 several occasions document submitted in support thereof, the outstanding stock or members and

alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 6
 had its capitalization reduced from 765,000 to
267,366 to 110,085 shares by effecting
distribution of marketable securities owned by
petitioner to its stockholders in exchange for
their shares in an equivalent amount in the
corporation.
- After the failure of the petitioner to sit
down with respondent union, the latter
commenced with the NLRC a complaint for
ULP, but petitioner filed its position paper
alleging operational losses; the Rizal had ceased
operating temporarily; that because of the desire
of stockholders to phase out the operations of
Madrigal it has effected reduction in
capitalization, and had turned to retrenching
employees for reorganization. They then asked
that they may be allowed to effect
reorganization gradually.
- The letter however was not verified
neither was it accompanied by the proper
supporting documents thus DOLE took no
action.
- Labor Arbiter then rendered a decision
granting a general wage increase plus a monthly
living allowance in favor of the employees.
- Petitioner then applied for clearance to
terminate a number of employees but this was
denied. Also, the other case was affirmed by the
NLRC.
- Hence this appeal
Section 39
TITLE FACTS
Benito v. SEC - Jamiatul Philippine Al Islamia Inc.
had an authorized capital stock of
P200,000.00 divided into 20,000
shares at par value of P10.00. 8,058
shares were fully paid for. Benito
subscribed to 460 shares.
- In 1975, the corporation filed a
certificate of increase of its capital
stock from P200,000.00 to
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
same failed to specify the individual employees approved by the SEC.
to be affected by the intended retrenchment. It - In the case at bar, petitioner,
was not clear. wanting to evade the pains of
- That’s why it was correctly concluded dealing with union’s asking for
that the letter was insufficient in form and wage and benefits increase,
substance to constitute a valid compliance with decided to reduce its capital stock
the clearance requirement. to make it appear that they were
- What clearly emerges from the recorded operating at a loss though in
facts is that the petitioner, awash with profits its reality they weren’t.
business operations but confronted with the
demand of the union for wage increases,
decided to evade its responsibility towards the
employees by a devised capital reduction.
- While the reduction in capital stock
created an apparent need for retrenchment, it
was, by all indications just a mask for the purge
of union members, who, by then, had agitated
for wage increases.
- Therefore the petitions are dismissed.
Findings of LA affirmed.
ISSUE/S HELD DOCTRINE
- Whether or not - NO. The power to issue shares of -
a stockholders’ stocks in the corporation is lodged in
meeting is the BOD and no stockholders’ meeting
necessary for the is necessary to consider it because
issuance of the additional issuance of shares of stock
unsubscribed does not need the approval of the
portion of the stockholders.
capital stock - The by-laws of the corporation
itself states that “the Board of
7
 P1,000,000.00. It was shown in the
certificate that P191,560.00 worth of
shares were represented.
- Thus, P110,980.00 worth of
shares were subsequently issued by
the corporation from the unissued
portion of the authorized capital stock
of P200,000.00. Of the increased
capital stock of P1,000,000.00,
P160,000.00 worth of shares were
subscribed by Ramos, Lucman and
Alonto.
- Benito filed a petition with the
SEC praying that the additional issue
of shares of previously authorized
capital stock as well as the shares
issued from the increase of capital
stock be cancelled on the following
grounds:
- the stockholders were not
notified of the meeting wherein
the proposed increase was in the
agenda
- the additional issue of
previously subscribed shares was
made in violation of his pre-
emptive right to said additional
issue
Section 40
TITLE FACTS
Islamic - The Islamic Directorate of the Philippines
Directorate v. (IDP) is composed of all major tribal groups in
CA the Phils.
- When martial law was declared, most of
the members of the Board of Trustees went into
hiding to escape political persecution.
- Thereafter, 2 Muslim groups sprung – the
Carpizo group and the Tamano group. Both
claim to be the legitimate IDP.
- In a suit between them, however, the SEC
declared that neither of them are IDP board
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
Trustees shall, in accordance with law,
provide for the issue and transfer of
shares of stock of the Institute and
- Whether or not shall prescribe the form of the
a stockholder enjoys certificate of stock of the Institute”.
pre-emptive right to - NO. The general rule is that the
buy unissued shares pre-emptive right is recognized only
of originally with respect to new issue of shares,
authorized capital and not with respect to additional
stock. issues of originally authorized shares.
- This is on the theory that when a
corporation at its inception offers its
first shares, it is presumed to have
offered all of those which it is
authorized to issue. An original
subscriber is deemed to have taken
his shares knowing that they form a
definite proportionate part of the
whole number of authorized shares.
- When the shares left
unsubscribed are later reoffered, he
cannot therefore claim a dilution of
interest.
ISSUE/S HELD DOCTRINE
- W/N the contract - NO.
of sale entered into - The Corporation Code provides that for
between the Carpizo the sale to be valid, the majority vote of the
group and INC is valid legitimate Board of Members/Trustees must be
obtained and concurred in by the vote of at least
2/3 of the bona fide members of the corporation.
