C.

DIVIDENDS AND OTHER DISTRIBUTIONS

RIGHT TO DIVIDENDS (SEC 42)
1. TYPES OF DIVIDENDS AND OTHER DISTRIBUTIONS
CASE:
NIELSON & CO. VS LEPANTO CONSOLIDATED
FACTS:

On January 30, 1937, the parties have entered into an operating agreement wherein Nielson & Co. would operate and
manage the mining properties owned by Lepanto Consolidated Mining Co. for a period of five years. Before the lapse of the five
year period, the parties have renewed the contract for another five years with modifications made by Lepanto on the
management fee.

On its modified contract Nielson will receive (1) 10% of the dividends declared and paid, when and as paid during the
period of the contract and at the end of each year, (2) 10% of any depletion reserve that may set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital account.

In January, 1942 operation of the mining properties was disrupted on account of the war. The Japanese forces thereafter
occupied the mining properties, operated the mines during the continuance of the war, and who were ousted from the mining
properties only in August of 1945.

After the mining properties were liberated from the Japanese forces, Lepanto took possession thereof and embarked in
rebuilding and reconstructing the mines and mill. The restoration lasted for nearly three years and the mines have resumed its
operation under the exclusive management of Lepanto.

Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between NIELSON and
LEPANTO over the status of the operating contract in question which as renewed expired in 1947.

ISSUE: Whether or not Nielson is entitled to his share in the stock dividends.

HELD:

Stock dividends cannot be issued to a person who is not a stockholder in payment of services rendered.

Section 16 of the Corporation Law, in part, provides a follows:

No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for circulation as
money, and no corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for: (1)
property actually received by it at a fair valuation equal to the par or issued value of the stock or bonds so issued; and in case
of disagreement as to their value, the same shall be presumed to be the assessed value or the value appearing in invoices or
other commercial documents, as the case may be; and the burden or proof that the real present value of the property is greater
than the assessed value or value appearing in invoices or other commercial documents, as the case may be, shall be upon the
corporation, or for (2) profits earned by it but not distributed among its stockholders or members; Provided, however, That no
stock or bond dividend shall be issued without the approval of stockholders representing not less than two-thirds of all stock
then outstanding and entitled to vote at a general meeting of the corporation or at a special meeting duly called for the
purpose.

In the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for
services it rendered under the management contract. We sustain the contention of Lepanto that the understanding between
Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining the
amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends
declared. In other words, Nielson must still be paid his 10% fee using as the basis for computation the cash value of the stock
dividends declared.

Moreover, from the above-quoted provision of Section 16 of the Corporation Law, the consideration for which shares of
stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name “stock
dividends” only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property
then those shares do not fall under the category of “stock dividends”. A corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock
issued to pay for services rendered is equivalent to a stock issued in exchange of property, because services is equivalent to
property.14 Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for cash.
But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or part of
the stocks issued when the increase of the capitalization of a corporation is properly authorized. In other words, it is the
shares of stock that are originally issued by the corporation and forming part of the capital that can be exchanged for cash or
services rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming
from the original capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is
not a stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property. But a share
of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation.

A “stock dividend” is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend.

So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase
additional shares of stock at par.16 When a corporation issues stock dividends, it shows that the corporation’s accumulated
profits have been capitalized instead of distributed to the stockholders or retained as surplus available for distribution, in
money or kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends rather to postpone
said realization, in that the fund represented by the new stock has been transferred from surplus to assets and no longer
available for actual distribution.17 Thus, it is apparent that stock dividends are issued only to stockholders. This is so because
only stockholders are entitled to dividends. They are the only ones who have a right to a proportional share in that part of the
surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder; the
proportional interest of each stockholder remains the same.18If a stockholder is deprived of his stock dividends – and this
happens if the shares of stock forming part of the stock dividends are issued to a non-stockholder — then the proportion of the
stockholder’s interest changes radically. Stock dividends are civil fruits of the original investment, and to the owners of the
shares belong the civil fruits.

2. LEGAL RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS

CASE:
REPUBLIC PLANTERS VS HON. AGANA
Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the
Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal
tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money
and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per
share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos F.
Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights,
preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and
participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from
the date of issue at the option of the Corporation." On 31 January 1979, RFRDC and Robes proceeded against the Bank and
filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the
bank redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to Dismiss 3 private
respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the
action; (2) that the action was unenforceable under substantive law; and (3) that the action was barred by the statute of
limitations and/or laches. The bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. The
bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit
their respective memoranda after the submission of which the case would be deemed submitted for resolution. On 7
September 1979, the trial court rendered the decision in favor of RFRDC and Robes; ordering the bank to pay RFRDC and
Robes the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment. The
bank filed the petition for certiorari with the Supreme Court, essentially on pure questions of law.

Issue:
1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes.
2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of
right without necessity of a prior declaration of dividend.
Held:

1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption
therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption
rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock.
Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction
that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares
cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that
such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President
and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred
shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to
preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse
repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting
the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power.

2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any
stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of
dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which
the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when
construed as requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to redeem
the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess
of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the
law.

3. DECLARATION AND PAYMENT OF DIVIDENDS

CASE:
CIR VS COURT OF APPEALS
FACTS:
Sometime in the 1930’s, Don Andres Soriano, a citizen and resident of the United States, formed the corporation “A.
Soriano Y Cia”, predecessor of ANSCOR with a 1,000,000.00 capitalization divided into 10,000 common shares at a par value of
P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937,
Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued.

On September 12, 1945, ANSCOR’s authorized capital stock was increased to P2,500,000.00 divided into 25,000
common shares with the same par value. Of the additional 15,000 shares, only 10,000 was issued which were all subscribed by
Don Andres, after the other stockholders waived in favor of the former their pre-emptive rights to subscribe to the new issues.
This increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two
sons, Jose and Andres Jr., as their initial investments in ANSCOR. Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 1949 and
December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total
shareholdings of 185,154 shares. 50,495 of which are original issues and the balance of 134,659 shares as stock dividend
declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña Carmen
Soriano, as her conjugal share. The offer half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. In
the same year (December 1966), stock dividends worth 46,290 and 46,287 shares were respectively received by the Don
Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864
common shares each.

On December 28, 1967, Doña Carmen requested a ruling from the United States Internal Revenue Service (IRS),
inquiring if an exchange of common with preferred shares may be considered as a tax avoidance scheme. By January 2, 1968,
ANSCOR reclassified its existing 300,000 common shares into 150,000 common and 150,000 preferred shares.

In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization scheme and not tax
avoidance. Consequently, on March 31, 1968 Doña Carmen exchanged her whole 138,864 common shares for 138,860 of the
preferred shares. The estate of Don Andres in turn exchanged 11,140 of its common shares for the remaining 11,140 preferred
shares.

In 1973, after examining ANSCOR’s books of account and record Revenue examiners issued a report proposing that
ANSCOR be assessed for deficiency withholding tax-at-source, for the year 1968 and the 2nd quarter of 1969 based on the
transaction of exchange and redemption of stocks. BIR made the corresponding assessments. ANSCOR’s subsequent protest on
the assessments was denied in 1983 by petitioner. ANSCOR filed a petition for review with the CTA, the Tax Court reversed
petitioners ruling. CA affirmed the ruling of the CTA. Hence this position.

Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax Code is being held
liable in its capacity as a withholding agent.
Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner for deficiency
withholding tax, as such, it is being held liable in its capacity as a withholding agent and not in its personality as taxpayer. A
withholding agent, A. Soriano Corp. in this case, cannot be deemed a taxpayer for it to avail of a tax amnesty under a
Presidential decree that condones “the collection of all internal revenue taxes including the increments or penalties on account
of non-payment as well as all civil, criminal, or administrative liabilities arising from or incident to voluntary disclosures under
the NIRC of previously untaxed income and/or wealth realized here or abroad by any taxpayer, natural or juridical.” The Court
explains: “The withholding agent is not a taxpayer, he is a mere tax collector. Under the withholding system, however, the
agent-payer becomes a payee by fiction of law. His liability is direct and independent from the taxpayer, because the income
tax is still imposed and due from the latter. The agent is not liable for the tax as no wealth flowed into him, he earned no
income.”

4. LIABILITY FOR IMPROPER DIVIDENDS AND DISTRIBUTIONS

CASE:
Facts: On June 30, 1922, the board of directors of the corporation authorized the purchase of, purchased and paid for, 330
shares of the capital stock of the corporation at the agreed price of P3,300, and that at the time the purchase was made, the
corporation was indebted in the sum of P13,807.50, and it had accounts receivable in the sum of P19,126.02. The officers and
directors of the corporation also approved a resolution for the payment of P3,000 as dividends to its stockholders. The board
of directors acted on assumption that, because it appeared from the books of the corporation that it had accounts receivable of
the face value of P19,126.02, therefore it had a surplus over and above its debts and liabilities.

On September 11, 1923, when the petition was filed for the corporation’s dissolution on the ground of insolvency, its
accounts payable was P9,241.19, and its accounts receivable P12,512.47, or an apparent asset of P3,271.28 over and above its
liabilities. However, there is no stipulation or finding of facts as to what was the actual cash value of its accounts receivable.
Neither is there any stipulation that those accounts or any part of them ever have been or will be collected, and it does appear
that after the appointment of the Receiver on February 28, 1924, he made diligent effort to collect them, but he was unable to
do so.

On February 28, 1924, P12,512.47 of those accounts had but little, if any, value, and in the purchase of its own stock to
the amount of P3,300 and in declaring the dividends to the amount of P3,000, the real assets of the corporation were
diminished to P6,300. In other words, that the corporation did not then have an actual bona fide surplus from which the
dividends could be paid, and that the payment of them in full at the time would "affect the financial condition of the
corporation."

The board acted peculiarly when it purchased the stock from the stockholders and declared the dividends on the stock
on the same day at the same meeting of the board of directors. It appears that the directors (Ganzon and Mendaros) were
permitted to resign so that they could sell their stocks to the corporation. It is very apparent that the directors did not act in
good faith or that they were grossly ignorant of their duties. The plaintiff alleges that these actions diverted the corporation’s
funds to the injury, damage and in fraud of the creditors of the corporation.

Defendant Velasco in his answer stated that the shares were purchased by virtue of a resolution of the board of
directors of the corporation "when the business of the company was going on very well." As for the dividends, those were
distributed with authorization by the board of directors, "and that the amount represented by said dividends really constitutes
a surplus profit of the corporation.
The lower court dismissed plaintiff's complaint, and rendered judgment for the defendants.

