Everett vs.
Asia Banking Thereafter, defendants incorporated Philippine Motors
Facts:The defendant, the Asia Banking Corporation
hereinafter called “the Bank”, was and now is a foreign
banking corporation duly licensed to transact business in
the Philippine Islands, having, its principal office and
place of business at Manila aforesaid and that said Asia
Banking Corporation never has been empowered by law
or licensed to do any business other than commercial
banking in the Philippine Islands. That defendants
Nicholas E. Mullen, Alfred F. Kelly, John W. Mears, and
Charles D. Macintosh were residents of Manila and were
officers, agents and employees of the Bank. x x x
That at the time of the complaint mentioned, Teal and
Company hereinafter called the 'Company', was and now
is a domestic corporation duly incorporated under the
laws of the Philippine Islands and having its principal
office and place of business at Manila aforesaid. That
during said times the plaintiff Everett, Clifford, Teal and
Robinson were the principal stockholders in the
Company owning a total of 4,478 share therein and that
the defendant Barclay was the only other stockholder,
owning one share thereof. x x x That the business of said
Company consisted mainly in the merchandising of
automobiles, trucks, tractors, spare parts and accessories
therefor, and the repairing thereof. That on the 29th day
of December 1922, said company was solvent and in the
enjoyment of a large, growing, and lucrative business and
in the possession of a valuable reputation and good-will.
That since its organization in May, 1919, it had done its
banking business and financing almost exclusively thru
and with the Bank and by reason of such continued
relations the officers of the Company had acquired trust
and confidence in the integrity and good intentions of the
said bank and its officers and the other defendants in
their friendliness to themselves and the Company.
Plaintiffs, stockholders (together with Barclay) of Teal
and Company (Company), entered into a Memorandum of
Agreement and Voting Trust Agreement with defendant
Asia Banking Corporation (Bank) with the understanding
that it was intended for the protection of all parties
thereto from outside creditors, but that they were not
intended to be enforced according to the letter thereof,
and that they did not contain the true agreement
between the Bank and the Company which was to finance
the company without interference from the above-named
creditors.
That shortly after, Mullen caused the removal of the
plaintiffs as directors of the Company and their
replacement. The defendants thereafter gave pledges and
mortgages from the Company to the Bank and entered
into contracts as directed by the Bank, and permitted the
Bank to foreclose the same and to sell the property of the
Company itself and permitted the Bank to institute suits
against the Company, in which the Company was not
represented by anyone having its interest at heart and in
which reason the Bank occupied both plaintiff and
defendant and tricked and deluded the courts into giving
judgment in which the rights of the real parties were
concealed and unknown to the courts.
Corporation where all the assets and goodwill of the
Company were transferred by the Bank.
Wherefore these plaintiffs, (among others) demand the
discern and judgment of the court:
1st. Enjoining and restraining the defendants and each of
them from transferring the corporation called Philippine
Motors Corporation or any of the capital stock therein to
any person or corporation during the pendency of this
action.
2nd. Ordering the said defendants at once to cancel the
said Voting trust and to return to these plaintiffs their
shares of the stock of Teal and Company xxx
3rd. Decreeing that the defendants and each of them
make full and true discovery of all the facts in relation to
the formation, incorporation, and ownership of the
Philippine Motors Corporation x x x.
4th In case it be found that the said Philippine Motors
Corporations is in fact the Asia Banking Corporation that
a decree be entered ordering the said Bank immediately
to dissolve the same and to account to these plaintiffs for
all profits made thereby since its organization. x x x
ISSUE: W/n the plaintiff have the legal capacity to bring
the action?
Held: Yes. Invoking the well-known rule that
shareholders cannot ordinarily sue in equity to redress
wrongs done to the corporation, but that the action must
be brought by the Board of Directors, the appellees argue
— and the court below held — that the corporation Teal
and Company is a necessary party plaintiff and that the
plaintiff stockholders, not having made any demand on
the Board to bring the action, are not the proper parties
plaintiff. But, like most rules, the rule in question has its
exceptions. It is alleged in the complaint and,
consequently, admitted through the demurrer that the
corporation Teal and Company is under the complete
control of the principal defendants in the case, and, in
these circumstances, it is obvious that a demand upon the
Board of Directors to institute an action and prosecute
the same effectively would have been useless, and the law
does not require litigants to perform useless acts.
(Exchange bank of Wewoka vs. Bailey, 29 Okla., 246;
Fleming and Hewins vs. Black Warrior Copper Co., 15
Ariz., 1; Wickersham vs. Crittenden, 106 Cal., 329; Glenn
vs. Kittaning Brewing Co., 259 Pa., 510; Hawes vs. Contra
Costa Water Company, 104 U. S., 450.)
The conclusion of the court below that the plaintiffs, not
being stockholders in the Philippine Motors Corporation,
had no legal right to proceed against that corporation in
the manner suggested in the complaint evidently rest
upon a misconception of the character of the action. In
this proceeding it was necessary for the plaintiffs to set
forth in full the history of the various transactions which
eventually led to the alleged loss of their property and, in
making a full disclosure, references to the Philippine
Motors Corporation appear to have been inevitable. It is
to be noted that the plaintiffs seek no judgment against
the corporation itself at this stage of the proceedings.
The plaintiffs state a good cause of action for equitable
relief and their complaint is not in any respect fatally
defective. The judgment of the court below is therefore
reversed, the defendants demurrer is overruled, and it is
ordered that the return of the record to the Court within
ten days from the return of the record to the Court of
First Instance.
GR - Stockholders cannot sue. All corporate powers
are vested in the BOD.
No need for the demand as required because the BOD is
the erring party in the corporation. Seeking demand is a
useless act (because they will not sue themselves) and
the law does not require litigants to perform useless acts.
Stockholders cannot ordinarily commence suit in equity
and such is in the hands of its BOD however there are
exceptions when the BOD will not sue since they are
themselves principals to the fraud.
Republic Bank vs Cuaderno
Facts: Damaso Perez, a stockholder of the Republic Bank,
a Philippine banking corporation domiciled in Manila,
instituted a derivative suit for and in behalf of said Bank,
against Miguel Cuaderno, Bienvenido Dizon, the Board of
Directors of the Republic Bank, and the Monetary Board
of the Central Bank of the Philippines.
For a cause of action plaintiff alleged, that Damaso Perez
had complained to the Monetary Board of the Central
Bank against certain frauds allegedly committed by
defendant Pablo Roman, in that being chairman of the
Board of Directors of the Republic Bank, and of its
Executive Loan Committee,"in grave abuse of his fiduciary
duty and taking advantage of his said positions and in
connivance with other officials of the Republic Bank,
Roman had fraudulently granted or caused to be granted
loans to fictitious and non-existing persons and to their
close friends, relatives and/or employees, who were in
reality their dummies, on the basis of fictitious and
inflated appraised values of real estate properties; that
said loans amounted to almost P4 million pesos; that
acting upon the complaint, Miguel Cuaderno (then
Governor of the Central Bank) and the Monetary Board
ordered an investigation, discovered certain mortgage
loans amounting to P2,303,400.00 were granted in
violation of General Banking Act. He later ordered a new
Board of Directors of the Republic Bank to be elected,
which was done, and subsequently approved by the
Monetary Board. After Cuaredno retired, and to
neutralize the impending action against him, Pablo
Roman engaged Miguel Cuaderno as technical consultant,
and selected Bienvenido Dizon as chairman of the Board
of Directors of the Republic Bank. Perez alleges the Board
of Directors, composed of individuals personally selected
and chosen by Roman, connived and confederated in
approving the appointment and selection of Cuaderno
and Dizon; that such action was motivated by bad faith
and without intention to protect the interest of the
Republic Bank but were prompted to protect Pablo
Roman from criminal prosecution.
Issue: W/n the court below erred in dismissing the
complaint
Whether or not Perez has standing, as a stockholder, to
institute this derivative suit questioning Cuaderno’s and
Dizon’s appointment.
HELD: Perez has standing.
An individual stockholder is permitted to institute a
derivative or representative 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,