- Since the SC had earlier ruled that the
election of the Carpizo group as board members
is null and void, the latter is bereft of any
authority to bind the IDP in any kind of
transaction.
8
 members and further ordered the election of a
new board members.
- Without having been elected as Board
Members, the Carpizo group sold a parcel of
land owned by the IDP to the Iglesia ni Cristo
(INC).
- The IDP now seeks to have the contract
of sale declared null and void because the
Carpizo group is bereft of any authority to bind
IDP in any kind of transaction.
Edward Nell v. - Nell Company sued Insular Farms - Whether or not - SC held that it is not liable - Generally where a
Pacific Farms for the unpaid balance of the Pacific Farms is because: corporation sells or
purchase price of the pump that it liable to Nell - The sale was not entered into to otherwise transfers all of
sold to the latter. After the writ of Company. defraud Nell because the sale its assets to another
execution was returned unsatisfied happened 1 month before the filing of corporation, the latter is
because the Insular Farms has no the case. not liable for the debts and
leviable property, Nell Company sued - Pacific purchased the shares as liabilities of the transferor,
against Pacific Farms to claim the the highest bidder at an auction sale except:
amount upon the theory that the held at the instance of bank to which 1. Where the purchaser
latter company is an alter ego of the shares were pledged. expressly or impliedly
Insular Farms. - Pacific paid for the shares agrees to assume such
- Pacific Farms bought 1,000 separately from the subsequent sale debts,
shares of Insular and then sold them of assets. 2. Where the transaction
to a group of individuals who - No consolidation or merger amounts to a
reorganized the corporation, then the because the allegations of being an consolidation or merger
BOD sold the reorganized company alter ego clearly negates such. of the corporation,
and all of its assets to Nell for 10,000. - The inadequacy of the P10,000 is 3. Where the purchasing
untenable because the sale was corporation is merely a
approved by the SEC, hence, price continuation of the
was fair and reasonable. selling corporation,
4. Where the transaction is
entered into fraudulently
in order to escape
liability for such debts.

Section 41
TITLE FACTS ISSUE/S HELD DOCTRINE
Steinberg v. - Steinberg is the receiver of the - Whether - NO. In this issue, the SC held that - See Section 41
Velasco Sibuguey Trading Company. Sibuguey could the directors did not act in good faith - The creditors of a
- It is alleged that the defendants legally purchase its or that they were grossly ignorant of corporation have the right
(president, vice president, secretary- own stock. (Sec. their duties. to assume that so long as
treasurer and director), at a meeting, 41) - It appeared that the action of the there are debts and
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 9
 approved and authorized various
unlawful purchases already made of a
large portion of the capital stock of
Sibuguey from its various
stockholders, thereby diverting its
funds to the injury, damage, and in
fraud of the creditors of the
corporation. (Sec. 41 applicable)
- That when the capital stock
amounting to Php 3,300 was
purchased, Sibuguey had accounts
payable to about Php 14K.
- As another cause of action, it is
also alleged that the officers and
directors of the corporation approved
a resolution for the payment of Php 3K
dividends to its stockholders when
during that time Sibuguey had
accounts payable of about Php 9K.
(Sec. 43 applicable)
- Steinberg prayed that the
defendants be liable for the amount of
the capital stock purchased and the
amount of the dividends paid.
- The lower court dismissed the
complained and rendered judgment in
favor of the defendants.
Section 42
TITLE FACTS
De la Rama v. - This case was filed by four minority
Ma-ao Sugar stockholders against the Ma-ao Sugar
Central Co., Central and four of its directors.
Inc. - It is alleged that Ma-ao Sugar Central,
through its President (Araneta),
subscribed for Php 300K worth of
capital stock of the Philippine Fiber
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
board in purchasing the stock and in
declaring dividends was all done at
the same meeting of the board of
directors. At that time, Ganzon and
Mendaros were formally directors and
resigned before the board approved
the purchase and declared dividends.
- In other words, they were
permitted to resign so that they could
sell their stock to the corporation.
- Whether the - NO. It seemed that the board of
Board of Directors of directors acted on the assumption
Sibuguey could that, because it appeared from the
legally declare a books that it had accounts receivable,
dividend. (Sec. 43) therefore it had a surplus over and
above its debts and liabilities.
- However, the SC noted that there
was no stipulation as to the actual
cash value of those accounts. Thus,
that in the purchase of its own stock
and in declaring dividends, the real
assets of the corporation were
diminished by Php 6,300.
- In other words, the corporation
did not have then an actual bona fide
surplus from which dividends could be
paid, and that eh payment of them in
full at that time would “affect the
financial condition of the corporation.”
- The SC reversed the decision of
the lower court and held the
defendants liable.