Issues: 1) WON Sibuguey Trading Company, Incorporated, could legally purchase its own stock.*

2) WON the CA erred in holding that the Board of Directors of the said Corporation could legally declared a dividend of
P3,000, July 24, 1922.*

*actual issues of the case but for purpose of our class the issue should be: WON the Board of Directors acted with due diligence
in handling the corporation’s finances.

Held: NO to both issues. The rule is well stated in Ruling Case Law, vol. 7, p. 473, section 454 where it is said:

General Duty to Exercise Reasonable Care. — The directors of a corporation are bound to care for its property
and manage its affairs in good faith, and for a violation of these duties resulting in waste of its assets or injury
to the property they are liable to account the same as other trustees. Are there can be no doubt that if they do
 acts clearly beyond their power, whereby loss ensues to the corporation, or dispose of its property or pay away its
money without authority, they will be required to make good the loss out of their private estates. This is the rule
where the disposition made of money or property of the corporation is one either not within the lawful power of the
corporation, or, if within the authority of the particular officer or officers.

And section 458 which says:

Want of Knowledge, Skill, or Competency. — It has been said that directors are not liable for losses resulting to the
corporation from want of knowledge on their part; or for mistake of judgment, provided they were honest, and
provided they are fairly within the scope of the powers and discretion confided to the managing body. But the
acceptance of the office of a director of a corporation implies a competent knowledge of the duties assumed,
and directors cannot excuse imprudence on the ground of their ignorance or inexperience; and if they commit an
error of judgment through mere recklessness or want of ordinary prudence or skill, they may be held liable
for the consequences. Like a mandatory, to whom he has been likened, a director is bound not only to exercise
proper care and diligence, but ordinary skill and judgment. As he is bound to exercise ordinary skill and
judgment, he cannot set up that he did not possess them.

Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities,
the board of directors will not use the assets of the corporation to purchase its own stock, and that it will not declare
dividends to stockholders when the corporation is insolvent.
The judgment of the lower court is reversed, and defendants were ordered to pay sums of money to cover the
dividends distributed and stocks purchased with interest.

D. TRANSFER OF INVESTMENT SECURITIES

1. OWNERSHIP OF SECURITIES
A. RIGHT TO ISSUANCE (SEC 63)
CASE:
BALTAZAR VS LINGAYEN GULF
FACTS:
Ireneo Baltazar subscribed 600 and Marvin Rose, 400 shares to Lingayen who was doing business in the Philippines
with their principal office at Lingayen, Pangasinan. The said corporation has a total of Php 300,000.00 authoried capital stock
divided into 3,000 shares of voting stock at Php 100.00 par value, per share. It is alleged that it has always been the practice
and procedure of the Corporation to issue certificates of stock to its individual subscribers for unpaid shares of stock.
Of the 600, only 535 shares of stock of Baltazar were fully paid and only 341 shares remained during the trial. He had
also 65 shares with par value of Php 6,500.00 for which no certificate was issued to him. As for Rose, out of 400 shares, only
345 fully paid stock duly covered by certificates of stock issued to him.
Ungson, Estrada, Fernandez and Yuson were also stockholders of hodling not more that 100 fully paid shares of stock.
Acena, on the other hand, has 600 fully paid shares of stocks. During the stockholder’s meeting, the Ungson group (including
Acena) and the Baltazar group became members of the Board.
In the year of 1955, there was a fight for the control of the management of the corporation and the annual
stockholder’s meeting which was supposed to be held every first Tuesday of February was moved to May 1, 1955. To retain
the control, the Ungson group passed 3 resolutions and it became a threat to the Baltazar group and deprived them of their
right to vote for the May 1, 1955 Board Meeting due to their unpaid shares of stocks.
ISSUE:
Whether a stockholder is entitled to vote, notwithstanding the fact that he has not paid the balance of his subscription,
which has been called for payment or declared delinquent.
HELD:
Yes. It was the practice and procedure of the corporation to issue certificates of stock to its individual subscribers for
unpaid shares of stock and gave voting powers to shares of stock fully paid.

B. ADMINISTRATORS (SEC 54)

C. JOINT OWNERSHIP (SEC 55)
D. STOCK AND TRANSFER BOOK (SEC 73)
CASE:
CHUA GUAN VS SAMAHANG MAGSASAKA
Facts:

The complaint alleges that the defendant Samahang Magsasaka, Inc., is a corporation duly organized under the laws of
the Philippine Islands with principal office in Cabanatuan, Nueva Ecija, and that the individual defendants are the president,
secretary and treasurer... respectively of the same; that on June 18, 1931, Gonzalo H. Co Toco was the owner of 5,894 shares of
the capital stock of the said corporation represented by nine certificates having a par value of P5 per share; that on said date
Gonzalo H. Co Toco, a resident of Manila,... mortgaged said 5,894 shares to Chua ChiU' to guarantee the payment of a debt of
P20,000 due on or before June 19, 1932. The said certificates of stock were delivered with the mortgage to the mortgagee, Chu
Chiu. The said mortgage was duly registered inihe office of the register... of deeds of Manila on June 23, 19B1, and in the office
of the said corporation on September 30, 1931.

On November 28, 1931, Chua Chiu assigned sal his right and interest in said mortgage to the plaintiff 4nd the
assignment was registered in the office of the register of deeds in the City of Manila on December 28, 1931, and in the office of
the said corporation on January 4,... 1932.

The debtor, Gonzalo H. Co Toco, having defaulted in the payment of said debt at maturity, the plaintiff foreclosed said
mortgage and delivered the certificates o^/sxock and copies of the mortgage and assignment to the sheriff of tho City of
Manila in order to sell the said... shares at public auc tion. The sheriff auctioned said 5,894 shares of stock on December
22,1932. and the plaintiff having been tWe highest bidder for the sum of P14,390, the sheriff executed in his favor a certificate
of sale of said shares.

The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers of the
corporation for cancellation and demanded that they issue new certificates in the name of the plaintiff.

The said officers (the individual defendants)... refused and still refuse to issue said new shares in the name of the
plaintiff.

The prayer is that a writ of mandamus be issued requiring the defendants to transfer the said 5,894 shares of stock to
the plaintiff by cancelling the old certificates and issuing new ones in their stead.

The special defenses set up in the answer are as follows. that the defendants refuse to cancel the said certificates
standing in the name of Gonzalo H. Co Toco on the books of the corporation and to issue new ones in the name of the plaintiff
because prior to the date when the... plaintiff made his demand, to wit, February 4, 1933, nine attachments had been issued
and served and noted on the books of the corporation against the shares of Goip^lo H. Co Toco and the plaintiff objected to
having these attachments noted on the new certificates which he... demanded.

Issues:

Whether or not shares of a corporation could be... hypothecated by placing a chattel mortgage on the certificate
representing such shares

Ruling:

Apart from the cumbersome and unusual method of hypothecating shares of stock by chattel mortgage, it appears that
in the present state of our law, the only safe way to accomplish the hypothecation of share of stock of a Philippine corporation
is for the creditor to insist on... the assignment and delivery of the certificate and to obtain the transfer of the legal title to him
on the books of the corporation by the cancellation of the certificate and the issuance of a new one to him. From the standpoint
of the debtor this may be unsatisfactory because... it leaves the creditor as the ostensible owner of the shares and the debtor is
forced to rely upon the honesty and solvency of the creditor. Of course, the mere possession and retention of the debtor's
certificate by the creditor gives some security to the creditor against an... attempted voluntary transfer by the debtor, provided
the by-laws of the corporation expressly enact that transfers may be made only upon the surrender of the certificate. It is to be
noted, however, that section 35 of the Corporation Law (Act No. 1459) enacts that shares of... stock "may be transferred by
delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the
transfer." The use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus...
leaving the creditor in an insecure position even though he has the certificate in his possession. Moreover, the shares still
standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on execution
at the instance of other... creditors. This unsatisfactory state of our law is well known to the bench and bar. Loans upon stock
securities should be... facilitated in order to foster economic development. The transfer by endorsement and delivery of a
certificate with intention to pledge the shares covered thereby should be sufficient to give legal effect to that intention and to
consummate the juristic act without necessity for... registration.

In view of the premises, the attaching creditors are entitled to priority over the defectively registered mortgage of the
appellant and the judgment appealed from must be affirmed without special pronouncement as to/costs in this instance.
 MONTSERRAT VS CERAN

Facts:
 Petitioner, Monserrat, was president and manager of the Manila Yellow Taxicab Company Inc., and the owner of
P1,200 common shares of stock of the company. He assigned the usufruct (right in a property owned by another for a
limited time or until death) of half of his common shares of stock to Carlos Ceron (defendant).
 The assignment included the right to enjoy the profits from the shares, prohibiting Ceron from selling, mortgaging,
encumbering, or exercising any act implying absolute ownership.
 Ceron mortgaged some of the shares of stock of Manila Yellow Taxicab, including the 600 common shares assigned to
him by Monserrat to Eduardo Matute, President to Erma, Inc as payment of his debt.
 Matute was not informed of the document that contained Ceron’s rights and prohibitions with regard to the 600
common shares of stock from Monserrat.
 *Original case did not mention how the case was instituted in the CFI.
 The CFI Manila rendered judgment in favor of the plaintiff declaring the plaintiff the owner of the 600 shares of stock;
and declaring the mortgage constituted on the ownership of the shares of stock null and void and without force and
effect, although the mortgage on the usufruct enjoyed by the mortgage debtor Ceron in the said 600 shares of stock is
hereby declared valid; with costs against the defendants.
 Erma Inc. and the Sheriff of Manila, the defendants therein, appealed from the decision.
Issue & Ruling:
 Whether it is necessary to enter upon the books of the corporation a mortgage constituted on common shares of stock
in order that such mortgage may be valid and may have force and effect as against third persons.
o Section 35 of the Corporation Law provides the following: The capital stock of stock corporations shall be
divided into shares for which certificates signed by the president or the vice-president, counter signed by the
secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws.
Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed
by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer,
however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books
of the corporation so as to show the names of the parties to the transaction, the date of the transfer the
number of the certificate, and the number of shares transferred.
o Section 35 of the Corporation Law does not require any entry except of transfers of shares of stock in order
that such transfers may be valid as against third persons.
o The word transfer is defined by the "Diccionario de la Academia de la Lengua Castellana" as the act and effect
of transferring; and the verb as to assign or waive the right in, or absolute ownership of, a thing in favor of
another, making him the owner thereof.
o Section 3 of Act No. 1508, as amended by Act No. 2496, defines the phrase (chattel mortgage) as: a conditional
sale of personal property as security for the payment of a debt… the condition being that the sale shall be
avoided upon the seller paying to the purchaser a sum of money or doing some other act named. If the
condition is performed according to its terms the mortgage and sale immediately become void, and the
mortgage is hereby divested of his title.
o The chattel mortgage is not the transfer referred to in section 35 of Act No. 1459 commonly known as the
Corporation law, which transfer should be entered and noted upon the books of a corporation in order to be
valid, and which, means the absolute and unconditional conveyance of the title and ownership of a share of
stock.
o Inasmuch as a chattel mortgage of the aforesaid title is not a complete and absolute alienation of the
dominion and ownership thereof, its entry and notation upon the books of the corporation is not necessary
requisite to its validity.
 Whether or not the defendant entity, Erma, Inc., had knowledge of the document that states that the transfer of the
600 shares of common stocks from Monseratt to Ceron was only for the usufruct of the shares, and that Ceron bound
himself not to alienate nor encumber them.
o The evidence shows that when Matute went to the office of the Manila Yellow Taxicab Co., Inc., to examine the
Stock and Transfer Book of the said corporation, for the purpose of ascertaining the actual status of Carlos G.
Ceron's shares of stock, Matute found nothing but that the shares in question were recorded therein in the
name of said Carlos G. Ceron, free from all liens and encumbrances.
o The notation of liens and encumbrances was placed there only on May 5, 1931, the same date on which the
600 common shares were to have been sold at public auction, in view of Carlos G. Ceron's default in the
payment of the loan secured by them.
o Therefore, defendant entity Erma, Inc. as conditional purchaser of the 600 shares of stock, acquired, in good
faith, Ceron’s right and title to the shares of stock.
 SC holds that: since section 35 of the Corporation Law does not require the notation upon the books of a corporation
of transactions relating to its shares, except the transfer of possession and ownership thereof, as a necessary requisite
 to the validity of such transfer, the notation upon the aforesaid books of the corporation, of a chattel mortgage
constituted on the shares of stock in question is not necessary to its validity.