Plaintiff is neither alleging nor vindicating his own
individual interest or prejudice, but the interest of the
Republic Bank and the damage caused to it. The action he
has brought is a derivative one, expressly manifested to
be for and in behalf of the Republic Bank, because it was
futile to demand action by the corporation, since its
Directors were nominees and creatures of defendant
Pablo Roman. The frauds charged by plaintiff are frauds
against the Bank that redounded to its prejudice. Further,
any authority from the corporation to file suit on its
behalf could not be expected as the suit is aimed to nullify
the action taken by the manager and the board of
directors of the Republic Bank.
The complaint expressly pleads that the appointment of
Cuaderno and Bienvenido Dizon were made only to
shield Pablo Roman from criminal prosecution and not to
further the interests of the Bank, and avers that both men
are Roman's alter egos. There is no denying that the facts
thus pleaded in the complaint constitute a cause of action
for the bank. That no other stockholder has chosen to
make common cause with plaintiff Perez is irrelevant,
since the smallness of plaintiff's holdings is no ground for
denying him relief. At any rate, it is yet too early in the
proceedings for the absence of other stockholders to be
of any significance, no issues having even been joined.
There remains the procedural question whether the
corporation itself must be made party defendant. What is
important is that the corporation should be made a party,
in order to make the Court's judgment binding upon it,
and thus bar future relitigation of the issues. On what
side the corporation appears loses importance when it is
considered that it lay within the power of the trial court
to direct the making of such amendments of the
pleadings, by adding or dropping parties, as may be
required in the interest of justice.
5. Republic vs Cuaderno
- The facts constitute sufficient cause of action
- It is not the corporate interest to shield one from
criminal prosecution which is personal interest
- Perez is not suing in his behalf, but in behalf of the
corporation
Are the facts given sufficient to constitute a cause of
action for the institution of derivative suit?
Perez is not suing for his open interest. Demand is futile.
Smallness of the stockholdings is not a ground to deny
the relief. To just protect Roman from criminal
prosecution.
Yes. It is not the corporate interest to shield one from
criminal prosecution which is personal interest. Plaintiff
is neither alleging nor vindication his own individual
interest, but the interest of the Republic Bank and the with the rule that it is the allegations in the complaint
damage cause to it. The action he has brought is a that vests jurisdiction upon the court or quasi-judicial
derivative one, expressly manifested to be for and on body concerned over the subject matter and nature of the
behalf of the Republic Bank, because it was futile to action. This was not complied with by the petitioners
demand action from the corporation. either in their complaint before the court a quo nor in the
instant petition which, in part, merely states that "this is
Western Institute of tech vs SALAS a petition for review on certiorari on pure questions of
law to set aside a portion of the RTC decision in Criminal
Facts:, The judgment acquitted the private respondents
Cases Nos. 37097 and 37098" since the trial court's
of both charges Estafa and falsification of a public
judgment of acquittal failed to impose any civil liability
document , but petitioners seek to hold them civilly
against the private respondents. By no amount of equity
liable.
considerations, if at all deserved, can a mere appeal on
the civil aspect of a criminal case be treated as a
Defendant conspiring and confederating together and
derivative suit.
mutually helping one another to better realize their
purpose, did then and there wilfully, unlawfully and
Granting if this is a derivative suit as insisted by
feloniously defraud the said corporation (and its
petitioners, which it is not, the same is outrightly
stockholders) in the following manner, herein accused,
dismissible for having been wrongfully filed in the
knowing fully well that they have no lawful, sufficient
regular court devoid of any jurisdiction to entertain the
authority to disburse the funds of the corporation by
complaint. The ease should have been filed with the
effecting payment of their retroactive salaries in the
Securities and Exchange Commission (SEC) which
amount of P186,470.00 and subsequently paying
exercises original and exclusive jurisdiction over
themselves every 15th and 30th of the month starting
derivative suits, they being intra-corporate disputes, per
June 15, 1986 until the present, in the amount of
Section 5 (b) of P.D. No. 902-A.
P19,500.00 per month, as if the same were their own, and
when herein accused were informed of the illegality of
Civil aspect of a criminal action cannot be treated as a
these disbursement by the minority stockholders by an
derivative suit. Must be for and on behalf of the corp.
objection made in an annual stockholders' meeting held
The criminal action is not instituted as such. It was
on June 14, 1986 and every year thereafter, they refused,
not impleaded, hence, it is not a real party in interest.
and still refuse, to rectify the same to the damage and
Among the basic requirements for a derivative suit to
prejudice of the corporation and its stockholders) in the
prosper is that the minority stockholders who are suing
total sum of P1,453,970.79 as of November 15, 1991.
for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a
Judge Porfirio Parian handed down a verdict of acquittal
derivative cause of action on behalf of the corporation
on both counts without imposing any civil liability
and all other shareholders similarly situated who wish to
against the accused. Petitioners filed a motion for
join.
reconsideration of the civil aspect of the RTC, however
denied. Hence, the instant petition.
-Assuming it was filed in the proper forum would
there argument that it is a derivative suit prosper?
Petitioners assert that the instant case is a derivative suit
NO. it is people of the Philippines vs. individual director, it
brought by them as minority shareholders of Western
must be stated in the complaint that it is being instituted
Institute Tech for and on behalf of the corporation to
as a derivative suit and for and in behalf of the
annul Resolution No. 48, s. 1986 (granting compensation
corporation
to the Chairman of the Board, the Vice-Chairman,
Treasurer and Corporate Secretary) which is prejudicial Granting arguendo, that this is a derivative suit, the same
to the corporation. is still outrightly dismissible for having been wrongfully
filed in the regular court devoid of any jurisdiction to
ISSUE:WON the appeal may be considered as a derivative entertain the complaint. The case should have been filed
action? with the SEC which exercises original and exclusive
HELD:No. A derivative suit is an action brought by jurisdiction over derivative suits, they being
minority shareholders in the name of the corporation to intra-corporate disputes, per Section 5 (b) of P.D. 902-A.
redress wrongs committed against it, for which the
directors refuse to sue. It is a remedy designed by equity
and has been the principal defense of the minority
shareholders against abuses by the majority. Here,
however, the case is not a derivative suit but is merely an
appeal on the civil aspect of Criminal Cases Nos. 37097
and 37098 filed with the RTC of Iloilo for estafa and
falsification of public document. Among the basic
requirements for a derivative suit to prosper is that the SAN MIGUEL VS KHAN
minority shareholder who is suing for and on behalf of
the corporation must allege in his complaint before the Facts:Fourteen corporations initially acquired shares of
proper forum that he is suing on a derivative cause of outstanding capital stock of SMC
action on behalf of the corporation and all other
shareholders similarly situated who wish to join. This is and constituted a Voting Trust thereon in favor of Andres
necessary to vest jurisdiction upon the tribunal in line Soriano, Jr. When the latter died Eduardo Cojuanco was
elected as the substitute trustee. However, after the EDSA
revolution, Cojuanco fled out of the country, and
subsequently an agreement was entered into between
the 14 corporations and Andres Soriano III (as an agent
of several persons) for the purchase of the shares held by
the former.
Actually the buyer of the shares was Neptunia
Corporation, a foreign corporation and wholly-owned
subsidiary of another subsidiary wholly owned by SMC.
Neptunia paid the downpayment from the proceeds of
certain loans. PCGG then sequestered the shares subject
of the sale so SMC suspended all the other installments of
the price to the sellers. The 14 corporations then sued for
rescission and damages.
Meanwhile, PCGG directed SMC to issue qualifying shares
to seven (7) individuals including Eduardo de los Angeles
from the sequestered shares for them to hold in trust.
Then, the SMC’s board of directors passed a resolution
assuming the loans incurred by Neptunia for the
downpayment. De los Angeles assailed the resolution
alleging that it was not passed by the board aside from its
deleterious effects on the corporation’s interest. When
his efforts to obtain relief within the corporation proved