ISSUE/S HELD
- Whether the - NO. The SC agreed with the finding of
investment of the the lower court that the investment in
corporate funds by question does not fall under the
Ma-ao in Philippine purview of the Section 17 ½ of the
Fiber constitutes a Corporation Law.
violation of the - The SC quoted Prof. Guevara in
Corporation Law. explaining the said provision. “Such
liabilities, the board of
directors of the corporation
will not use its assets to
purchase its own stock or
to declare dividends to its
stockholders when the
corporation is insolvent.
- If the directors of a
corporation do acts clearly
beyond their power, by
reason of which a loss
ensued, or dispose of its
property without authority,
they will be required to
make good the loss out of
their private estate.
DOCTRINE
- An investment of corporate
funds in another
corporation, if done in
pursuance of the corporate
purpose, does not need the
approval of the
stockholders.
10
 Processing Co.
- At that at the time the first two
payments were made, there was no
board resolution authorizing such
investment. It was only a few months
after that Araneta was authorized by
the Board of Directors.
- It was also alleged that 355,000
shares of stock of Philippine Fiber,
owned by Luzon Industrial, were
transferred to Ma-ao without prior
board resolution. Such transfer
however was subsequently approved.
- The lower court held that the
investment of corporate funds was not
a violation of the Corporation Law. It
considered the defendants correct in
contending that since the company
was engaged in the manufacture of
sugar bags it was legitimate for Ma-ao
to either manufacture sugar bags or
invest in another corporation engaged
in said manufacture.
- However, the lower court ordered Ma-
ao to refrain from making investments
in any other companied whose
purpose is not connected with sugar
central business.
Gokongwei v. - Gokongwei Jr. is a stockholder of San
SEC Miguel Corporation (SMC). He seeks to
have the court nullify the amended
by-laws which disqualifies any person
for nomination or election to the
Board of Directors (BOD) if he is
engaged in any business whose
interests are adverse to the SMC.
- It was enacted by the majority of the
BOD.
- Gokongwei is also owner/stockholder
of Universal Robina Corp. and CFC.
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
an act, if done in pursuance of the
corporate purpose, does not need the
approval of the stockholders. But
when the purchase of shares of
another corporation is done solely for
investment and not to accomplish the
purpose of its incorporation, the vote
of approval of the stockholders is
necessary.”
- Also, “when the investment is
necessary to accomplish its purpose
or purposes as stated in the articles of
- Whether Ma-ao may incorporation, the approval of
make investments in stockholders is not necessary.
any other company - YES. The SC reversed the order of the
whose purpose is lower court refraining Ma-ao from
not connected with making investments in other company
the sugar central whose purpose not connected with
business. the sugar central business.
- It reasoned that the Corporation Law
allows a corporation to invest its funds
in any other corporation or business,
or for any purpose other than the
main purpose for which it was
organized, provided that its board of
directors has been so authorized by
the affirmative vote of stockholders
holding shares entitling them to
exercise at lease 2/3 of the voting
power.
- WON the transaction - NO. The law allows a corporation to
was invalid invest its funds in any other
corporation or business or for any
other purpose other than the main
purpose for which it was organized.
- The purchase of the beer
manufacturing facilities was in
furtherance of the corporate purpose
- WON the purchase and as such, no prior approval of the
was ultra vires stockholders was necessary.
- NO. The mere fact that SMC submitted
the investment for ratification at the
- But when the purchase of
shares of another
corporation is done solely
for investment and not to
accomplish the purpose of
its incorporation, the vote
of approval of the
stockholders is necessary.
- Further, when the purpose
is as stated in its articles of
incorporation, the approval
of the stockholders is not
necessary.
- The Corporation Law allows
a corporation to invest its
funds in any other
corporation or business, or
for any purpose other than
the main purpose for which
it was organized, provided
that its board of directors
has been so authorized by
the affirmative vote of
stockholders holding
shares entitling them to
exercise at lease 2/3 of the
voting power.
- If the investment is made
in the pursuance of the
corporate purpose, it does
not need the approval of
the stockholders.
- But when the purchase of
shares is done solely for
investment and not to
accomplish the purpose of
its incorporation, the vote
of approval of the
stockholders is needed. At
11
 Both businesses are engaged in annual meeting cannot be construed least 2/3 of the outstanding
agriculture, ice cream, coffee which as an admission that SMC committed stock is needed.
are also businesses engaged in by an ultra vires act.
SMC.
- As one of his causes of action,
Gokongwei, questions the investment
of SMC corporate funds without prior
authority of the stockholders.
- The transaction that he questions is
the purchase of beer manufacturing
facilities.
- This purchase was later ratified by the
stockholders.
Gokongwei v. - Petitioner seeks to nullify the en - WON the - NO. -
SEC (MR) banc decision of the SEC upholding petition for review - SC already ruled on the validity
the findings of the San Miguel should be granted of the by-laws and such cannot be re-
Corporation (SMC) BOD that litigated being the law of the case.