FUA CUN V. SUMMERS AND CHINA BANKING CORPORATION

FACTS
Chua Soco subscribed for 500 shares of stock to China banking Corp. paying the sum of P25,000 which is the one-half
of the subscription price in cash for which a receipt was issued.
Chua Soco executed a promissory note in favour of Fua Cun for P25, 000 securing with a chattel mortagage on the
former’s shares of stock in China Banking Corp. Chua Soco endorsed the aforementioned receipt to Fua Cun and delivered it to
the latter. Fua Cun took the receipt to the manager of China Banking Corp. and informed him of the transaction with Chua Soco,
but was told to await action upon the matter by the BOD.
In the meantime, Chua Soco appears to be indebted to China Banking Corp. for the non-payment of drafts accepted by
the former. Chua Soco’s interest in the 500 shares subscribed for was attached and the receipt seized by the sheriff. The
attachment was levied after China Banking Corp. learned that the receipt was endorsed to Fua Cun.
Trial court rendered judgment in favour of Fua Cun.
ISSUE: WON Fua Cun’s lien is superior that China Banking Corp.? YES!
HELD
Equity in shares of stock may be assigned, the assignment becoming effective as between the parties and as to third
parties with notice. Equity in shares of stock may be a subject of a chattel mortgage but such will operate as a conditional
equitable assignment.
The claim of China Banking Corp. was for the non-payment of drafts accepted by Chua Soco and had no direct
connection with the shares of stock in question. A corporation has no lien upon the shares of stockholders for ay indebtedness
to the corporation.
If banking institutions were given a lien on their own stock for the indebtedness of the stockholders, the prohibition
against granting loans or discounts upon the security of the stock would become largely ineffective.
Moreover, the attachment was levied after China Banking Corp. had received notice of the assignment of Chua Soco’s
interests to Fua Cun and was therefore subject to the rights of the latter.
Hence, as against these rights, China Banking Corp. holds no lien.

NAVA VS PEERS MARKETING

Facts: Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at P100 a share or a total par
value of P8,000. Po paid P2,000 or 25% of the amount of his subscription. No certificate of stock was issued to him or, for that
matter, to any incorporator, subscriber or stockholder. On 2 April 1966 Po sold to Ricardo A. Nava for P2,000 20 of his 80
shares. In the deed of sale Po represented that he was "the absolute and registered owner of twenty shares" of Peers
Marketing Corp. Nava requested the officers of the corporation to register the sale in the books of the corporation. The request
was denied because Po has not paid fully the amount of his subscription. Nava was informed that Po was delinquent in the
payment of the balance due on his subscription and that the corporation had a claim on his entire subscription of 80 shares
which included the 20 shares that had been sold to Nava. On 21 December 1966 Nava filed a mandamus action in the Court of
First Instance of Negros Occidental, Bacolod City Branch to compel the corporation and Renato R. Cusi and Amparo Cusi, its
executive vice-president and secretary respectively, to register the said 20 shares in Nava's name in the corporation's transfer
book. The corporation and the Cusis pleaded the defense that no shares of stock against which the corporation holds an unpaid
claim are transferable in the books of the corporation. After hearing, the trial court dismissed the petition. Nava appealed.

Issue: Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter in its stock and transfer
book the sale made by Po to Nava of the 20 shares forming part of Po's subscription of 80 shares, with a total par value of
P8,000 and for which Po had paid only P2,000, it being admitted that the corporation has an unpaid claim of P6,000 as the
balance due on Po's subscription and that the 20 shares are not covered by any stock certificate.

Held: The transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that is supposed to be recorded in the
stock and transfer book, as contemplated in section 52 of the Corporation Law. As a rule, the shares which may be alienated
are those which are covered by certificates of stock. The twenty shares in question, however, are not covered by any certificate
of stock in Po's name. Moreover, the corporation has a claim on the said shares for the unpaid balance of Po's subscription. A
stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable. A
corporation cannot release an original subscriber from paying for his shares without a valuable consideration or without the
unanimous consent of the stockholders. Thus, herein, there is no clear legal duty on the part of the officers of the corporation
to register the 20 shares in Nava's name. As no stock certificate was issued to Po; and without the stock certificate, which is the
evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the parties to the
transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of
both the corporation and its stockholders.
 E. LOST OR DESTROYED CERTIFICATES (SEC 72)

2. TRANSFER OF SECURITIES
CASE:
PONCE VS ALSONS CEMENT
FACTS:

February 8, 1968: Vicente C. Ponce and Fausto Gaid, incorporator of Victory Cement Corporation (VCC), executed a
“Deed of Undertaking” and “Indorsement” whereby Gaid acknowledges that Ponce is the owner of the shares and he was
therefore assigning/endorsing it to Ponce
VCC was renamed Floro Cement Corporation (FCC) and then to Alsons Cement Corporation (ACC)
Up to the present, no certificates of stock corresponding to the 239,500 subscribed and fully paid shares of Gaid were
issued in the name of Fausto G. Gaid and/or the plaintiff.
Despite repeated demands, the ACC refused to issue the certificates of stocks
SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss
Upon appeal, the Commission En Banc reversed the decision of the Hearing Officer
Ponce, filed a complaint with the SEC for mandamus
CA: mandamus should be dismissed for failure to state a cause of action
in the absence of any allegation that the transfer of the shares was registered in the stock and transfer book
ISSUE: W/N the cert. of stocks of Gaid can be transferred to Ponce

HELD: NO. petition Denied.

SEC. 63. Certificate of stock and transfer of shares.–The capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal
property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or
other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.
the stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities of a
stockholder
Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue stock
certificates in the transferee’s name.
in a case such as that at bar, a mandamus should not issue to compel the secretary of a corporation to make a transfer of the
stock on the books of the company
unless it affirmatively appears that he has failed or refused so to do, upon the demand either of the person in whose name the
stock is registered, or of some person holding a power of attorney for that purpose from the registered owner of the stock.
mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such by the corporation
and its officers, in the absence of express instructions of the registered owner to make such transfer to the indorsee, or a
power of attorney authorizing such transfer
mandamus - proper remedy to make him the rightful owner and holder of a stock certificate to be issued in his name

A. TRANSFER OF SHAREHOLDING (SEC 62, 73 (1.B, 7, 8))

CASE:
USON VS DIOSOMITO
Facts: Defendant Vicente Diosomito was the original owner of the seventy-five shares of stock, having a par value of P7,500,
and that on February 3, 1931, he sold said shares to Emeterio Barcelon and delivered to the latter the corresponding
certificates. But Barcelon did not present these certificates to the North Electric Corporation for registration until the 16th of
September, 1932, when they were cancelled and a new certificate was issued in favor of Barcelon, who transferred the same of
the defendant H.P.L. Jollye.

Meanwhile, Toribia Uson had filed a civil action for debt against Vicente Diosomito and that an attachment was duly
issued and levied upon the property of the defendant Diosomito, including seventy-five shares of the North Electric Co., Inc.,
which stood in his name on the books of the company. Subsequently, Toribia Uson obtained judgment against the defendant
Diosomito for the sum of P2,300 with interest and costs. To satisfy said judgment, the sheriff sold said shares at public auction.
The plaintiff Toribia Uson was the highest bidder and said shares were adjudicated to her. In the present action, H.P.L. Jollye
claims to be the owner of said 75 shares of the North Electric Co., Inc., and presents a certificate of stock issued to him by the
company.
 It will be seen, therefore, that the transfer of said shares by Vicente Diosomito, the judgment debtor to Barcelon was
not registered and noted on the books of the corporation until some nine months after the attachment had been levied on said
shares.

Issue: Whether a bona fide transfer of the shares of a corporation, not registered or noted on the books of the corporation, is
valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice
of said transfer or not.

Ruling: No. The transfer is not valid. The true meaning of the language is, and the obvious intention of the legislature in using it
was, that all transfers of shares should be entered, as here required, on the books of the corporation. And it is equally clear to
us that all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the
corporation and to subsequent purchasers in good faith, and indeed, as to all persons interested, except the parties to such
transfers. All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice
or fraudulent in law or fact, but because they are made so void by statute.

This court still adheres to the principle that its function is jus dicere non jus dare. To us the language of the legislature
is plain to the effect that the right of the owner of the shares of stock of a Philippine corporation to transfer the same by
delivery of the certificate is limited and restricted by the express provision that "no transfer, however, shall be valid, except as
between the parties, until the transfer is entered and noted upon the books of the corporation." Therefore, the transfer of the
75 shares in the North Electric Company, Inc., made by the defendant Diosomito to the defendant Barcelon was not valid as to
the plaintiff-appellee, Toribia Uson on the date on which she obtained her attachment lien on said shares of stock which still
stood in the name of Diosomito on the books of the corporation.