futile, he filed this action with the SEC. Which was denied.
Khan filed a petition for certiorari and prohibition with
the CA seeking the annulment of this adverse resolution
and that de los Angeles has no legal standing;
1.A party who files a derivative suit should adequately
represent the interest of the minority stockholders: De
los Angles holds (20) shares owned by him personally
cannot fairly and adequately represent the interest of the
minority.
2. De los Angles has not met this conflict of interest
argument e.g. that his position as PCGG nominated
director is inconsistent with his assumed role of
representative minority stockholders, not having been
elected by the minority, his voting would expectedly
consider the interest of the entity which placed him inn
the board of director
ISSUE: W/N DE LOS ANGELES institute a derivative suit?
HELD:Yes. The theory that de los Angeles has no
personality to bring suit in behalf of the corporation —
because his stockholding is minuscule, and there is a
"conflict of interest" between him and the PCGG —
cannot be sustained.
It is claimed that since de los Angeles 20 shares (owned
by him since 1977) represent only. 00001644% of the
total number of outstanding shares (1 21,645,860), he
cannot be deemed to fairly and adequately represent the
interests of the minority stockholders. The implicit
argument — that a stockholder, to be considered as
qualified to bring a derivative suit, must hold a
substantial or significant block of stock — finds no
support whatever in the law. The requisites for a
derivative suit are as follows:
a) the party bringing suit should be a shareholder as of
the time of the act or transaction complained of, the
number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to
heed his plea; and
c) the cause of action actually devolves on the
corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular
stockholder bringing the suit.
The bona fide ownership by a stockholder of stock in his
own right suffices to invest him with standing to bring a
derivative action for the benefit of the corporation. The
number of his shares is immaterial since he is not suing
in his own behalf, or for the protection or vindication of
his own particular right, or the redress of a wrong
committed against him, individually, but in behalf and for
the benefit of the corporation.
Neither can the "conflict-of-interest" theory be upheld.
From the conceded premise that de los Angeles now sits
in the SMC Board of Directors by the grace of the PCGG, it
does not follow that he is legally obliged to vote as the
PCGG would have him do, that he cannot legitimately take
a position inconsistent with that of the PCGG, or that, not
having been elected by the minority stockholders, his
vote would necessarily never consider the latter's
interests. The proposition is not only logically
indefensible, non sequitur, but also constitutes an
erroneous conception of a director's role and function, it
being plainly a director's duty to vote according to his
own independent judgment and his own conscience as to
what is in the best interests of the company. Moreover, it
is undisputed that apart from the qualifying shares given
to him by the PCGG, he owns 20 shares in his own right,
as regards which he cannot from any aspect be deemed to
be "beholden" to the PCGG, his ownership of these shares
being precisely what he invokes as the source of his
authority to bring the derivative suit.
Was there a demand? No. Demand is a useless exercise.
During the meeting, he objected thereto but he was
outvoted by the majority of the directors thereafter,
overruled. It is not necessary because he objected in the
board meeting, but still it was adopted therefore it was
useless
Delos Santos, as SH, holds .00016% - the law requires
he must be a SH on the time when the act complained
of took place.
Chase vs Buencamino
FACTS: Defendant Dr. Buencamino, Sr., a Filipino and
William Cranker, an American, even prior to the year
1954 were already business associates. They owned two
firms namely, the Philippine American Machinery and
Equipment Corporation (PAMEC) and the other firm is
BUCRA which means Buencamino and Cranker. Plaintiff
Elton Chase, on the other hand, was the owner of
Production Manufacturing Company, of Portland, Oregon,
USA, a corporation primarily dedicated to the operation
of a machine shop and heat-treating plant for the
production of tractor parts.
Sometime in 1954, Chase was notified by the Highway
Commission of the State of Oregon that his factory was
going to be in the path of a proposed highway. He was
then advised to sell or face expropriation and warned to
remove his plant within a year. His distributor Craig
Carrol told him of a Dr. Buencamino of Manila who he
said was interested in establishing a manufacturing plant
in the Philippines.
Craig Carrol contacted Buencamino who told him to
contact his business associate William Cranker in the
United States. Thereafter, a series of negotiations took
place both here in Manila and in the United States, for the
purchase of Chase's factory (Production Manufacturing
Company) and the establishment of a new factory in
Manila which was to be called American Machinery
Engineering Parts, Inc. (Amparts, for short). These
negotiations culminated in the final agreement to the
effect that Elton Chase was to be paid One Hundred
Thousand Dollars ($100,000.00) and he would also be
given a one third (1/3) interest in Amparts, with the
other two, Dr. Buencamino and Cranker, as the owner of
the two-thirds (2/3), 1/3 interest each; that in exchange
for said $100,000.00 and 1/3 interest, Chase was to
transfer to Amparts his tractor plant, ship his
machineries to Manila, install said machineries at
Amparts plant with the aid of five technicians and finally,
he has to be the production manager of Amparts.
Amparts was formally organized as a corporation with
an authorized capital stock of P4,000,000.00 divided into
4,000 shares with a par value of P1,000.00 each. The
original subscription was P1,800,000.00. Dr. Buencamino,
Cranker and Chase subscribed P600,000.00 each. But
since five were necessary to organize a corporation,
Buencamino and Cranker took in their respective wives.
In the meanwhile, Chase had already shipped his
machineries and had them installed in the Amparts plant
in Pasig, Rizal. Amparts then began operation with Dr.
Buencamino as President, William Cranker as Manager
and Elton Chase as production manager. For sometime
the three maintained harmonious relations but later on
distrust came in until finally Chase tendered his letter of
resignation as Production Manager, which was accepted
by both Dr. Buencamino and Cranker thru a letter hase
filed an action against Cranker with the Superior Court of
Los Angeles seeking to recover the sum of $150,000.00 as
alleged balance of the purchase price of his plant. This
case however died a natural death because Cranker left
and was never reached by process from the California
Court. Then, Cranker sold out all his interest in Amparts
to Dr. Buencamino.
Chase then filed this case before the Court of First
Instance of Manila, alleging various acts of fraud which he
claimed had been committed by both Dr. Buencamino and
Cranker. x x x
(The lower court ruled in favor of Chase and directed the
respondents to account, in favor of Amparts and Chase,
for acts of fraud such as over-pricing, mark-up on
interests, black marketing, income from sale of corporate
assets, etc. amounting to P1,970,200.00.)
iSSUE: WON Chase has capacity to institute a derivative
suit?
Held: Yes. The evidence of defendants proves very clearly
that right from the start, Chase was by them recognized
as a stockholder and initial incorporator with 600 paid
up shares representing a 1/3 interest in Amparts, and
that would be enough for Chase to have the correct
personality to institute this derivative suit; the second
place, it also appears apparently undenied that Chase did
not win in California so that he did not recover the
$150,000.00 that he had prayed for there against
Overseas, which if he had would really in the mind of the
Court have put him in estoppel to intervene in any
manner as incorporator or stockholder of Amparts; and
in the third place and most important it should not be
forgotten that Chase has filed the present case not for his
personal benefit, but for the benefit of Amparts, so that to
the Court the argument of estoppel as against him would
appear to be out of place; the estoppel to be valid as a
defense must be an estoppel against Amparts itself; the
long and short of it is that the Court is impelled and
constrained to discard all the other defenses set up by Dr.
Buencamino on the principal complaint; the result of all
these would be to sustain so far, the position of Chase
that Dr. Buencamino must account for the P570,000.00
used to pay the second series of payment on the
subscription, the P330,000.00 used in paying the last
series on the subscription, plus another sum of
P245,000.00 entered as loan on his favor and against
Amparts, for the sum of P434,000.00 earned in the
blackmarketing of the excess of $140,000.00 dollars on
the forwarding costs and promotional expenses, for the
sum of P391,200.00 earned in the blackmarketing of the
excess of $117,000.00 in the transaction with Bertoni and
Cotti, and all these would reach a total of P1,970,200.00;
and as the appropriation of the profits for himself was a
quasi-delict, the liability therefore assuming that it had
