MIssionary Sisters of Our Lady of Fatima vs. Alzona (2018)

Petitioners  !"# MISSIO$A%& SIS!#%S OF O'% LA& OF FA!IMA (#A*" SIS!#%S OF LA+'$A),
%#%#S#$!# -& %#. MO!"#% MA. *O$*#*IO$ %. %#ALO$, #! AL.

Respondents  AMA$O . AL/O$A, #! AL.

Ponente %eyes, r. (Seond ivision)

Topic *ivil La3 *ommerial La

SUMMARY !4e S* u54eld 5etitioner6s 5ersonality to ae5t t4e donation in its favor des5ite t4e fat t4at t4e
donation as made 7efore its artiles of inor5oration ere su7mitted to t4e S#* on t4e round of or5oration
7y esto55el.

DOCTRINE 'nder Artile 9:9 of t4e *ivil *ode, ;<t=4e donor>s a5aity s4all 7e determined as of t4e time of 
t4e ma?in of t4e donation.; -y analoy, t4e leal a5aity or t4e 5ersonality of t4e donee, or t4e aut4ority of 
t4e latter>s re5resentative, in ertain ases, is determined at t4e time of ae5tane of t4e donation. Artile
9:8, in relation to Artile 9@, of t4e *ivil *ode 5rovides t4at all t4ose 4o are not s5eifially disBualified 7y
la may ae5t donations eit4er 5ersonally or t4rou4 an aut4orized re5resentative it4 a s5eial 5oer of 
attorney for t4e 5ur5ose or it4 a eneral and suffiient 5oer.

uris5ruden
uris5rudene
e settled
settled t4at ;<t=4e
;<t=4e filin of artiles of inor5oration and t4e issua
inor5oration issuane
ne of t4
t4ee ertif
ertifia
iate
te of 
inor5oration are essential for t4e eCistene of a de facto or5oration.; In fine, it is t4e at of reistration it4
S#* t4rou4 t4e issuane of a ertifiate of inor5oration t4at mar?s t4e 7einnin of an entity>s or5orate
eCistene.

!4e dotrine of or5oration 7y esto55el is founded on 5rini5les of eBuity and is desined to 5revent
inDustie and unfairness. It a55lies 4en a nonEeCistent or5oration enters into ontrats or dealins it4 t4ird
5ersons. In 4i4 ase, t4e 5erson 4o 4as ontrated or ot4erise dealt it4 t4e nonEeCistent
nonEeCistent or5oration is
esto55ed to deny t4e latter>s leal eCistene in any ation leadin out of or involvin su4 ontrat or dealin.
4ile t4e dotrine is enerally a55lied to 5rotet t4e santity of dealins it4 t4e 5u7li, not4in 5revents its
a55liation in t4e reverse, in fat t4e very ordin of t4e la 4i4 sets fort4 t4e dotrine of or5oration 7y

esto55el 5ermits su4 inter5retation. Su4 t4at a 5erson 4o 4as assumed an o7liation in favor of a nonE
eCistent or5oration,
or5oration, 4avin transated it4 t4e latter as if it as duly inor5orated, is 5revented from denyin
t4e eCistene of t4e latter to avoid t4e enforement of t4e ontrat.

uris5rudene ditates t4at t4e dotrine of or5oration 7y esto55el a55lies for as lon as t4ere is no
fraud and 4en t4e eCistene of t4e assoiation is atta?ed for auses attendant at t4e time t4e ontrat or 
dealin sou4t to 7e enfored as entered into, and not t4ereafter.

In donations made to a 5erson for servies rendered to t4e donor, t4e donor>s ill is moved 7y ats
4i4
4 i4 diret
diretly
ly 7ene
7enefit
fit 4im.
4im. !4e motiv
motivati
atin
n a
ause
use is ratit
ratitud
ude,
e, a?no
a?noled
ledm
men
entt of a fa
favor
vor,, a de
desir
sire
e to
om5ensate. A donation made to one 4o saved t4e donor>s life, or a layer 4o renouned 4is fees for 
servies rendered to t4e donor, ould fall under t4is lass of donations.