ESCANO VS FILIPINAS MINING

Facts: On March 8, 1937, the plaintiff-appellee obtained judgment against Silverio Salvosa whereby the latter was ordered to
transfer and deliver to the former 116 active shares and an undetermined number of shares in escrow of the Filipinas Mining
Corporation and to pay the sum of P500 as damages, with the proviso that the escrow shares shall be transferred and
delivered to the plaintiff only after they shall have been released by the company. A writ of garnishment was served by the
sheriff of Manila upon the Filipinas Mining Corporation to satisfy the said judgment; and Filipinas Mining Corporation advised
the sheriff of Manila that according to its books the judgment debtor Silverio Salvosa was the registered owner of 1,000 active
shares and about 21,339 unissued shares held in escrow by the said corporation. The sheriff sold the 1,000 active shares at
public auction.

It appears that Silverio Salvosa sold to Jose P. Bengzon all his right, title, and interest in and to 18,580 shares of stock
of the Filipinas Mining Corporation held in escrow which the said Salvosa was entitled to receive, and which Bengzon in turn
subsequently sold and transferred to Standard Investment of the Philippines. Neither Salvosa's sale to Bengzon nor Bengzon's
sale to the Standard Investment of the Philippines was notified to and recorded in the books of the Filipinas Mining
Corporation more than three years after the escrow shares in question were attached by garnishment served on the Filipinas
Mining Corporation as hereinbefore set forth.

On January 24, 1941, the defendant Filipinas Mining Corporation issued in favor of the defendant Standard
Investment of the Philippines certificate of stock for the 18,580 shares formerly held in escrow by Silverio Salvosa and which
had been adversely by the present plaintiff-appellee on the one hand and the Standard Investment of the Philippines on the
other, the first by virtue of garnishment proceedings and the second by virtue of the sale made to it by Jose P. Bengzon as
aforesaid.

Issue: Whether or not the issuance by the Filipinas Mining Corporation of the said 18,580 shares of its stock to the Standard
Investment of the Philippines was valid as against the attaching judgment creditor of the original owner.

Ruling: No. The transfer of duly issued shares of stock is not valid as against third parties and the corporation until it is noted
upon the books of the corporation. The reasons for the registration are (1) to enable the corporation to know at all times who
its actual stockholders are, because mutual rights and obligations exist between the corporation and its stockholders; (2) to
afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim against the stock
sought to be transferred, or for any other valid reason; and (3) to avoid fictitious or fraudulent transfers.

Moreover, it seems illogical and unreasonable to hold that inactive or unissued shares still held by the corporation in
escrow pending receipt of authorization from the Government to issue them, may be negotiated or transferred unrestrictedly
and more freely than active or issued shares evidenced by certificates of stock.
 We are, therefore, of the opinion and so hold that section 35 of the Corporation Law, which requires the registration of
transfers of shares stock upon the books of the corporation as a condition precedent to their validity against the corporation
and third parties, is also applicable to unissued shares held by the corporation in escrow.

TAN VS SEC
Facts:
Alfonso Tan was the president of Visayan Educational Supply Corporation when it was incorporated. Initially, 400
shares of stock was in his name, represented by Stock Certificate Number 2. But when two other incorporators, Young and Ong
assigned to the corporation their shares, Alfonso sold 50 shares to his brother Angelo, and another incorporator, Alfredo Uy,
sold 50 shares to Teodora S. Tan. The above sale was necessary in order to complete the membership requirement of the
Board of Directors.
Because of the mentioned transactions, Stock Certificate Number 2 was cancelled, and the corresponding stock
certificates 6 and 8 were issued, with certificate 6 representing 50 shares sold to Angelo, and certificate 8 representing the 350
shares for the petitioner Alfonso Tan.
A certain Mr. Buzon, was requested by Mr. Tan Su Ching to ask that Alfonso Tan endorse the cancelled Stock
Certificate Number 2. However, Alfonso did not sign Stock Certificate Number 2 and only returned Stock Certificate Number 8.
Later on, Alfonso Tan withdrew from the corporation because he was dislodged by respondent Tan Su Ching as
president. Part of the condition of his withdrawal was that he be paid with stocks-in-trade equivalent to 33% in lieu of stock
value of his shares in the amount of P35,000.00. Due to the withdrawal, the cancellation of Stock Certificate 2 and 8 was
effected and recorded in the stock and transfer book. Alfonso then filed a case with Cebu SEC, questioning the cancellation of
his aforesaid Stock Certificates 2 and 8.
Petitioner argues that he was deprived of his shares despite the non-endorsement or surrender of Stock Certificates 2
and 8 which is contrary to Section 63 of the Corporation Code which requires:
“…No transfer, however, shall be valid, except as between the parties, until the transfer is recorded to the books of the
corporation so as to show the names of the parties to the transaction, the date of the transfer, and the number of the
certificates and the number of shares transferred.”
Issue:
Whether or not the cancellation of Stock Certificate 2 and the subsequent issuance of Stock Certificate Number 8 was
null and void because of the non-endorsement of Stock Certificate Number 2 by Alfonso Tan.
Held:
No. The cancellation and the transfers of stock were valid.
There was a delivery of Stock Certificate No. 2 made by Alfonso Tan to the corporation before it was replaced with
Stock Certificate No. 6 for 50 shares to Angel Tan and Stock Certificate No. 8 for 350 shares to the Alfonso.
From the facts deduced in the case, there was already delivery of the unendorsed Stock Certificate No. 2, which made
the issuance of Stock Certificate Nos. 6 and 8 valid. All the acts required for the transferee to exercise its rights over the
acquired stocks were attendant and even the corporation was protected from other parties, considering that the said transfer
was earlier recorded or registered in the corporate stock and transfer book.
Furthermore, it is necessary to delineate the function of the stock itself form the actual delivery or endorsement of the
certificate of stock itself because a certificate of stock is not necessary to render one a stockholder in a corporation. The
certificate is not stock in the corporation but is merely evidence of the holder’s interest and status in the corporation, his
ownership of the share represented thereby, but is not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the existence of a share in stock or the nation of the
relation of the shareholder to the corporation.
The fact of the matter is, the new holder, Angel S. Tan has already exercised his rights and prerogatives as stockholder
and was even elected as member of the board of directors in the respondent corporation with the full knowledge and
acquiescence of petitioner. Due to the transfer of 50 shares, Angel S. Tan was clothed with rights and responsibilities in the
board of the respondent corporation when he was elected as officer thereof.

B. REMEDY IF TRANSFER IS REFUSED

CASE:
HAGER VS BRYAN
Doctrine:
Mandamus is not the proper remedy to compel a secretary of a corporation to record the transfer of stock in the books
of the corporation. The proper remedy, the suit being a private one, is to sue for damages.
Facts:
This is an original action commenced in the SC to secure a writ of mandamus against herein defendant to compel him,
as secretary of Visayan Electric Company, to transfer upon the books of said company certain shares mentioned in the petition.
Herein petitioner was the sole owner of 100 shares of capital stock of Visayan Electric Company and among them
were:
Certificate No. 55 (representing 5 shares)
Certificate No. 62 (10 shares)
 Certificate No. 63 (10 shares)
These certificates were issued in the name of Bryan-London & Co. and by them indorsed to petitioner. Said shares
were bought from Martin M. Levering. It was said that the reason behind the agreement was that certain parties in Bryan-
London & Co., which respondent was a member, were trying to get control of Visayan Electric Company and that they decided
to prevent them from securing control.
The title to such shares were not questioned by respondent and are transferable only on the books of the company.
When respondent refuses to record it, petitioner repeatedly demanded and requested respondent, as secretary of Visayan
Electric Company, to transfer on the books of company the Certificates of shares mentioned above.
Issue:
Whether or not the courts have jurisdiction to issue writ of mandamus for the purpose of compelling the secretary of a
private corporation to transfer stock upon the books of the corporation.
Held:
No. The writ in such case is purely a private one and there is generally an adequate remedy by an action against the
corporation for damages. Mandamus will not lie because the suit is against a private corporation and in no sense a proceeding
to enforce the performance of a public duty. Also, there is another remedy other than mandamus and that is to sue for
damages.
Under the old corporation law, no share of stock against which the corporation holds any unpaid claim, shall be
transferrable on the books of the corporation. To permit the writ of mandamus to issue for the purpose of compelling the
officers to transfer stock might require such officers against which the corporation holds unpaid claims. If the court should
issue the writ, it might require an officer to transfer stock under conditions where the law expressly prohibited such transfer.
The writ of mandamus will never issue to compel a person to violate an express provision of the law. The act required
to be performed must be one which the law specially enjoin as a duty resulting from an office, trust, or station or unlawfully
excludes the plaintiff from the used and enjoyment of a right or office to which he is entitled and from which he is unlawfully
precluded.
No law at that time which specially requires the performance of the act of transferring the stock, while there is a law
expressly prohibiting its transfer, except under certain conditions.

BATONG BUHAY VS CA
Facts:
1. Art. 2201: NCC : In contracts and quasi – contracts , the damages for which the obligor who acted in good faith is liable
shall be those that ate the natural and probable consequences of the breach of the obligation , and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted . In case of fraud , bad faith , malice or
wanton attitude , the obligor shall be responsible for all damages which may be reasonably attributed to the non –
performance of the obligation. ]
2. Batong Buhay Gold Mines, Inc. issued Stock Certificate No. 16807 covering 62,495 shares with a par value of P0.01 per
share to Francisco Aguac who was then legally married to Paula G. Aguac, but the said spouses had lived separately for more
than fourteen (14) years prior to the said date. On December 16, 1969, Francisco Aguac sold his 62,495 shares covered by
Stock Certificate No. 16807 for the sum of P9,374.70 in favor of Inco Mining, the said transaction being evidenced by a deed of
sale (Exhibit D). The said sale was made by Francisco Aguac without the knowledge or consent of his wife Paula G. Aguac
3. Paula called up Batong Buhay Gold Mines telling them to withheld the transfer of stock to Inco. Since the stocks were
conjugal property.
4. Batong buhay did just that. Inco is suing why Batong buhay withheld.
5. CFI ordered that Batong Buhay effect the transfer of stock certificates to Inco. However Inco appealed to the CA citing
that the lower court failed to award damages for the wrongful refusal of petitioner to transfer the subject shares of stock and
alleged failure to award attorney’s fees , cost of injunction bond and expenses of litigation.

ISSUE: May the Court of Appeals award damages by way of unrealized profits despite the absence of supporting evidence, or
merely on the basis of pure assumption, speculation or conjecture; or can the respondent recover damages by way of
unrealized profits when it has not shown that it was damaged in any manner by the act of petitioner?