Gokongwei is engaged in a business - The alleged disqualification of
competitive to that of SMC. some of the board members was not
- Thus, he is ineligible to run for an issue during the hearing; nor has
election as director, pursuant to the petitioner submitted evidence to
by-laws. prove this contention.
- Petitioner contends that the - The basis of the SEC’s order was
matter of his disqualification has not based on several testimonial evidence
yet been heard since an MR is pending as well as documentary evidence
before the SC. submitted showing that petitioner is
- According to the petitioner, SEC engaged in agricultural and poultry
failed to consider that SMC cannot business competitive with that of
disqualify Gokongwei because they SMC. No evidence was offered by the
were in pari delicto since some of the petitioner to rebut such evidence.
board members were also disqualified
being similarly situated like the
petitioner.
- Also, petitioner claims that the
BOD of SMC over exerted its corporate
power for them to remain in position.

Section 43
TITLE FACTS ISSUE/S HELD DOCTRINE
Nielson & Co. - Nielson & Company entered into - Whether or not - The SC overruled its earlier - “No corporation shall
v. Lepanto a management contract with Lepanto, Nielson should be decision, issue stocks or bond
Consolidated where Nielson was given the right for entitled to P300,000 - It is recognized that stocks can except in exchange for
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 12
 five years (renewable for the same
period) to develop and operate the
mining claims of Lepanto.
- Said contract was modified and
one of the contested provisions of
which is that which grants Nielson as
compensation for its services “10% of
any dividends declared and paid.”
- The SC ruled before that the
import of this provision is that Nielson
will be given 10% of what is actually
going to be declared and distributed
as dividends by Lepanto.
- Thus, since Lepanto declared a
total of P3M of dividends during the
period of extension of the contract,
the SC ordered Lepanto to grant
P300,000 worth of its stocks to
Nielson.
- Lepanto contests this judgment
primarily because such provision, as
alleged, is contrary to the Corporation
Code.
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
worth of stocks as be issued in exchange of cash,
compensation for its property or as undistributed profits.
services. - The Supreme Court then
distinguished the legal implications of
issuing stocks as dividends and
issuing of stocks in exchange for cash
or property.
- On the one hand, issuing stocks
in payment of services is considered
as to be one in exchange of property
since services are deemed as
property.
- And the Court enunciated that
issuance of stocks in exchange of cash
or property is culled from the original
capitalization of the company or from
the increased capitalization. They are
done in order to generate capital.
Thus, they can be issued to persons
not yet stockholders of the company.
- This is not however the case with
stock dividends. A dividend is defined
as the portion of the profits of the
enterprise which the corporation sets
apart for ratable division among the
holders of the capital stock.
- From this definition, it can be
easily gleaned that stocks issued as
dividend can only be issued to
existing stockholders, since they are
the only ones entitled to a
proportional share in that part of the
surplus which is declared as
dividends.
- From this conclusion, it is not
right to give Nielson a corresponding
10% of the stocks dividend declared
since this amounts to issuance of
stocks to someone not yet a
stockholder.
- Furthermore, since dividends are
distributed ratably, issuance of stock
actual cash paid to the
corporation or for
property actually
received by it…or for
profits earned by it but
not distributed among its
stockholders or members.”
- Stocks issued in
exchange for cash or
property are issued for
capital generation and can
be issued to a non-
stockholder.
- Stock dividends
should be considered as 1.)
a dividend, and 2.) an
enforced use of the
dividend money to
purchase additional shares
at par.
- A dividend is defined
as the portion of the profits
of the enterprise which the
corporation sets apart for
ratable division among the
holders of the capital
stock.
- As such, stock
dividends can only be
granted to existing
stockholders in proportion
to their shares.
13

Steinberg v. - Steinberg is the receiver of the
Velasco Sibuguey Trading Company.
- It is alleged that the defendants
(president, vice president, secretary-
treasurer and director), at a meeting,
approved and authorized various
unlawful purchases already made of a
large portion of the capital stock of
Sibuguey from its various
stockholders, thereby diverting its
funds to the injury, damage, and in
fraud of the creditors of the
corporation. (Sec. 41 applicable)
- That when the capital stock
amounting to Php 3,300 was
purchased, Sibuguey had accounts
payable to about Php 14K.
- As another cause of action, it is
also alleged that the officers and
directors of the corporation approved
a resolution for the payment of Php 3K
dividends to its stockholders when
during that time Sibuguey had
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
dividends to Lepanto in payment of
his compensation will deprive other
stockholders to their rightful share of
the profits.
- Finally, The Court also looked
upon the minutes held by both parties
to interpret the contested provision of
the contract. It was seen that the
intention was only to tie the
computation of Nielson’s
compensation with 10% of the
declared dividends, in what form they
might be. The dividend is only the
basis but not the source for such
payment.
- As such, the SC modified its
ruling entitling Nielson with P300,000
in cash and 6% legal interest of such
amount.