EEE
!4e 5rini5le and essene of im5lied ratifiation reBuire t4at t4e 5rini5al 4as full ?nolede at t4e time
of ratifiation of all t4e material fats and irumstanes relatin to t4e at sou4t to 7e ratified or validated.
 

 Also, it is im5ortant t4at t4e at onstitutin

onstitutin t4e ratifiation is uneBuivoal
uneBuivoal in t4at it is 5erformed it4out t4e
sli4test 4int of o7Detion or 5rotest from t4e donor or t4e donee, t4us 5roduin t4e inevita7le onlusion t4at
t4e donation and its ae5tane ere in fat onfirmed and ratified 7y t4e donor and t4e donee.

EEE

<=rivity in estate denotes t4e 5rivity 7eteen assinor and assinee, donor and donee, rantor and

rantee, Doint tenant for life and remainderman or reversioner and t4eir res5etive assinees, vendor 7y deed
of arranty and a remote vendee or assinee. A 5rivy in estate is one, it 4as 7een said, 4o derives 4is title to
t4e 5ro5erty in Buestion 7y 5ur4ase3 one 4o ta?es 7y onveyane. In fine, res5ondents, as suessorsEinE
interest, derive t4eir ri4t from and are in t4e same 5osition as t4eir 5redeessor in 4ose s4oes t4ey no
stand.

FACTS

!4e Missionary Sisters of Our Lady of Fatima (5etitioner), ot4erise ?non as t4e ea4 Sisters of 
Launa, is a reliious and 4arita7le rou5 esta7lis4ed under t4e 5atronae of t4e %oman *at4oli -is4o5 of 
San a7lo on May :0, 1G8G. Mot4er Ma. *one5ion %. %ealon (Mot4er *one5ion) is t4e 5etitioner>s
Su5erior +eneral. !4e res5ondents, on t4e ot4er 4and, are t4e leal 4eirs of t4e late urifiaion &. Alzona
(urifiaion).

urifiaion, a s5inster, is t4e reistered oner of 5arels of land overed 7y !ransfer *ertifiate of !itle
(!*!) $os. !E9820H and !E12:93
!E12:93 and a oEoner
oEoner of anot4er 5ro5erty overed 7y !*! $o. !E12:80, all of 
4i4 are loated in *alam7a *ity, Launa.

In 1GG, urifiaion, im5elled 7y 4er unmaterialized desire to 7e nun, deided to devote t4e rest of 4er 
life in 4el5in ot4ers. In t4e same year, s4e t4en 7eame a 7enefator of t4e 5etitioner 7y ivin su55ort to t4e
ommunity and its or?s.

In 1GG9,
1GG9, durin
durin a dotor>
dotor>s
s a55ointm
a55ointment
ent,, urifia
urifiaion
ion t4en aom5anied
aom5anied 7y Mot4er
Mot4er *one5i
*one5ion,
on,
disove
disovered
red t4at
t4at s4e 4as 7een
7een sufferin
sufferin
 from lun aner
aner.. *onside
*onsiderin
rin t4e restriti
restritions
ons in 4er movement
movement,,
urifiaion reBuested Mot4er *one5ion to ta?e are of 4er in 4er 4ouse, to 4i4 t4e latter areed.

Oto7erIn1GGG.
Oto7er 1GGG,urifiaion
!4erein, urifiaionstated
alledt4at
Mot4er
s4e *one5ion and4ouse
is donatin 4er 4anded
and4er
lot aat4andritten
F. Meradoletter
Streetdated
and
%ieland at -anli, 7ot4 at *alam7a, Launa, to t4e 5etitioner t4rou4 Mot4er *one5ion. On t4e same
oasion, urifiaion introdued Mot4er *one5ion to 4er ne54e, Franiso el Mundo (Franiso), and
niee, Ma. Lourdes Alzona AutoEAfria (Lourdes). urifiaion, instruted Franiso to ive a s4are of t4e
4arvest to Mot4er *one5ion, and informed Lourdes t4at s4e 4ad iven 4er 4ouse to Mot4er *one5ion.