Ruling:
No, The petitioner alleges that the appellate court gravely and categorically erred in awarding damages by way of
unrealized profit (or lucro cesante) to private respondent. Petitioner company also alleges that the claim for unrealized profit
must be duly and sufficiently established, that is, that the claimant must submit proof that it was in fact damaged because of
petitioner's act or omission.

The stipulation of facts of the parties does not at all show that private respondent intended to sell, or would sell or
would have sold the stocks in question on specified dates, While it is true that shares of stock may go up or down in value (as
in fact the concerned shares here really rose from fifteen (15) centavos to twenty three or twenty four (23/24) centavos per
share and then fell to about two (2) centavos per share, still whatever profits could have been made are purely SPECULATIVE,
for it was difficult to predict with any decree of certainty the rise and fall in the value of the shares. Thus this Court has ruled
that speculative damages cannot be recovered.

It is easy to say now that had private respondent gained legal title to the shares, it could have sold the same and
reaped a profit of P5,624.95 but it could not do so because of petitioner's refusal to transfer the stocks in the former's name at
the time demand was made, but then it is also true that human nature, being what it is, private respondent's officials could also
have refused to sell and instead wait for expected further increases in value.

WON VS WACK WACK GOLF CLUB

On December 2, 1942, the defendant (a non-stock corporation) issued to Iwao Teruyama Membership Certificate No.
201 which was assigned to M. T. Reyes on April 22, 1944. Subsequently in the same year 1944, M. T. Reyes transferred and
assigned said certificate to the plaintiff. On April 26, 1955, the plaintiff filed an action in the Court of First Instance of Manila
against the defendant, alleging that shortly after the rehabilitation of the defendant after the war, the plaintiff asked the
defendant to register in its books the assignment in favor of the plaintiff and to issue to the latter a new certificate, but that the
defendant had refused and still refuses to do so unlawfully; and praying that the plaintiff be declared the owner of one share of
stock of the defendant and that the latter be ordered to issue a correspondent new certificate. On June 6, 1955, the defendant
filed a motion to dismiss, alleging that from 1944, when the plaintiff’s right of action had accrued, to April 26, 1955, when the
complaint was filed, eleven years have elapsed, and that therefore the complaint was filed beyond the 5-year period fixed in
Article 1149 of the Civil Code. On July 30, 1955, the Court of First Instance of Manila issued an order dismissing the complaint.
As plaintiff’s motion for reconsideration filed on August 27, 1955 and second motion for reconsideration filed on September
13, 1955, were both denied, the plaintiff has taken the present appeal.

The certificate in question contains a condition to the effect that no assignment thereof "shall be effective with respect
to the club until such assignment is registered in the books of the club, as provided in the By-Laws." The decisive question that
arises is whether the plaintiff was bound, under said condition and By-Laws of the defendant or any statutory rule for that
matter, to present and register the certificate assigned to him in 1944 within any definite or fixed period. The defendant has
not made herein any pretense to that effect; but it contends that from the moment the certificate was assigned to the plaintiff,
the latter’s right to have the assignment registered commenced to exist. This contention is correct, but it would not follow that
said right should be exercised immediately or within a definite period. The existence of a right is one thing, and the duration of
said right is another. On the other hand, it is stated in the appealed order of dismissal that the plaintiff sought to register the
assignment on April 13, 1955; whereas in plaintiff’s brief it is alleged that it was only in February, 1955, when the defendant
refused to recognize the plaintiff. If, as already observed, there is no fixed period for registering an assignment, how can the
complaint be considered as already barred by the Statute of Limitations when it was filed on April 26, 1955, or barely a few
days (according to the lower court) and two months (according to the plaintiff), after the demand for registration and its
denial by the defendant. Plaintiff’s right was violated only sometime in 1955, and it could not accordingly have asserted any
cause of action against the defendant before that.

The defendant seems to believe that the plaintiff was compelled immediately to register his assignment. Any such
compulsion is obviously for the benefit of the plaintiff, because it is only after registration that the transfer would be binding
against the defendant. But we are not here concerned with a situation where the plaintiff claims anything against the
defendant allegedly accruing under the outstanding certificate in question between the date of the assignment to the plaintiff
and the date of the letters demand for registration and issuance of a new certificate.

The defendant has also intimated property holdings of Japanese nationals were vested after the liberation upon the
Alien Property Administration or Custodian; that the plaintiff should have thereupon registered the assignment to him of
Certificate No. 201 issued to Iwao Teruyama; and that in the meantime rights to said certificate by their pre-war registered
American owners were filed with the defendant and correspondingly acted upon. These, however, are matters which may
affect the validity of the assignment to the plaintiff or his right to register the same constituting special defenses, but certainly
have no bearing on the question of prescription.

Wherefore, the appealed order is hereby reversed and the case remanded to the court of origin for further
proceedings. So ordered with costs against the defendant.

C. VALIDITY OF RESTRICTIONS
CASE:
LAMBERT VS FOX
FACTS:
 Early in 1911: John R. Edgar & Co., engaged in the retail book and stationery business was taken over by its creditors
including Lambert and Fox
 Lambert and Fox became the 2 largest stockholders in the new corporation called John R. Edgar & Co., Incorporated
 Lambert and Fox entered into an agreement wherein they mutually and reciprocally agree not to sell, transfer, or
otherwise dispose of an part of the stock until after 1 year from the agreement date unless consented in writing
 violation: P1,000 pesos as liquidated damages
 October 19, 1911: Fox sold his stock E. C. McCullough & Co. of Manila, a strong competitor
 sale was made by the defendant against the protest
 Foz offered to sell his shares of stock to the Lambert for the same sum that McCullough was paying them less P1,000, the
penalty specified in the contract
 Trial Court: dismissed
ISSUE: W/N Fox should be penalized

HELD: YES. The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and
against the defendant for P1,000, with interest; without costs in this instance.
 parties expressly stipulated that the contract should last one year regardless of the objective it should be applied
 parties who are competent to contract may make such agreements within the limitations of the law and public policy as
they desire, and that the courts will enforce them according to their terms
 The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the
individual parties to the contract, and is reasonable as to the length of time of the suspension.

FLEISHCHER VS BOTICA NOLASCO

FACTS:
 March 13, 1923: Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that 5 shares of stock
sold by him to Henry Fleischer be noted transferred to Fleischer's name
 He also acknowledged in said written statement the preferential right of the corporation to buy said five shares
 June 14, 1923: he withdraw and cancelled his written statement of March 13, 1923
 Nolasco replied that his letter of June 14th was of no effect, and that the shares in question had been registered in the
name of the Botica Nolasco, Inc.,
 November 15, 1923: Fleischer
 filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of 5 shares of fully
paid stock of Botica Nolasco Co (Nolasco) by purchase from their original owner, Manuel Gonzalez
 Despite repeated demands, Nolasco refused to register said shares in his name in the books of the corporation
 caused him damages amounting to P500
 Nolasco's defense:
 article 12 of its by-laws: it had preferential right to buy the shares at the par value of P100/share, plus P90 as dividends
corresponding to the year 1922
 offer was refused by Fleischer
 Trial Court: favored Fleischer and ordered the shared be registered
ISSUE: W/N article 12 of Nolasco's by-laws is in conflict with Act No. 1459 (Corporation Law), especially with section 35 (Now
Sec. 63)
HELD: Affirmed. mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the
corporation
 Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law,
for the transferring of its stock.
 section 35 of Act No. 1459 (now Sec. 63)
 contemplates no restriction as to whom they may be transferred or sold
 It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser.
 The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of
whomsoever he pleases, without any other limitation in this respect, than the general provisions of law
 GR: the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the laws of the land
 A by-law cannot take away or abridge the substantial rights of stockholder.
 Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode
of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale.
 by-law cannot operate to defeat his rights as a purchaser who obtained them in good faith and for a valuable
consideration

PADGETT VS BABCOCK AND TEMPLETON

FACTS:
 January 1, 1923 to April 15, 1929: Padgett was an employee of the Babcock & Templation Inc (Babcock)
 he bought 35 shares at P100/share at the suggestion of the president of Babcock
 recipient of 9 shares from Christmas bonus
 owner of 44 shares for which the 12 certificates were issued
 word "nontransferable" appears on each and every one of these certificates
 Before leaving the corporation, he proposed to the president that thecorporation buy his 44 shares at par value plus the
interest thereon, or that he be authorized to sell them to other persons
 The corporation bought similar shares belonging to other employees, at par value.
 Sometime later, the president offered to buy his shares first at P85 each and then at P80
 he did not agree
ISSUE: W/N the shares are transferable despite the restriction appearing therein
HELD: NO. word "nontransferable" appearing on the 12 certificates of shares of stock, is declared null and void. to issue in lieu
thereof new ones without any restriction whatsoever, with the costs of both instances against the said defendant-appellants
 Shares of corporate stock being regarded as property, the owner of such shares may, as a general rule, dispose of them as
he sees fit, unless the corporation has been dissolved, or unless the right to do so is properly restricted, or the owner's
privilege of disposing of his shares has been hampered by his own action.
 restriction consisting in the word "nontransferable" appearing on the 12 certificates is illegal and should be eliminated
 there has been no such contract, either express or implied, between the plaintiff and the defendants
 In the absence of a similar contractual obligation and of a legal provision applicable thereto, it is logical to conclude that it
would be unjust and unreasonable to compel the said defendants to comply with a non-existent or imaginary obligation

E. FORGED TRANSFERS
CASE:
STA. MARIA VS HONGKONG AND SHANGHAI
FACTS: Mrs. Josefa T. Santamaria bought 10,000 shares of the Batangas Minerals, Inc. (Batangas), through the offices of Woo,
Uy-Tioco & Naftaly (Woo), a stock brokerage firm and pay therefore P8,041.20 as shown by a receipt. The buyer received
Stock Certificate No. 517 issued in the name of Woo, Uy-Tioco & Naftaly and indorsed in blank by this firm.

Thereafter, Mrs. Santamaria placed an order for the purchase of 10,000 shares of the Crown Mines, Inc. with R.J.
Campos & Co. (RJ Campos), a brokerage firm, and delivered Certificate No. 517 to the latter as security therefor with the
understanding that said certificate would be returned to her upon payment of the 10,000 shares. Her name was later written
in lead pencil on the upper right hand corner of the certificate.

Two days later, when Mrs. Santamaria went to pay for her order, she was informed that R.J. Campos was no longer
allowed to transact business due to a prohibition order from Securities and Exchange Commission and that her Stock
certificate was in the possession of the Hongkong and Shanghai Banking Corporation (Hongkong)

It came into the possession of the Hongkong because R.J. Campos had opened an overdraft account with this bank and
had executed a document of hypothecation. As per request of Hongkong, Batangas issued Certificate No. 715 in lieu of
Certificate No. 517, in the name of Robert W. Taplin as trustee.