- Whether - NO. In this issue, the SC held that - See Section 43
Sibuguey could the directors did not act in good faith - The creditors of a
legally purchase its or that they were grossly ignorant of corporation have the right
own stock. (Sec. their duties. to assume that so long as
41) - It appeared that the action of the there are debts and
board in purchasing the stock and in liabilities, the board of
declaring dividends was all done at directors of the corporation
the same meeting of the board of will not use its assets to
directors. At that time, Ganzon and purchase its own stock or
Mendaros were formally directors and to declare dividends to its
resigned before the board approved stockholders when the
the purchase and declared dividends. corporation is insolvent.
- In other words, they were - If the directors of a
permitted to resign so that they could corporation do acts clearly
sell their stock to the corporation. beyond their power, by
- Whether the - NO. It seemed that the board of reason of which a loss
Board of Directors of directors acted on the assumption ensued, or dispose of its
Sibuguey could that, because it appeared from the property without authority,
legally declare a books that it had accounts receivable, they will be required to
dividend. (Sec. 43) therefore it had a surplus over and make good the loss out of
above its debts and liabilities. their private estate.
- However, the SC noted that there
was no stipulation as to the actual
14
 accounts payable of about Php 9K.
(Sec. 43 applicable)
- Steinberg prayed that the
defendants be liable for the amount of
the capital stock purchased and the
amount of the dividends paid.
- The lower court dismissed the
complained and rendered judgment in
favor of the defendants.
Section 45
TITLE FACTS
Pirovano v. - Enrico Pirovano was executed by
dela Rama the Japanese.
- The Board of Directors of De la
Rama Steamship Co., composed
chiefly of members of the De la Rama
family, adopted a resolution donating
the proceeds of the life insurance
policies of said Enrico Pirovano,
husband of Estefania de la Rama, to
his minor children.
- The donation was made in
recognition of Pirovano’s contribution
to the great success of the company
when he was president and general
manager thereof.
- It was earlier resolved that
P400,000 worth of shares, or 4,000
shares with a par value of P100 per
share, will be issued in favor of
Pirovano’s children where each of the
four children will get 1,000 shares.
- However, this was later nullified
upon showing by Lourdes de la Rama,
wife of Sergio Osmeña, Jr., that the
value of the stocks then was 3.6 times
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
cash value of those accounts. Thus,
that in the purchase of its own stock
and in declaring dividends, the real
assets of the corporation were
diminished by Php 6,300.
- In other words, the corporation
did not have then an actual bona fide
surplus from which dividends could be
paid, and that eh payment of them in
full at that time would “affect the
financial condition of the corporation.”
- The SC reversed the decision of
the lower court and held the
defendants liable.
ISSUE/S HELD
- Whether or not - NO. A review of the corporation’s
the corporation’s articles of incorporation manifested
donation was ultra that the corporation had broad powers
vires and therefore to: a) deal with the moneys of the
invalid. company not immediately required, in
such manner as from time to time
may be determined; and b) to aid in
any other manner any person,
association, or corporation of which
any obligation of in which any interest
is held by this corporation or in the
affairs or prosperity of which this
corporation has a lawful interest.
- Under the first power, the word
deal is broad enough to include any
manner of disposition, and refers to
moneys not immediately required by
the corporation, and such disposition
may be made in such manner as from
time to time may be determined by
the corporation.
- The donation in question is within
the scope of said broad power for it is
a fact appearing in the evidence that
the insurance proceeds were not
DOCTRINE
- With respect to the
meaning, extent, and
scope of an ultra vires act,
many authorities are
uniform and unanimous
that the same may be
either an act performed
merely outside the scope
of the powers granted to
corporation by its articles
of incorporation, or one
which is contrary to law or
violative of any principle
which would void any
contract whether done
individually or collectively.
- Illegal corporate acts
contemplate the doing of
an act contrary to law,
morals, or public order, etc.
and are void.
- Mere ultra vires acts
which are not illegal or void
ab initio but are not merely
within the scope of the
15
 their par value, thus P1.44 million was immediately required when they were articles of incorporation,
the amount in fact donated. given away. are merely voidable and
- Another resolution was adopted - Under the second broad power, may become binding and
whereby the company renounced its the record of the case is replete with enforceable when ratified
rights to the proceeds of the life instances which clearly show that the by the stockholders.
insurance policies but were retained corporation knew well its scope and - (As deduced) ultra
as a loan drawing interest payable meaning as many similar donations vires acts are valid when
after its National Development Co. were made to former employees and they are approved by the
obligation shall have been settled. even non-employees by reason of Board and ratified by the
- A New York property owned by certain moral or political stockholders. They are not
Demwood Realty, upon approval by considerations. merely executory but
the Board of Directors, was purchased - An issue could be raised as to the executed and
by Mrs. Pirovino from the proceeds of size of the donation but aside from consummated, and no
the insurance policies. being similar to the past donations, creditors are prejudiced, or
- The latter resolution with some gratuities or pensions, the gratuity if there are creditors
clarifying modifications, including the here was given not merely motivated affected, the latter have
purchase of the New York property, by pure liberality but also by a deep expressly given their
was ratified by the stockholders sense of recognition of Enrico conformity.