Sometime in Auust 2001, at t4e reBuest of urifiaion, Mot4er *one5ion ent to see Atty. Atty. $onato
 Arillas (Atty.
(Atty. Arillas) in Los -aJos, Launa. urin t4eir meetin, Atty.
Atty. Arillas as?ed Mot4er *one5ion
*one5ion
4et4er t4eir rou5 is reistered it4 t4e S#*, to 4i4 t4e latter re5lied in t4e neative. Atin
Atin on t4e advie
iven 7y Atty.
Atty. Arillas, Mot4er *one5ion ent to S#* and filed t4e orres5ondin reistration a55liatio
a55liation
n on
 Auust 28, 2001.
2001.

On Auust 2G, 2001, urifiaion eCeuted a eed of onation Inter ivos (eed) in favor of t4e
5etitioner, onveyin 4er 5ro5erties overed 7y !*! $os. !E9820 and !E12:9, and 4er undivided s4are in
t4e 5ro5erty overed 7y !*! $o. !E12:80. !4e eed as notarized 7y Atty. Arillas and itnessed 7y
 

urifiaion>s ne54es Franiso and iosdado Alzona, and randne54e, Atty. Fernando M. Alonzo. !4e
donation as ae5ted on even date 7y Mot4er *one5ion for and in 7e4alf of t4e 5etitioner.

!4ereafter, Mot4er *one5ion filed an a55liation 7efore t4e -ureau of Internal %evenue (-I%) t4at
t4e 5etitioner 7e eCem5ted from donor>s taC as a reliious oranization. !4e a55liation as ranted 7y t4e
-I% t4rou4
t4rou4 a letter
letter dated
dated anuary
anuary 1@, 2002
2002 of Atin Assistan
Assistantt *ommissi
*ommissioner
oner,, Leal
Leal Servie,
Servie, Milaros
Milaros
%ealado.

Su7seBuently, t4e eed, toet4er it4 t4e oner>s du5liate o5ies of !*! $os. !E9820, !E12:9,
and !E12:80, and t4e eCem5tion letter from t4e -I% as 5resented for reistration. !4e %eister of eeds,
4oever, denied t4e reistration on aount of t4e Affidavit of Adverse *laim dated Se5tem7er 2, 2001 filed
7y t4e 7rot4er of urifiaion, res5ondent Amando &. Alzona (Amando).

On Oto7er :0, 2001, urifiaion died it4out any issue, and survived only 7y 4er 7rot4er of full 7lood,
 Amando,, 4o nonet4eless died durin t4e 5endeny
 Amando 5endeny of t4is ase and is no re5resented and su7stituted
su7stituted 7y
4is leal 4eirs, Doined as 4erein res5ondents.

On A5ril G, 2002, Amando filed a *om5laint 7efore t4e %!*, see?in to annul t4e eed eCeuted
7eteen urifiaion and t4e 5etitioner, on t4e round t4at at t4e time t4e donation as made, t4e latter as
not reistered it4 t4e S#* and t4erefore 4as no Duridial 5ersonality and annot leally ae5t t4e donation.

%!* dismissed t4e 5etition. *A modified, delarin t4e donation void.

ISSUES

  o$ 5etitioner 4as t4e reBuisite leal 5ersonality to ae5t t4e donation
o &#S. At t4e outset, it must 7e stated t4at as orretly 5ointed out 7y t4e *A, t4e %!* erred in
4oldin t4at t4e 5etitioner is a de facto or5oration.
o etitioner filed its Artiles of Inor5oration and 7yElas on Auust 28, 2001. "oever, t4e S#*
issued t4e orres5ondin *ertifiate of Inor5oration only on Auust :1, 2001, to (2) days after 
urifiaion eCeuted
eCeuted a eed of onation on Auust 2G, 2001. *learly, at t4e time t4e donation
as made, t4e etitioner annot 7e onsidered a or5oration de fato.
o %at4er, a revie of t4e attendant irumstanes reveals t4at it alls for t4e a55liation of t4e