CFI ordered Hongkong to pay the plaintiff the sum of P8,041.20 plus the costs of suit. The case was certified to this
Court of Appeals.

ISSUES: 1) WON plaintiff-appellee was chargeable with negligence in the transaction which gave rise to this case. 2) WON the
defendants Bank obligated to inquire who was the real owner of the shares represented by the certificate of stock, and could it
be charged with negligence for having failed to do so?

1. YES.

Plaintiff did not take any precaution to protect herself against the possible misuse of the shares represented by the
certificate of stock. Plaintiff could have asked the corporation that had issued said certificate to cancel it and issue another in
lieu thereof in her name to apprise the holder that she was the owner of said certificate. This she failed to do, and instead she
delivered said certificate, as it was, to R.J. Campos hereby clothing the latter with apparent title to the shares represented by
said certificate including apparent authority to negotiate it by delivering it to said company while it was indorsed in blank by
the person or firm appearing on its face as the owner thereof. The defendant Bank had no knowledge of the circumstances
under which the certificate of stock was delivered to R.J. Campos and had a perfect right to assume that R.J. Campos was
lawfully in possession of the certificate in view of the fact that it was a street certificate, and was in such form as would entitle
any possessor thereof to a transfer of the stock on the books of the corporation concerned.

It is a well-known rule that a bona fide pledgee or transferee of a stock from the apparent owner is not chargeable
with knowledge of the limitations placed on it by the real owner, or of any secret agreement relating to the use which might be
made of the stock by the holder.

2. NO.
 It should be noted that the certificate of stock in question was issued in the name of the brokerage firm-Woo, Uy-Tioco
& Naftaly and that it was duly indorsed in blank by said firm, and that said indorsement was guaranteed by R.J. Campos which
in turn indorsed it in blank. This certificate is what it is known as street certificate. Upon its face, the holder was entitled to
demand its transfer into his name from the issuing corporation. The Bank was not obligated to look beyond the certificate to
ascertain the ownership of the stock at the time it received the same from R.J. Campos for it was given to the Bank pursuant to
their letter of hypothecation. Even if said certificate had been in the name of the plaintiff but indorsed in blank, the Bank would
still have been justified in believing that R.J. Campos had title thereto for the reason that it is a well-known practice that a
certificate of stock, indorsed in blank, is deemed quasi negotiable, and as such the transferee thereof is justified in believing
that it belongs to the holder and transferor.

The only evidence in the record to show that the certificate of stock in question may not have belonged to R.J. Campos
is the testimony of the plaintiff but even assuming for the sake of argument that what plaintiff has stated is true, such an
incident would merely show that plaintiff has an adverse claim to the ownership of said certificate of stock, but that would not
necessarily place the Bank in the position to inquire as to the real basis of her claim, nor would it place the Bank in the
obligation to recognize her claim and return to her the certificate outright. A mere claim and of ownership does not establish
the fact of ownership. The right of the plaintiff in such a case would be against the transferor. In fact, this is the attitude
plaintiff has adopted when she filed a charge for estafa against Rafael J. Campos, which culminated in his prosecution and
conviction, and it is only when she found him to be insolvent that she decided to go against the Bank.

The Court has noticed that the defendant Bank was willing from the very beginning to compromise this case by
delivering to the plaintiff certificate of stock No. 715 that was issued to said Bank by the issuer corporation in lieu of the
original as alleged and prayed for in its amended answer to the complaint. The most that plaintiff could claim is the return to
her of the said certificate of stock. The Court is inclined to grant the formal tender made by the defendant to the plaintiff of
said certificate.

DE LOS SANTOS VS REPUBLIC

FACTS:
 600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., (Lepanto), a corporation duly organized and existing
under the laws of the Philippines
 Originally, 1/2 shares of stock were claimed by Apolinario de los Santos, and the other half by Isabelo Astraquillo. During
the pendency of this case, the Astraquillo has allegedly conveyed and assigned his interest in and to de los Santos.
 Vicente Madrigal is registered in the books of the Lepanto as owner of said stocks and whose indorsement in blank
appears on the back of said certificates
 contend that De los Santos bought:
 55,000 shares from Juan Campos
 300,000 shares from Carl Hess
 800,000 shares from Carl Hess for the benefit of Astraquillo
 delivered to stock broker Leonardo Recio stock certificate No. 2279 55,000 shares to see Mr. DeWitt, who, probably,
would be interested in purchasing the shares
 DeWitt retained the shares reasoning that it was blocked by the US and receipt was burned at Recio's dwelling
 By virtue of vesting P-12, dated February 18, 1945, title to the 1,600,000 shares of stock in dispute was, however, vested
in the Alien Property Custodian of the U. S.
 Plaintiffs filed their respective claims with the Property Custodian
 Defendant Attorney General of the U. S., successor to the Administrator contends, substantially, that, prior to the outbreak
of the war in the Pacific, shares of stock were bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui
Bussan Kaisha a corporation organized in accordance with the laws of Japan, the true owner thereof, with branch office in
the Philippines
 March, 1942: Madrigal delivered stock certificates, with his blank indorsement thereon, to the Mitsuis, which kept said
certificates, in the files of its office in Manila, until the liberation of the latter by the American forces early in 1945; that the
Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that the stock certificates aforementioned must
have been stolen or looted, therefore, during the emergency resulting from said liberation.
 CFI: favored plaintiffs
 Defendants Appealed
 Hess, during that period, operate as broker, for being American, he was under Japanese surveillance, and that Hess had
made, during the occupation, no transaction involving mining shares, except when he sold 12,000 shares of the Benguet
Consolidated, inherited from his mother, sometime in 1943.
ISSUE: W/N the plaintiffs are entitled to the shares

HELD: NO. REVERSED

 burden of proof is upon the plaintiffs
 Section 35 of the Corporation Law reads:
The capital stock corporations shall be divided into shares for which certificates signed by the president or the vice-president,
countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate endorsed by the
owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares
transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.
(Emphasis supplied.)
 Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a forged assignment
acquires no title which can be asserted against the true owner, unless his own negligence has been such as to create an
estoppel against him (Clarke on Corporations, Sec. Ed. p. 415). If the owner of the certificate has endorsed it in blank, and
it is stolen from him, no title is acquired by an innocent purchaser for value
 Neither the absence of blame on the part of the officers of the company in allowing an unauthorized transfer of stock, nor
the good faith of the purchaser of stolen property, will avail as an answer to the demand of the true owner
 The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the
true owner does not apply where the circumstances are such as to estop the latter from asserting his title. . . .
 one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first
trusted the wrongdoer and put in his hands the means of inflicting such loss
 negligence which will work an estoppel of this kind must be a proximate cause of the purchase or advancement of money
by the holder of the property, and must enter into the transaction itself
 the negligence must be in or immediately connected with the transfer itself
 to establish this estoppel it must appear that the true owner had conferred upon the person who has diverted the security
the indicia of ownership, or an apparent title or authority to transfer the title
 So the owner is not guilty of negligence in merely entrusting another with the possession of his certificate of stock, if he
does not, by assignment or otherwise, clothe him with the apparent title.
 Nor is he deprived of his title or his remedy against the corporation because he intrusts a third person with the key of a
box in which the certificate are kept, where the latter takes them from the box and by forging the owner's name to a
power of attorney procures their transfer on the corporate books.
 Nor is the mere indorsement of an assignment and power of attorney in blank on a certificate of stock, which is afterwards
lost or stolen, such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the
finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss or theft of the
certificate was not due to any negligence on the part of the owner
 stock pledged to a bank is endorsed in blank by the owner does not estop him from asserting title thereto as against a
bona fide purchaser for value who derives his title from one who stole the certificate from the pledgee. And this has also
been held to be true though the thief was an officer of the pledgee, since his act in wrongfully appropriating the certificate
cannot be regarded as a misappropriation by the bank to whose custody the certificate was intrusted by the owner, even
though the bank may be liable to the pledgor
 Hence, as the undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights,
which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from madrigal or from
the Mitsuis, but, also, because it is in derogation, of said rights. madrigal and the Mitsuis are notprivies to the alleged sales
by Campos and Hess to the plaintiffs, contrary to the latter's pretense.

F. NON-TRANSFERABILITY OF MEMBERSHIP IN A NON-STOCK CORPORATION (SEC 89)

III MANAGEMENT STRUCTURE

A. CORPORATE GOVERNANCE
1. POWERS OF THE BOARD OF TRUSTEES (SEC 22 [1])
CASE:
GAMBOA VS VICTORIANO
FACTS: Gamboas et al were sued by private respondents Lopues. Lopues wanted to nullify the issuance of 823 shares of stock
of Inocentes de la Rama Inc. their favor. Plaintiffs own 1,328 shares of stock of Inocentes, which has an ACS of 3,000 shares,
par value of 100 per share. 2,177 of those were subscribed and issued, leaving 823 unissued.
Upon plaintiff’s acquisition of the shares held by Ledesma and Sicangco (then Pres and VP), Gamboa, de la Rama and
Borromeo were the remaining members of the Board of Directors. They met and secretly elected Gamboa and De la Rama as
Pres and VP respectively, in order to prevent/ forestall the takeover of the corp.
They then passed a resolution authorizing authorizing the sale of such 823 shares among themselves, and elected
their board of directors.
 Complaint was filed in that the sale of the unissued 823 shares of stock of the corporation was in violation of the
plaintiffs' and pre-emptive rights and made without the approval of the board of directors representing 2/3 of the outstanding
capital stock, and is in disregard of the strictest relation of trust existing between the defendants, as stockholders thereof.
They prayed for injunction, receivership, nullification of sale of the 823 shares and damages.
RTC judge ordered writ of PI.
Lopues entered into a compromise agreement with the board members, that Lopues will withdraw their claim; but in
return, De La Rama and Batistuzi will waive and transfer their rights to the shares in favor of plaitiffs.
The Compromise Agreement was approved by the trial court, BUT the motion to dismiss was NOT GRANTED.
Gamboas filed for MR, claiming the court has no jurisdiction to interfere with the management of the corporation by the BOD.
Denied, hence this appeal.
ISSUE: Does the court have J to interfere with the management of the corporation by the BOD? YES
The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is merely
interlocutory and cannot be the subject of a petition for certiorari. The proper procedure to be followed in such a case is to
continue with the trial of the case on the merits and, if the decision is adverse, to reiterate the issue on appeal. It would be a
breach of orderly procedure to allow a party to come before this Court every time an order is issued with which he does not
agree.
HELD: The well-known rule is that courts cannot undertake to control the discretion of the board of directors about
administrative matters as to which they have legitimate power of, 10 action and contractsintra vires entered into by the board
of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of the rights of the minority. 11 In the instant case, the plaintiffs aver that the
defendants have concluded a transaction among themselves as will result to serious injury to the interests of the plaintiffs, so
that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against
the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies
available within the corporation.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones
to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with
the corporation as the real party in interest. 12 In the case at bar, however, the plaintiffs are alleging and vindicating their own
individual interests or prejudice, and not that of the corporation. At any rate, it is yet too early in the proceedings since the
issues have not been joined. Besides, misjoinder of parties is not a ground to dismiss an action.
was merely an admission by the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi of the validity
of the claim of the plaintiffs.
The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion to
dismiss the complaint, questioning the trial court's jurisdiction on matters affecting the management of the corporation, is
without merit. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about
administrative matters as to which they have legitimate power of, 10 action and contractsintra vires entered into by the board
of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of the rights of the minority. 11 In the instant case, the plaintiffs aver that the
defendants have concluded a transaction among themselves as will result to serious injury to the interests of the plaintiffs, so
that the trial court has jurisdiction over the case.
The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against
the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies
available within the corporation.??
Derivative suit? No, too early. An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. 12 In the case at bar, however, the plaintiffs are
alleging and vindicating their own individual interests or prejudice, and not that of the corporation. At any rate, it is yet too
early in the proceedings since the issues have not been joined.