been done with the cooperation of Cranker would have to
be solidary, 2194 New Civil Code.
Argument that he should be in estoppels since he filed in
the U.S. Assuming the case prospered in the U.S. would
not estoppels apply as against him? NO for estoppels to
step in it must be a case by the corporation
How about forum-shopping? No. The suit in the
US-California is a direct individual suit, he was the
principal while the suit before the CFI is a derivative suit -
where he is just a nominal party.
REYES V. TAN
FACTS: : in the complaint in said Civil Case No. 42375,
(entitled Francisca R. Justiniani vs. Wadhumal Dalamal, et
al., for the appointment of a receiver and for repair of the
damage cause to the corporation), it is alleged that
The corporation, Roxas-Kalaw Textile Mills, Inc., was
organized by defendants Cesar K. Roxas, Adelia K. Roxas,
Benjamin M. Roxas, Jose Ma. Barcelona and Marris
Wilson,
 for on behalf of the following shareholdings: Adelia K.
Roxas, 1,200 Class A shares; I. Sherman, 900 Class A shares;
that the plaintiff holds both Class A and Class B shares and
the number and value thereof are as follows: Class A 50
shares, Class B - 1,250 shares;
The Board of Directors approved a resolution designating
one Dayaram as co manager with the specific
understanding that he was to act as defendant Wadhumal
Dalamal” designee; Morris Wilson was likewise
designated as co manager with responsibilities for the
management of the factory only, that an office in New
York was opened for the purpose of supervising
purchases, which purchases must have the unanimous
agreement of Cesar K. Roxas, New York resident manager
of the board of directors, Robert Born and Wadhumal
Dalamal or their respective representatives; that several
purchases aggregating $289,678.86 were made in New
York for raw materials for the textile mills and shipped to
the Philippines, which shipment were found out to
consist not of raw materials but already finished
products, such as, for which reasons the Central Bank of
the Philippines stopped all dollar allocations for raw
materials for the corporation which necessarily led to the
paralyzation of the operation of the textile mill and its
business; that the supplier of the finished goods was the
United Commercial Company of New York in which
defendant Dalamal had interests and the letter of credit
for said goods were guaranteed by the Indian Commercial
Company and the Indian Traders in which firms
defendant Dalamal likewise held interests; that the resale
of the finished goods was the business of the Indian
Commercial Company of Manila, which company could
not obtain dollar allocations for importations of finished
goods under the Central Bank regulations: that plaintiff
and some members of the board of directors urged
defendants to proceed against Dalamal, exposing his
offense to the Central Bank, and to initiate suit against
Dalamal for his fraud against the corporation; that
defendants refused to proceed against Dalamal and
instead continued to deal with the Indian Commercial
Company to the damage and prejudice of the corporation.
The prayer asks for the appointment of a receiver and a
judgment making defendants jointly and severally liable
for the damages.
After denial of the motion to dismiss and the filing of an
answer alleging that the complaint states no cause of
action, the motion for the appointment of a receiver was
set for hearing and subsequently the court entered the
order for the appointment of a receiver.
ISSUE: WON Justiniani may be allowed to institute the
case for receivership and damages?
HELD: Yes. It is not denied by petitioner that the
allocation of dollars to the corporation for the
importation of raw materials was suspended. In the eyes
of the court below, as well as in our own, the importation
of textiles instead of raw materials, as well as the failure
of the Board of Directors to take action against those
directly responsible for the misuse of dollar allocations
constitute fraud, or consent thereto on the part of the
directors. Therefore, a breach of trust was committed
which justified the derivative suit by a minority
stockholder on behalf of the corporation.
“It is well settled in this jurisdiction that where corporate
directors are guilty of a breach of trust — not of mere
error of judgment or abuse of discretion — and
intracorporate remedy is futile or useless, a stockholder
may institute a suit in behalf of himself and other
stockholders and for the benefit of the corporation, to
bring about a redress of the wrong inflicted directly upon
the corporation and indirectly upon the stockholders. An
illustration of a suit of this kind is found in the case of
Pascual vs. Del Saz Orozco (19 Phil. 82), decided by this
Court as early as 1911. In that case, the Banco
Español-Filipino suffered heavy losses due to fraudulent
connivance between a depositor and an employee of the
bank, which losses, it was contended, could have been
avoided if the president and directors had been more
vigilant in the administration of the affairs of the bank.
The stockholders constituting the minority brought a suit
in behalf of the bank against the directors to recover
damages, and this over the objection of the majority of
the stockholders and the directors. This court held that
the suit could properly be maintained.” (64 Phil., Angeles
vs. Santos [G.R. No. L-43413, prom. August 31, 1937] p.
697).
The claim that respondent Justiniani did not take steps to
remedy the illegal importation for a period of two years is
also without merit. During that period of time
respondent had the right to assume and expect that the
directors would remedy the anomalous situation of the
corporation brought about by their own wrong doing.
Only after such period of time had elapsed could
respondent conclude that the directors were remiss in
their duty to protect the corporation property and
business.
We are led to agree with the judge below that the
appointment of a receiver was not only expedient but
also necessary to restore the faith and confidence of the
Central Bank authorities in the administration of the
affairs of the corporation, thus ultimately leading to a
restoration of the dollar allocation so essential to the
operation of the textile mills.
- Corporate director are guilty of breach of trust
- A stockholder may institute an action to remedy a
wrong done
- Fraud in the conduct of corporate affairs
Gamboa vs Victorianno et al
Facts: The petitioners were sued by the private
respondent. Praying for the nullification of the issuance
of the 823 shares of stock of Inocentes de la Rama Inc.
The respondents are the owners of 1,328 shares of stock
of the corporation, which has an authorized capital stock
of 3,000 shares, with a par value of P100.00 per share,
2,177 of which were subscribed and issued, thus leaving regarded as a nominal party, with the corporation as the
823 shares unissued. real party in interest. In the case at bar, however, the
plaintiffs are alleging and vindicating their own
Upon the respondent's acquisition of the shares of stock individual interests or prejudice, and not that of the
held by the former president and vice president of the corporation. At any rate, it is yet too early in the
corporation, the petitioners were the remaining proceedings since the issues have not been joined.
members of the board of directors and in order to Besides, misjoinder of parties is not a ground to dismiss
forestall the takeover of the corporation, they secretly an action.
met and elected Gamboa and de la Rama as president and
vice-president of the corporation, respectively. In the case at bar, plaintiffs are alleging and vindicating
their own individual interests, and not that of the
They passed a resolution authorizing the sale of the 823 corporation. Derivative suit is not proper. Individual suit
unissued shares of the corporation to the respondents at should have been filed.
par value, after which the respondents were elected as
- Is derivative suit appropriate in this case
board of directors. Respondents filed a complaint stating
- They are not vindicatory damage done to the
that the sale of the unissued 823 shares of stock of the
corporation, but rather they were
corporation was in violation of the plaintiffs' and
vindicating damage against him
pre-emptive rights and made without the approval of the
- Violation of their rights as individuals, hence derivative
board of directors representing 2/3 of the outstanding
suit is not the remedy
capital stock, and is in disregard of the strictest relation
of trust existing between them, as stockholders thereof.
What is a pre-emptive right?
Both parties entered in to a compromise agreement
Preemptive rights are a contractual clause giving a
which was approved by the trial court.
shareholder the right to buy additional shares in any
future issue of the company's common stock before the
The petitioners filed a motion to dismiss the case based
shares are available to the general public. Shareholders
on the compromise agreement. The court denied the
who have such a clause are generally early investors or
petition. Petitioners filed a motion for reconsideration
majority owners who want to maintain the size of their
stating that the court has no jurisdiction to interfere with
stake in the company when and if additional shares are
the management of the corporation by the Board of
offered.
directors, but it was denied. Hence this petition.