dotrine of or5oration 7y esto55el as 5rovided for under Setion 21 of t4e *or5oration *ode.
o In t4is ontroversy, urifiaion dealt it4 t4e 5etitioner as if it ere a or5oration. !4is is
evident from t4e fat t4at urifiaion eCeuted to (2) douments onveyin 4er 5ro5erties in
11,, 1GGG via 4andritten letter, and seond, on Auust
favor of t4e 5etitioner K first, on Oto7er 11
2G, 2001 t4rou4 a eed3 t4e latter 4avin 7een eCeuted t4e day after t4e 5etitioner filed its
a55liation for reistration it4 t4e S#*.
o In t4is ase, 4ile t4e underlyin ontrat 4i4 is sou4t to 7e enfored is t4at of a donation,
and t4us rooted on li7erality, it annot 7e said t4at urifiaion, as t4e donor failed to aBuire
any 7enefit t4erefrom so as to 5revent t4e a55liation of t4e dotrine of or5oration 7y esto55el.
!o reall, t4e su7Det 5ro5erties ere iven 7y urifiaion, as a to?en of a55reiation for t4e
servies rendered to 4er durin 4er illness. In fine, t4e su7Det deed 5arta?es of t4e nature of a
remuneratory or om5ensatory donation, 4avin 7een made ;for t4e 5ur5ose of reardin t4e

o
donee for 5ast
reisely, servies, 4i4
t4e eCistene of t4eservies do not
5etitioner as aamount to a demanda7le
or5orate de7t.;
entity is u54eld in t4is ase for t4e
5ur5ose of validatin t4e eed to ensure t4at t4e 5rimary o7Detive for 4i4 t4e donation as
 

intended is a4ieved, t4at is, to onvey t4e 5ro5erty for t4e 5ur5ose of aidin t4e 5etitioner in
t4e 5ursuit of its 4arita7le o7Detives.
o Furt4er
Furt 4er,, a5art
a5art from t4e foreoi
foreoin,
n, t4e su7seBu
su7seBuent ent at 7y urifia
urifiaion
ion of reEonve
reEonveyin
yin t4e
5ro5erty in favor of t4e 5etitioner is a ratifiation 7y ondut of t4e ot4erise defetive donation.
o In t4is ontroversy, 4ile t4e initial onveyane is defetive, t4e enuine intent of urifiaion to
donate t4e su7Det 5ro5erties in favor of t4e 5etitioner
5etitioner is indu7ita7le.
indu7ita7le. Also, 4ile t4e 5etitioner is
yet to 7e inor5orated, it annot 7e said t4at t4e initial onveyane as tainted it4 fraud or 
misre5resentation. *ontrarily, urifiaion ated it4 full ?nolede of irumstanes of t4e
etitioner.
etitione r. !4is is evident from urifiaion>s at of referrin Mot4er *one5ion to Atty. Atty. Arillas,
4o, in turn, advised t4e 5etitioner to a55ly for reistration. Furt4er, it4 t4e eCeution of to (2)
douments of onveyane in favor of t4e 5etitioner, it is lear t4at 4at urifiaion intended
as for t4e sisters om5risin t4e 5etitioner to 4ave oners4i5 of 4er 5ro5erties to aid t4em in
t4e 5ursuit of t4eir 4arita7le ativities,
ativities, as a to?en of a55reiation for t4e servies t4ey rendered
to 4er durin 4er illness. !o 5ut it differently, t4e referene to t4e 5etitioner as merely a
desr
desri5t
i5tive
ive term
term used
used to refer
refer to t4e sis sister
terss om5ri
om5risin
sin t4e o on
nre
reati
ation
on oolle
lleti
tivel
vely
y.
 Aordinly
 Aordin ly,, t4e ae5tane of Mot4er *one5ion for t4e sisters om5risin t4e onreation
onreation
is suffiient to 5erfet t4e donation and transfer title to t4e 5ro5erty to t4e 5etitioner.
5etitioner. 'ltimately,
'ltimately,
t4e su7seBue
su7seBuent nt inor5ora
inor5oration
tion of t4e 5etition
5etitioner
er and its affaffirma
irmation
tion of Mot4er
Mot4er *one5
*one5ion>ion>s
s
aut4ority to ae5t on its 7e4alf ured 4atever defet t4at may 4ave attended t4e ae5tane
of t4e donation.
o !4
!4ee eed
eed sou4
sou4tt to 7e enfo
enfore
red
d 4avin
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NOTES etition for revie on certiorari GRANTED