- Sergio Osmeña, Jr. as the new Pirovano’s contributions to the
President and General Manager corporation.
challenged the validity of the donation - It is also to be considered that
with the SEC which decided that the Enrico Pirovano is a member of the de
act was void as being ultra vires la Rama family, having been married
because the corporation could not to one of the de la Rama scions.
dispose of its assets by gift. - Also, granting innuendo that the
- A measure was thus considered donation was ultra vires, the
to circumvent the prohibition by way resolution was adopted by the Board
of declaring cash dividends and asking of Directors and was later on ratified
the shareholders to donate the same by the stockholders, thus obliterating
to the minor children but did not any infirmity and making the act
materialize. perfectly valid and enforceable. The
- Majority of the stockholders corporation is thus now prevented or
thereafter revoked the donation. estopped from contesting the validity
- The minor children thus brought of the donation.
an action demanding payment of he - It is not contended that donation
credit due them. was illegal or contrary to any of the
express provisions of the articles of
incorporation, nor prejudicial to the
creditors of the corporation.
- To allow the corporation to
revoke the donation would not only be
unfair but would also contravene the

alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 16

Republic v. - Acoje Mining Company, Inc.
Acoje Mining wrote the Director of Posts requesting
the opening of a post, telegraph and
money order offices at its mining
camp at Sta. Cruz, Zambales, to
service its employees and their
families that were living in said camp.
- Acting on the request, the
Director of Posts wrote in reply stating
that if aside from free quarters the
company would provide for all
essential equipment and assign a
responsible employee to perform the
duties of a postmaster without
compensation from his office until
such time as funds therefor may be
available he would agree to put up the
offices requested.
- The company in turn replied
signifying its willingness to comply
with all the requirements outlined in
the letter of the Director of Posts
requesting at the same time that it be
furnished with the necessary forms for
the early establishment of a post
office branch.
- The Director of Posts again wrote
a letter to the company stating among
other things that "In cases where a
post office will be opened under
circumstances similar to the present,
it is the policy of this office to have
the company assume direct
responsibility for whatever pecuniary
loss may be suffered by the Bureau of
Posts by reason of any act of
dishonesty, carelessness or
negligence on the part of the
employee of the company who is
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
well-settled doctrine that the defense
of ultra vires cannot be set up or
availed of in completed transactions.
- WON the - NO. The contention that the
resolution is ultra vires resolution adopted by the board is
ultra vires in the sense that it has no
authority to act on a matter which
may render the company liable as a
guarantor has no factual or legal
basis. In the first place, it should be
noted that the opening of a post office
branch at the mining camp the
corporation was undertaken because
of a request submitted by it to
promote the convenience and benefit
of its employees. The idea did not
come from the government, and the
Director of Posts was prevailed upon
to agree to the request only after
studying the necessity for its
establishment and after imposing
upon the company certain
requirements intended to safeguard
and protect the interest of the
government.
- Thus, after the company had
signified its willingness to comply with
the requirement of the government
that it furnish free quarters and all the
essential equipment that may be
necessary for the operation of the
office including the assignment of an
employee who will perform the duties
of a postmaster, the Director of Posts
agreed to the opening of the post
office stating that "In cases where a
post office will be opened under
circumstances similar to the present,
it is the policy of this office to have
the company assume direct
responsibility for whatever pecuniary
loss may be suffered by the Bureau of
- The weight of
authority in the state
courts is to the effect that
a transaction which is
merely ultra vires and not
malum in se or malum
prohibitum, is, if performed
by one party, not void as
between the parties to all
intents and purposes, and
that an action may be
brought directly on the
transaction and relief had
according to its terms.
- This rule is based on
the consideration that as
between private
corporations, one party
cannot receive the benefits
which are embraced in
total performance of a
contract made with it by
another party and then set
up the invalidity of the
transaction as a defense."
- The defense of ultra
vires rests on violation of
trust or duty toward
stockholders, and should
not be entertained where
its allowance will do
greater wrong to innocent
parties dealing with
corporation.