GOKONGWEI VS SEC
FACTS:
This is a petition for “declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws
and damages” filed by petitioner John Gokongwei against the majority of the members of the Board of Directors. He has the ff
causes of action:
1. that the Board in amending the by-laws, had no authority to do so because it was based on the a 1961 authorization
and the amendment being contested was in 1976, and the authorization should have been based on votes made according to
the 1976 shares, not the 1961 shares,
2. the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board
ceased to exist,
3. membership of the Board changed since 1961, there are 6 new directors,
4. that prior to the amendment of the by-laws , he had all the qualifications to be a director (he was a substantial
stockholder) and the aamended by-laws disqualified him and deprived him of a vested right to be voted,
5. that the corporation has no inherent power to disqualify a stockholder from being elected and therefore it is an ultra
vires and void act.
Petitioner also wanted to inspect records and documents of San Miguel Corporation but the request was denied
because the request was said to have been made in bad faith.

Respondents filed their answer to the petition, denying the substantial allegations therein and stating, by way of
affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the . . . amendments is
valid and legal because the power to 'amend, modify, repeal or adopt new By-laws' delegated to said Board on March 13, 1961
and long prior thereto has never been revoked, withdrawn or otherwise nullified by the stockholders of SMC". Also said that
the power of the Board to amend the by-laws are broad, subject only to existing laws.
August 1972, the Universal Robina Corporation (URC), a corporation engaged in business competitive to that of
respondent corporation, began acquiring shares amounting to 622,987 shares. In October 1972, the Consolidated Foods
Corporation (CFC) likewise began acquiring shares in respondent corporation that amounted to P543,959.00. On January 12,
1976, petitioner, who is president and controlling shareholder of URC and CFC (both closed corporations) purchased 5,000
shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and URC, "conducted malevolent and
malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in
representation of URC and CFC interests, a seat in the Board of Directors of SMC". Petitioner was rejected by the stockholders
in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business
and his securing a seat would have subjected respondent corporation to grave disadvantages.
On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or
preventing petitioner from running or from being voted as director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification or confirmation of the amendment. SEC held that petitioner should
be allowed to run as a director but that he should not sit as such until SEC has decided on the validity of the by-laws in
dispute.
Respondents reason out that petitioner is engaged in businesses competitive and antagonistic to that of respondent
SMC and that the Board realized the clear and present danger in competitors being directors because they would have easy
and direct access to SMC’s business and trade secrets.
ISSUE: W/N the amended by-laws of SMC disqualifying a competitor from nomination or election to the Board of Directors of
SMC are valid and reasonable.
HELD/RATIONALE: Amendments are valid.
The validity or reasonableness of a by-law of a corporation is purely a question of law. Petitioner claims that the
amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from
having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a
person of his choice as director.
Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority
of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of
the act of incorporation and lawfully enacted by-laws and not forbidden by law."
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or
written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If the
amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has only one
right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of
the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said,
therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as
stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment,
alteration and modification.
Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot
be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation, they should act for the collective benefit of the stockholders.
It is a settled state law in the United States that corporations have the power to make by-laws declaring a person employed in
the service of a rival company to be ineligible for the corporation's Board of Directors. ". . . (A)n amendment which renders
ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition
with or is antagonistic to the other corporation is valid." This is based upon the principle that where the director is so
employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment
"advances the benefit of the corporation and is good."
The doctrine of "corporate opportunity" is precisely a recognition that fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing interests. It is not denied that a member of the Board of Directors of
the San Miguel Corporation has access to sensitive and highly confidential information.
 It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is
also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director
to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it
would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to
both corporations and place the performance of his corporation duties above his personal concerns.
In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in
adopting measures to protect legitimate corporate interests. The test must be whether the business does in fact compete, not
whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non-characteristic activity.

A. MUST ACT AS A BODY (SEC 52 [1])

CASE:
ISLAMIC DIRECTORATE VS CA
FACTS: 1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated with the primary purpose of
establishing a mosque, school, and other religious infrastructures in Quezon City.

IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-26520 (176616)
and RT-26521 (170567).

When President Marcos declared martial law in 1972, most of the members of the 1971 Board of Trustees ("Tamano
Group")flew to the Middle East to escape political persecution.

Thereafter, two contending groups claiming to be the IDP Board of Trustees sprung: the Carpizo group and Abbas
group.

In a suit between the two groups, SEC rendered a decision in 1986 declaring both groups to be null and void. SEC
recommeded that the a new by-laws be approved and a new election be conducted upon the approval of the by-laws. However,
the SEC recommendation was not heeded.

In 1989, the Carpizo group passed a Board Resolution authorizing the sale of the land to Iglesia Ni Cristo ("INC"), and
a Deed of Sale was eventually executed.

In 1991, the Tamano Group filed a petition before the SEC questioning the sale.

Meanwhile, INC filed a suit for specific performance before RTC Branch 81 against the Carpizo group. INC also moved
to compel a certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title.

The Tamano group sought to intervene, but the intervention was denied despite being informed of the pending SEC
case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land, and ordered Ligon to surrender the
titles for annotation. Ligon appealed to CA and SC, but her appeals were denied.

In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.

MAIN ISSUE: W/N the sale between the Carpizo group and INC is null and void.

RULING: YES.

Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered into with INC is likewise
void. Without a valid consent of a contracting party, there can be no valid contract.

In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the disputed Deed of Absolute
Sale executed in favor of INC. Therefore, this is a case not only of vitiated consent, but one where consent on the part of one of
the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.

Further, the Carpizo group failed to comply with Section 40 of the Corporation Code, which provides that: " ... a
corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its property and assets... when authorized by the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds
(2/3) of the members, in a stockholders' or members' meeting duly called for the purpose...."
 The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or disposition of all the
corporate property and assets of IDP. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred
in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements
were not met in the case at bar.

ANCILLARY ISSUE: W/N The Ligon ruling constitutes res judicata.

RULING: NO.

Section 49(b), Rule 39 enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section
49(c), Rule 39 is referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second
case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities
are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where
between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only
identity of parties but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those
matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is
termed "conclusiveness of judgment."

Neither applies to the case at bar. There is no "bar by former judgment" since while there may be identity of subject
matter (IDP property) in both cases, there is no identity of parties. The principal parties in the first case were Ligon and the
Iglesia Ni Cristo. The IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly
represented by a legitimate Board of Trustees.

Res Judicata in the form of "conclusiveness of judgment" cannot likewise apply for the reason that the primary issue in
the first case is the possession of the titles, and not the sale of the land, as in this case.

RAMIREZ VS ORIENTALIST
Facts: Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of Manila for the
exhibition of cinematographic films. engaged in the business of marketing films for a manufacturer or manufacturers, there
engaged in the production or distribution of cinematographic material. In this enterprise the plaintiff was represented in the
city of Manila by his son, Jose Ramirez. The directors of the Orientalist Company became apprised of the fact that the plaintiff
in Paris had control of the agencies for two different marks of films, namely, the “Eclair Films” and the “Milano Films;” and
negotiations were begun with said officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff. The defendant
Ramon J. Fernandez, one of the directors of the Orientalist Company and also its treasure, was chiefly active in this matter.
Ramon J. Fernandez had an informal conference with all the members of the company’s board of directors except one, and
with approval of those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer
contained in the memorandum the exclusive agency of the Eclair films and Milano films. In due time the films began to arrive
in Manila, it appears that the Orientalist Company was without funds to meet these obligations. Action was instituted by the
plaintiff to Orientalist Company, and Ramon J. Fernandez for sum of money.

Issue: WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?

Held: Yes. It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors who
was most active in the effort to secure the films for the corporation. The negotiations were conducted by him with the
knowledge and consent of other members of the board; and the contract was made with their prior approval. In the light of all
the circumstances of the case, we are of the opinion that the contracts in question were thus inferentially approved by the
company’s board of directors and that the company is bound unless the subsequent failure of the stockholders to approve said
contracts had the effect of abrogating the liability thus created.

BOARD OF LIQUIDATORS VS KALAW

FACTS: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization
avowedly for the protection, preservation and development of the coconut industry in the Philippines. General manager and
board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant
Leonor Moll became director only on December 22, 1947.

An unhappy chain of events conspired to deter NACOCO from fulfilling some contracts entered. Nature supervened. Four
devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in
December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices
spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time
necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem.

The buyers threatened damage suits. All the settlements sum up to P1,343,274.52.

NACOCO, represented by the Board of Liquidators, seeks to recover the above sum of P1,343,274.52 from general manager
and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with
negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members,
including Kalaw, with bad faith and/or breach of trust for having approved the contracts without prior approval of the Board.

The lower court came out with a judgment dismissing the complaint. Hence, plaintiff appealed direct to this Court. Plaintiff
levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the
prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter
III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which
the Corporation was organized.”

ISSUE: Whether or not the acts of the respondent as General Manager without prior approval of the Board are valid corporate
acts.

HELD:

Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the
corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general
management and control of its business, has implied authority to make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the corporation. As such officer, "he may, without any special authority
from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising in the usual course of business.

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice,
custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In
varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the
company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in
its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally
followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed.