AF Realty & Development Inc. vs. Dieselman Freight Services Co

Facts: On 10 May 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman Freight Services Co., issued
a letter denominated as "Authority To Sell Real Estate" to Cristeta N. Polintan, a real estate broker of the CNP Real Estate
Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per
square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot. In turn, Cristeta
Polintan, through a letter dated 19 May 1988, authorized Felicisima ("Mimi") Noble to sell the same lot. Felicisima Noble
then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter. Zenaida
Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00
payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgment Receipt" indicating that
the amount of P300,000.00 represents the partial payment of the property but refundable within two weeks should AF
Realty disapprove Ranullo's action on the matter.

On 29 June 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution
of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo the original copy of TCT 39849,
the tax declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. On 2 August
1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but
required AF Realty to finalize the sale at P4,000.00 per square meter. AF Realty replied that it has paid an initial down
payment of P300,000.00 and is willing to pay the balance.

However, on 13 August 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the
lot earlier delivered by Polintan. Claiming that there was a perfected contract of sale between them, AF Realty filed with
the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case 56278) against Dieselman
and Cruz, Jr.. The complaint prayed that Dieselman be ordered to execute and deliver a final deed of sale in favor of AF
Realty." In its amended complaint, AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00
as attorney's fees; and P500,000.00 as exemplary damages. In its answer, Dieselman alleged that there was no meeting
of the minds between the parties in the sale of the property and that it did not authorize any person to enter into such
transaction on its behalf.

Meanwhile, on 30 July 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale of
the same property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down
payment and deposited the balance of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on 3 April 1989 a Motion for Leave to Intervene in Civil Case
56278. Midas alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled
to sell and convey it to AF Realty. The trial court granted Midas' motion. After trial, the lower court rendered the Decision
holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty. Consequently, the perfected contract
of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith
when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial
report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00
purportedly deposited in escrow by Midas with a bank was not established.

Dieselman was ordered to execute and deliver to AF Realty the final deed of sale of the property covered by TCT 39849 of
the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and ordering Dieselman to pay
AF Realty attorney's fees in the amount of P50,000.00 and to pay the costs. Dissatisfied, all the parties appealed to the
Court of Appeals. In its Decision dated 10 December 1992, the Court of Appeals reversed the judgment of the trial court
holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF Realty, the sale
was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no bad faith on
the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty
for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. On 5 August
1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an Amending Decision, in
the sense that only Cruz, should be made liable to pay AF Realty the damages and attorney's fees awarded therein, plus
the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which
should be restituted to AF Realty. AF Realty filed the petition for review on certiorari.

Issue: Whether there was a perfected contract of sale involving the Dieselman real property in favor of AF Realty.
Held: Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised
by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board
of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized
by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such
director, are held not binding on the corporation. Herein, Cruz has no written authority from the board of directors of
Dieselman to sell or to negotiate the sale of the lot, much less to appoint other persons for the same purpose. Cruz's lack
of such authority precludes him from conferring any authority to Polintan involving the subject realty. Necessarily, neither
could Polintan authorize Felicisima Noble. Clearly, the collective acts of Cruz, Polintan and Noble cannot bind Dieselman in
the purported contract of sale.
 Aguenza vs. Metropolitan Bank and Trust Co. et al. G.R. No. 74336,
4/7/1997