- The acceptance of
benefits arising from the
performance by the other
party may give rise to an
estoppel precluding
17
 assigned to take charge of the post Posts by reason of any act of repudiation of the
office," thereby suggesting that a dishonesty, carelessness or transaction.
resolution be adopted by the board of negligence on the part of the - The current of modern
directors of the company expressing employee of the company who is authorities favors the rule
conformity to the above condition assigned to take charge of the post that where the ultra vires
relative to the responsibility to be office," and accepting this condition, transaction has been
assumed buy it in the event a post the company, thru its board of executed by the other
office branch is opened as requested. directors, adopted forthwith a party and the corporation
- The company informed the resolution of the following tenor: "That has received the benefit of
Director of Posts of the passage by its the requirement of the Bureau of Posts it, the law interposes an
board of directors of a resolution of that the company should accept full estoppel, and will not
the following tenor: "That the responsibility for all cash received by permit the validity of the
requirement of the Bureau of Posts the Postmaster, be complied with, and transaction or contract to
that the Company should accept full that a copy of this resolution be be questioned, and this is
responsibility for all cash received by forwarded to the Bureau of Posts." especially true where there
the Postmaster be complied with, and - The claim that the resolution is nothing in the
that a copy of this resolution be adopted by the board of directors of circumstances to put the
forwarded to the Bureau of Posts." appellant company is an ultra vires other party to the
- The letter further states that the act cannot also be entertained it transaction on notice that
company feels that that resolution appearing that the same covers a the corporation has
fulfills the last condition imposed by subject which concerns the benefit, exceeded its powers in
the Director of Posts and that, convenience and welfare of its entering into it and has in
therefore, it would request that an employees and their families. While as so doing overstepped the
inspector be sent to the camp for the a rule an ultra vires act is one line of corporate privileges.
purpose of acquainting the committed outside the object for
postmaster with the details of the which a corporation is created as
operation of the branch office. defined by the law of its organization
- The post office branch was and therefore beyond the powers
opened at the camp with Sanchez as conferred upon it by law, there are
postmaster. however certain corporate acts that
- The postmaster went on a three- may be performed outside of the
day leave but never returned. The scope of the powers expressly
company immediately informed the conferred if they are necessary to
officials of the Manila Post Office and promote the interest or welfare of the
the provincial auditor of Zambales of corporation. Thus, it has been held
Sanchez' disappearance with the that "although not expressly
result that the accounts of the authorized to do so a corporation may
postmaster were checked and a become a surety where the particular
shortage was found in the amount of transaction is reasonably necessary or
P13,867.24. proper to the conduct of its business,"
- The several demands made upon and here it is undisputed that the
the company for the payment of the establishment of the local post office

alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 18
 shortage in line with the liability it has
assumed having failed, the
government commenced the action
seeking to recover the amount of
Pl3,867.24. The company in its answer
denied liability for said amount
contending that the resolution of the
board of directors wherein it assumed
responsibility for the act of the
postmaster is ultra vires, and in any
event its liability under said resolution
is only that of a guarantor who
answers only after the exhaustion of
the properties of the principal, aside
from the fact that the loss claimed by
the plaintiff is not supported by the
office record.
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
is a reasonable and proper adjunct to
the conduct of the business of
appellant company. Indeed, such post
office is a vital improvement in the
living condition of its employees and
laborers who came to settle in its
mining camp which is far removed
from the postal facilities or means of
communication accorded to people
living in a city or municipality.
- Even assuming that the
resolution in question constitutes an
ultra vires act, the same however is
not void for it was approved not in
contravention of law, customs, public
order or public policy. The term ultra
vires should be distinguished from an
illegal act for the former is merely
voidable which may be enforced by
performance, ratification, or estoppel,
while the latter is void and cannot be
validated. It being merely voidable, an
ultra vires act can be enforced or
validated if there are equitable
grounds for taking such action. Here it
is fair that the resolution be upheld at
least on the ground of estoppel.
- Neither can we entertain the
claim of appellant that its liability is
only that of a guarantor. A mere
reading of the resolution of the Board
of Directors would show that the
responsibility of the defendant
company is not just that of a
guarantor. Notice that the phraseology
and the terms employed are so clear
and sweeping and that the defendant
assumed 'full responsibility for all cash
received by the Postmaster. Here the
responsibility of the defendant is not
just that of a guarantor. It is clearly
that of a principal.
19
Carlos v. - This is an action to recover the value of 4
Mindoro Sugar bonds issued by Mindanao Sugar Company and
placed in trust with the Philippine Trust
Company.
- Mindanao is a corporation incorporated
here in the Phils.
- On the other hand, Phil. Trust Company is
another domestic corporation with the principal
purpose is to engage in the trust business.
- On Nov. 17, 1917, the BOD’s of Phil.
Trust adopted a resolution authorizing its
president, among others, to purchase at par and
in the name and for the use of the trust
corporation all or such part as he may deem
expedient, of the bonds in the value of
P3,000,000 that Mindoro was about to issue,
and to resell them, with or without the guarantee
of said trust corporation, at a price not less than
par, and to guarantee to the PNB the payment of
the indebtedness to said bank by Mindoro up to
P2,000,000.
- Pursuant to this, Mindoro executed in
favor of Phil. Trust Co. the deed of trust,
transferring all of its property to it in
consideration of the bonds it had issued to the
value of P3,000,000
- Phil. Trust sold 13 bonds to a certain
Ramon Diaz at a net profit of P100 per bond.
The four bonds in dispute are included here.