A preemptive right is sometimes called an "anti-dilution

Issue: W/N the court has jurisdiction to hear the case
and W/N a derivative suit should be instituted against the
defendants (petitioner herein)
HELD: 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 action, and
contracts intra-vires entered into by the board of
directors are binding upon the corporation and the
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. 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 petitioner 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
provision." It gives the investor the option of maintaining
a certain percentage of ownership of the company as it
grows.
Evanglista vs santos
Facts: The complaint alleged that plaintiffs are minority
stockholders of the Vitali Lumber Company, Inc., a
Philippine corporation organized for the exploitation of a
lumber concession in Zamboanga, Philippines; that
defendant holds more than 50 per cent of the stocks of
said corporation and also is and always has been the
president, manager and treasurer thereof; and that
defendant, in such triple capacity, through fault, neglect
and abandonment allowed its lumber concession to lapse
and its properties and assets, among them machineries,
buildings, warehouses, trucks, etc., to disappear, thus
causing the complete ruin of the corporation and total
depreciation of its stocks. The complaint therefore prays
for judgment requiring defendant: (1) to render an
account of his administration of the corporate affairs and
assets: 2) to pay plaintiffs the value of their respective
participation in said assets on the basis of the value of the
stocks held by each of them; and 3) to pay the costs of
suit. x x x After hearing, the lower court rendered its
order, granting the motion for dismissal upon the two
grounds alleged by defendant (improper venue and lack
of cause of action), and reconsideration of this order
having been denied, plaintiffs have appealed to this
Court.
Issue: WON plaintiffs have a right to bring the action for
their benefit?
HELD: No. The complaint shows that the action is for
damages resulting from mismanagement of the affairs
and assets of the corporation by its principal officer, it
being alleged that defendant's maladministration has
brought about the ruin of the corporation and the
consequent loss of value of its stocks. The injury
complained of is thus primarily to that of the corporation,
so that the suit for the damages claimed should be by the
corporation rather than by the stockholders (3 Fletcher,
Cyclopedia of Corporation pp. 977-980). The
stockholders may not directly claim those damages for
themselves for that would result in the appropriation by,
and the distribution among them of part of the corporate
assets before the dissolution of the corporation and the
liquidation of its debts and liabilities, something which
cannot be legally done in view of section 16 of the
Corporation Law.
But while it is to the corporation that the action should
pertain in cases of this nature, however, if the officers of
the corporation, who are the ones called upon to protect
their rights, refuse to sue, or where a demand upon them
to file the necessary suit would be futile because they are
the very ones to be sued or because they hold the
controlling interest in the corporation, then in that case
any one of the stockholders is allowed to bring suit (3
Fletcher's Cyclopedia of Corporations, pp. 977-980). But
in that case it is the corporation itself and not the plaintiff
stockholder that is the real property in interest, so that
such damages as may be recovered shall pertain to the
corporation (Pascual vs. Del Saz Orosco, 19 Phil. 82, 85).
In other words, it is a derivative suit brought by a
stockholder as the nominal party plaintiff for the benefit
of the corporation, which is the real property in interest
(13 Fletcher, Cyclopedia of Corporations, p. 295).
In the present case, the plaintiff stockholders have
brought the action not for the benefit of the corporation
but for their own benefit, since they ask that the
defendant make good the losses occasioned by his
mismanagement and pay to them the value of their
respective participation in the corporate assets on the
basis of their respective holdings. Clearly, this cannot be
done until all corporate debts, if there be any, are paid
and the existence of the corporation terminated by the
limitation of its charter or by lawful dissolution in view of
the provisions of section 16 of the Corporation Law.
It results that plaintiff's complaint shows no cause of
action in their favor so that the lower court did not err in
dismissing the complaint on that ground.
While plaintiffs ask for remedy to which they are not
entitled unless the requirement of section 16 of the
Corporation Law be first complied with, we note that the
action stated in their complaint is susceptible of being
converted into a derivative suit for the benefit of the
corporation by a mere change in the prayer. Such
amendment, however, is not possible now, since the
complaint has been filed in the wrong court, so that the
same last to be dismissed.
The order appealed from is therefore affirmed, but
without prejudice to the filing of the proper action in
which the venue shall be laid in the proper province.
Appellant's shall pay costs. So ordered
IN SUMMARY:
1. That the party bringing the suit should be a stockholder
as of the
time the act or transaction complained of took place, or
whose shares have evolved upon him since by operation
of law. This rule, however, does not apply if such act or
transaction continues and is injurious to the stockholder
or affect him specifically in some other way.
The number of his shares is immaterial since he is not
suing in his own behalf or for the protection or
vindication of his own right, or the redress of a wrong
done against him, individually, but in behalf and for the
benefit of the corporation.
2. He has tried to exhaust intra-corporate remedies, he has
made a demand on the board of directors for the
appropriate relief but the latter had failed or refused to
heed his plea. Demand, however, is not required if the
company is under the complete control of the directors
who are the very ones to be sued (or where it becomes
obvious that a demand upon them would have been futile
and useless) since the law does not require a litigant to
perform useless acts;
3. The stockholder bringing the suit must allege in his
complaint that he is suing on a derivative cause of action
on behalf of the corporation and all other stockholders
similarly situated, otherwise, the case is dismissible. This
is because the cause of action actually devolves on the
corporation and not to a particular stockholder.
4. The corporation should be made a party, either as
party-plaintiff or defendant, in order to make the court’s
judgment binding upon it, and thus, bar future litigation
of the same issues. On what side the corporation appears
loses importance when it is considered that it lay within
the power of the court to direct the making of
amendment of the pleading, by adding or dropping
parties, as may be required in the interest of justice.
Misjoinder of parties is not a ground to dismiss action;
and,
5. Any benefit or damages recovered shall pertain to the
corporation. This is so because in all instances, derivative
suit is instituted for and in behalf of the corporation and
not for the protection or vindication of a right or rights of
a particular stockholder, otherwise, the aggrieved
stockholder should institute, instead, an individual or
personal suit to vindicate his personal or individual right.
Or, for that matter, representative or class suit for all
other stockholders whose rights are similarly situated,
injured or violated, personally or individually.
What if there’s no by-law authorizing the board to
elect the Executive Committee?
It is not allowed because all corporate powers, business
transactions, corporate properties are held by the BOD.
They must sit and act as a body for a corporate act to be
decided.
May a non-director be a member? No. The Execom acts