FACTS: On March 21, 1978, private respondents Vitaliado Arrieta, VP of Intertrade and Lilia P. Perez, a bookkeeper in
the employ of Intertrade, obtained a P500,000.00 loan from private respondent Metrobank. Both executed a Promissory
Note in favor of said bank in the amount of P500,000.00. Under said note, private respondents Arrieta and Perez promised
to pay said amount, jointly and severally, in twenty five
(25) equal installments of P20,000.00 each starting on April 20, 1979 with interest of 18.704% per annum, and in case
of default, a further 8% per annum.
Private respondents Arrieta and Perez defaulted in the payment of several installments, thus resulting in the entire
obligation becoming due and demandable. In 1979, private respondent Metrobank instituted suit against Intertrade,
Vitaliado Arrieta, Lilia Perez and her husband, Patricio Perez, to collect not only the unpaid principal obligation, but also
interests, fees and penalties, exemplary damages, as well as attorney's fees and costs of suit.
More than a year after private respondent Metrobank filed its original complaint, it filed an Amended Complaint
dated August 30, 1980 for the sole purpose of impleading petitioner as liable for the loan made by private respondents
Arrieta and Perez on March 21, 1978, notwithstanding the fact that such liability is being claimed on account of a
Continuing Suretyship Agreement dated March 14, 1977 executed by petitioner and private respondent Arrieta specifically
to guarantee the credit line applied for by and granted to, Intertrade, through petitioner and private respondent Arrieta
who were specially given authority by Intertrade on February 28, 1977 to open credit lines with private respondent
Metrobank. The obligations incurred by Intertrade under such credit lines were completely paid as evidenced by private
respondent Metrobank's debit memo in the full amount of P562,443.46.
RTC ruled that petitioner and Intertrade are not liable for the promissory note executed by Arrieta and Lilia Perez in the
amount of ₱ 500,000 as the same was the personal liability of the latter.
CA reversed the trial court and ordered Intertrade and Marketing Co., Inc. and J. Antonio Aguenza to pay, jointly and
severally, the promissory note contracted by Arrieta and Lilia Perez.

ISSUE : Was the promissory note dated 21 March 1978 secured and signed by Arrieta and Lilia Perez a corporate liability
of Intertrade and Aguenza?

RULING:

NO. Arrieta and Perez were never authorized by Intertrade through a board resolution of the Board of Directors of
Intertrade authorizing the former to transact said loan for and in behalf of the corporation. It is a well-settled rule that a
corporation transacts its business only through its officers or agents. And the authority of such officers or agents is
derived from the BOD or other governing body unless conferred by the charter of the corporation. It is to be noted that
the promissory note dated 21 March 1977 was signed by Arrieta and Lilia Perez only with no indication as to what capacity
the two signatories had in affixing their signatures thereon. There is no record that Intertrade through its BOD, conferred
upon Arrieta and Lilia Perez the authority to contract a loan with Metrobank and execute the promissory note as a security
therefor.

Metrobank in turn never presented a board resolution nor a stockholder's resolution showing that Arrieta and Lilia Perez
were empowered by Intertrade to execute the promissory note. Being that the promissory note was not the responsibility
of Intertrade, it follows that the same was not covered by the Continuing Suretyship Agreement.

CA decision is reversed and trial court decision is REINSTATED.

GRACE CHRISTIAN HIGH SCHOOL, petitioner,vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC.,
ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while
Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees
and residents at Grace Village.

The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1)
year until their successors are duly elected and have qualified.

On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION."

However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990,
petitioner was given a permanent seat in the board of directors of the association.

On 13 February 1990, the association's committee on election sought to change the by-laws and informed the
Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent
director of the association, although previously tolerated in the past elections should be reexamined."

Following this advice, notices were sent to the members of the association that the provision on election of directors of
the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to
change the notice to honor the 1975 by-laws provision, but was denied.

The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the
board of directors to recognize its right to a permanent seat in the board.

Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the
practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to §92
of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed with the
HIGC.

The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and
the Court of Appeals.

Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling: No. Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves
no room for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or
members.

There may be corporations in which there are unelected members in the board but it is clear that in these instances, the
unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g.
whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)

But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does
petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was
only in 1975 that a proposed amendment to the by-laws sought to give it one.

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

It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be
considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law.
Bitong v. CA (G.R. No. 123553)

Facts:

Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit before the SEC against respondent
spouses Apostol, who were officers in said corporation, to hold them liable for fraud and mismanagement in directing its
affairs. Respondent spouses moved to dismiss on the ground that petitioner had no legal standing to bring the suit as she
was merely a holder-in-trust of shares of JAKA Investments which continued to be the true stockholder of Mr. & Ms.
Petitioner contends that she was a holder of proper stock certificates and that the transfer was recorded. She further
contends that even in the absence of the actual certificate, mere recording will suffice for her to exercise all stockholder
rights, including the right to file a derivative suit in the name of the corporation. The SEC Hearing Panel dismissed the
suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc decision.

Issue:

Whether or not petitioner is the true holder of stock certificates to be able institute a derivative suit.

Ruling: NO.

Sec 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with
certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary
or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder
of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a
formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no
issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled
up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to
par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate
must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is
valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the
contrary. However, this presumption may be rebutted. Aside from petitioner’s own admissions, several corporate
documents disclose that the true party-in-interest is not petitioner but JAKA. It should be emphasized that JAKA executed,
a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent
Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by a
Certificate of Stock. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on
respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and
transfer the shares of stock to petitioner. In fine, the records are unclear on how petitioner allegedly acquired the shares
of stock of JAKA.

REPORT THIS AD

Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate;
(b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. At most,
in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not
been clearly and sufficiently shown.

*The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first
complying with the legal requisites for its institution. The most important of these is the bona fide
ownership by a stockholder of a stock in his own right at the time of the transaction complained of which
invests him with standing to institute a derivative action for the benefit of the corporation.
ALFREDO L. VILLAMOR, JR. v. JOHN S. UMALE, in substitution of HERNANDO F. BALMORES
FACTS

In 2004, Pasig Printing Corp. (PPC) obtained an option to lease portions of MidPasig Devt. Corp.'s property, including
Rockland where MC Home Depot was located. In November of the same year, PPC’s board of directors issued a resolution
waiving all its rights, interests, and participation in the option to lease contract in favor of the law firm of Atty. Alfredo
Villamor, Jr. PPC received no consideration for this waiver in favor of Villamor’s law firm.

Thereafter, PPC, represented by Villamor, entered into a memorandum of agreement (MOA) with MC Home Depot. Under
the MOA, MC Home Depot would continue to occupy the area as PPC’s sublessee for four (4) years, renewable for
another four (4) years, at a monthly rental of P4.5M plus goodwill of P18M.

In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks representing rental payments for
one year and the goodwill money. The checks were given to Villamor who did not turn these or the equivalent amount
over to PPC, upon encashment.

Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to PPC’s directors, informing them that
Villamor should be made to deliver to PPC and account for MC Home Depot’s checks or their equivalent value.

Due to the alleged inaction of the directors, Balmores filed with the RTC an intra-corporate controversy complaint under
Rule 1, Section 1(a)(1) of the Interim Rules for Intra-Corporate Controversies (Interim Rules) against PPC's directors for
their alleged devices or schemes amounting to fraud or misrepresentation "detrimental to the interest of the corporation
and its stockholders." Balmores alleged in his complaint that because of petitioners’ actions, PPC’s assets were ". . . not
only in imminent danger, but have actually been dissipated,lost, wasted and destroyed."

Balmores prayed that a receiver be appointed from his list of nominees. He also prayed for PPC's directors to be
prohibited from "selling, encumbering, transferring or disposing in any manner any of PPC’s properties, including the MC
Home Depot checks and/or their proceeds." He also prayed for the accounting and remittance to PPC of the MC Home
Depot checks or their proceeds and for the annulment of the board’s resolution waiving PPC’s rights in favor of Villamor’s
law firm.