ACUNA VS BATAC PRODUCERS

Facts:
Plaintiff Emiliano Acuña filed a complaint against the defendant Batac Producers Cooperative Marketing Association, Inc.,
(Batac Procoma). The complaint alleged that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and
defendant Leon Q. Verano, as Manager of the defendant Batac Procoma that the former would seek and obtain the sum of not
less, than P20,000.00 to be advanced to the defendant Batac Procoma to be utilized by it as additional funds for its Virginia
tobacco buying operations during the current redrying season. Emiliano Acuña would be constituted as the corporation's
representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the
redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such
shipments. For his services plaintiff Emiliano Acuña would be paid a remuneration at the rate of P0.50 per kilo of tobacco. The
said tentative agreement was favorably received by the Board of Directors of the defendant Batac Procoma and unanimously
authorized defendant Leon Q. Verano, by a formal resolution, to execute any agreement with any person or entity, on behalf of
the corporation, and defendant Leon Q. Verano was acceptable to the corporation, except that the remuneration for the
plaintiff Emiliano Acuña’s services would be P0.30 per kilo of tobacco. The formal "Agreement" was executed between
plaintiff Emiliano Acuña and defendant Leon Q. Verano, as Manager of the defendant corporation, duly authorized by its Board
of Directors for such purpose. On the same date, plaintiff gave Emiliano Acuña turned over to the defendant corporation, thru
its treasurer, the sum of P20,000.00. From then on, plaintiff Emiliano Acuña diligently and religiously kept his part of the
"Agreement;" that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three
thousand (3,000) sacks which it utilized in the shipment of its tobacco costing P6,000.00 and that plaintiff Emiliano Acuña had
personally advanced out of his own personal funds the total sum of P5,000.00 with the full knowledge, acquiescence and
consent of all the individual defendants.
After the defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco
delivered due to the help, assistance and intervention of plaintiff Emiliano Acuña, for which the said corporation collected
from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board of Directors. Upon the foregoing
allegations plaintiff filed a complaint before the court.
The lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the
following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court. The
defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the
preliminary attachment on the ground that it was improperly or irregularly issued. In support of the motion defendants
alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved
by the Board of Directors of defendant Batac Procoma, Inc., and that on the basis of plaintiff's pleadings the contract is void
and unenforceable. Defendants further denied the fact that plaintiff had performed his part of the contract, alleging that he had
not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation. The trial court
sustained defendants' motion and states that the complaint states no cause of action and that contract in question is void ab
initio.

Issue:
1. Whether or not the case at bar should be dismissed due to no cause of action?
2. Whether or not the Board of Directors did not allow the contract between them and petitioner Emilio Acuña.

Held:
1. No, the case at bar should not be dismissed due to no case of action?
2. Yes, the Board of Directors allows the contract between them and petitioner Emilio Acuña?

Ratio:
1. It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause
of action, the averments in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they
make out a case on which relief can be granted. If said motion assails directly or indirectly the veracity of the allegations, it is
improper to grant the motion upon the assumption that the averments therein are true and those of the complaint are not. The
sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint, and no other.
2. A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least
subsequent ratification. On the first point we note the following averments, the plaintiff met with each and all of the individual
defendants, who constituted the entire Board of Directors and discussed with them extensively the tentative agreement and he
was made to understand that it was acceptable to them, except as to plaintiff's remuneration. It was finally agreed between
plaintiff and all said Directors that his remuneration would be P0.30 per kilo of tobacco. After the agreement was formally
executed, he was assured by said Directors that there would be no need of formal approval by the Board. It should be noted in
this connection that although the contract required such approval it did not specify just in what manner the same should be
given.
On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of
P20,000.00 as called for in the contract. He rendered the services by furnishing 3,000 sacks at a cost of P6,000.00 and
advanced to it the further sum of P5,000.00 and that he did all of these things with the full knowledge, acquiescence and
consent of each and all of the individual defendants who constitute the Board of Directors of the defendant corporation. There
is abundant authority in support of the proposition that ratification may be express or implied, and that implied ratification
may take diverse forms, such as by silence or acquiescence, by acts showing approval or adoption of the contract, or by
acceptance and retention of benefits flowing therefrom.

HARDEN VS BENGUET CONSOLIDATED

FACTS

• BENGUET CONSOLIDATED MINING was organized in June 1903 as a sociedad anonima in conformity with Spanish
Law. BALATOC MINING CO. was organized in December 1925 as corporation in conformity with Act. 1459 (Corporation Law).
Harden et al. are stockholders of Balatoc Mining.

• When Balatoc Mining first organized the properties it acquired were largely undeveloped and the original
stockholders were unable to supply the means needed for profitable operation. (In short, naglisud ang corporation). In order
to solve such problem, the company’s stockholders appointed a committee for the purpose of interesting outside capital in the
mine. By authority of a resolution of the board of directors, the committee approached A.W. Beam, president & general
manager of Benguet Company in order to secure capital necessary to the development of the Balatoc property.

• A contract was signed between the 2 companies which provide that BENGUET COMPANY was to proceed with the
development of the Balatoc property and in return BENGUET COMPANY would receive from BALATOC COMPANY shares of
par value of P600,000 in payment for the first P600,000 be thus advanced to it by Benguet company.

• The total cost incurred by BENGUET COMPANY in developing the Balatoc property was P1,417,952.15. In
compensation for this work, a certificate for P600,000 shares of stock of BALATOC COMPANY was given to BENGUET
COMPANY and the excess value was paid to Benguet by Balatoc in cash.

• Due to the improvements made on the company’s property, the value of the shares of BALATOC increased in the
market (from P1.00 to P11.00) and the dividends of the company enriched its stockholders. As soon as the success of the
company became apparent, Harden (owner of thousands of shares of Balatoc) questioned the transfer of 600,000 shares to
Benguet. Harden seeks to annul the certificate covering the 600,000 shares of stock transferred to Benguet.

• Main argument of Harden: It is unlawful for the Benguet Company to hold any interest in a mining corporation
because in the former Corporation Law (Act of Congress 1916) there is a provision referring to mining corporations: “it shall
be unlawful for any member of a corporation engaged in agriculture or mining and for any corporation organized for any
purpose except irrigation to be in any wise interested in any other corporation engaged in agriculture or in mining.”

ISSUES

WON Harden et al can maintain an action based upon the violation of law supposedly committed by Benguet Company

If Benguet Company committed a violation, WON Benguet Company (sociedad anonima) is a corporation within the meaning
of the language used by US Congress and later by Philippine Congress, prohibiting mining corporations from becoming
interested in another mining corporation

RULING

1. WON Harden et al can maintain an action based upon the violation of law supposedly committed by Benguet Company

BENGUET COMPANY committed NO CIVIL WRONG against the plaintiffs, and if a public wrong has been committed, the
directors of the Balatoc Company, and Harden himself were the active inducers of the commission of that wrong. THE
CONTRACT WAS PERFORMED ON BOTH SIDES: by the building of the Balatoc plant by the Benguet Company and the delivery
to the latter of the certificate of 600,000 shares of the Balatoc Company.

The penalties imposed on what is now Sec. 190 (A) of the Corporation Law for the violation of the prohibition in question are
of such nature that they can be enforced only by a criminal prosecution or by an action of quo warranto. However these
proceedings can be maintained only by the Attorney General in representation of the government.

2. If Benguet Company committed a violation, WON Benguet Company (sociedad anonima) is a corporation within the
meaning of the language used by US Congress and later by Philippine Congress, prohibiting mining corporations from
becoming interested in another mining corporation

Since the plaintiffs have no right of action against Benguet Company, the COURT REFUSED TO GO FURTHER INTO THE
QUESTION AS TO WHETHER A SOCIEDAD ANONIMA CREATED UNDER SPANISH LAW (Bengeut Company) IS A
CORPORATION WITHIN THE PROHIBITORY PROVISION,

Sociedad Anonima is much like the English joint stock company with features resembling those of a partnership. Since it was
the intention of Congress to simulate the introduction of American Corporation into Philippine law in place of sociedad
anonima, it was necessary to make certain adjustments resulting from the continued co-existence for a time, of the 2 forms of
commercial entities. Accordingly, in section 75 of the Corporation Law, a provision is found making the sociedad anonima
subject to the provisions of the Corporation Law "so far as such provisions may be applicable", and giving to the sociedades
anonimas previously created in the Islands the option to continue business as such or to reform and organize under the
provisions of the Corporation Law. Again, in section 191 of the Corporation Law, the Code of Commerce is repealed in so far as
it relates to sociedades anonimas. The purpose of the commission in repealing this part of the Code of Commerce was to
compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt
some form or other of the partnership.
The provision in Section 75 of the Act Congress of July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in
mining and members of such from being interested in any other corporation engaged in mining, was amended by section 7 of
Act No. 3518 of the Philippine Legislature, approved by Congress March 1, 1929.

As originally drawn, our Corporation Law (Act No. 1459) did not contain any appropriate clause directly penalizing the act of a
corporation, a member of a corporation, in acquiring an interest contrary to paragraph (5) of section 13 of the Act. The
Philippine Legislature undertook to remedy this situation in section 3 of Act No. 2792 of the Philippine Legislature, approved
on February 18, 1919, but this provision was declared invalid by this court in Government of the Philippine Islands vs. El
Hogar Filipino (50 Phil., 399), for lack of an adequate title to the Act. Subsequently the Legislature reenacted substantially the
same penal provision in section 21 of Act No. 3518, under a title sufficiently broad to comprehend the subject matter. This part
of Act No. 3518 became effective upon approval by the Governor-General, on December 3, 1928, and it was therefore in full
force when the contract now in question was made.

This provision was inserted as a new section in the Corporation Law, forming section 190 (A) of said Act as it now stands.
Omitting the proviso, which seems not to be pertinent to the present controversy, said provision reads as follows:
SEC. 190 (A). Penalties. — The violation of any of the provisions of this Act and its amendments not otherwise penalized
therein, shall be punished by a fine of not more than five thousand pesos and by imprisonment for not more than five years, in
the discretion of the court. If the violation is committed by a corporation, the same shall, upon such violation being proved, be
dissolved by quo warranto proceedings instituted by the Attorney-General or by any provincial fiscal by order of said
Attorney-General: . . . .

Sort of Historical Background of Introduction of “Corporations” into the Philippines:

• When the Philippines passed to the sovereignty of the US, Philippine Commission was drawn to the fact that there is
no entity in Spanish law which exactly corresponded to the notion of corporation in English and American law.

• Philippine Congress thus enacted a general law authorizing the creation of Corporation Law (Act No. 1459). The
purpose of the commission was to introduce the American corporation into the Philippines as a standard of commercial entity.
The statute is a codification of American corporate law.

B. EXECUTIVE COMMITTEE (SECTION 34)