within the competence of the board. Under the law, all of
them (execom) should be a member of BOD.
How may be created?
Section 34. Executive Management, and Other Special
Committees. - If the bylaws so provide, the board may
create an executive committee composed of at least three
(3) directors. Said committee may act, by majority of vote
of all its members, on such specific matters within the
competence of the board, as may be delegated to it in the
bylaws or by majority vote of the board, except with
respect to the: (a) approval of any action for which
shareholders' approval is also required; (b) filing of
vacancies in the board; (c) amendment or repeal of
bylaws or the adoption of new bylaws; (d) amendment or
term is not amendable or repealable; and (e) distribution
of cash divendends to the shareholders.
The board of directors may create special committees of
temporary or permanent nature and determine the
members' term, composition, compensation, powers, and
responsibilities.
Constitution?
15 - man member board. Decided to create a 5-man
committee - one of which is not a direct, merely
stockholder. 4 are board members, 1 is a SH, Magna Cum
Laude from Yale University, PHd. ANG TAGAL 8:14 NA!!!!
Q How many members may an executive committee
have? A Not less than 3 members of the board
Q Who appoints them?
A BOD The Board of Directors (BOD) of a corporation
may delegate the powers and functions that may be
lawfully delegated to other corporate officers or agents
for convenience and appropriate action on matters that
may require immediate attention.
The powers of the executive committee, composed of not
less than 3 members of the board of directors, are those
that may be delegated to it by the board or those that may
be specifically granted to it in the by-laws of the
corporation.
Said committee may act and bind the corporation by the
majority vote of all its members except with respect to
those matters provided for in Section 34, to wit:
a. approval of any action for which shareholders'
approval is also required;
b. the filling of vacancies in the board;
c. the amendment or repeal of by-laws or the adoption
of new by-laws;
d. the amendment or repeal of any resolution of the
board which by its express terms is not so amendable or
repealable; and
e. distribution of cash dividends to the shareholders .
May the board alone create an executive committee
without any authority provided for the by- laws? NO
board of directors must sit and act as a body to have a
valid transaction
May a non-member of the board of directors be a
member of the executive committee? NO, all of them
must be members of the board of directors. BOD cannot
act by proxy it would be abdication of powers
Purpose clauses necessary because it confers and also
limits the actual authority of the corporation
What if property dividend?
----
Note: The term 'capital' and other terms used to describe
the capital structure of a corporation are of universal
acceptance and their usages have long been established
in jurisprudence. Briefly, capital refers to the value of the
property or assets of a corporation. The capital
subscribed is the total amount of the capital that persons
(subscribers or shareholders) have agreed to take and
pay for, which need not necessarily by, and can be more
than, the par value of the shares. In fine, it is the amount
that the corporation receives, inclusive of the premiums if
any, in consideration of the original issuance of the
shares. In the case of stock dividends, it is the amount
that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that
can be loosely termed as the "trust fund" of the
corporation.
The "Trust Fund" doctrine considers this subscribed
capital as a trust fund for the payment of the debts of
the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation, no
part of the subscribed capital may be returned or
released to the stockholder (except in the redemption of
redeemable shares) without violating this principle.
Thus, dividends must never impair the subscribed
capital; subscription commitments cannot be condoned
or remitted; nor can the corporation buy its own shares
using the subscribed capital as the considerations
therefor. [National Telecommunications Commission v.
Honorable Court of Appeals,G.R. No. 127937, July 28, 1999,
311 SCRA 508]
CORPORATE POWER AND AUTHORITY
Corporate Authority
1. Those expressly granted or authorized by tlaw
inclusive of the corporate charter or articles of
incorporation
2. Those impliedly granted as are essential or
reasonably necessary to the carrying out of the
express powers
3. Those that are incidental to its existence
Express power
Section 35. Corporate Powers and Capacity. - Every
corporation incorporated under this Code has the power
and capacity:
(a) To sue and be sued in its corporate name;
(b) To have perpetual existence unless the certificate of
incorporation provides otherwise;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation in accordance
with the provisions of this Code;
(e) To adopt bylaws, not contrary to law, morals or public
policy, and to amend or repeal the same in accordance
with this Code;
(f) In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance with
the provisions of this Code; and to admit members to the
corporation if it be a nonstock corporation;
(g) To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage, and otherwise deal with such
real and personal property, including securities and
bonds of other corporations, as the transaction of the
lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed
by law and the constitution;
(h) To enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement with
natural and juridical persons;
(i) To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no
foreign corporation shall give donations in aid of any
political party or candidate or for purpose s of partisan
political activity;
(j) To establish pension, retirement, and other plans for
the benefit of its directors, trustees, officers, and
employees; and
(k) To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated
in the articles of incorporation.
Other powers expressly granted by law are the following:
1. Power to extend or shorten corporate term;
2. Power to increase or decrease capital stock;
3. Power to incur, create or increase bonded
indebtedness;. Power to deny pre-emptive rights;
5. Power to sell or dispose corporate assets;
6. Power to acquire own shares;
7. Power to invest corporate funds in another corporation
or business or for any other purpose;
8. Power to declare dividends;
9. Power to enter into management contract.
POWER TO SUE AND BE SUED
Where should the corporation be sued? City or
municipality where the principal office of the
corporation is located/situated. (Clavecilla case) 1.
Residence of the corporation - principal office
To whom should be the summons served? CHECK :
SECS 12, 6 RULE 14 - Be mindful of these per Ladia
General Rule: It should be served to the person
impleaded. Must be served to the person named in the
statute otherwise, no jurisdiction.
XPN: If the defendant is a corporation,
1. President
2. Managing Partner
3. General Manager
4. Corporate Secretary
5. Treasurer
6. In-House Counsel
Note: Wherever they may be found. ‘Agent’ - deliberately
omitted.
7. If such service cannot be made upon any f the
foregoing persons, it shall be made upon the person who
customarily receives correspondence for the defendant at
its principal office. Ex. Security guard, receptionist
8. In case the domestic juridical entity is under
receivership or liquidation, service of summons shall be
made on the receiver or liquidator, as the case may be.
(Rule 14, Sec. 12, 2019RRCP)
Note: Should there be refusal on the above-mentioned
persons on 3 attempts in 2 separate days, it MAY be
served electronically.
DELTA MOTOR SALES CORP VS MANGOSING
Facts: Pamintuan sued Delta Motor for the recovery of
the sum of P58,000 as damages and attorney's fees. The
basis of the action was that Delta Motor, as the seller of
an allegedly defective Toyota car to Pamintuan for the