- Phil. Trust paid appellant upon
presentation of the coupons the stipulated
interest until when it stopped payments when it
alleged that it did not deem itself bound to pay
such interest or to redeem the obligation
because the guarantee given for the bonds was
illegal and void.
- Hence this appeal by the appellant.
Japanese War - Abcede, President of JWNCAI , a
Notes v. SEC non-stock non profit corporation, was
issued an order to show cause why it
should not be proceeded against for:
- 1) making misrepresentations to
the public about the need for
alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06
- WON, the lower - Yes. Phil. Trust although secondarily
court erred in saying that engaged in banking, was primarily organized as
the Phil. Trust Co. has no a trust corporation with full power to acquire
power to guarantee the personal property such as the bonds in question
obligation of another according to the Corporation Law.
juridical personality, for - Thus, being authorized to acquire the
value received. bonds, it was given implied power to guarantee
them in order to place them upon the market
under better, more advantageous conditions, and
thereby secure the profit derived from their sale.
- A corporation which has power by its
charter to issue its own bonds has power to
guarantee the bonds of another corporation,
which has been taken in payment of its own
debt, the guaranty being given to enable it to
dispose of the bond to better advantage,
- And so, guarantee of payment of bonds
taken by a loan and trust company in the
ordinary course of its business, made in
connection with their sale, are not ultra vires,
and are binding.
- Also, although it is not clear that Mindoro
transferred the bonds to Phil. Trust,
nevertheless, the president of Phil. Trust was
expressly authorized to purchase all or some of
the bonds and to guarantee them.
- There are other considerations leading to
the same conclusion that Phil. Trust didn’t
acquire the bonds but just guaranteed them.
- In such a case, the guarantee would be
valid and Phil. Trust would be bound to pay the
Carlos their value with the accrued interest.
- Whether or nor - NO.
JWNCAI had the - Under its articles of
right to continue Incorporation, JWNCAI is a non-profit
with the corporation. Thus, it must not engage
abovementioned in business for profit.
activities. - JWNCAI has the privilege to work
- “It is not, however ultra-
vires for a corporation to enter
into contracts of guaranty or
suretyship where it does so in the
legitimate furtherance of its
purposes and business. And it is
well settled that where a
corporation acquires commercial
paper or bonds in the legitimate
transaction of its business it may
sell them, and in furtherance of
such a sale it may, in order to
make them the more readily
marketable indorse or guarantee
their payment.
- “When a contract is not on
its face necessarily beyond the
scope of the power of the
corporation by which it was made,
it will, in the absence of proof to
the contrary, be presumed valid.
Corporations are presumed to
contract within their powers. The
doctrine of ultra vires, when
invoked for or against a
corporation, should not be
allowed to prevail where it would
defeat the ends of justice or work
as a legal wrong.”
20
 registering and depositing Japanese for the redemption of war notes of its
war notes, with a view to their members alone, but it cannot offer its
possible redemption; services to the public for a
- 2) receiving deposits of such consideration.
notes and charging fees therefor; - As to the third activity, SC held
- 3) accepting and collecting fees that it has no relation to the avowed
for reparation claims for civilian purpose of the corporation.
casualties and other injuries.
- -Abcede claims that these acts
are not prohibited by the Corporation
Law, and the corporation’s authority
to engage in such acts is implied from
its Articles of Incorporation.
Crisologo-Jose - This is a case for the violation of - W/N Benares - Yes. - Ultra vires acts done
v. CA BP22. and Santos are - The law provides that an officer by agents of the
- Atty. Benares and Ricardo Santos personally liable for or an agent of a corporation shall corporation cannot be
are the signatories of the check in the check issued have the power to execute or indorse enforced against the
question. They are the president and under the account of a negotiable paper in the name of the corporation even if made in
vice-president, respectively, of Mover Mover Enterprises corporation for the accommodation of the name of the latter.
Enterprises. The check was under the a third person only if he is specifically
account of Mover Enterprises and authorized to do so. Absent such
drawn against Traders Royal Bank. authority, such act is ultra vires.
- Benares and Santos issued a Hence, it cannot be enforced against
check to Ernestina Crisologo-Jose as the corporation but only against the
consideration for her waiver over a signatories thereof who shall be
certain property w/c the GSIS agreed personally liable thereofr.
to sell to their client, spouses Ong, w/ -
the understanding that upon approval
of the GSIS of the compromise
agreement, the check will be
encashed accordingly. Since the
agreement was not approved within
the expected time, it was replaced.
Upon deposit, however, said check
was dishonored for insufficiency of
funds. Thus, this case for violation of
BP 22 fiels by Crisologo-Jose against
Benares and Santos.
- Benares and Santos contends
that the check was issued for
accommodation purposes by Mover
Enterprises and they merely signed it

alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 21
 in a representative capacity. Hence,
they are not liable.

alvin, cecille, cj, dianne, irish, julie, lea, mars, nina, ryan / ateneo law / 2C ’05-’06 22