RTC ruling: Appointment of a receiver and the creation of a Management Committee applied for by Balmores were
DENIED. The resolution issued by PPC’s board of directors, waiving its rights to the option to lease contract infavor of
Villamor’s law firm, must be accorded prima facie validity. Too, a separate pending case filed against Villamor involving
the same MC Depot weakened Balmores’ claim that the checks were properties of PPC.

And finally, the RTC found that there was "no clear and positive showing of dissipation, loss, wastage, or destruction of
PPC’s assets that was prejudicial to the interestof the minority stockholders, parties-litigants or the general public." The
board’s failure to recover the disputed amounts was not an indication of mismanagement resulting in the dissipation of
assets.

CA ruling: RTC ruling reversed. PPC is to be placed under receivership, and an interim management committee is to be
created to take custody and control of all assets and properties owned and possessed by PPC, and stop and prevent any
disposal, in any manner, of any of the properties of PPC, among other tasks.

The CA ruled that the case filed by Balmores with the RTC was a derivative suit because there were allegations of fraud
or ultra vires acts by PPC’s directors.

The CA added that the PPC board’s waiver of PPC’s rights in favor ofVillamor’s law firm without any consideration and its
inaction on Villamor’s failure to turn over the proceeds of rental payments to PPC warranted the creation of a
management committee, and that the circumstances resulted in the imminent danger of loss, waste, or dissipation of
PPC’s assets.

Hence, the instant petition.

RULING

Petition granted. CA ruling reversed.

Whether Balmores' action is a derivative suit. – NO.

A derivative suit is an action filed by stockholders to enforce a corporate action. It is an exception to the general rule that
the corporation’s power to sue is exercised only by the board of directors or trustees. Individual stockholders may be
allowed to sue on behalf of the corporation whenever the directors or officers of the corporation refuse to sue to vindicate
the rights of the corporation or are the ones to be sued and are in control of the corporation. It is allowed when the
"directors [or officers] are guilty of breach of . . . trust, [and] not of mere error of judgment." In derivative suits, the real
party in interest is the corporation, and the suing stockholder is a mere nominal party.

A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided,
that:
• He was a stockholder or member at the time the acts or transactions subject of the action occurred and
at the time the action was filed;
• He exerted all reasonable efforts, and alleges the same with particularity in the complaint, toexhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
• No appraisal rights are available for the act or acts complained of;
• The suit is not a nuisance or harassment suit; and
• The action brought by the stockholder or member must be in the name of the corporation or association.

Balmores’ action in the trial court failed to satisfy all the requisites of a derivative suit because: (1) though he tried to
communicate with PPC’s directors about the checks in Villamor’s possession before he filed an action with the trial court,
Balmores was not able to show that this comprised all the remedies available under the articles of incorporation, bylaws,
laws, or rules governing PPC; and (b) neither did respondent Balmores implead PPC as party in the case nor did he allege
that he was filing on behalf of the corporation..

Whether Balmores' action is an individual or class suit. – INDIVIDUAL.

Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or officers may be individual suits or
class suits. Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not to
the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the stockholders in the group.

In this case, Balmores filed an individual suit. His intent was very clear from his manner of describing the nature of his
action. did not bring the action for the benefit of the corporation. H ewas alleging that the acts of PPC’s directors,
specifically the waiver of rights in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks
from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was
to vindicate his individual interest and not PPC’s or a group of stockholders.

Whether Balmores has a cause of action. – NO.

Corporations have a personality that is separate and distinct from their stockholders and directors. A wrong tothe
corporation does not necessarily create an individual cause of action

Balmores did not allege any cause of action that is personal to him. His allegations are limited to the facts that PPC’s
directors waived their rights to rental income in favor of Villamor’s law firm without consideration and that they failed to
take action when Villamor refused to turn over the amounts to PPC. These are wrongs that pertain to PPC.

Therefore, the cause of action belongs to PPC — not to Balmores or any stockholders as individuals.