sum of P33,950, failed to fulfill its warranty obligation by
not properly repairing the car.
The summons for Delta Motor was served on its
employee, Dionisia Miranda, who acknowledged its
receipt by signing on the lower portion of the original
summons.
Delta Motor did not answer the complaint within the
reglementary period. Pamintuan filed a motion to declare
Delta Motor in default. A copy of the motion was
furnished Delta Motor. The Manila court granted the
motion in its order the lower court found that Pamintuan
bought from Delta Motor on a Toyota car, that the leaks
emanating from its windshield, doors and windows were
not stopped by Delta Motor, and that in consequence of
its breach of warranty Delta Motor should pay Pamintuan
P45,000 as damages.
That decision was served on Delta Motor on June 27. On
July 21, its lawyers filed a petition to lift the order of
default, to set aside the judgment and for new trial. Delta
Motor alleged that Dionisia G. Miranda, who accepted the
service of summons, was not the corporate secretary but
the secretary of Alberto Ramos of the personnel
department who was on sick leave and that service upon
her was a mistake; that Pamintuan is still indebted to
Delta Motor for the unpaid balance of the price in the
sum of P25,000; that the entity liable for breach of
warranty was Toyota Motor Sales Company, and that
Delta Motor has good defenses to the action. x x x The
lower court denied the motion in its order of July 29 on
the ground that Dionisia Miranda was a person of
suitable age and discretion who could receive summons
for another person, as contemplated in section 8, Rule 14
of the Revised Rules of Court, and that although Delta
Motor's legal department was served on May 27 with a
copy of the motion to declare it in default, it did not
oppose the motion.
ISSUE: WON there was proper service of summons?
Held: No. Rule 14 of the Revised Rules of Court provides:
SEC. 13. Service upon private domestic corporation or
partnership. — If defendant is a corporation organized
under the laws of the Philippines or a partnership duly
registered, service may be made on the president,
manager, secretary, cashier, agent, or any of its directors.
For the purpose of receiving service of summons and
being bound by it, a corporation is identified with its
agent or officer who under the rule is designated to
accept service of process. "The corporate power to
receive and act on such service, so far as to make it
known to the corporation, is thus vested in such officer or
agent." (Lafayette Insurance Co. vs. French, 15 L. Ed. 451,
453).
A strict compliance with the mode of service is necessary
to confer jurisdiction of the court over a corporation. The
officer upon whom service is made be one who is named
in the statute; otherwise the service is insufficient. So,
where the statute required that in the case of a domestic
corporation summons should be served on "the president
or head of the corporation secretary treasurer, cashier or
managing agent thereof", service of summons on the
secretary's wife did not confer jurisdiction over the
corporation in the foreclosure proceeding against it.
Hence, the decree of foreclosure and the deficiency
judgment were void and should be vacated. (Reader vs.
District Court, 94 Pacific 2nd 858).
The purpose is to render it reasonably certain that the
corporation will receive prompt and proper notice in an
action against it or to insure that the summons be served
on a representative so integrated with the corporation
that such person will know what to do with the legal
papers served on him. In other words, "to bring home to
the corporation notice of the filing of the action". (35A
C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F. Supp.
848; MacCarthy vs. Langston D.C. Fla., 23 F.R.D. 249).
In the instant case the Manila court did not acquire
jurisdiction over Delta Motor because it was not properly
served with summons. The service of summons on
Dionisia G. Miranda, who is not among the persons
mentioned in section 13 of Rule 14, was insufficient. It
did not bind the Delta Motor. Courts acquire jurisdiction
over the person of a party defendant and of the
subject-matter of the action by vertue of the service of
summons in the manner required by law. Where there is
no service of summons or a voluntary general
appearance by the defendant, the court acquires no
jurisdiction to pronounce a judgment in the cause.
(Syllabi Salmon and Pacific Commercial Co. vs. Tan Cueco,
36 Phil. 556).
Power to have a perpetual existence - may stipulate how long
Power to Adopt and Use a Common Seal - Sec 62. - must be
sealed with a corporate seal. Not mandatory, only permissive.
Power to amend the By-laws (or adopt) - in relation to Sec. 45
or 47.
Power to issue or sell stocks or admit members.
Power to sell, acquire or alienate properties - express power
granted to corporations. There are
specific restrictions/ limitations to own, hold, acquire
property/
Example - Corporation Sole - it cannot dispose and alienate its
real properties without leave of court unless the rules provide
for the manner of alienation.
GR: Corp can own real properties
Limitations:
1. should be a lawful transaction of business of the corporation
may reasonably and necessarily require;
2. the law and Constitution (Sec. 35 G)
EB Villarosa & Partners Co. vs Benito
FACTS: Petitioner is a limited partnership with principal
office address at Davao City and with branch offices at
Parañaque, Metro Manila and Lapasan, Cagayan de Oro
City.
Petitioner and private respondent executed a Deed of
Sale with Development Agreement wherein the former
agreed to develop certain parcels of land located at
Cagayan de Oro belonging to the latter into a housing
subdivision for the construction of low cost housing
units. They further agreed that in case of litigation
regarding any dispute arising therefrom, the venue shall
be in the proper courts of Makati.
Private respondent, as plaintiff, filed a Complaint for
Breach of Contract and Damages against petitioner, as
defendant, before the RTC Makati for failure of the latter
to comply with its contractual obligation in that, other
than a few unfinished low cost houses, there were no
substantial developments therein.
Summons, together with the complaint, were served
upon the defendant, through its Branch Manager at the
stated address at Cagayan de Oro City but the Sheriff's
Return of Service stated that the summons was duly
served "upon defendant E.B. Villarosa & Partner Co., Ltd.
thru its Branch Manager Engr. at their new office Villa
Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by
the signature on the face of the original copy of the
summons.
Defendant filed a motion to dismiss on the ground of
improper service of summons which was denied.
ISSUE:WON the court acquired jurisdiction?
HELD:No. Earlier cases have uphold service of summons
upon a construction project manager; a corporation's
assistant manager; ordinary clerk of a corporation;
private secretary of corporate executives; retained
counsel; officials who had charge or control of the
operations of the corporation, like the assistant general
manager; or the corporation's Chief Finance and
Administrative Officer. In these cases, these persons were
considered as "agent" within the contemplation of the old Cagayan de Oro, instead of upon the general manager at
rule. Notably, under the new Rules, service of summons its principal office at Davao City is improper.
upon an agent of the corporation is no longer authorized. Consequently, the trial court did not acquire jurisdiction
over the person of the petitioner.
The designation of persons or officers who are
authorized to accept summons for a domestic
corporation or partnership is now limited and more
clearly specified in Section 11, Rule 14 of the 1997 Rules
of Civil Procedure. The rule now states "general manager"
instead of only "manager"; "corporate secretary" instead
of "secretary"; and "treasurer" instead of "cashier." The
phrase "agent, or any of its directors" is conspicuously
deleted in the new rule.

The particular revision under Section 11 of Rule 14 was

explained by retired Supreme Court Justice Florenz
Regalado, thus:

. . . the then Sec. 13 of this Rule allowed service upon a

defendant corporation to "be made on the president,
manager, secretary, cashier, agent or any of its directors."
The aforesaid terms were obviously ambiguous and
susceptible of broad and sometimes illogical
interpretations, especially the word "agent" of the
corporation. The Filoil case, involving the litigation
lawyer of the corporation who precisely appeared to
challenge the validity of service of summons but whose
very appearance for that purpose was seized upon to
validate the defective service, is an illustration of the
need for this revised section with limited scope and
specific terminology. Thus the absurd result in the Filoil
case necessitated the amendment permitting service only
on the in-house counsel of the corporation who is in
effect an employee of the corporation, as distinguished
from an independent practitioner. (emphasis supplied).

Retired Justice Oscar Herrera, who is also a consultant of

the Rules of Court Revision Committee, stated that "(T)he
rule must be strictly observed. Service must be made to
one named in (the) statute . . .

It should be noted that even prior to the effectivity of the

1997 Rules of Civil Procedure, strict compliance with the
rules has been enjoined. In the case of Delta Motor Sales
Corporation vs. Mangosing, the Court held:

A strict compliance with the mode of service is necessary

to confer jurisdiction of the court over a corporation. The
officer upon whom service is made must be one who is
named in the statute; otherwise the service is
insufficient. . . .

The purpose is to render it reasonably certain that the

corporation will receive prompt and proper notice in an
action against it or to insure that the summons be served
on a representative so integrated with the corporation
that such person will know what to do with the legal
papers served on him. In other words, "to bring home to
the corporation notice of the filing of the action." . . . .

The liberal construction rule cannot be invoked and

utilized as a substitute for the plain legal requirements as
to the manner in which summons should be served on a
domestic corporation. . . . . (emphasis supplied).

Accordingly, we rule that the service of summons upon

the branch manager of petitioner at its branch office at